IL&FS seeks overhaul of creditor committees after ₹18,665 crore payout

Infrastructure Leasing & Financial Services Ltd. (IL&FS) has informed the National Company Law Appellate Tribunal (NCLAT) that it has discharged a ₹18,665 crore of debt through interim distributions, necessitating a major reconstitution of the creditor committees (CoCs) overseeing the resolution of its various group companies.

In an affidavit filed before the appellate tribunal, the debt-laden conglomerate argued that the voting power of lenders in these committees must reflect their current economic stake, as a significant portion of their original claims has now been repaid.

The Scale of Payouts

According to the affidavit, the interim distribution process, approved by the NCLAT in May 2022, has led to substantial payouts to creditors of 22 key IL&FS group entities as of July 31, 2025.

The largest distributions were made to creditors of:

• IL&FS Financial Services (IFIN): ₹5,785.46 crore
• IL&FS Transportation Networks Ltd. (ITNL): ₹3,148.56 crore
• Rapid Metro Gurgaon Ltd. (RMGSL): ₹1,273 crore
• Chennai Nashri Tunnel Ltd. (CNTL): ₹1,604 crore
• IL&FS Ltd. (the parent): ₹2,802.53 crore

The total distribution comprises ₹13,235 crore in cash and ₹3,520 crore in InvIT units, among other instruments.

The “auto-debit” controversy

A notable point in the affidavit is IL&FS’s claim that a portion of this discharged debt—₹1,228.75 crore—was siphoned off by lenders through “illegal auto-debits.” The company alleges these unilateral actions by certain financial creditors violated the NCLAT’s orders and the overall resolution framework.

IL&FS cited specific instances, including:

• Lenders of RIDCOR auto-debiting money “in excess of their entitlement.”
• Lenders of BKEL auto-debiting ₹264.33 crore just a day after an NCLAT order, without furnishing the required undertaking.

The company has filed separate applications with the NCLAT seeking refunds of these amounts, maintaining that its inclusion of these figures for CoC reconstitution is “without prejudice” to its right to legally challenge them.

The Core argument: Realign voting with real stake

The central plea of the affidavit is that the composition of the CoCs is now outdated and does not reflect the ground reality. IL&FS contends that with a large part of their debt repaid, some creditors have seen their economic interest in the entities diminish substantially, and in some cases, extinguish entirely.

“It is a fundamental legal presumption that the composition of a CoC reflects each financial creditor’s current admitted undischarged debt at the time of decision making,” the affidavit states. Allowing creditors with minimal or zero outstanding debt to control key decisions, such as approving the highest bid for a company, could lead to “skewed outcomes” and “value erosion,” it argues.

IL&FS has requested the NCLAT to take its affidavit on record, a procedural step that would likely be followed by a formal application seeking directions for the reconstitution of the CoCs.

The move highlights the complex and evolving nature of the IL&FS resolution, one of India’s largest and most closely watched insolvency processes, as it moves from a phase of asset monetization to one of substantial payouts and consequent governance realignments.