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The Kolkata Bench of the National Company Law Tribunal (NCLT), on Friday, admitted applications for initiating insolvency proceedings against the two Srei companies – Srei Infrastructure Finance and Srei Equiment Finance. It has appointed Rajneesh Sharma as the administrator.
The Bench comprising Justices Rajasekhar VK and Harish Chander Suri passed the order admitting the petitions.
UCO Bank request
On a request made by UCO Bank, the Reserve Bank of India filed proceedings for initiation of Corporate Insolvency Resolution Proceeding (CIRP) against two Srei group companies under the Insolvency and Bankruptcy Code (IBC) before NCLT, Kolkata bench, through Sanjay Ginodia, senior partner of R Ginodia & Co.
One of the promoters of Srei, Adisri Commercial, had approached the Bombay High Court by way of a writ proceeding. However, the Bombay High Court declined to pass any orders in favour of Srei and dismissed the writ petition.
The RBI subsequently moved the Kolkata bench of NCLT, which took up the applications for hearing and passed an order admitting the same.
According to Hemant Kanoria, founder, SREI Group, the objective of the company right from the beginning has been resolution, and that was the reason it had moved to NCLT last year for payment to all creditors under section 230. However, this was not considered.
Subsequently, when the administrator was appointed this Monday, the company moved to the Bombay High Court primarily so that the investor process could be completed and a resolution could be arrived at expeditiously and till that time the IBC proceedings could be stayed.
“However, as the court did not accept and the RBI has moved to NCLT today, so we will fully cooperate with the regulator to arrive at a solution. We have full faith in our country's regulator, government and judiciary that fair justice would be done,” he said.
Governance issues
The Reserve Bank of India had, on October 4, superseded the boards of Srei Infrastructure Finance and Srei Equipment Finance, owing to governance concerns and defaults by the companies in meeting their various payment obligations.
The special audit conducted by the RBI in December 2020 and January 2021 revealed that funds disbursed by Srei Infrastructure to certain borrowers were received back from the borrowers and their group companies on the same date or dates close to the date of disbursement, which indicated evergreening of loans. This apart, there was also concern over negative Capital to Risk (Weighted) Assets Ratio (CRAR) and default in payments of over ₹10,000 crore to lenders.
The statutory inspection of SEFL by the central bank with reference to its financial position as on March 31, 2020, revealed “serious deterioration in its financial position”. It revealed a negative CRAR of 3.4 per cent against the regulatory requirement of 15 per cent and non-adherence to Income Recognition, Asset Classification and Provisioning norms, which revealed huge divergences.
The RBI listed out several other reasons for superseding the board of directors of the two firms. It further said that SEFL had remained non-compliant with RBI regulations despite continuous engagement and follow-up, and it failed to take corrective action on governance, systems, control and compliance.
SEFL’S total borrowings amounted to ₹20,411 crore as on June 30, 2021, and it had defaulted with 13 lenders for an amount of ₹10,457 crore.
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