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Corporate and Financial Crisis Case Study | June 14, 2026
For three decades, Infrastructure Leasing and Financial Services Limited was about as close to a blue chip as an Indian non-banking financial company could be. Founded in 1987 by the Central Bank of India, HDFC, and the Unit Trust of India, it built the Chenani Nashri tunnel, the Delhi Noida toll bridge, and Gujarat’s GIFT City, carried the highest possible AAA credit rating, and counted LIC, Japan’s Orix Corporation, and the Abu Dhabi Investment Authority among its largest shareholders. Then, over five to six weeks in August and September 2018, that AAA rating fell all the way to D, the company defaulted on obligations across a group of 347 entities carrying Rs 99,355 crore in debt, the Sensex fell 6.3% during the month, its worst monthly decline since February 2016, and the government took the rare step of sacking the entire board and installing Kotak Mahindra Bank’s Uday Kotak as chairman. What followed was a resolution process that, seven years later, is still not fully complete. This article traces that full arc in detail, from IL&FS’s founding through the September 2018 collapse, the government takeover, the green amber red resolution framework, the criminal investigation, and the state of recovery as of late 2025.
Table of Contents
- Part I: Three Decades as India’s Infrastructure Financier (1987 to 2018) A government-promoted Core Investment Company, its 347 subsidiaries, and the projects that built its reputation
- Part II: September 2018: From AAA to D in Five Weeks The SIDBI default, the commercial paper failures, and the rating collapse that froze the NBFC sector
- Part III: The Government Takeover and the Uday Kotak Board NCLT’s Article 241(2) order, the new six-member board, and the NCLAT moratorium on 348 entities
- Part IV: The Green, Amber, and Red Framework How 302 entities were sorted by their ability to pay, and how that sorting changed over time
- Part V: The SFIO Investigation and the Auditors’ Prosecution Hari Sankaran’s arrest, the chargesheet against 30 parties, and the case against Deloitte and BSR Associates
- Part VI: Seven Years of Resolution: From Rs 99,355 Crore to Rs 48,463 Crore Recovered The entity-by-entity wind down, asset monetisation, InvIT transfers, and the shrinking group
- Part VII: The Conclusive Outcome and the Contagion It Left Behind Where the resolution stands today, and how IL&FS connects to the DHFL, Yes Bank, and PMC Bank crises
- Frequently Asked Questions
Rs 99,355 cr
IL&FS group’s total outstanding external debt as of October 2018, of which Rs 94,215 crore was fund-based debt across 347 entities.
AAA to D
The fall in IL&FS and IL&FS Financial Services’ credit ratings on key debt programmes, from AAA in mid-2018 to outright default (D) by September 17, 2018, per SEBI’s later findings against the rating agencies.
347 to 101
The number of group entities under resolution, reduced from 347 (169 domestic, 133 offshore at the time of NCLT’s first count of 302 active entities) to approximately 101 to 105 as of 2025.
Rs 48,463 cr
Total debt discharged to creditors as of September 30, 2025, approximately 80% of the new board’s Rs 61,000 crore resolution target.
Part IThree Decades as India’s Infrastructure Financier (1987 to 2018)
A Public Sector Pedigree
Infrastructure Leasing and Financial Services Limited was incorporated in 1987 as an RBI-registered Core Investment Company. Its founding promoters were three institutions with deep public sector roots: the Central Bank of India, the Housing Development Finance Corporation, and the Unit Trust of India. The company was conceived to fill a specific gap in India’s financial system, namely long-gestation financing for infrastructure projects such as roads, ports, power plants, and urban development, the kind of projects that can take a decade or more to build and longer still to generate returns, and for which conventional short-term bank lending was poorly suited.
Over time, as IL&FS needed deeper pools of capital to match its growing ambitions, it brought in additional large institutional shareholders. Japan’s Orix Corporation, working through Mitsubishi, and the Abu Dhabi Investment Authority became significant shareholders, joining the Life Insurance Corporation of India as some of the largest stakeholders in the company, a pattern of ownership that persisted through to the crisis. By 2018, the IL&FS group had grown into a sprawling structure of more than 300 subsidiaries and associate companies, operating not just as a financier but as a developer and operator of infrastructure assets directly, through arms such as IL&FS Transportation Networks Limited, IL&FS Financial Services Limited, IL&FS Engineering and Construction Company, and IL&FS Energy Development Company.
