NCLT admits insolvency pleas against 2 companies of the Srei group and appoints a director

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The NCLT on Friday admitted insolvency claims brought by banking regulator RBI against two companies in the SREI group and appointed a director to lead the companies. Two-member Kolkata bench admitted two separate RBI petitions to initiate Corporate Insolvency Resolution Proceedings (CIRP) against the two non-bank financial corporations (NBFC) – SREI Infrastructure Finance and SREI Equipment Finance Ltd. The NCLT also appointed Rajneesh Sharma as a director to run the companies. The petition filed by the Reserve Bank of India, the appropriate regulator, under Article 227 of the Code read with Rule 5 of the Insolvency and Bankruptcy Rules (Insolvency and Liquidation Proceedings of Service Providers and Enforcement to Adjudication Authority), 2019 for initiating a corporate insolvency resolution process against Srei Equipment Finance Ltd, is hereby admitted, ” NCLT said. Likewise, an NCLT bench comprising Rajasekhar VK and HC Suri issued an order to initiate insolvency proceedings against Srei Infrastructure Finance Ltd admitting RBI’s plea. The court observed that the documents on file prove prima facie that there was a default and that the sum involved in such default exceeds the threshold of 1 crore rupee prescribed under Article 4 (i) of the Insolvency and Bankruptcy Code (IBC). “We are therefore convinced that this is an appropriate case for the opening of proceedings under article 227 read with rule 5 of the ibid rules, since the debt in question is considered a debt financial … “, declared the court. The NCLT also noted that RBI, by its notification dated October 4, 2021, replaced the boards of directors of both companies. He appointed Rajneesh Sharma, former managing director of the Bank of Baroda, as a director of the companies. The RBI proposed the name of Rajneesh Sharma as a director of the debtor company. He also filed his written consent to act as administrator, which was on file … ”NCLT said. However, upon Sharma’s appointment, NCLT said that would be subject to her filing another unconditional consent to act as a director. NCLT also put the two NBFC companies under moratorium and ordered all executives of the companies to provide all documents to the director. During the CIRP period, the management of the financial service provider will be transferred to the administrator. The directors and managers of the Financial Services Provider must provide all the documents in their possession and provide all the information to their knowledge to the Administrator within one week of the date of receipt of this Order, failing which whereupon enforcement action will follow, ”NCLT said. The orders follow two petitions filed by RBI through its attorney Sanjay Ginodia, a senior partner of R Ginodia & Co. The two entities owe more than Rs 30,000 crore to banks and financial institutions. This is the second insolvency proceeding against an NBFC initiated by the RBI under the Insolvency and Bankruptcy Code (IBC). Debt-ridden mortgage company Dewan Housing Finance (DHFL) was the first NBFC the RBI filed bankruptcy proceedings against in 2019. The Reserve Bank filed a request to initiate a resolution process. ‘corporate insolvency against two companies of the SREI group under Article 227 of the IBC. . The Reserve Bank had moved NCLT a day after the Bombay High Court dismissed SREI Group’s plea against RBI’s action against SREI Infrastructure Finance Ltd (SIFL) and SREI Equipment Finance Ltd (SEFL). The SREI group had challenged RBI’s decision to replace the boards of directors of the two NBFCs and initiate insolvency proceedings against them. On October 4, the RBI replaced the boards of directors of SIFL and SEFL due to governance issues and companies’ failure to meet their payment obligations. There were negative observations from auditors for the 2020-21 fiscal year. The auditor’s report on the consolidated financial results of SIFL and SEFL for the fiscal year 2020-21 indicated that the group’s net worth had eroded and that it had not been able to meet various ratios or regulatory limits. The auditors had expressed their concern as to the existence of a material uncertainty which casts significant doubt on the capacity of the group to continue its activity in the foreseeable future.

(This story was not edited by Devdiscourse staff and is auto-generated from a syndicated feed.)


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