Punjab & Sind Bank has declared outstanding dues of around ₹1,234 crore to the Srei group firms – Srei Infrastructure Finance and Srei Equipment Finance -as fraud and reported it to Reserve Bank of India.
In a stock market notification on Tuesday, the bank said 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.
According to sources in Srei, the decision taken by the bank is rather “unfortunate” particularly when the KPMG report, on which the decision has seemingly been based, is still sub-judice.
Parallel auditing
It is to be noted that Hemant Kanoria, founder and erstwhile director of Srei, had earlier this year filed an application and sought setting aside the appointment of KPMG citing the issue of a possible parallel auditing as the company is currently undergoing corporate insolvency resolution process (CIRP).
It should be mentioned that the resolution professional for Srei has appointed BDO India LLP as the transaction auditor under the Insolvency and Bankruptcy Code (IBC).
However, the counsel appearing on behalf of the consortium of lenders contended that there were “damning parts” in the forensic audit report by KPMG in the Srei group companies and 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.
“PSU banks are damaging their own recoveries and acting without any application of mind or following any law. The company had offered full payment with interest which was formally refused by the banks, then they doctor a report through KPMG during the IBC process and while this matter is being heard in the court they go ahead and declare the account fraud. Banks should be held responsible by RBI and government for destroying companies and squandering public money with their senseless actions,” the official said on conditions of anonymity.
The Kolkata Bench of NCLT had, on October 8, gave its approval to start insolvency proceedings against the two companies after the Reserve Bank of India filed insolvency applications against the two firms.
The Reserve Bank of India-appointed administrator has admitted claims of around ₹31,868 crore of the total claims received of around ₹34, 223 crore from financial creditors to Srei Equipment Finance Ltd (SEFL). He had also admitted claims to the tune of ₹257 crore from financial creditors to Srei Infrastructure Finance.
Big corporates including Vedanta and Jindal Power, and asset reconstruction companies such as Assets Care and Reconstruction Enterprise, JM Financial Asset Reconstruction Company and Asset Reconstruction Company (India) (ARCIL) are some of the names that feature in the provisional list of eligible prospective resolution applicants for the Srei Group companies.