IL&FS SEEKS RECOVERY OF ₹185.88 CRORE FROM 23 FORMER DIRECTORS – A MAJOR CORPORATE GOVERNANCE TEST FOR INDEPENDENT DIRECTORS

 IL&FS SEEKS RECOVERY OF ₹185.88 CRORE FROM 23 FORMER DIRECTORS – A MAJOR CORPORATE GOVERNANCE TEST FOR INDEPENDENT DIRECTORS

IL&FS KNOCKS NCLT TO RECOVER RS 185 CRORE EXCESS #REMUNERATION PAID TO 23 ERSTWHILE (IL&FS, IFIN, AND ITNL) DIRECTORS , MANAGERS & INDEPENDENT DIRECTORS.

LOSSES DUE TO RECASTED ACCOUNTS

This has been exposed after the recasted accounts of these companies (FY13-18) unveiled significant losses in its financials as compared to profits recorded earlier.

MANAGERIAL REMUNERATION RECOVERY UNDER SECTION 199 OF THE COMPANIES ACT

IL&FS said #recovery from managing directors, whole-time directors, managers and CEOs is being pursued under Section 199 of the Companies Act,

RECASTING OF ACCOUNTS

Section 199 of CA authorizes the recovery of excess remuneration paid to managerial personnel when a company is forced to restate its financial statements.

RECOVERY FROM INDEPENDENT DIRECTORS

Section 197(9) obligates "any director", including non-executive and independent directors, to refund sums drawn beyond prescribed limits.

APPLICATION TO NCLT MUMBAI

In an application filed before the Mumbai Bench of the NCLT, IL&FS has sought directions to its former directors and two key subsidiaries, IL&FS Financial Services (IFIN) and IL&FS Transportation Networks (ITNL), to return the excess remuneration.

RECASTED ACCOUNTS SHOWS A CUMULATIVE LOSS OF Rs 9,415.24 crore.

The recast accounts showed that IL&FS actually had a cumulative loss of Rs 9,415.24 crore from FY14 to FY18 against a reported profit of Rs 1,865.73 crores.

MCA DIRECTION

The Ministry of Corporate Affairs had directed IL&FS to recover the excess remuneration paid, following which IL&FS had issued notices to all 23 erstwhile directors.

RETALIATION BY IL&FS FORMER DIRECTORS

The former directors have disputed the notices on grounds including that the recast financials cannot retrospectively invalidate pay approved under duly audited original accounts, that the recast accounts are not audited statements and that the notices are vague because amounts differed between the first and later notices.

MAIN QUESTION

SHOULD IL&FS DIRECTORS, MANAGERS & INDEPENDENT DIRECTORS BE REQUIRED TO REFUND RS 185 CRORE EXCESS REMUNERATION WHEN PROFITS ON WHICH THEIR REMUNERATION WAS CALCULATED ARE SUBSEQUENTLY REVERSED THROUGH LEGALLY APPROVED RESTATEMENT OF FINANCIAL STATEMENTS?

CONCLUSION

The IL&FS case could become an important test of Sections 197 and 199 of the Companies Act, 2013, particularly concerning the recovery of excess remuneration from former independent directors. It sends a strong message that boardroom accountability must be substantive, not merely procedural.

#R V SEKAR FCS, LLB 79047 19295,