State-backed National Asset Reconstruction Company (NARCL) and the consolidated committee of creditors for two insolvent Srei companies are likely to sign final documents this week before the bad bank finally takes over the two NBFCs under the corporate insolvency resolution process (CIRP).

The Implementation and Monitoring Committee (IMC), formed to supervise the implementation of NARCL’s resolution plans and oversee the management of affairs of Srei Infrastructure Finance (SIFL) and Srei Equipment Finance (SEFL), is likely to approve the final execution version of the plans within a few days.

“The execution version of the documents is expected to be signed between the CoC and NARCL this week. After that, NARCL will finally take over the two companies,” sources with direct knowledge of the matter told businessline.

Notably, the Kolkata bench of the National Company Law Tribunal (NCLT) in August this year approved the resolution plan of NARCL for the two Srei companies after the consolidated CoC in February had approved the resolution plan of the bad bank with the highest voting among bidders.

Three bidders

Three bidders — NARCL, the consortium of Varde Partners and Arena Investors, and Authum Investment – had participated in the challenge mechanism process, adopted by the CoC, to acquire the two NBFCs under the CIRP. After the challenge mechanism process ended, NARCL’s offer of ₹5,555 crore in net present value (NPV) terms, which includes an upfront cash of ₹3,180 crore, was found to be the highest.

According to the government-owned ARC’s resolution plans, it will infuse funds into Srei Infrastructure Finance (SIFL) to grow the NBFC’s business. As per the plans, SIFL will carry out the business of equipment finance and retail finance, among others. Srei Equipment Finance (SEFL) would be used to recover bad assets and make payments to the lenders. Finally, SEFL would be wound up.

NARCL has already distributed a part of upfront cash to the lenders to the two Srei firms.

The bad bank’s gross offer stands at over ₹14,000 crore, including cash and a committed amount of more than ₹6,500 crore. The gross offer includes optionally convertible debentures (OCD) of around ₹8,000 crore, and it would be redeemed on recovery. Putting together all the components, financial creditors would be able to recover over 40 per cent of the amount admitted as claims.

The total admitted claims of financial creditors are ₹32,750.22 crore. State Bank of India, Punjab National Bank, Axis Bank, HDFC Bank, Union Bank of India, Canara Bank, IDBI Bank, UCO Bank and Indian Overseas Bank, among others, are the financial creditors to the two firms.

Notably, Adisri Commercial, the promoter SIFL and SEFL, moved the National Company Law Appellate Tribunal (NCLAT) after NCLT Kolkata bench dismissed its application, which had urged the tribunal to recall the order initiating insolvency proceedings against the two NBFCs.

The appellate tribunal is currently hearing the matter.

Implementation of plan

“As the NCLAT has not issued any injunction, the process of implementation of NARCL’s resolution plan can continue,” the sources cited above said.

An e-mail sent to NARCL remained unanswered.

“The IBC process is under challenge in NCLAT in as much as there was no debt in SIFL and no default in SEFL. Therefore, if the plan is implemented it will defy the entire legal process and its sanctity,” said sources close to the erstwhile management of the two firms.

“It would be prudent for NARCL, which has the same shareholders as the CoC, to hold on till the final legal decision is arrived at,” the sources added.

The insolvency proceedings against SIFL and SEFL commenced in October 2021 after the insolvency petitions filed by the Reserve Bank of India were approved by the Kolkata bench of the NCLT.