SREI Group: NCLAT Sets Aside Restriction On Banks To Change Account Status
SREI Group: NCLAT paves way for account reclassification by creditors.
The National Company Law Appellate Tribunal has agreed with the Reserve Bank of India that banks cannot be prevented from classifying SREI Group as a non-performing asset.
In doing so, the appellate tribunal has set aside interim directions of the National Company Law Tribunal, Kolkata, from October last year. The tribunal had restrained banks from taking any coercive action or changing the account status of SREI Equipment Finance Ltd. and its holding company SREI Infrastructure Finance.
The appellate tribunal found these directions "not in order" on Tuesday.
“NPA is determined as per the RBI Master Circular and the Financial institutions are to follow them. ..There was no need perhaps to pass this specific directions.”- NCLAT
To recap, SREI Infrastructure has been pursuing a scheme of arrangement with SREI Equipment Finance since 2019 before the Kolkata NCLT. The companies had approached the NCLT with a request that no coercive action be taken as they take steps to complete the scheme of arrangement.
The tribunal had granted the companies this relief and directed them to convene the meeting of creditors to consider and approve the scheme. It had directed banks and financial institutions to maintain status quo of their contractual terms, dues, claims and rights.
"Creditors are estopped from taking any coercive steps including reporting in any form and/or changing the account status...from being a standard asset, which will prejudicially affect the implementation of the scheme and render the said scheme ineffective," the tribunal had said.
UCO Bank, representing the consortium of creditor-bankers, appealed this before NCLAT. RBI, too, argued in favour of banks.
UCO Bank told the appellate tribunal the scheme of arrangement had been rejected by the majority of the secured creditors. This frustrates the whole case, it said.
The RBI stated that the law does not contain any provision for grant of stay as was done by NCLT in this case.
...the Tribunal is in the teeth of statutory scheme under the RBI Act and its related circulars including the master circular on prudential norms which has statutory force clearly set outs the parameters for classifications of the loan amount as NPA. This is the issue of grave importance and have significant public interest and hence RBI is critical of this.Reserve Bank of India
Section 230- 232 of the Companies Act, 2013, cast a limited obligation on the tribunal to satisfy that the scheme is not contrary to public policy or prejudicial to the creditors, the regulator said.
Section 230 of the Act cannot be extended to banks and financial institution which are discharging public functions.Reserve Bank of India
Finding merit in the regulator's submissions, the NCLAT noted that financial institutions are bound to follow the regulator's directions on NPAs.
And that even if the debt is classified as an NPA or the company is under liquidation, a scheme of arrangement can always be proposed by it. 'There is no bar in merging unhealthy company with healthy company to come over the crisis'.