This article titled ‘The IL and FS Insolvency Crisis: An overview.’ is written by A. Rishi Kannan and sheds light on the IL and FS insolvency crisis. I. Introduction Infrastructure Leasing & Financial Services Limited (IL and FS) is a vital Core Investment Company with the Reserve Bank of India and is entrusted with the duty of giving… Read More »

This article titled ‘The IL and FS Insolvency Crisis: An overview.’ is written by A. Rishi Kannan and sheds light on the IL and FS insolvency crisis.

I. Introduction

Infrastructure Leasing & Financial Services Limited (IL and FS) is a vital Core Investment Company with the Reserve Bank of India and is entrusted with the duty of giving loans and advances to its group companies (and serves as a holding company in such companies). IL and FS has many group companies which operate in an ecosystem of expertise such as Energy, Transportation, Financial Services etc.

The bad phase of the company started between the months of July to September 2018 during when two of its subsidiaries reported having difficulty in repaying loans and inter-corporate deposits to banks/lenders. In July 2018, the transport subsidiary of IL and FS suffered paying back its due on its bonds. Adding to the misery, in early September 2018, one of the subsidiaries of IL and FS Group faced severe difficulty in repaying a short-term loan of Rs. 1,000 crores availed from the Small Industries Development Bank of India (SIDBI).

The company continuously stalled to service its debt and the dire possibility of a ripple effect in the financial market instigated the Central Government to file an application under Sections 241(Prevention of oppression and Mismanagement) and 242(Winding up of the company) of the Companies Act, 2013 before the National Company Law Tribunal (NCLT), Mumbai Bench.

It prayed for immediate suspension of the Board of Directors of the company on grounds of mismanagement of the public funds. Gradually, the downfall of the company widened with its 24 direct subsidiaries, 135 indirect subsidiaries, 6 joint ventures and 4 associate companies reported a combined debt of Rs. 91,000 crores.

