The National Company Law Tribunal (NCLT) on Monday approved an immediate takeover of crisis-hit IL&FS Ltd's board by six government nominee.
The nominees include eminent banker Uday Kotak, who was named as non-executive chairman of the new board.
The NCLT allowed the Union government's interim prayer to reconstitute the board of IL&FS, observing that the company's affairs were being conducted in a manner "prejudicial" to the public interest.
The interim order of the bench came after the government moved an urgent plea this morning, seeking that the NCLT intervenes in the matter while mentioning that IL&FS' directors had failed to discharge their duties and that many mutual funds would collapse if the company collapses.
The Finance Ministry in a statement said that IL&FS board will be led by Kotak Mahindra Bank MD & CEO Uday Kotak as Non-Executive Chairman.
The other members are former Executive Vice Chairman of Tech Mahindra Vineet Nayyar, former Sebi Chairman G N Bajpai, ICICI Bank Non-Executive Chairperson G C Chaturvedi, and IAS officer Malini Shankar, and retired bureaucrat Nand Kishore, the ministry said.
The new board shall take up its responsibility with immediate effect. The new Board is tasked with the responsibility of preparing a robust and time-bound resolution plan," it said.
IL&FS has defaulted on payment of loans to SIDBI and along with its subsidiaries has a combined debt of over Rs 91,000 crore. There were concerns that default by a large NBFC like IL&FS would create liquidity crunch in the financial markets.
Approving the immediate takeover of the IL&FS board by six government nominees, an NCLT bench of judges M K Shrawat and Ravikumar Duraisamy said that the suspended directors of IL&FS must henceforth cease to represent the company anywhere.
"After considering the government's case, we are of the view that prima facie, this is a fit case to invoke sections 241 (2), 242 of the Companies Act and to declare that the affairs of IL&FS were being conducted in a manner prejudicial to the public interest," the bench said.
The government said in its plea said that it had chosen to intervene as it impacted the entire nation's economy.
It also told the NCLT that it had already ordered for an investigation into the company's affairs through the Serious Fraud Investigation Office.
The government cited the precedence of the 2009 takeover of erstwhile Satyam Computers and urged the bench to invoke the jurisdiction of sections 241(2) and 242 of the Companies Act, 2013.
The sections provide for the Union government to approach the NCLT, and the tribunal to pass orders to regulate the affairs of a company, respectively, in a case where the affairs of such company were not in public interest.
Taking note of the government's arguments, the bench held in its interim order that the present case was a fit one to invoke the jurisdiction of the above sections.
The bench directed the new board to hold its first meeting by October 8 and to submit a report on its findings and a roadmap before the bench by October 31, the next date of hearing.
The bench also issued a notice to IL&FS directing it to respond to all points raised by the Union government in its plea by October 15.
The government will then file a rejoinder to the reply of IL&FS by October 30.
(With PTI inputs)