Bombay High Court Rejects Plea By SREI Group Promoters
The Bombay High Court on Thursday rejected a plea by the promoters of SREI Group against the action taken by the Reserve Bank of India, two people directly involved said on the condition of anonymity.
On Monday, the banking regulator had superseded the boards of Srei Infrastructure Finance Ltd. and Srei Equipment Finance Ltd. and appointed an administrator to run affairs. The RBI intends to refer both the companies for bankruptcy proceedings as well.
With the legal challenge rejected, the regulator can move forward with its resolution process.
Following the regulator's action, Adisri Commercial Pvt. and Hemant Kanoria filed a writ petition with the Bombay High Court on Wednesday opposing the move. The petition alleged that the RBI acted in "complete haste, entirely arbitrarily and without application of mind".
Adisri Commercial is a shareholder of Srei Infrastructure Finance, while Kanoria is the chairman of the company and member of the promoter family.
The petition alleged that the RBI did not give the respondents enough time to respond to its requisition stated in a Sept. 22 letter. While communication with the RBI over the health of the non-bank lender has been going for some time, matters accelerated after an RBI risk assessment report in February 2021.
According to documents attached with the petition, a copy of which has been reviewed by BloombergQuint, the RBI found material deterioration in the financial positions of the two non-banking finance companies.
"As per data submitted by financial institutions, the total borrowings of SIFL stood at Rs 11,746 crore on June 30, 2021. SIFL has defaulted with 12 lenders aggregating to Rs 3,566 crore," RBI Executive Director Jayant Kumar Dash said in an Oct. 1 letter.
Similarly, in the case of Srei Equipment Finance, the total borrowings stood at Rs 20,411 crore, while the company had defaulted on obligations to 13 lenders aggregating Rs 10,457 crore.
The RBI also expressed concerns including:
Violation of income recognition, asset classification and provisioning norms.
Evergreening of non-performing assets.
Weak corporate governance standards.
Inadequate systems and controls.
Poor compliance standards.