NCLAT allows banks to declare defaulting ILFS accounts as non-performing assets

The National Company Law Appellate Tribunal (NCLAT) on Thursday allowed the banks to declare as non-performing assets the accounts of IL&FS and its group companies that have defaulted on payments. A bench headed by Chairman Justice S J Mukhopadhaya lifted the embargo on the banks to declare the accounts of the debt-ridden IL&FS and its 300 group entities, which are unable to pay their debt.

However, the appellate tribunal has also clarified that although the banks would declare the IL&FS accounts as NPAs but can not 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, Infrastructure Leasing & Financial Services (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 non-performing assets without first seeking approval from the tribunal.

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

The Reserve Bank of India (RBI) had contended that banks had an obligation to mark bad loans as NPA in cases of non-payment, after the default of 90 days as per the existing circular and they could not be relieved of this duty.

In this matter, earlier the NCLAT had observed that the RBI should not make it a "prestige issue" and it could not restrict it from passing orders in the issue.

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.

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'.