NCLAT Allows Banks To Declare Defaulting IL&FS Accounts As NPAs

The National Company Law Appellate Tribunal on Thursday allowed the banks to declare the accounts of IL&FS and its subsidiaries that have defaulted on payments as non-performing assets.

A bench headed by Justice SJ Mukhopadhaya lifted the embargo on the banks to declare the accounts of the debt-ridden Infrastructure Leasing & Financial Services and its 300 group entities as NPAs.

However, the appellate tribunal has also clarified that banks cannot initiate recovery process and debit money.

The bench has observed that lenders must not withdraw support until a resolution is found of the IL&FS and its group companies.

Presently, IL&FS Group companies, with a collective debt of over Rs 90,000 crore, are going through resolution process. The NCLAT had in February prohibited banks from recognising any IL&FS group accounts as NPAs without first seeking approval from the tribunal.

The Reserve Bank of India had moved the NCLAT, filing a plea to modify the order allowing banks to declare defaulting accounts of IL&FS as NPAs as per banking regulations.

Now, all group companies of IL&FS are being classified according to their ability to meet payment obligations.

Those able to meet all payment obligations are categorised as ‘green’ while companies able to meet only operational payments and senior secured debt obligations are categorised as ‘amber’. Others are categorised as ‘red’.