II. Timeline of the IL and FS Insolvency Crisis

1. 2018

  1. June 2018: IL and FS group’s transport subsidiary IL and FS Transportation Networks (ITNL), prolonged to pay back inter-corporate deposits worth Rs 450 crore owed from Small Industries Development Bank of India(SDBI).
  2. July 21, 2018: Group’s Founder and Chairman Ravi Parthasarathy resigned from his post, citing health issues. Hemant Bhargava, LIC MD and nominee, replaced him as Non-Executive Chairman of IL and FS group
  3. August 28, 2018: Group’s financial subsidiary, IL and FS Financial Services delays repayment of a few hundred crores of rupees to its commercial-paper investors (Although the sum was paid by them two days later, that is, on August 30, 2018.)
  4. September 2018(Early September): The group failed to pay back the short-term loan of Rs. 1000 crores. The group defaults on a Rs 1,000 crore term loan and its subsidiary defaults on dues worth Rs 500 crore owed to SIDBI. On the other hand, during this period many rating agencies have ‘junk’ graded the group prompting the Reserve Bank of India (RBI) to initiate a special audit on the group.
  5. September 12: In a letter to its employees, the group announced that Rs 16,000 crore is walloped in claims and termination payments with concession authorities and disclosed its plan of raising Rs 45,000 crore through the issue of shares and Rs 3,500 as long-term debt from shareholders.
  6. September 15: Former LIC Chairman SB Mathur takes charge as the new IL and FS group Chairman. IL and FS disclosed its decision to monetise assets to spare its debt by up to Rs 30,000 crore over the next 18 months and identifies 25 projects for the same.
  7. September 18: Markets regulator Securities and Exchange Board of India (SEBI) says it is keeping a close watch on the IL and FS crisis with an emphasis on rating agencies and the impact on mutual funds.
  8. September 21: Apprehensions of a debt market crisis due to an IL and FS default, tempts DSP Mutual fund to sell commercial papers of Dewan Housing Finance (DHFL) which leads to a ripple effect in equity markets, causing the crash of approximately 1,500 points. Ramesh C Bawa, MD and CEO of IL and FS Financial Services quit.
  9. September 24: IL and FS fails to pay back its loan once again and loses access to fundraising through the commercial paper market for up to six months from the date of repayment of this obligation. IL and FS board seeks relief from National Company Law Tribunal (NCLT) to arrive at a remedial measure by discussing an arrangement with its shareholders, creditors and board of directors. SIDBI intimidates to file a suit at the National Company Law Tribunal (NCLT) for non-repayment.
  10. September 28: RBI meets top shareholders and raises concerns about the crisis.
  11. September 29: At its Annual General Meeting (AGM), the group decides to raise Rs 4,500 crore through a rights issue and raises the borrowing limit to Rs 35,000 crore from Rs 25,000 crore. The company appoints Alvarez and Marsal as specialist agencies to execute the debt restructuring plan.
  12. October 1: NCLT judgment allows the government to assume control and institute a new board under the chairmanship of Uday Kotak and five other new board members.
  13. Oct 4: The new board of IL and FS appoints four panels to look into various aspects of the group’s business.
  14. Oct 5: RBI Deputy Governor S. Vishwanathan says the liquidity crisis at IL and FS group is a separate occurrence and will not have market-wide repercussions. He also says that the central bank will bolster asset-liability management norms for non-bank lenders.
  15. Oct 12: The government moves NCLT to cease creditors of IL and FS group from enforcing mortgage on loans so that the new board can implement its turnaround plans.
  16. Oct 15: National Company Law Appellate Tribunal (NCLAT) stays proceedings against IL and FS and its 348 subsidiaries in any court, barring high courts and the Supreme Court, for a month.
  17. Oct 22: IL and FS appoints Arpwood Capital and JM Financial Consultants as advisors for monetising assets.
  18. Oct 31: The IL and FS board submits the recovery roadmap to NCLT. The modes of recovery include capital infusion, divestment, and debt restructuring.
  19. Nov 12: The IL and FS board decides to float expression of interest for stake sale in IL and FS Securities Services and ISSL Settlement & Transaction Services.
  20. Nov 26: IL and FS gets an expression of interest from over a dozen bidders to buy a stake in IL and FS Securities Services and ISSL Settlement & Transaction Services.
  21. Nov 28: IL and FS seeks bids to sell the controlling stake in renewable energy assets.
  22. Dec 3: NCLT puts limitations on nine former officials of IL and FS from disposing of their personal assets. The tribunal also orders the officials to disclose their assets.
  23. Dec 12: SEBI starts adjudication proceedings against three credit rating agencies for ratings assigned to IL and FS group companies.
  24. Dec 17: The IL and FS board approves the sale of road assets in India, including those held by IL and FS Transportation Networks.
  25. Dec 20: IL and FS decides to invite bids to sell its stake in IL and FS Investment Managers and IL and FS Education & Technology Services.

2. 2019

  1. January 2019: The group received 30 expressions of interest for the sale of its domestic road subsidiary within IL and FS Transportation Networks.
  2. February 2019: IL and FS categorized its subsidiaries as red, amber and green based on their individual capabilities to service their debts. Also, it invites bids to sell IL and FS Tamil Nadu Power Co, Porto Novo Maritime and IL and FS Maritime Offshore. Meanwhile, NCLAT orders that the accounts of the IL and FS group shouldn’t be declared as Non-Performing Assets (NPAs) by financial institutions without prior approval of the tribunal.
  3. March 2019: RBI condemns the order of the NCLAT restricting financial institutions from declaring the accounts of IL and FS as Non-Performing Assets (NPAs) sans prior approval of the tribunal.
  4. April 2019: The Serious Fraud Investigation (SFO) team detained former managing director and vice-chairman of the IL and FS group, Hari Sankaran in connection with the defaults of the company and its subsidiaries, the vacancy of the post was later filled by Mr. C.C. Rajan.
  5. May 2019: ORIX Corp of Japan, which holds a 49% stake in operating wind power plants of IL and FS group, exercises its right to match the highest bid for the remaining 51% stake in these projects held by IL and FS Wind Energy.
  6. June 2019: The Supreme Court grants permission to the SFO team to access the books of accounts of the IL and FS group and two of its subsidiaries for a period of 5 years. Dewan Housing failed to repay a loan amount worth 10 billion rupees. The Government moved a plea before the NCLT seeking restrainment of the auditor companies from practising for 5 years alleging financial mismanagement. The IL and FS board constitutes a 6-member board to finalise the issues with its lenders.
  7. July 2019: In a bid to precipitate the resolution process and the recovery of loans lent to Dewan Housing Corp., bankers to the housing financier signed an inter-creditor agreement. The IL and FS group appoints Mukund M. Chitale and Co. as the statutory auditor.
  8. August 2019: The IL and FS group sought permission from the NCLT to sell its stake in IL and FS wind energy to ORIC Corp. of Japan.