The Projects That Built Its Reputation
IL&FS’s portfolio included some of India’s most visible infrastructure achievements of the 2000s and 2010s. Its subsidiary built the Chenani Nashri Tunnel in Jammu and Kashmir, India’s longest road tunnel at the time of its opening, later renamed the Syama Prasad Mookerjee Tunnel, which opened to traffic in April 2017. The group also developed the Delhi Noida Direct toll bridge, one of the earliest and most prominent toll road public private partnerships in India, the Ranchi Patratu dam road, the Baleshwar Kharagpur expressway, a power project in Tripura, and the Gujarat International Finance Tech City, commonly known as GIFT City, India’s flagship international financial services centre project. IL&FS was widely credited as a pioneer of the public private partnership model in Indian infrastructure, a reputation that, combined with its public sector promoter base and its AAA credit ratings across its key lending entities, made its debt instruments a staple holding for mutual funds, provident funds, insurance companies, and banks across India.
Why IL&FS’s debt was everywhere in the Indian financial system: A AAA rating from Indian credit rating agencies signals the highest possible safety for a debt instrument, the kind of rating that allows pension funds, provident funds, and conservative mutual fund schemes to hold an instrument without it being treated as a risky allocation. Because IL&FS Financial Services Limited and other group entities carried such ratings for years, their commercial paper, non-convertible debentures, and inter-corporate deposits became a common holding across India’s institutional investor base, precisely the kind of investors who are the least equipped to absorb a sudden default. This is the central reason the IL&FS default in September 2018 was not contained to IL&FS itself: the group’s debt was structurally embedded across the balance sheets of the institutions that form the backbone of India’s savings and credit system.
Part IISeptember 2018: From AAA to D in Five Weeks
The First Cracks
In early September 2018, IL&FS Financial Services Limited defaulted on inter-corporate deposits of approximately Rs 1,000 crore that it had raised from the Small Industries Development Bank of India, SIDBI. This default prompted the Reserve Bank of India to decide on conducting a special audit of IL&FS, seeking to understand why the company had not informed the regulator beforehand about its deteriorating financial position. Even before this, the warning signs had been building for months: IL&FS Transportation Networks, a listed group subsidiary, had already defaulted in June 2018, an event that rating agencies did not immediately reflect in IL&FS’s own AAA rating.
The rating collapse that followed was rapid and is precisely documented through the rating agencies’ own published actions. On September 9, 2018, ICRA downgraded the long-term rating of IL&FS’s Rs 5,225 crore non-convertible debenture programme and its Rs 350 crore term loans from AA+ to BB, a junk or non-investment grade rating, and downgraded the short-term rating of its Rs 2,500 crore commercial paper programme from A1+ to A4, citing sizeable repayment obligations and a stretched liquidity profile at the group level. This itself followed an earlier downgrade from AAA to AA+ in August 2018. Then, on September 17, 2018, ICRA and CARE downgraded these same instruments, along with corresponding instruments of IL&FS Financial Services, all the way to D, indicating actual default, citing what ICRA described as recent irregularities in debt servicing. The Securities and Exchange Board of India later found, in its adjudication order against the rating agencies, that as of the date of this downgrade to D on September 17, 2018, the outstanding amount of securities rated by ICRA stood at Rs 11,725 crore and by CARE at Rs 20,942 crore. In total, the group’s top rated instruments went from AAA to outright default, D, within roughly five to six weeks during August and September 2018, a collapse SEBI later described as having occurred due to lethargic indifference and laxity on the part of the rating agencies, which it fined as a result.
The rating agencies themselves were penalised: The speed and severity of the rating collapse from AAA to D became a regulatory issue in its own right. The Securities and Exchange Board of India found that ICRA, CARE Ratings, and India Ratings and Research had assigned and maintained high ratings on IL&FS and IL&FS Financial Services instruments even after warning signs, including the June 2018 default of IL&FS Transportation Networks, were already visible. SEBI’s adjudicating officer initially imposed a penalty of Rs 25 lakh each on ICRA and CARE Ratings in December 2019, finding that the default occurred due to lethargic indifference and needless procrastination on the part of these agencies. SEBI subsequently enhanced this penalty to Rs 1 crore each on ICRA and CARE in September 2020, stating that a credit rating agency functions as a financial gatekeeper, and that timely downgrades could have forewarned investors and reduced the severity of the impact on holders of what they had been told were AAA rated instruments. A separate forensic audit also flagged instances of favours allegedly extended to rating agency officials by IL&FS group entities during this period.
