The Bombay High Court on Thursday dismissed the petition filed by the Srei Group promoters against the Reserve Bank of India's (RBI) recent move to supersede the boards of SREI Infrastructure Finance Limited (SIFL), and SREI Equipment Finance Limited (SEFL).
RBI on Monday superseded the boards of SIFL and SEFL, citing concerns over governance and payment defaults, and decided to refer the two NBFCs for resolution under the insolvency law. The two entities owe over Rs 30,000 crore to banks and financial institutions.
This is only the second time in as many years that RBI has referred entities for resolution under the Insolvency and Bankruptcy Code (IBC) after taking the first-ever such step in the case of DHFL back in 2019.
The RBI has appointed Rajneesh Sharma, former chief general manager of Bank of Baroda, as the administrator to manage the affairs of the two companies.
A Srei Group spokesperson had said SIFL was "shocked" by RBI's move as banks have been regularly appropriating funds from the escrow account they have controlled since November 2020, and added that necessary steps as advised by its lawyers will be taken.
Nilang Desai of AZB and Partners said both counsels argued very well, "Counsel for RBI made claims that this was a fitting action for the apex bank to take the step, which has been taken. There is nothing arbitrary or discriminatory here and the courts must interfere with the decision of a financial regulator in the rarest of cases. It seems to me that this does not seem to the court a case where the RBI has acted in a discriminatory manner or in an arbitrary manner and therefore it did not feel any need to exercise judicial discussion."
"SREI’s arguments were that the arguments put forth by the RBI in the action of supersession had all been responded to. The actions taken by RBI were facts that may not be entirely in place or entirely correct etc. I think RBI’s point was that it has all the evidence that the bank needs. The RBI has submitted their reports, reports from the lenders, that it has all the evidence that it needs in such a case to go ahead and take the action it thinks is fitting. The bank also has written various letters to Srei Group explaining to them, what the issues are, what the concerns are etc," he said.
"In RBI's views, there is not enough that has been done to fix the problem in Srei cause. Also, Srei is in a place where the RBI feels that it is a fitting case to initiate insolvency proceedings and replace the management and then take further steps that they think fit," he stated.
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