Bombay High Court dismisses Srei Group's writ petition against RBI

The Bombay High Court on October 7 dismissed Srei Group's plea against the Reserve Bank of India's (RBI) action on Srei Infrastructure Finance Ltd (SIFL) and Srei Equipment Finance Ltd (SEFL).

Srei Group promoters, Adisri commercial private ltd, had filed a writ petition against the RBI challenging the order and had also sought a stay on initiating insolvency proceedings against SIFL and SEFL.

Read | End of the road for Srei promoters?

While dismissing the petition, the court said that it will give the reasons later, a person familiar with the development told Moneycontrol.

“The group will decide the future course of action after looking at the reasons,” the person said on condition of anonymity.

Reacting to the Bombay HC order, Hemant Kanoria, Founder, SREI Group, said: “The SREI Group has been making full efforts to repay creditors in a structured manner. It is important to note that the SREI Group had submitted a proposal to pay the full outstanding amount to banks under a scheme filed under Section 230 of the Companies Act 2013 earlier in October 2020. The banks neither accepted it nor proposed a payment schedule acceptable to them. Instead, the lenders have been controlling the company’s cash flow since November 2020. Almost Rs 3,000 crore has been collected by them, out of which they have been disbursing to themselves and there were no defaults.”

He added: “We were also exploring a fundraise and were in active talks with two strategic investors to infuse capital of Rs.2,000 crore which would have brought relief.”

On October 4, the RBI announced the takeover of the boards of directors of Srei Infra and Srei Equipment Finance Limited due to governance concerns and defaults by Srei Group companies.

The RBI also appointed Rajneesh Sharma, the former Chief General Manager at Bank of Baroda, as administrator.

Also read: RBI supersedes board of Srei Infra and Srei Equipment Finance, appoints administrator

The HC order came as a jolt to the Kolkata-based group that has challenged the central bank’s decision.

Reacting to the RBI’s move on October 4, Srei Group, in an official communication, had expressed "shock" about the RBI move and said it will explore legal options. Srei Group said banks were regularly appropriating funds from the escrow account they controlled since November 2020.

"Moreover, we have not received any communications from banks on any defaults," the group said in a statement made available to Moneycontrol.

The RBI move came a week after creditors of Srei Group rejected the management’s proposal to grant the company a one-year standstill from any action—legal or otherwise—to recover dues estimated at around Rs 30,000 crore.

Srei Group said it submitted a proposal to pay the full amount to banks under a scheme filed under Section 230 of the Companies Act 2013 in October 2020. The banks neither accepted it nor proposed a payment schedule acceptable to them, it said.

"Banks have been controlling the company's cash flow since November 2020. Almost Rs 3,000 crore has been collected by them, out of which they have been disbursing to themselves," the statement said.

Over the last three decades, Srei has already paid Rs 30,000 crore as interest and another Rs 20,000 crore principal to banks, it said.

There has never been any delay in loan servicing by Srei in the past before Covid-19 ravaged the country, the group said.

"We are also surprised because the NCLT order for all creditors is still in process. There is also an order for "no coercive measures" by the creditors and/or regulators. We will take all necessary steps as advised by our lawyers in this regard," the Group said.

The RBI would soon initiate the process of resolutions of the non-banking finance companies (NBFCs) under the Insolvency and Bankruptcy Rules 2019 and ask National Company Law Tribunal (NCLT) to appoint the administrator as the insolvency resolution professional, the central banks said in a statement.