The Market Reaction and the Spread to Other NBFCs
The market reaction was immediate and severe. Through September 2018, as the scale of IL&FS’s problems became clear and as investors began to question which other non-banking financial companies might be carrying similar liquidity mismatches, borrowing short-term through commercial paper to fund long-term infrastructure assets that could not be quickly converted to cash, the BSE Sensex fell by approximately 2,418 points, or 6.3%, over the course of the month, its worst monthly percentage decline since February 2016. Total investor wealth on the BSE, measured by aggregate market capitalisation, fell by approximately Rs 14.48 lakh crore during September 2018 alone. Share prices of NBFCs across the board fell sharply in the days that followed, even for companies with no direct exposure to IL&FS, simply on the fear that the underlying business model, short-term borrowing to fund long-term lending, was now under intense scrutiny.
The defaults triggered what became known as India’s broader NBFC liquidity crisis. Mutual funds that held IL&FS group commercial paper and debentures faced sudden mark-to-market losses on those holdings. Corporate bond issuance in India slowed sharply as investors became far more cautious about NBFC paper generally. The contagion effects extended well beyond IL&FS itself: the liquidity squeeze that followed is widely understood to have contributed to the subsequent financial difficulties at other large NBFCs and housing finance companies, including Dewan Housing Finance Corporation, and at corporate groups linked to Anil Ambani’s Reliance Group, both of which became central to other major Indian financial crises in the years that followed.
The asset-liability mismatch at the heart of the crisis: IL&FS Financial Services and several other group entities had been funding long-term infrastructure assets, toll roads, power plants, and tunnels that might take fifteen to thirty years to generate their full economic value, using short-term borrowings such as commercial paper that needed to be refinanced every few months. This structure works as long as a lender can always roll over its short-term borrowing by issuing new commercial paper to repay maturing paper. The moment investors lose confidence and refuse to buy fresh paper, even a fundamentally solvent company can face an immediate cash crunch, because its long-term assets cannot be sold quickly enough to cover the short-term liabilities falling due. This asset-liability mismatch, rather than the underlying infrastructure assets themselves necessarily being worthless, was identified by the RBI and by the company’s own new board as the proximate trigger of the September 2018 collapse, even as investigations later revealed deeper governance and lending quality issues within specific group entities.
Part IIIThe Government Takeover and the Uday Kotak Board
An Unprecedented Use of Article 241
On October 1, 2018, the Mumbai bench of the National Company Law Tribunal, comprising judges M K Shrawat and Ravikumar Duraisamy, approved a petition filed by the central government to remove and replace the entire board of directors of IL&FS. The order invoked Article 241(2) of the Companies Act, 2013, a provision that allows the government to seek supersession of a company’s board where its affairs are being conducted in a manner prejudicial to the public interest. The NCLT bench stated explicitly that the mismanagement at IL&FS made the case a fit one for invoking this provision. This was, at the time, only the second occasion the Ministry of Corporate Affairs had sought to take control of a company in this manner, the first and only prior instance being Satyam Computer Services in 2009, and the first time the government had moved so swiftly and decisively against a non-banking financial company of IL&FS’s scale and systemic importance.
The new board appointed by the NCLT comprised six members. Uday Kotak, the managing director and chief executive officer of Kotak Mahindra Bank, was named to lead the board and was subsequently elected as non-executive chairman. The other members included G N Bajpai, a former chairman of the Securities and Exchange Board of India, G C Chaturvedi, the non-executive chairman of ICICI Bank, Vineet Nayyar, the former vice chairman of Tech Mahindra, along with a representative from the Directorate General of Shipping and other professionals brought in for their sectoral expertise. The Reserve Bank of India publicly welcomed the government’s intervention, with then Governor Urjit Patel describing the structured institutional measures as timely and appropriate, and stating that the RBI would engage with the new management on its efforts going forward.
