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Arguing against the very question of maintainability of application filed by erstwhile promoters of Srei group under Section 10A of IBC (Insolvency and Bankruptcy Code), Tushar Mehta, Solicitor General of India, appearing on behalf of Reserve Bank of India-appointed administrator, said the defaults continued beyond the moratorium period and hence the Section does not provide support to the companies.
The matter has been posted on April 10 for further hearing by NCLT.
“Defaults continued even thereafter (post moratorium period provided under Section 10A) and so Section 10A cannot support them,” Mehta argued on Friday.
Adisri Commercial, the erstwhile promoters of the Srei group, had earlier urged the Kolkata Bench of National Company Law Tribunal (NCLT) to set aside the order admitting the companies under insolvency as the date of alleged default fell within the “black out period” mentioned under Section 10A of IBC (Insolvency and Bankruptcy Code). The counsels had also raised question on the very order that admitted the Srei group companies for insolvency proceedings and requested the Bench to set aside the order.
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. The default for which Srei Infrastructure Finance Ltd (SIFL) and Srei Equipment Finance Ltd (SEFL) were admitted into insolvency fell within this period and hence “there is an error on the face of record”, the counsels had argued.
The Solicitor General further delved on the issue of whether the tribunal (NCLT) has powers to recall or review the application since a similar application was moved before both NCLAT and Supreme Court and was dismissed earlier. The moment an appeal is dismissed by Supreme Court then that remains in the eye of law and “there is no question of recalling or reviewing” that order since it got merged with the order of Supreme Court.
“Since there is no power of reviewing this application, it is not necessary to go into the merits of the application,” he pointed out.
According to the counsel appearing on behalf of the Committee of Creditors (Coc), the issue of Section 10A was brought up earlier before both NCLAT and Supreme Court and was dismissed.
SIFL-SEFL merger
The counsel representing Srei Infrastructure Finance Ltd (SIFL) argued that the company did not owe any debt to banks on the day it filed for insolvency. It cited a business transfer agreement that allowed SIFL to transfer its lending, interest earning, and lease businesses, as well as its associated employees, assets, and liabilities as a going concern to its wholly-owned subsidiary, Srei Equipment Finance Ltd, through a slump exchange.
The CoC counsel, however, argued that the business transfer agreement was to receive the creditors’ nod for the transfer of assets and liabilities to happen and since they did not approve of the same the question of relinquishing debt does not arise.
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