III. Recent developments

In March 2020, the NCLAT approved the resolution framework of the IL and FS group proposed by the Government of India. It ordered the resolution process to be completed within a period of 90 days. In July 2020, the Uday-Kotak led IL and FS board suffered to meet out the timeline set by the NCLAT in the resolution process.

The COVID-19 Pandemic further delayed the insolvency process. Despite the Pandemic delay, the company aimed to recover 60% of debt by the end of July 2020. On the 22nd of July,2020, the company reported that it aims to resolve around Rs. 50,500 crores of debt by the end of March 2021. It is also estimated to resolve the additional debt of Rs. 6,600 crores by the end of FY21.

On 5th January 2021, The Enforcement Directorate has attached assets worth ₹452 crores of a Singapore-based “shell” or dubious company(AS Coal Pte) in connection with its money laundering probe in the IL and FS alleged payment default crisis. On 14th July 2021, the group announced that it expects to address ₹58,000 crore or 95 per cent of its estimated debt recovery target by March 2022.

IV. Lessons to be learnt from the crisis

  1. Fill the gaps in the institutional systems: In spite of a regulatory oversight by institutions like the Securities and Exchange Board of India (SEBI) and the RBI, the IL and FS crisis crumbled upon indicating the gaping holes in the institutional systems which needs to be addressed through systematic measures.
  2. Improved Quality in the rating standards of Rating agencies:
    The disclosure guidelines set out for credit rating agencies by the institutional regulators should be of better standards.
  3. Selection of sources: The NBFCs should be cautious in choosing the right sources in funding long-term infrastructure projects to prevent financial concerns.
  4. Role of the Institute of Chartered Accountants of India (ICAI): ICAI has to increase the regulatory norms for its auditors so that they don’t become part of fiscal indiscipline scam carried out by companies. Stringent ethical and legal standards have to be prescribed for the auditors to avoid misuse of their positions.
  5. Need of an Independent Board of Authority: The presence of an independent board of authority ensures transparency and prevents bias and favouritism in the process of regulation of wealthy companies. The Central Government’s move to set up the National Financial Reporting Authority would go a long way in filling the gaps in the institutional system and prevent frauds by companies at the earliest.
  6. Improved Internal Management Board:
    The Management Board constituted by private companies (especially engaged in the infrastructure projects) should be more efficient and take preventive steps to mitigate insolvency risk and also be vigilant in overseeing the conduct of the investors, auditors and other stakeholders involved in the structuring process.
  7. Fixation of Timeline for Long-term projects: In case of projects like infrastructure projects, although, a deadline to complete the same can’t be certainly fixed, guidelines may be fixed with regards to the completion of the project at the earliest which may prevent malpractices. A separate, independent team may be constituted to oversee the development of the activities related to the project and submit reports about the same the regulatory board at regular and periodic intervals.
  8. Early recognition of discrepancies: Any discrepancies or deviation in a company’s directions must be brought to the notice of the Government at the earliest. The Government should form teams swiftly so that the aggravation of the crisis can be prevented.


  1. ENFORCEMENT DIRECTORATE, Mint, Available Here.
  2. IL and FS Crisis, Mint, Available Here.
  3. ILandFS Transportation Networks Ltd., Available Here
  4. Dewan Housing Finance (DHFL), Available Here.

  1. Law Library: Notes and Study Material for LLB, LLM, Judiciary and Entrance Exams
  2. Legal Bites Academy – Ultimate Test Prep Destination
Updated On 12 Oct 2021 8:06 AM GMT
A. Rishi Kannan

A. Rishi Kannan

Next Story