The NCLAT Moratorium on 348 Entities
Shortly after the new board took charge, on October 15, 2018, the National Company Law Appellate Tribunal granted a sweeping moratorium covering IL&FS and 348 of its group companies, staying the institution or continuation of any suits or proceedings against these entities in any court, tribunal, or arbitration panel, with the exception of the High Courts and the Supreme Court. This moratorium was granted on an urgent petition moved by the Ministry of Corporate Affairs after the Mumbai bench of the NCLT had separately turned down a request for a more conventional 90-day moratorium over the group’s loans. The effect was to give the new board breathing room: creditors could not individually sue, seize assets, or force insolvency proceedings against any of the 348 entities while the new board worked out a coordinated, group-wide resolution plan, an approach that would have been impossible if hundreds of individual creditors across hundreds of entities were each free to pursue their own recovery actions in parallel.
Why a group-wide approach was necessary: IL&FS was not a single company with a single balance sheet problem. It was a holding structure with more than 300 operating entities, many of which were individually viable infrastructure projects, toll roads, power plants, and the like, that generated steady cash flows but whose ownership sat within a parent group that itself could not meet its obligations. If each of the group’s hundreds of creditors had been allowed to pursue individual recovery actions against the specific entity that owed them money, the result would likely have been a chaotic, value-destroying scramble in which viable underlying projects were forced into distress sales at firesale prices simply because the holding company above them had collapsed. The moratorium, combined with the new board’s mandate to assess each entity’s actual cash-generating ability separately from the parent’s problems, was designed to allow viable projects to continue operating and servicing their own debts normally, while the genuinely insolvent parts of the group were wound down in an orderly way.
Part IVThe Green, Amber, and Red Framework
How the Classification Worked
To manage the resolution of more than 300 entities in a structured way, the new board, with government backing, developed a classification system that sorted each IL&FS group entity into one of three categories based on its actual ability to meet payment obligations from its own cash flows, regardless of the parent group’s overall distress. Green entities were those that continued to meet all their payment obligations and could service their debt normally. Amber entities could meet operational payment obligations and payments to senior secured financial creditors, but not payments to unsecured creditors. Red entities could not meet payment obligations even to senior secured financial creditors. This framework was submitted to the NCLAT in an affidavit filed by the Centre and the new board on February 11, 2019, and the NCLAT subsequently permitted green entities to continue servicing their debt obligations normally, while also ruling, in an order dated May 2, 2019, that banks could classify defaulting IL&FS group accounts as non-performing assets, though without immediately initiating recovery action.
The tabs below show how the classification of entities evolved as the resolution progressed, illustrating both the initial scale of the crisis and the gradual improvement as restructuring agreements were reached with creditors.
Early Classification: 50 Green, 13 Amber
By the NCLAT hearing of March 2019, IL&FS reported that the number of entities classified as green had increased to 50 from an initial 21, and the number of amber entities had increased to 13 from 10, out of a total of 302 active entities the group was then tracking, down from the original count of 347 at the time of the takeover. The remaining entities were classified as red, meaning they could not service even their senior secured obligations from their own cash flows.
September 2019: 55 Green, 13 Amber, 82 Red (of 150 classified)
By September 2019, the new board had classified 150 entities into the three categories: 55 as green, 13 as amber, and 82 as red. Three amber entities, Moradabad Bareilly Expressway, Jharkhand Road Projects Implementation Company, and West Gujarat Expressway, with combined debt of approximately Rs 5,071 crore, were on track to be reclassified as green following binding debt restructuring agreements with their lenders. For five other amber entities, including Jorabat Shillong Expressway, the Chennai Nashri Tunnelway, the Thiruvananthapuram Road Development Company, IL&FS Education and Technology Services, and the East Hyderabad Expressway, creditors had not yet agreed to the proposed restructuring terms.
2024 to 2025: Down to Around 100 Entities
By January 2021, the total number of entities in the group had fallen to 111 from 302, with domestic entities reduced to 95 from 169 and offshore entities reduced to 16 from 133. By September 2022, the count had fallen further to 101 entities, 88 domestic and 13 offshore. As of October 2024, 188 of the 302 entities had been finally resolved, leaving 114 entities, of which moratorium protection was needed for only 58. By March 2025, 197 of 302 entities had been finally resolved, leaving 105 entities, of which 57 still required moratorium protection. The NCLAT, in a hearing in November 2024, directed IL&FS to complete the resolution of the remaining 58 entities by March 31, 2025, while also extending the moratorium to that date, after having questioned in August 2024 whether the moratorium protection originally granted in October 2018 could continue indefinitely.
