NCLAT Revives IL&FS Plea To Unwind ₹1,080 Crore SREI Group-Linked Lending Transactions

The National Company Law Appellate Tribunal (NCLAT) at Delhi has revived Infrastructure Leasing & Financial Services Ltd.'s (IL&FS) bid to unwind six lending transactions allegedly structured to bypass the Reserve Bank of India's directions restricting fresh lending to group companies.

Setting aside an order of the Mumbai bench of the National Company Law Tribunal (NCLT), the appellate tribunal held that the lower tribunal had wrongly treated Srei Infrastructure Finance Ltd.'s (SIFL) consent as a mandatory precondition for examining the transactions.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra held that the NCLT had misconstrued an earlier NCLAT ruling while rejecting IL&FS's application in the pending oppression and mismanagement proceedings

"However, there was neither any direction nor any declaration that for examining collapsing of any transaction, this Tribunal laid down that mandatory precondition of consent is required. We, thus are of the view that NCLT has misconstrued the order dated 16.01.2025 of this Tribunal that this Tribunal laid down that collapsing is permissible only when the parties have already agreed and no other parties.", the tribunal ruled.

The dispute concerns six lending transactions worth ₹1,080 crore undertaken between March 2017 and March 2018. According to IL&FS, its subsidiary IL&FS Financial Services Ltd. (IFIN) lent money to SREI group entities, which then routed corresponding amounts to IL&FS group companies to circumvent RBI directions restricting fresh lending to group entities.

RBI, the Serious Fraud Investigation Office, Grant Thornton and the Securities and Exchange Board of India all recorded findings that funds had been routed through SREI group entities instead of being lent directly to IL&FS group companies.

In January 2025, the NCLAT permitted certain interconnected transactions to be unwound where all parties had consented. However, it held that the six disputed transactions required deeper examination and left the issue to be decided by the NCLT in the pending proceedings.

IL&FS subsequently approached the NCLT seeking declarations that the six transactions were sham, circuitous and fraudulent. In April 2026, the tribunal dismissed the application, holding that SIFL's consent was necessary before the transactions could be collapsed. It also held that IL&FS could not first treat the transactions as valid and later contend that they were fraudulent.

The appellate tribunal disagreed, holding that its earlier order did not make consent a mandatory requirement for examining whether the transactions could be unwound.

"However, the fact that liberty was granted to raise the issue and the issue can be examined by NCLT clearly means that even without there being consent, the issue can be gone into by the NCLT.",the court observed.

The tribunal further held that it has wide powers under Section 242(1) of the Companies Act to pass orders to end oppression or mismanagement. It observed that IL&FS was not seeking termination of valid agreements but declarations that the transactions were fraudulent and void. In those circumstances, the consent requirement relied on by the NCLT did not govern the application.

It further held that the RBI inspection report, the SFIO report, Grant Thornton's forensic review and SEBI's order were sufficient for the NCLT to examine IL&FS's allegations.

The appellate tribunal also observed if the transactions are indeed found to be fraudulent, it cannot take shield under principles of estoppel, election, or approbate and reprobate.

Subsequently, the appellate tribunal set aside the NCLT order and restored IL&FS pleas for fresh review. The money payable to SIFL shall remain in escrow until then.