The Mumbai bench of National Company Law Tribunal (NCLT) on Monday found favour with government’s arguments to oust the current board of Infrastructure Leasing & Financial Services (IL&FS) and to appoint Kotak Mahindra Bank managing director Uday Kotak as non-executive chairman of the debt-ridden infrastructure development and finance company.

A Mumbai bench of judges M K Shrawat and Ravikumar Duraisamy approved the takeover of IL&FS board by government nominees, saying the mismanagement at the crisis-ridden IL&FS made the present case a fit one for invoking Article 241 (2) of the Companies Act-2013, that provides for the suppression of the existing board.

The bench said going by the Centre’s petition, it was apparent that the “affairs of IL&FS were being conducted in a manner prejudicial to public interest”.

It, thus, approved the Centre’s proposal to let a six-member team take over the IL&FS board. These six members are – Uday Kotak of the Kotak Mahindra Bank, retired IAS officer Vineet Nayyar, former Sebi chairperson G N Bajpai, ICICI’s non-executive chairperson G C Chaturvedi, IAS officer Malini Shankar and senior bureaucrat from CAG Nand Kishore.

The new board has been directed to hold its first meeting on October 8 this year, and to submit a report on its finding and a roadmap before the bench by October 31, the next date of hearing. The bench also issued a notice to IL&FS, directing it to respond to all points raised by the Union government in its plea by October 15 this year.

“IL&FS has assets, so it’s a liquidity and ALM mismatch issue. This is not India’s Lehman moment. It’s critical to note that there is no leverage on the book, unlike Lehman. There is an underlying value in the balance sheet and business,” said Sunil Sharma, Chief Investment Officer, Sanctum Wealth Management.

The government claimed that the directors have failed to discharge their duties, adding that the company has been showing a ‘rosy’ picture of its balance sheet. The government application to the tribunal had named Ravi Parthasarathy, SB Mathur, RC Bhargava, Arun Saha, Michel Pinto, J Rao, Rina Karmath, Varsha Sawant, Manohar Waghle, among others, as parties in the IL&FS case.

The government counsel reportedly expressed concerns over the cascading impact of the IL&FS crisis on the overall economy. “Many mutual funds will collapse if IL&FS collapses,” the counsel said, adding that besides AMCs, government securities would face selling pressure.

“The reason why the government is intervening in this matter is that the IL&FS case will have bearing on the entire economy,” the counsel added.

The move to change the management of IL&FS comes after foreign shareholders were hesitant in putting more money unless there was a shake-up of the board. Domestic shareholders like LIC and SBI have also expressed their concerns in lending more money to the debt-ridden IL&FS with existing management at the helm.

LIC is its largest shareholder of IL&FS with a 25 per cent equity stake. Its second largest shareholder is Japan’s Orix Corporation, which owns 23.5 per cent of the company. India’s largest lender SBI holds the smallest stake in IL&FS at 6.42 per cent.

On Saturday, the two biggest shareholders of IL&FS – Life Insurance Corporation of India (LIC) and Japan’s Orix Corporation – as well as State Bank of India agreed to subscribe to the rights issue by the company. In its annual general meeting, the IL&FS Board of Directors approved a rights issue of 30 crore equity shares worth Rs 4,500 crore at 150 per share. The rights issue will be completed by October 30, 2018.

Among other shareholders, Abu Dhabi Investment Authority, which controls 12.56 per cent stake in IL&FS reportedly will not participate in the rights issue. As for remaining stakeholders, IL&FS Employees Welfare Trust with 12 per cent, HDFC Bank with 9.02 per cent and Central Bank with 7.67 per cent, there position with respect to the rights issue is not clear yet.

IL&FS has an aggregate debt pile of Rs 91,000 crore which has been downgraded by ratings agencies to junk following repeated defaults. Out of this, the company owes Rs 57,000 crore to banks only, most of which are from the public sector. The company needs an immediate capital infusion of Rs 3,000 crore.

The IL&FS Board also approved company’s specific asset divestment plan based on which IL&FS expects to reduce its overall debt by Rs 30,000 crores. Out of a portfolio of 25 projects identified for sale, firm offers have already been received for 14 projects, a statement by IL&FS said.

Debt defaults by certain group entities of diversified IL&FS have triggered fears of liquidity crisis in the financial markets and the RBI has been taking steps to improve the overall cash situation.