Part VThe SFIO Investigation and the Auditors’ Prosecution
The Arrest of Hari Sankaran
Parallel to the board takeover and the resolution process, India’s Serious Fraud Investigation Office, a specialised agency under the Ministry of Corporate Affairs, opened a criminal investigation into the conduct of IL&FS’s previous management. On April 2, 2019, the SFIO arrested Hari Sankaran, the former vice chairman of IL&FS, in Mumbai. He was accused of having sanctioned loans to entities that were not creditworthy, or that had already been internally flagged as non-performing, causing wrongful loss to IL&FS and its creditors. Sankaran’s arrest was among the most prominent individual consequences of the crisis for IL&FS’s pre-takeover leadership.
The Chargesheet Against 30 Parties, Including the Auditors
On May 30, 2019, the SFIO submitted a chargesheet against 30 parties in connection with the affairs of IL&FS Financial Services Limited, the group’s key NBFC. The chargesheet’s allegations extended beyond the company’s own executives to include two firms central to its statutory audit function, accusing them of concealing information by failing to flag what the SFIO characterised as a criminal conspiracy and by misreporting the financial statements of IL&FS group companies. Acting on the basis of the SFIO’s findings, the Ministry of Corporate Affairs proceeded with a prosecution against the auditing firms Deloitte and BSR Associates, the latter affiliated with the KPMG network in India, for their alleged failure to detect and report the issues at IL&FS and 21 of its entities during the period these firms served as statutory auditors. The NCLT, in an order dated July 18, 2019, accepted and allowed the Ministry of Corporate Affairs’ request to proceed with this prosecution.
Why the auditor prosecution mattered beyond IL&FS itself: The prosecution of two of India’s largest audit networks in connection with a single client’s collapse was, at the time, among the most significant regulatory actions taken against statutory auditors in Indian corporate history. For an AAA-rated group of more than 300 entities to default so rapidly and so completely raised an obvious question: where were the auditors who had signed off on these companies’ financial statements year after year. The SFIO’s chargesheet, by naming the audit firms directly alongside the company’s own executives, signalled that regulators viewed the failure of external audit as a contributing cause of the crisis, not merely a bystander to it, a position that has informed subsequent debates in India about auditor liability, mandatory audit firm rotation, and the independence of statutory auditors at large, systemically important financial companies.
Part VISeven Years of Resolution: From Rs 99,355 Crore to Rs 48,463 Crore Recovered
The Target and the Method
As of October 2018, the IL&FS group’s total outstanding external debt stood at Rs 99,355 crore, of which Rs 94,215 crore was fund-based debt, meaning actual loans and borrowings as opposed to guarantees and other non-fund exposures. The new board, having assessed the realistic recoverable value across the group’s entities, set a resolution target of Rs 61,000 crore, representing approximately 62% of the total outstanding debt. Uday Kotak noted publicly that this target, if achieved, would represent a significantly higher recovery rate than the average observed under India’s Insolvency and Bankruptcy Code since its inception, which the board cited at approximately 38% across IBC cases generally.
The resolution method combined several approaches working in parallel: monetisation of individual assets, such as selling specific toll roads or power projects to buyers willing to operate them as ongoing concerns; termination of concession agreements where projects were transferred back to government counterparties under pre-agreed termination payment terms; transfer of operating road and power assets into Infrastructure Investment Trusts, or InvITs, a structure that allows a portfolio of operating infrastructure assets to be held by a trust and its units sold to institutional investors such as pension funds, who value the stable, long-term cash flows these assets generate; servicing of debt by green entities from their own ongoing cash flows; and interim distributions of available cash and InvIT units to external creditors as recoveries were realised, ahead of the final resolution of every entity.
The Recovery Trajectory
The pace of resolution accelerated considerably after the initial, most difficult years of untangling the group’s structure. By September 2020, the new board reported having resolved more than Rs 19,000 crore of debt, against an interim target of Rs 26,440 crore for that period, with the shortfall attributed explicitly to the operational and logistical complications caused by the Covid-19 pandemic, which slowed discussions with stakeholders and approvals from lenders, regulators, and judicial authorities. By January 2021, the total number of group entities had been reduced to 111 from the original 302 active entities, as individual companies completed their resolution and exited the group structure.
