The road construction companies of the IL&FS group, IL&FS Transportation Networks (ITNL) and IL&FS Engineering & Construction Ltd (IECL), have been accused of wilful default by Tata Capital Financial Services Ltd (TCFSL) due to failure in meeting loan repayment obligation.

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On August 9, in a letter to ITNL and ICEL, Tata Finance warned action against the two companies under Insolvency and Bankruptcy Code 2016, if they do not return its money within a week.

In the letter seen by DNA Money, TCFSL said, “The above defaults of you the noticee (ITNL & ICEL) in not making payments against the above mentioned Bill of Exchanges on their respective due dates qualify to be termed as dishonest and wilful default at the very outset, warranting initiation of appropriate proceedings against you the notice (ITNL and ICEL) under the Insolvency and Bankruptcy Code, 2016”.

However, ITNL sources, on the condition of anonymity, told DNA Money that ITNL had made the partial payment on Saturday to avoid NCLT proceedings for a month. ITNL got a contract to build Amravati-Chikli Expressway project in 2015-16 and assigned it to its subsidiary IECL for execution as a contractor. ICEL further sublet this contract and hired four sub-contractors for the project.

In most of the cases, ITNL and ICEL do not avail loan through financial closure from banks, and rather use the bill discounting method. Sub-contractors avail the loan from their work bill invoices. These four sub-contractors availed the loan from different non-banking finance companies and banks, including TCFSL, by way of bills of exchange.

In March 2018, one of the sub-contractors approached TCFSL for a working capital loan against the sales invoice discount, also known as bill discount.

These bills, a kind of collateral, were thoroughly vetted by ITNL and IECL as the bill of exchange against the invoices. TCFSL has given Rs 10.5 crore  loan sanction letter to the sub-contractor on the basis of the bill of exchanges.

Both ITNL and ICEL unconditionally accepted to secure the payment if there would be any delay in payment. ITNL issued the letter of comfort dated March 30, 2018, to TCFL and accepted the terms regarding the bill of exchange against the invoice. TCFL had disbursed Rs 8.77 crore against two bills of exchanges, accepted by ITNL and ICEL against the two bills.

On July 2018, ICEL failed to make payment against the bill of exchange. ICEL sent a letter to TCFL saying “unable to make payment” against the bill of exchanges. TCFL took this communication as a violation of undertaking of ITNL and ICEL, which took place on March 30, 2018.

The second bill, which was due on July 21, 2018, also failed. This led TCFSL to take action against the two firms.

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TCFSL has warned in recovery letter that, “if the entire amount as demanded in para 17 of this notice is not paid within seven days to our client, the same shall be considered as “default” and our client shall be constrained to file an application under appropriate provisions of Insolvency and Bankruptcy Code, 2016 for initiation of insolvency resolution/bankruptcy/winding up proceedings against you the notice before appropriate forum/Tribunal/Court”.

Last week ITNL paid some amount to TCFSL and got immunity from insolvency proceedings till September 2018. However, the company source, who did not want to be named, said, “This is not the first time of failure of payment from ITNL. For the last two-and-a-half years, the  company is facing several default cases, mostly related to bill discounting loan. Approximately Rs 500 crore of sub-contractors is stuck in this project.” 

Several attempts to contact ITNL and ICEL’s top executives through email and SMS did not elicit any response till the time of going to the press.

The source said that various road and metro projects being run by ITNL and its related companies have been terminated, including Rapid Metro Gurgaon (Phase 1), Rapid Metro Gurgaon South (phase 2) has terminated along Kolkata Metro, Kiratpur-Ner Chowk, Khed Sinnar Expressway and MP Border Checkpost Development Company.

Source: DNA Money