Lenders to knock NCLAT doors against Srei group2 min read . Updated: 18 Nov 2020, 07:15 AM IST
They alleged that Srei decided to transfer its assets into SEFL without their approval
A section of lenders to Kolkata-based Srei group are expected to approach the National Company Law Appellate Tribunal (NCLAT) over Srei’s move to reconsolidate its assets in a separate group company in potential breach of loan covenants, two people aware of the development said.
The appeal, expected to be made in the coming weeks, will seek to overturn an order by the Kolkata bench of the National Company Law Tribunal (NCLT) initiating the process of transfer of the assets concerned, which the lenders allege was done without their approval or knowledge, the persons mentioned above said on condition of anonymity.
This pertains to the consolidation of the group’s lending business into Srei Equipment Finance Ltd (SEFL) announced last year. This was done through a slump exchange and was effective from 1 October 2019.
The lenders have held consortium meetings earlier this month to discuss the matter and plan to challenge it legally, a senior banker said. “The company has taken approval from UCO Bank and Axis Bank whereas other lenders are yet to give their no-objection certificates. Assets and liabilities cannot be transferred between companies in this manner without the explicit approval of lenders," he said.
The Kolkata bench of NCLT has also ordered that lenders shall also maintain status quo till further orders and prohibited any coercive steps, including changing the account status from standard. This status quo will also be challenged in the NCLAT, the banker said.
Srei has decided to consolidate the lending business into SEFL “since the focus for last four years has been on growing equipment financing and reducing the infrastructure loan portfolio", it said in a regulatory filing on 4 July 2019.
“The proposed step will also facilitate the lending entity, Srei Equipment, to attract strategic investors and also prepare the company for a conversion into a bank, as and when the Reserve Bank of India (RBI) decides to allow the conversion," the company had said in July last year.
Srei Infrastructure Finance also said in its FY20 annual report that it and its subsidiary SEFL, has obtained approvals from their respective lead bankers to the consortium, Axis Bank Ltd and UCO Bank Ltd and a few other lenders. “The approval from the remaining lenders is in process," it said.
The process of slump exchange involves taking approval from several stakeholders and, therefore, the company has taken approvals from debenture trustees, shareholders, lenders and several other stakeholders, including the lead banker, an SEFL spokesperson said.
“The process of approval from bankers happens through the consortium, which was discussed in meetings since October 2019. Usually, the formal approvals take time due to the internal processes of the lenders. Unfortunately, because of the outbreak of covid-19 in March 2020 and the continued lockdown, the entire process got delayed further," the spokesperson said in an emailed response.
Emails sent to UCO Bank and Axis Bank remained unanswered till press time.
Creditors to the company will meet on 16 December and 23 December, said the NCLT order on 21 October. Following this, Care Ratings placed ratings of SEFL under credit watch with developing implications pending outcome of the above proposed meetings of creditors. “The collections of SEFL have continued to remain impacted even after the end of the moratorium because of the challenges in deployment and slow movement in infrastructure projects on account of the covid-19 pandemic. Further, it has been approached by a large proportion of its borrowers for restructuring as per RBI guidelines," the rating agency said on 9 November. The company has total bank facilities of ₹16,912.2 crore, it said.