SREI Files Writ Petition Against RBI on Insolvency Process
Just a day after the RBI suspended the boards of SREI Infrastructure and SREI Equipment Finance, the promoters of SREI group have filed a writ petition against the RBI. The writ petition has asked the court to strike down the referring of SREI group to the NCLT for initiating insolvency process and distribution of proceeds to creditors.
In 2020, the banks had already taken charge of the cash flows of SREI group and the promoters had been trying to stitch up a mutual resolution deal with the banks. However, there have been a spate of defaults by SREI group in the recent past which forced the consortium led by UCO Bank to approach the RBI to initiate NCLT process against SREI.
The contention of the SREI group is that the problems at SREI were an outcome of the stress in the infrastructure sector, which had resulted in an asset liability mismatch. SREI promoters also underlined that the decision to refer the company to NCLT was unfair as they had abided by all conditions imposed on them by the RBI and the consortium of banks.
The matter is slated for hearing by the court on 07-October. Defending their stance, SREI has underlined that this move was against the principle of “No Coercive Measures” that had been agreed upon, since there had been no delays on loans in the past. RBI had, meanwhile, appointed former CGM of Bank of Baroda, Rajneesh Kumar as the administrator of SREI.
Currently, the banks have already ordered a forensic audit into the books of SREI since they fear that there may have been round tripping of funds and money laundering done by the promoters using the company as a conduit. While that is yet to be confirmed, the RBI took the measure purely as a precautionary measure to prevent losses from escalating.
SREI is the second case in which the RBI has referred an NBFC to the NCLT for resolution. In the previous case of Dewan Housing, the NCLT had done a good job of roping in Piramal Enterprises which ensured that nearly half of the outstanding amounts were paid. That may work in favour of the RBI.
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