Mumbai/New Delhi: The newly appointed board of Infrastructure Leasing and Financial Services Ltd (IL&FS) will submit a resolution plan for the debt-laden company within a fortnight of its first meeting to take place in Mumbai on Thursday, said a government official. The government on Wednesday appointed C.S. Rajan, former chief secretary of Rajasthan, as the seventh member on the new board of directors of IL&FS. Thursday’s meeting of the new board will also examine the need for further induction of members on the board, the official said.

“The new board will assess the need for new talent and skill sets for resolution of IL&FS’ financial stress. This is a bankruptcy resolution monitored by the National Company Law Tribunal (NCLT), but outside the bankruptcy code," said the person.

The government has also decided to refer the alleged failings of the infrastructure lender to be probed by the new auditing regulator National Financial Reporting Authority (NFRA) which has got a new chairman and a member on Wednesday, said the official.

R. Sridharan, a retired civil servant, took charge as NFRA chairman and P. Mukherjee, a 1980 batch official of Indian Audit and Account Service, took charge as a member. “IL&FS will be the first test case for NFRA," said the official.

Although an investigation by the Serious Fraud Investigation Office (SFIO) is on into the failure of IL&FS, the government is not keen to create a scare as the immediate priority is to stabilize the systemically important IL&FS group. “Those who have failed in their fiduciary duty will have to pay the price, but that is a separate issue. At the moment, the focus is to restore confidence in the group. There is no witch hunt," said the official.

The Union government on Monday successfully petitioned the NCLT to replace the existing board of IL&FS with its own nominees, led by Uday Kotak, managing director of Kotak Mahindra Bank. The other members of the board are Vineet Nayyar, a former vice-chairman of Tech Mahindra, G.N. Bajpai, former chairman of the Securities and Exchange Board of India, G.C. Chaturvedi, chairman of ICICI Bank Ltd, and former IAS officers Malini Shankar and Nand Kishore.

Once the board starts functioning, it will work autonomously. “If we have set up the board, then I think we have to give privacy to the board...As of now, we are looking for the guidance from the board," the official said.

The official said the board in its debut meeting will review the crisis at IL&FS, discuss potential solutions and the possibility of taking short-term steps to restore confidence in the market, said the official. The directors will also decide on whether IL&FS can expand or take new business orders, said the official.

The government official also said that IL&FS will not be allowed to default on any upcoming repayment obligations, helping calm nervous credit markets which witnessed a string of defaults from the infrastructure financier on commercial papers and short-term loans over the last month. The official said short-term borrowings will be repaid while long-term borrowings will be rolled over and government-owned entities will restructure some of this debt.

The official also said pending claims of government-owned entities to IL&FS will be settled while claims of government-owned entities that are in arbitration can be settled out of court.

IL&FS has accumulated debt of over 91,000 crore.

The government said in a press release on Monday that it had noted corporate deficiencies, misrepresentation of the lender’s financial fragility and loss of credibility by its former management. A report from the corporate affairs ministry’s regional director in Mumbai has “clearly brought out serious corporate related deficiencies in the IL&FS holding company and its subsidiaries," said the note. It also said the consolidated financial statement of IL&FS holding company and its arms and joint ventures “projected a picture through highly exaggerated depiction of non-current assets in the form of intangible assets amounting to over 20,000 crore," said the statement.

On Monday, the SFIO visited the Mumbai office of IL&FS and seized documents and computers and questioned senior officials. It has also issued look-out notices against former board members to prevent them from leaving the country. SFIO is expected to submit its interim report in a month.

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