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,
