NCLAT accepts fresh ‘pro-rata’ distribution framework for IL&FS creditors

PTI, Mar 13, 2020, 12:45 PM IST

New Delhi: The National Company Law Appellate Tribunal (NCLAT) on Thursday accepted a fresh distribution framework based on “pro-rata distribution” among creditors of debt-ridden IL&FS group from the proceeds of the sale, as suggested by the government.

A two-member bench headed by Chairman Justice S J Mukhopadhaya said that the resolution framework should be “fair and equitable” and should ensure that interests of all stakeholders are considered and balanced.

The appellate tribunal rejected the objections raised by the creditors, which wanted the NCLAT to follow Section 53 of IBC for distribution of funds, the appellate tribunal said that it would be against the public interest as the money invested by these public funds, in fact belonged to share and unitholders.

“We reject the objections raised by some of the Creditors, as noticed above, we accept the suggestion of pro-rata distribution as suggested by Union of India and the procedure as suggested by it for the purpose of completing resolution process,” the NCLAT observed.

Besides, the NCLAT has also directed to complete the resolution plan according to the revised framework as suggested by the central government within 90 days.

“The Union of India, the Board of Directors of IL&FS and the Committee of Creditors’ already constituted or which may be constituted are directed to conclude resolution of all the Entities preferably within 90 days,” said NCLAT adding that development should be “brought to the Notice of this Appellate Tribunal every month”.

The appellate tribunal has directed to list the matter on April 14 further for orders.

“The maximization of the asset and distribution of it to all the stakeholders are the object to be kept in mind while following any Resolution Framework for the IL&FS Group Companies,” said NCLAT in its 101-page-long order.

Under the revised distribution framework, all the public fund creditors such as pension and provident funds, army welfare, employee provident, gratuity and superannuation funds be repaid at least a part of their dues.

If these public funds were not paid their hard-earned dues, the central government had said in the revised distribution framework, it could result in a debt contagion from which the financial markets of the nation would not be able to recover.

Further, for the lenders of IL&FS’ holding companies, the resolution plan should consider paying the interest component.

While, SBI, a lead financial creditor with respect CNTL and some other IL&FS group entities had, on the other hand, suggested a resolution framework for companies under the ‘Red’ and ‘Amber’ category, which has also been accepted by the NCLAT.

The banker had suggested that in companies where no Committee of Creditors (CoC) had been formed until now, a CoC should immediately be formed.

“Out of the 347 Group Companies, 169 domestic entities have been categorized as Red, Amber and Green companies. The Resolution Consultant (Alvarez & Marsal India) must be directed to forthwith categorise the remaining domestic entities,” it said.

For companies in these categories where a CoC had been formed, the resolution consultant should contact the committee with latest fair market and liquidation value reports, the audit reports obtained, the bids received, as well as the recommendations of the consultant.

“A central coordinating team under the supervision of a former Judge or senior advocate comprising 7 to 8 representative of IL&FS, senior lender banks, resolution consultant may further be constituted for monitoring and supervising the developments,” SBI had suggested.

As per the roadmap for IL&FS, which has a total debt of over 90,000 crore, its group companies have been categorised into three categories – Green, Amber and Red – based on their respective financial positions.

Companies under the green category will be those that continue to meet their payment obligations.

Amber category is for those companies that would not be able to meet their obligations but can meet only operational payment obligations to senior secured financial creditors.

Amber category entities “are permitted to make only payments necessary to maintain and preserve the going concern.”

“Companies falling in the red category are the entities which can not meet their payment obligations towards even senior secured financial creditors,” as per the plan.

Passing an interim order on October 15, 2018, the NCLAT had stayed all proceedings against IL&FS group companies, whose total debt is Rs 94,215 crore.