The most recent reporting series, covering the 2024 and 2025 financial years, shows the following progression: as of September 30, 2024, Rs 37,700 crore had been resolved, with 188 of 302 entities finally resolved and 114 remaining. As of March 21, 2025, this had grown to Rs 45,281 crore resolved, with 197 of 302 entities finally resolved and 105 remaining, of which 57 still required moratorium protection. As of September 30, 2025, the total debt discharged to creditors had reached Rs 48,463 crore, representing approximately 80% of the Rs 61,000 crore target. Of this cumulative figure, approximately Rs 25,893 crore had come through monetisation, termination, or transfer of assets to InvITs, while approximately Rs 16,898 crore had been distributed to creditors through interim distributions, of which Rs 15,026 crore went to external financial creditors, and the balance had come through debt discharged via auto-debits and principal servicing by green entities, amounting to approximately Rs 7,545 crore as of that date. The group held a cash balance of approximately Rs 8,575 crore as of September 2025.
IL&FS Group Debt Resolution: September 2024 to September 2025
Cumulative debt discharged to creditors (Rs crore), as reported in successive status affidavits filed before the NCLAT. The target is Rs 61,000 crore out of Rs 99,355 crore total outstanding debt as of October 2018.
Progress Toward the Rs 61,000 Crore Resolution Target (as of Sept 2025)
Total debt discharged: Rs 48,463 crore of Rs 61,000 crore target~80%
Entities finally resolved: 197 of 302 (as of March 2025)~65%
Entities still requiring moratorium protection (of 105 remaining)57 entities
Note: Figures reflect the most recent status affidavits available, primarily the September 2025 filing before the NCLAT, alongside the entity counts from the March 2025 affidavit, the most recent for which entity-level detail was reported.
Part VIIThe Conclusive Outcome and the Contagion It Left Behind
Where Things Stand
As of the most recent reporting available, the IL&FS resolution remains a work in progress, though one that has made substantial and measurable headway. The group has gone from 347 entities at the moment of takeover to approximately 101 to 105 entities still under resolution as of 2025, and from zero to Rs 48,463 crore in debt discharged to creditors, approximately 80% of the board’s Rs 61,000 crore target. Uday Kotak’s tenure as non-executive chairman, originally envisioned as a short-term emergency appointment, was repeatedly extended by the government, including an extension that took his term through to October 2021 and beyond, with further extensions following as the resolution process continued well past its initially anticipated timelines. The NCLAT’s questioning, in August 2024, of whether the October 2018 moratorium could continue indefinitely, followed by its direction in November 2024 to complete resolution of the remaining 58 entities by March 31, 2025, suggests that the tribunal itself has begun pushing for a definitive endpoint to a process that has now run for the better part of a decade.
The Wider Contagion: How IL&FS Connects to Later Crises
The significance of the IL&FS default extends well beyond its own resolution numbers. The liquidity crunch it triggered across India’s NBFC and corporate bond markets in late 2018 is widely understood to have been a major contributing factor in the subsequent financial difficulties of Dewan Housing Finance Corporation, the housing finance company whose own collapse and eventual insolvency proceedings unfolded over the following years, and in the financial stress experienced by companies linked to the Anil Ambani led Reliance Group. Both of these in turn became significant components of the bad loan exposures that brought down Punjab and Maharashtra Cooperative Bank and contributed to the asset quality crisis at Yes Bank, both of which are documented in detail in other case studies on this site. In this sense, IL&FS functioned as something close to a patient zero for a sequence of Indian financial crises that played out across banking, cooperative banking, and non-banking finance over the following years, each with its own specific causes but each touched, directly or indirectly, by the credit freeze that began in September 2018.
What made the IL&FS resolution different from a standard IBC case: Most large corporate insolvencies in India proceed through the Corporate Insolvency Resolution Process under the IBC, with a fixed statutory timeline and a single resolution professional managing a single corporate debtor. IL&FS’s resolution, by contrast, proceeded through Article 241 and 242 of the Companies Act, with a government-appointed board managing more than 300 separate legal entities simultaneously, each potentially requiring its own monetisation, restructuring, or termination process, under the umbrella of a single NCLAT moratorium. This structure allowed the board to pursue an entity-by-entity strategy tailored to each asset’s specific circumstances, which Uday Kotak argued produced a recovery rate well above the average seen in standard IBC cases. The trade-off has been time: a process of this complexity, spanning more than 300 entities across domestic and offshore jurisdictions, has taken years longer than a typical single-entity insolvency, and as of 2025 still had dozens of entities and a meaningful share of the resolution target outstanding, seven years after the crisis began.
