IL&FS Debt Crisis: NCLAT Waives CSR Obligations for Key Entities

NCLAT Grants CSR Exemption to IL&FS Red and Amber Companies Amid Debt Resolution​

Tribunal Relief Covers Around 50 IL&FS Entities Under Moratorium​

New Delhi, March 22: The National Company Law Appellate Tribunal (NCLAT) has granted relief to IL&FS Group companies classified under the ‘red’ and ‘amber’ categories by exempting them from corporate social responsibility (CSR) obligations. The decision comes in view of accounting distortions caused by accrued interest expenses on their loans.

The order is expected to benefit nearly 50 such entities that fall under the protection of the moratorium imposed by the NCLAT through its October 15, 2018 directive.

Notional Profits Triggered CSR Compliance Requirement​

These ‘red’ and ‘amber’ companies have not been accruing interest on their outstanding debt due to the ongoing resolution framework. As a result, their financial statements reflected notional profits calculated under Section 198 of the Companies Act.

This accounting outcome led to these companies being technically liable to meet CSR obligations under Section 135 of the Act, despite their stressed financial position. To address this anomaly, IL&FS approached the tribunal last year seeking exemption from CSR compliance for such entities.

NCLAT Invokes Discretionary Powers to Grant Waiver​

A two-member bench of the NCLAT, including Chairperson Justice Ashok Bhushan, approved the exemption earlier this month. The tribunal exercised its discretionary authority under Sections 241(2) and 242(2)(m) of the Companies Act.

In its order, the tribunal stated that sufficient grounds had been established to allow the waiver, thereby dispensing with the requirement for these companies to spend on CSR activities under Section 135(5).

CSR Norms and Applicability Criteria​

Under Section 135(5) of the Companies Act, companies are required to spend at least 2 percent of their average net profits from the preceding three financial years on CSR activities.

This mandate applies to companies meeting specific financial thresholds, including a net worth of Rs 500 crore or more, turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore.

IL&FS Resolution Framework and Category Classification​

As part of its resolution roadmap, IL&FS Group companies have been classified into three categories based on their financial health.

• Green companies continue to meet all payment obligations
• Amber companies can service operational expenses and senior secured debt
• Red companies are unable to meet even senior secured debt obligations

Debt Reduction Progress and Resolution Status​

At the peak of the crisis, the IL&FS Group had a total external debt of Rs 99,355 crore. According to the latest status affidavit submitted to the NCLAT, the group has repaid Rs 48,463 crore to creditors as of September 2025.

The group is reducing its debt burden through asset monetisation and interim distributions, including cash and Infrastructure Investment Trust units.

Out of the 302 entities that existed at the time of the crisis in October 2018, IL&FS has fully resolved 202 companies. This includes 76 domestic entities and 126 offshore entities, as per the affidavit.