NCLAT Allows Banks to Act Against Former IL&FS Directors Not on New Board

In a significant development in the IL&FS financial crisis case, the National Company Law Appellate Tribunal (NCLAT) has granted Canara Bank and Indian Bank the green light to initiate proceedings against former directors of Infrastructure Leasing & Financial Services (IL&FS) who are not part of the reconstituted board post-October 1, 2018.

The move aims to identify and potentially declare these former board members as wilful defaulters, a designation that could carry serious legal and financial consequences.

Current Board Members Remain Protected

The two-member bench, comprising Chairperson Justice Ashok Bhushan and Member Barun Mitra, clarified that directors who joined or were reappointed to the new IL&FS board and its group companies after October 1, 2018, will continue to be protected from such actions.

“We are of the view that this protection shall extend to Professional Directors who have been reappointed in IL&FS and its subsidiaries who are the part of the present board,” the tribunal noted in its order.

IL&FS Crisis Background

IL&FS, once a prominent infrastructure development and finance company, plunged into crisis in 2018 after defaulting on multiple debt obligations, leading to widespread repercussions in the financial sector. In response, the government restructured the board to stabilize operations and oversee the group’s resolution.

Implications of NCLAT Order

This ruling is seen as a step forward in holding former decision-makers accountable for their alleged roles in the collapse of the financial behemoth. By allowing banks to pursue actions against those no longer shielded by their position, the tribunal aims to uphold accountability while safeguarding the integrity of the new management overseeing the resolution process.

The decision may pave the way for more aggressive recovery efforts by financial institutions trying to recoup their losses linked to IL&FS defaults.