The Delhi High Court has restrained Punjab and Sind Bank from taking any further steps or actions against Srei Group of companies on the basis of an order declaring the account as fraud. The bank had recently declared outstanding dues of around ₹1,234 crore to the Srei group – Srei Infrastructure Finance and Srei Equipment Finance – as fraud and reported to the Reserve Bank of India.
Hemant Kanoria, founder and erstwhile director of Srei, recently filed a petition challenging the bank’s decision to declare the account as fraud. The counsel appearing on behalf of Kanoria submitted that the issue raised in the present petition is already pending before the Delhi High Court, which is listed for May 2.
In its recent order, the Delhi High Court said, in the light of the aforesaid, till the next date, the bank will stand restrained from taking any further steps or action prejudicial to the petitioner (Srei). This could be significant as it may discourage other banks from declaring the account as fraud, an industry official said.
Stock market notification
In a recent stock market notification, the bank said that the NPA accounts Srei Infrastructure Finance Ltd (SIFL) with outstanding dues of ₹510 crore and Srei Equipment Finance Ltd (SEFL) with outstanding dues of ₹724 crore have been declared as fraud. The accounts have been fully provided for, as per prescribed prudential norms, it said.
Sources close to Kanoria had termed the decision taken by the bank as rather “unfortunate” particularly when the KPMG report, on which the decision has seemingly been based, is still sub-judice.
“The Delhi High Court order would act as a deterrent and nip any such effort by other lending banks – from acting unilaterally and in haste in reclassifying Srei loans – based on the KPMG forensic report that has been challenged in the court. This order will help Srei preserve the resolution process while protecting the lenders and stakeholders from any value erosion on account of such unnecessary reclassification,” said Srei sources.
KPMG forensic report
In January this year, Kanoria had also moved the Kolkata bench of the National Company Law Tribunal seeking setting aside the appointment of KPMG, citing the issue of a possible parallel auditing as the company is currently undergoing corporate insolvency resolution process. He further challenged the KPMG forensic report, which itself suggests that the report is inconclusive.
The Kolkata bench of NCLT on October 8 gave its approval to start insolvency proceedings against the two companies after the RBI filed insolvency applications against the two companies.
The two Srei group companies, with a total outstanding of around ₹30,000 crore, are currently undergoing insolvency proceedings. The RBI-appointed administrator has received expression of interest from Vedanta, Jindal Power, and asset reconstruction companies such as Assets Care and Reconstruction Enterprise, JM Financial Asset Reconstruction Company and Asset Reconstruction Company (India) among others.