Sidbi may take IL&FS to National Company Law Tribunal

Sidbi plans to drag the debt-hit infrastructure company to court for not repaying its term deposits.

MUMBAI: The Small Industries Development Bank of India (Sidbi) may file a case in the National Company Law Tribunal (NCLT) against debt-laden Infrastructure Leasing & Financial Services Ltd (IL&FS) for not repaying its term deposits, said two people familiar with the plan.

Such a move could exacerbate the chaos in the markets sparked by IL&FS defaulting on repayments and having its debt rating downgraded. “IL&FS owes Sidbi a total of Rs 1,000 crore, of which just Rs 50 crore has been paid back. Rs 500 crore is already in default and some deposits are maturing next week,” said one of them. “The way things are, it feels that legal route is the best one for recovery.”

Sidbi chairman Mohammad Mustafa didn’t respond to calls and messages seeking comment.

A case could be filed as soon as on Wednesday with Sidbi seeking repayment of all its deposits in IL&FS. Since the Insolvency and Bankruptcy Code (IBC) does not provide for cases against financial companies, Sidbi will resort to a little-used section in the Reserve Bank of India (RBI) Act pertaining to non-banking finance companies (NBFCs).

“We are using section 45 Q (a) of the RBI Act, which deals with repayment of deposits by NBFCs. In the next few days, a suitable legal measure for recovery of deposits will be worked out,” said the second person.

The section empowers RBI to direct an NBFC to make payments. Sidbi is a government-owned development finance institution formed to support lending to micro and small enterprises. It invests its surplus funds in mutual funds and corporate deposits.

Some of this was invested in short-term deposits of IL&FS. “Since the old companies law does not exist, there is no provision to file a winding-up petition against IL&FS, so we are using this route, which can help us in recovery,” said the first person.

IL&FS has been facing liquidity challenges for almost a month. It first defaulted on August 28 on a commercial paper payment issued by its subsidiary IL&FS Financial Services. The dues to this company were settled two days later, but it subsequently defaulted on Sidbi’s deposits.




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