The consideration of resolution plan submitted by NARCL for the insolvent Srei group companies is likely to get further delayed as the Kolkata Bench of National Company Law Tribunal (NCLT) plans to hear the rebuttal arguments against the plea made by the erstwhile promoter company Adisri Commercial requesting to set aside the very order admitting the companies under insolvency.

The Division Bench of NCLT has posted the matter for arguments by the administrator and Committee of Creditors for March 31.

The counsels appearing on behalf of Adisri Commercial, the largest shareholder in the Srei group companies — Srei Infrastructure Finance Ltd (SIFL) and Srei Equipment Finance Ltd (SEFL) – raised question on the very order that admitted the companies for insolvency proceedings as the alleged date of default fell within the “black out period” mentioned under Section 10A of IBC (Insolvency and Bankruptcy Code).

NARCL’s resolution plan comes up for NCLT’s approval on March 24.

It is to be noted that the government had, by way of an ordinance in June 2020, suspended initiation of insolvency proceedings by incorporating Section 10A in the IBC, to mitigate the impact of the Covid-induced lockdown and the resultant slowdown on businesses, thereby leading to defaults.

“Notwithstanding anything contained in Sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date,” it said.

The moratorium under Section 10A was further extended in December 2020 for three months till March 25, 2021. 

Adisri’s argument

Since the alleged date of default of payment of principal for SEFL is January 9, 2021 and that of default of interest payment is February 1, 2021, and both these dates fell within the moratorium period as per Section 10A, no application for initiating insolvency should be filed, the counsels argued.  

According to the counsels appearing on behalf of erstwhile promoters Adisri Commercial, there was no default by Srei to any of the lenders before Covid. When Covid happened, the Reserve Bank of India extended moratorium to borrowers who were unable to service the loan, but unfortunately the same was not extended to NBFCs who borrowed from banks thereby creating a mismatch leading to defaults.

The RBI had, on October 4, 2021, superseded the boards of SIFL and SEFL and appointed Rajneesh Sharma as administrator. It subsequently filed an application for initiating insolvency proceedings against the entities and the RBI-appointed administrator, who was acting for Srei, did not protest or raise objection on the grounds of Section 10A.

The counsel appearing for SIFL also argued that the company did not have any debt due to banks on the date of filing the insolvency application as SIFL, by virtue of a business transfer agreement had transferred its lending business, interest earning business and lease business along with associated employees, assets and liabilities as a going concern by way of slump exchange to its wholly owned subsidiary, SEFL.