What the IL&FS Story Represents
IL&FS’s collapse is, in one sense, a story about a single point of failure: a group of companies that had borrowed Rs 94,215 crore short-term to fund infrastructure assets that would take decades to pay for themselves, and that lost access to that short-term funding within a matter of weeks once a handful of defaults became public. But the more durable lesson is about how deeply embedded that single point of failure had become across the rest of the Indian financial system. A AAA rating, a roster of blue chip public sector and international institutional shareholders, and three decades of building some of India’s most visible infrastructure were not, in the end, sufficient to prevent a collapse that took the system almost entirely by surprise, and that the statutory auditors of the group’s key entities were subsequently prosecuted for failing to flag.
The government’s response, an unprecedented use of Article 241 to sack an entire board and install a new one led by one of India’s most prominent bankers, bought time and structure that a standard insolvency process could not have provided for an entity of this complexity. Seven years on, that process has recovered Rs 48,463 crore against a Rs 61,000 crore target, brought the number of entities under resolution down from 347 to roughly 100, and seen the NCLAT begin to press for an end date to a moratorium that has now run far longer than anyone anticipated in October 2018.
For India’s broader financial system, IL&FS’s most lasting legacy may not be its own eventual resolution figures at all, but the chain reaction it set off. The liquidity crunch it triggered rippled into the difficulties at DHFL, into the stressed exposures that PMC Bank had concealed through fictitious accounts, and into the corporate lending book that ultimately forced Yes Bank into an RBI moratorium less than eighteen months later. IL&FS did not cause any of those other crises on its own, each had its own specific governance failures, but it was the event that pulled the floor out from under India’s NBFC and corporate bond markets in late 2018, and the aftershocks of that single September are still being felt, and resolved, in 2026.
Frequently Asked Questions
IL&FS was a 31-year-old infrastructure financing group, founded in 1987 by the Central Bank of India, HDFC, and UTI, that had grown to more than 300 subsidiaries and carried AAA credit ratings on its key lending entities. The warning signs began with the June 2018 default of listed subsidiary IL&FS Transportation Networks, which rating agencies did not immediately reflect in the parent’s AAA rating. In early September 2018, IL&FS Financial Services defaulted on approximately Rs 1,000 crore of inter-corporate deposits owed to SIDBI, prompting the RBI to order a special audit. ICRA had already cut IL&FS’s rating from AAA to AA+ in August 2018, and on September 9, 2018 cut its Rs 5,225 crore non-convertible debenture programme and Rs 350 crore term loans from AA+ to BB, a junk rating, while its Rs 2,500 crore commercial paper programme was cut from A1+ to A4. On September 17, 2018, ICRA and CARE downgraded these and related IL&FS Financial Services instruments all the way to D, indicating outright default, by which point securities worth Rs 11,725 crore rated by ICRA and Rs 20,942 crore rated by CARE were affected, according to SEBI’s later adjudication order against the rating agencies.
The defaults triggered a broader liquidity crisis across India’s non-banking financial sector, as institutional investors who held IL&FS group debt, and who became fearful that other NBFCs might have similar problems, pulled back from the corporate bond and commercial paper markets generally. The Sensex fell 6.3%, or approximately 2,418 points, during September 2018 alone, its worst monthly percentage decline since February 2016. On October 1, 2018, the government secured an NCLT order removing the entire IL&FS board and installing a new six-member board led by Uday Kotak.
The government took control through a petition to the National Company Law Tribunal under Article 241(2) of the Companies Act, 2013, a provision that permits the central government to apply for the supersession of a company’s board where its affairs are being conducted in a manner prejudicial to the public interest. On October 1, 2018, the Mumbai bench of the NCLT approved this petition, finding that the mismanagement at IL&FS made it a fit case for invoking the provision, and approved a new six-member board led by Uday Kotak of Kotak Mahindra Bank as non-executive chairman, alongside former SEBI chairman G N Bajpai, ICICI Bank chairman G C Chaturvedi, and former Tech Mahindra vice chairman Vineet Nayyar, among others.
