SREI founders may offer resolution plan under CIRP if RBI and lenders allow

Will refrain of apex bank and lenders resist such a move, says Hemant Kanoria

The Kanorias, founders of SREI group, may look at submitting a resolution plan for the firms under corporate insolvency resolution process (CIRP) if the Reserve Bank of India (RBI) and bankers allow.

“If we find that creditors are not getting a good deal and the regulator or the government allows us, then we would step in to see that the creditors are paid off because as a family, our reputation is involved,” Hemant Kanoria, founder, SREI group, said.

However, he indicated that if there was any resistance to such a move from the central bank or the bankers, then he would refrain.  

The Kanoria group, which has been in the business of infrastructure lending for the past three decades, hit nadir with the RBI superseding the boards of two entities – SREI Infrastructure Finance and SREI Equipment – on governance concerns and defaults by the companies in meeting various payment obligations.

On October 8, National Company Law Tribunal (NCLT), Kolkata, admitted the central bank’s applications for initiating CIRP. Total borrowings of SIFL and SEFL from banks and non-banks stood at Rs 32,157 crore as on June 30, 2021.

A plan for payment to all creditors was made in October 2020 and December 2020 and if allowed now then the same could be adhered to in the resolution plan, said Kanoria.

“Even the international investors who had shown interest can be brought back for an expeditious resolution,” he added.

Ahead of bankruptcy proceedings, SEFL had received expressions of interest from 11 global investors and, subsequently, received non-binding term sheets from Arena and Makara Capital Partners.

The application for the fit and proper clearance was sent to the RBI after the approval of the Strategic Coordination Committee set up by the company and the board of directors.

According to Kanoria, there are a lot of assets in SREI which can be liquidated to pay back creditors.

“The assets are against the loans which have been given to borrowers i.e. securities of equipment, project assets, claims and arbitration awards, etc. which have high replacement value, but needs to be monetized patiently and in cooperation with the borrowers,” he explained.

Kanoria has not reached out to the administrator or bankers with any proposal. “At present it is too premature,” he said.

The insolvency process which commenced on October 8 is in the early stages. The last date of submission of financial claims was October 22. The estimated date of closure is April 6, 2022 (which is 180 days from the insolvency commencement date).

The RBI in its order for supersession of the boards of SREI companies had cited several reasons.

One of the reasons cited for SIFL, as mentioned in the Bombay High Court order, was that it had remained non-compliant with RBI regulations and supervisory instructions. Despite continuous engagement and follow up by the Reserve Bank, SIFL has failed to take corrective action on governance, systems and controls, compliance, etc.

A promoter entity of SIFL, Adisri, had moved the Bombay High Court after the RBI superseded the boards against it. However, it was dismissed by the court.

Reflecting, Kanoria said, as an organization, as a group, we felt being compliant was important.

“Still, somewhere we must have made a mistake because there has been a gap. Many times you have to reflect on the mistakes you have made and see how to correct it, going forward,” he said.

“May be, our representations and compliances were not as expeditious as the regulator may have wanted. The company felt they had to put up their contentions but those contentions may not have got acceptance in related-party transactions or connected-party also,” he further added.

The RBI, it may be mentioned, had conducted an audit and flagged Rs 8,576 crore of probable related party transactions.

Last month, the central bank barred audit firm Haribhakti & Co from undertaking any type of audit assignments in any of the entities regulated by RBI for failing to comply with a specific direction with respect to its statutory audit of a systemically important non-banking financial company. Haribhakti was the auditor of SIFL for 2019-20.

Commenting on the development, Kanoria said, “We are not fully aware of the details,” and added, “But it is sad. End of the day, the endeavor has been to comply with the regulations for the auditors and everyone.”

A TIMELINE

 2020

• October: SREI moves NCLT with debt realignment scheme for bankers

• November: SIFL informs stock exchanges about special audit of the company and SEFL by an auditor appointed by RBI

• December: SREI moves NCLT, includes all creditors in scheme for payment

2021

• October: RBI supersedes boards of SIFL and SEFL

• Adisri, a promoter entity of SIFL, moves Bombay High Court against RBI move

• NCLT admits applications filed by RBI for initiating CIRP