IL&FS seeks legal advice to recover excess remuneration paid to directors

New Delhi: IL&FS Group is seeking legal advice on a course of action against its ex-directors and two step-down units, who have refused to return the excess managerial remuneration paid to them, according to the latest affidavit file by the debt-ridden firm before NCLAT.

IL&FS is in the process of recovering approximately Rs 187 crore from the directors and independent directors of the previous board, during whose tenure the company and its two subsidiaries - IFIN and ITNL- were shown in profit through financial engineering, though they were in loss.

Earlier this year, books of accounts and financial statements of IL&FS, IFIN and ITNL were recast on the directions of the National Company Law Tribunal (NCLT) for five years - FY 2013-14 to FY 2017-18- and a loss of around Rs 9,600 crore was found.

Originally, a profit of Rs 1,869 crore was shown by the previous company management and board, which the government later superseded following revelations of irregularities that shook India's financial sector.

"The audited reopened books of accounts and re-casted financial statements for IL&FS, IFIN and ITNL were submitted to MCA (Ministry of Corporate Affairs) on July 31, 2023, June 26, 2023, and April 3, 2023" and later NCLT on June 28, 2024 also took on record the audited re-casted financial statements.

In pursuance of the audited re-casted financial statements, IL&FS has issued 10 letters dated August 13, 2024, IFIN has issued 12 letters dated August 14, 2024, and ITNL has sent 12 letters dated August 14, 2024, to their respective erstwhile directors "seeking recovery of approximately Rs 187.02 crore as excess monies/ remuneration paid within 60 days period".

"The responses to above letters have started coming in and two Independent Directors, one from IL&FS and one from ITNL repaid the amount received by them without admitting any allegation and keeping their legal rights reserved," it said.

The two independent directors are KK Mistry and Deepak Satwalekar, while the rest are contesting the demand, according to industry observers.

"Further, the independent directors raised the issue that under section 199 of the Companies Act, 2013, no recovery whatsoever can be made from independent and non-executive directors," it said.

Moreover, its former executive and whole-time directors have responded by stating, among other things, that the provisions of sections 197 and 198 and part II of Schedule V are not applicable to them.

"The issues raised are currently under examination, and follow-up action will be taken subject to legal advice," the affidavit said.

Several other key independent directors who were on the boards of IL&FS and two step-down units are - RC Bhargava, SB Mathur, Jerry Rao, Arun Saha, Hari Sankaran, Michael Pinto, Rina Kamath, Ramesh Bawa and Vibhav Kapoor.

Section 199 of the Companies Act has provisions for recovery by the company in case of fraud or non-compliance from management.

According to the act, if a company is required to restate its financial statements due to fraud or non-compliance with any requirement under this Act, it shall recover from any past or present managing director or whole-time director or manager or Chief Executive Officer.

Moreover, in the affidavit, IL&FS also mentioned the development of the initiatives taken for the resolution of debt.

"On account of the various measures undertaken by it, the overall debt resolution across the Respondent No. 1 Group is estimated to reach approximately Rs 61,000 crore, which aggregates to approximately 61.39 per cent of the total external debt outstanding of Rs 99,355 crore," it said.

ILFS group has discharged Rs 38,082 crore debt to its creditors as of September 30, 2024.

This includes Rs 20,289 crore from monetisation of assets, Rs 8,140 crore from auto-debits, green entity principal servicing, NFB release and Rs 9,653 crore from interim distribution.

"As on September 30, 2024, the debt resolved through such monetisation and termination measures aggregates to Rs 20,289 crore," the affidavit said.

IL&FS Group as of October 2018, had availed fund-based debt of Rs 94,215 crore out of the total external debt outstanding of Rs 99,355 crore.

In this, Rs 48,000 crore, which is almost 51 per cent was availed by 4 key holding companies - IL&FS Group, IFIN, ITNL and IEDCL.

On October 1, 2018, NCLT superseded the existing board of IL&FS on the recommendation of the Centre after the mega-crisis in IL&FS, which shook the finance industry.

A new board for IL&FS, which had a debt burden of Rs 94,000 crore, was appointed to take charge of the affairs and NCLAT conceived a framework for resolution of the crisis-hit group.

It had also granted protection to the IL&FS companies against recovery of any further dues and immunity to the newly appointed Directors of IL&FS against any proceedings for the past actions of suspended Directors or any of the officers thereof.

As per the roadmap for IL&FS, its group companies have been categorised into three categories -- green, amber and red -- based on their respective financial positions.

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

At that time IL&FS had a total of 302 entities of which 169 were domestic and the rest 133 were offshore.