NCLAT Extends Protection for IL&FS New Board Directors Against Default Prosecution

The NCLAT has extended protection to directors of the newly appointed IL&FS board from being prosecuted as wilful defaulters by banks. Permission from the NCLAT is required before proceeding against these directors. State-run banks can act only against former directors not on the new board.

The National Company Law Appellate Tribunal (NCLAT) has extended the protection for directors of the new board of the embattled firm IL&FS, safeguarding them from being tagged as wilful defaulters by banks without prior approval. This decision was crucial in clarifying the legal standing following the company's debt overhaul.

The two-member NCLAT bench, led by Chairperson Justice Ashok Bhushan and Member Barun Mitra, announced that only after securing permission from the Appellate Tribunal could banks initiate proceedings against the professional directors of the newly formed board. The rationale is to ensure orderly resolution of the company's Rs 90,000 crore debt crisis.

The tribunal's decision aligns with its previous orders, ensuring the companies and their professional directors are shielded while facilitating continued financial restructuring. As of September 30, 2025, IL&FS has discharged Rs 48,463 crore of its debt, meeting the target of resolving a large fraction of its outstanding external debt.

(With inputs from agencies.)