This was only the second time the Ministry of Corporate Affairs had sought this kind of board takeover, the first being Satyam Computer Services in 2009. The RBI publicly welcomed the move as a timely and appropriate intervention. Shortly after, on October 15, 2018, the NCLAT granted a moratorium covering IL&FS and 348 group entities, staying legal proceedings against them in any court or tribunal other than the High Courts and Supreme Court, giving the new board room to design a coordinated resolution plan across the entire group rather than face hundreds of individual creditor actions.
Because IL&FS was a group of more than 300 separate legal entities rather than a single company, the new board needed a way to triage the group quickly based on which entities were actually viable and which were not. The green, amber, and red framework classified each entity based on its ability to meet payment obligations from its own cash flows: green entities could meet all obligations and continue servicing debt normally, amber entities could meet operational obligations and payments to senior secured creditors but not unsecured creditors, and red entities could not meet obligations even to senior secured creditors.
This classification evolved significantly over time as restructuring agreements were reached. In March 2019, 50 entities were green and 13 were amber, up from an initial 21 green and 10 amber. By September 2019, 150 entities had been classified, with 55 green, 13 amber, and 82 red. The NCLAT permitted green entities to continue servicing their debts normally and, in May 2019, allowed banks to classify defaulting accounts as non-performing assets without seeking the tribunal’s prior permission, while still preventing immediate recovery action. The classification allowed viable, cash-generating projects within the group to keep operating normally even while the group’s parent entities and genuinely insolvent subsidiaries were wound down separately.
Yes. India’s Serious Fraud Investigation Office arrested Hari Sankaran, the former vice chairman of IL&FS, on April 2, 2019, accusing him of sanctioning loans to entities that were not creditworthy or that had already been internally identified as non-performing, causing wrongful loss to the company and its creditors. On May 30, 2019, the SFIO submitted a chargesheet against 30 parties connected to IL&FS Financial Services Limited, the group’s key NBFC, including allegations against two statutory audit firms, Deloitte and BSR Associates, which is affiliated with the KPMG network in India, for concealing information and failing to flag what the SFIO described as a criminal conspiracy in the financial statements of IL&FS group companies.
Based on the SFIO’s findings, the Ministry of Corporate Affairs proceeded with a formal prosecution of Deloitte and BSR Associates for their alleged failure to detect and report issues across 21 IL&FS group entities during their tenure as statutory auditors, a request the NCLT accepted in an order dated July 18, 2019. This was among the most significant regulatory actions taken against major audit firms in Indian corporate history at the time, and has been cited in subsequent discussions about auditor accountability and independence at large Indian financial institutions.
As of the most recent status report filed before the NCLAT, dated September 30, 2025, IL&FS had discharged Rs 48,463 crore to its creditors, approximately 80% of the new board’s Rs 61,000 crore resolution target, which itself represents about 62% of the group’s total outstanding debt of Rs 99,355 crore as of October 2018. The number of group entities under resolution had fallen from an original count of 347 at the time of takeover to approximately 101 to 105 by 2025. As of March 2025, 197 of 302 actively tracked entities had been finally resolved, with 105 remaining, of which 57 still required moratorium protection.
The resolution is therefore substantially advanced but not complete. The NCLAT, which in August 2024 had questioned whether the moratorium first granted in October 2018 could continue indefinitely, directed in November 2024 that the remaining 58 entities be resolved by March 31, 2025, while extending the moratorium to that date. The September 2025 figures show continued progress beyond that point, with the group holding a cash balance of approximately Rs 8,575 crore as it works through the remaining entities. A definitive completion date for the entire process had not been set as of the most recent reporting available.
Disclaimer: This article is for informational and educational purposes only and is current as of June 10, 2026. Facts and figures are sourced from National Company Law Tribunal and National Company Law Appellate Tribunal orders, status affidavits filed by the IL&FS board before the NCLAT, Serious Fraud Investigation Office chargesheet filings, Reserve Bank of India public statements, and BSE regulatory disclosures made by IL&FS Financial Services Limited. This article takes a neutral stance and does not constitute legal or investment advice.
