The National Company Law Appellate Tribunal (NCLAT) allowed on Thursday banks to declare as non-performing assets (NPA) the accounts of debt-laden IL&FS and its group companies that have defaulted on payments.
The tribunal, however, said that the banks would not be able to initiate recovery process against these accounts or debit money from 300 IL&FS group companies. Lenders must not withdraw their support from IL&FS until a final resolution for the company and its subsidiaries was found.
The tribunal gave the order on a plea moved by the Reserve Bank of India (RBI), which had said that banks had an obligation to mark bad loans as NPA in cases of non-payment, after the default of 90 days. The lenders, the RBI had pleaded, could not be relieved of this duty.
The RBI had moved NCLAT seeking a modification of a February 25 order in which the appellate tribunal had said that accounts of the IL&FS and its 300-odd subsidiaries could not be classified NPAs without approval. The tribunal gave that direction during a hearing on the government's plan for the resolution of IL&FS group companies.
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Later, when the RBI had approached the NCLAT, the appellate tribunal had observed that RBI should not “make it a prestige issue”. It had also said the central bank could not restrict the appellate tribunal from passing orders in the issue.
RBI, on the other hand, had said that flagging such loans as NPA on the books of banks was important as it acted as an early warning signal for the sector. The February 25 order of the NCLAT, the RBI had said, would lead to a “situation where statutory instructions/guidelines/circulars issued by the Reserve Bank of India become infructuous”.
The banking sector regulator had then said it was not on the question of the resolution process of the IL&FS and just wanted a modification on the order, which would allow banks to record NPAs on their books in terms of the master circular, which was also upheld by the Supreme Court.
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On February 11, the central government and the new board of the IL&FS had submitted an affidavit detailing three categories — green, amber, and red. Companies with no cash and not in a position to pay any creditor were classified under red, while those with enough to pay secured creditors, but not unsecured ones, have been put under amber.
The companies which have enough money to service all their debts, had been classified as green. During the hearing on February 11, the NCLAT had allowed 22 companies, in the green category, to service their debt obligations.
The tribunal, however, said that the banks would not be able to initiate recovery process against these accounts or debit money from 300 IL&FS group companies. Lenders must not withdraw their support from IL&FS until a final resolution for the company and its subsidiaries was found.
The tribunal gave the order on a plea moved by the Reserve Bank of India (RBI), which had said that banks had an obligation to mark bad loans as NPA in cases of non-payment, after the default of 90 days. The lenders, the RBI had pleaded, could not be relieved of this duty.
The RBI had moved NCLAT seeking a modification of a February 25 order in which the appellate tribunal had said that accounts of the IL&FS and its 300-odd subsidiaries could not be classified NPAs without approval. The tribunal gave that direction during a hearing on the government's plan for the resolution of IL&FS group companies.
ALSO READ: IL&FS case: Govt likely to ban Deloitte for 5 yrs for alleged malpractice
Later, when the RBI had approached the NCLAT, the appellate tribunal had observed that RBI should not “make it a prestige issue”. It had also said the central bank could not restrict the appellate tribunal from passing orders in the issue.
RBI, on the other hand, had said that flagging such loans as NPA on the books of banks was important as it acted as an early warning signal for the sector. The February 25 order of the NCLAT, the RBI had said, would lead to a “situation where statutory instructions/guidelines/circulars issued by the Reserve Bank of India become infructuous”.
The banking sector regulator had then said it was not on the question of the resolution process of the IL&FS and just wanted a modification on the order, which would allow banks to record NPAs on their books in terms of the master circular, which was also upheld by the Supreme Court.
ALSO READ: IL&FS case: NCLT gives Axis and Stanchart CEOs, Bawa 2 weeks to file reply
On February 11, the central government and the new board of the IL&FS had submitted an affidavit detailing three categories — green, amber, and red. Companies with no cash and not in a position to pay any creditor were classified under red, while those with enough to pay secured creditors, but not unsecured ones, have been put under amber.
The companies which have enough money to service all their debts, had been classified as green. During the hearing on February 11, the NCLAT had allowed 22 companies, in the green category, to service their debt obligations.
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