SREI Equipment Finance: NCLAT Lifts Restrictions on RBI Action
The National Company Law Appellate Tribunal (NCLAT) has ordered an interim stay on a specific section of the Kolkata National Company Law Tribunal (NCLT) order, which prevented the Reserve Bank of India (RBI) from taking any coercive action against SREI Equipment Finance Ltd. The interim stay (partial relief to the RBI), as per the order, will remain effective till pendency of the RBI's application.
 
The order by a two-member bench of the NCLAT observed that any opinion on NCLT’s power to pass an order against RBI can affect the merits of the appeal and so the Tribunal deemed it fit to pass an ad-interim order. 
 
Last week, the central bank had moved the tribunal challenging the 30 December 2020 order of NCLT, which allowed the Kolkata-based non-bank financial company (NBFC) to skip repayments between 1st January and 30 June 2021 and cited that it was not made a party to the case at the Kolkata NCLT. 
 
The RBI’s counsel also says the directions passed by the Kolkata bench were contrary to the law as it exceeded its jurisdiction while passing the order. The counsel for the central bank further pointed that the NCLT is not empowered under the NCLT rules to pass an order that runs contrary to the RBI’s July 2015 master circular on prudential norms and asset classification. 
 
The RBI says though it received a copy of the NCLT’s order from SREI on  1 January 2021, it was unable to file an appeal against the NCLT order within the statutory limitation period of 45 days due to covid.
 
Counsel for SREI contended that the RBI was indulging in ‘forum shopping’ and its master circular did not apply to an application filed under section 230 of the Companies Act, which deals with schemes of compromise or arrangements and also that the class of creditors covered under the scheme are not regulated by the RBI. 
 
“In paragraph 34 of the impugned order following direction is stayed till pendency of this appeal," the NCLAT said in an order on 31 March 2021.
 
Paragraph 34 of the Kolkata NCLT order states, “…We direct that in the meantime till further orders, the creditors of the applicant company covered under the scheme shall maintain status quo with respect to their contractual terms dues claims and rights and the creditors and all regulatory authorities shall be estopped from taking any coercive steps including reporting in any form and/or changing the account status of the company from being a standard asset which will prejudicially affect the company and/or sanctioning and/or implementation of the scheme”.
 
On 31st March, SREI Equipment Finance Ltd (SEFL) claimed it  received expressions of interest (EOIs) from overseas investors for a proposed round of capital infusion. The company had not made any comment about the NCLAT order which came out earlier the same day. 
 
Rating agencies and debenture trusteeships too had earlier last month appealed against a part of the order that restricted them from considering non-payment of dues by the company as a default. Debenture trustees Axis Trustee Services Ltd and Catalyst Trusteeship Ltd, which represent bondholders, have jointly filed an appeal in the NCLAT against the 30th December 2020 NCLT order, which has impacted retail and institutional investors alike. Ratings agencies had appealed against a section of the order that restricted them from considering non-payment of dues by the company as a default.
 
The Kolkata bench of NCLT had passed an order on 30 December 2020 that any non-payment of dues by SREI Infrastructure Finance and SREI Equipment Finance will not be recognised as an event of default, till a scheme of arrangement is signed by all creditors, which included its lenders as well as bond holders. The NCLT order also restrained all regulatory authorities and rating agencies from taking any action against SREI group or changing its account status while granting a blanket moratorium on repayments from 1st January to 30th June. Under the scheme of arrangement, the company has proposed to make repayments to various categories of debenture holders over an extended period. 
 
The SREI group has been facing liquidity issues for the last two years and covid has impacted it further. 
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