The Kolkata bench of the National Company Law Tribunal (NCLT) on Tuesday dismissed a petition filed by Srei founder Hemant Kanoria against forensic audit conducted by KPMG, which was appointed by the lenders for the group companies—Srei Infrastructure Finance (SIFL) and Srei Equipment Finance (SEFL).

The bench also dismissed a contempt application filed by Kanoria against state-owned Punjab and Sind Bank over alleged violation of an interim order of the tribunal by declaring accounts of SEFL and SIFL as “fraud” and intimating it to the stock exchanges.

Had challenged KPMG report

In January this year, Kanoria had moved the Kolkata bench of NCLT 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.

However, in one of the recent submissions made before the bench, comprising member (judicial) Rajasekhar VK and member (technical) Balraj Joshi, the counsel appearing on behalf of the consortium of lenders, claimed that there were several “damning parts” in the forensic audit report by KPMG in the Srei group companies.

According to the counsel, there is nothing that can stop banks from conducting an investigation as they are duty-bound and legally obliged to file a complaint (if the situation warrants). He also argued that while dealing with cases of fraud and embezzlement, banks should not merely look at expeditious recovery of amount involved, but also be motivated by public interest.

It is to be noted that Punjab & Sind Bank, in April this year, had declared as fraud the outstanding dues of around ₹1,234 crore to Srei group firms Srei Infrastructure Finance and Srei Equipment Finance. The Delhi High Court, however, had restrained the bank from taking any action against Srei Group companies on the basis of the declaration.

In their submission before the bench, counsels for Kanoria contended that Punjab and Sind Bank made a “wilful and deliberate violation” of the interim order, passed by the NCLT on February 7, which had directed banks not to disseminate the report of the two NBFC accounts by KPMG.

“Restriction on classification by PSB continues basis Delhi High Court stay. We are evaluating the order and will be firming up our next move shortly. All options including filing with higher courts, are open for consideration,” Dhruv Bhalla, spokesperson, Kanoria Foundation, told BusinessLine.

Karnataka Bank has also recently declared its outstanding dues of around ₹12.81 crore to Srei Equipment Finance as fraud and reported this to the Reserve Bank of India. It has also reported a fraud with respect to ₹10 crore invested in non-convertible debentures issued by SREI Infrastructure Finance, which was a non-performing asset (NPA) since September 2021.

Insolvency proceedings

The Kolkata bench of NCLT, on October 8, had given its approval to start insolvency proceedings against the two companies after the Reserve Bank of India filed insolvency applications against the two companies.

Citing governance concerns and defaults by the two NBFCs in meeting their various payment obligations, the RBI had on October 4 superseded their boards and appointed Rajneesh Sharma, former chief general manager, Bank of Baroda, as the administrator of the companies. The Kolkata bench ofNCLT , in February this year, had allowed group insolvency proceedings for Srei Equipment Finance and Srei Infrastructure Finance.