NCLT Kolkata bench admits RBI’s petition against Srei group of companies

NCLT Kolkata bench admits RBI’s petition against Srei group of companies

The National Company Law Tribunal (NCLT) has admitted Reserve Bank of India’s petition against (SIFL) and its wholly-owned subsidiary Srei Equipment Finance (SEFL) for resolution of their debt, estimated to be around Rs 28000 crore.

The central bank referred the two companies to NCLT’s Kolkata bench on Friday to initiate the insolvency proceedings under the Insolvency & Bankruptcy Code (IBC), a day after the Bombay High Court rejected a writ petition by the Srei group against the central bank’s move to supersede the boards of these two firms.

This is going to be the second significant debt resolution under IBC in the financial services sector after the successful resolution of Dewan Housing Finance Corporation.

According to IBC rules, the Srei promoters are now barred from selling down or disposing off any assets of SIFL and SEFL.

“It is indeed unfortunate for us. Our objective right from the beginning has been resolution, that is the reason we had moved to NCLT last year for payment to all creditors under section 230, which was not considered,” Srei Group founder Hemant Kanoria said on RBI’s move to refer Srei companies to NCLT.

The group had earlier submitted a proposal to pay the full outstanding amount to banks under a scheme filed under Section 230 of the Companies Act 2013 in October 2020. The banks did not accept the proposal but could get to a position to control the company’s cash flow from November 2020.

Both the Srei companies defaulted on loan repayment and other payment obligations as its cash flow completely dried up following the pandemic-led stress. The regulatory scrutiny report however showed that the group was facing doldrums even before the pandemic with SEFL’s capital adequacy turning to negative at the end of FY21.

In October 2019, SIFL transferred its business along with assets and liabilities to SEFL through a slump sale, despite opposition from several lenders.

RBI had conducted a special audit on both SIFL and SEFL between December 2020 and January 2021 and flagged concerns over violation of several prudential norms including of income recognition, asset classification and provisioning, evergreening of loans and corporate governance.

RBI took control of the two companies on October 1 by superseding the boards and appointing an administrator.

“The admission of Srei’s case in NCLT opens a new chapter under the Insolvency & Bankruptcy Code,” said Mamta Binani, a resolution professional and former president at Institute of Company secretaries of India. “The learnings from the DHFL’s debt resolution would act as a ready reckoner for this case,” she said.

On Thursday, The Kolkata-based group had moved the Bombay High Court against the RBI. Kanoria said that the group was in touch with investors for raising capital and that they had moved to the Court primarily so that the investment process could be completed and a resolution is arrived at expeditiously and till that time the IBC proceedings could be stayed.

“However, as the court did not accept and RBI has moved to NCLT today, 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 added.

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