HC order on bid to declare accounts as fraud: Karnataka Bank restrained from action against Srei

A petition was filed by Kanoria in the high court after Karnataka Bank had reported to RBI regarding the alleged fraud. In an order dated May 18, the court said till the next date of hearing, the bank is restrained from taking any further steps or actions prejudicial to the petitioner on the basis of the order declaring petitioner’s bank account as fraud.

The high court's decision is in line with its earlier order in matter of Kanoria's petition against state-run Punjab and Sind Bank.

Granting an interim relief to Srei founder Hemant Kanoria, the Delhi High Court has restrained private sector lender Karnataka Bank, which has reported frauds in the credit facilities extended to Srei Equipment Finance and investment made in debentures issued by Srei Infrastructure Finance, from taking any further steps or actions on the basis of declaring the accounts as fraud.

A petition was filed by Kanoria in the high court after Karnataka Bank had reported to RBI regarding the alleged fraud. In an order dated May 18, the court said till the next date of hearing, the bank is restrained from taking any further steps or actions prejudicial to the petitioner on the basis of the order declaring petitioner’s bank account as fraud.

Notably, in a stock exchange filing on May 10, Karnataka Bank said it declared its outstanding dues of around Rs12.81 crore to Srei Equipment Finance (SEFL) as fraud. It also reported a fraud with respect toRs 10 crore invested in non-convertible debentures issued by SREI Infrastructure Finance (SIFL).

The high court’s decision is in line with its earlier order in matter of Kanoria’s petition against state-run Punjab and Sind Bank.

In an order dated April 22, the Delhi High Court restrained Punjab and Sind Bank from declaring the bank accounts of Srei firms as fraud after Kanoria had sought legal reprieve. The matter was listed for hearing on August 23.

Union Bank of India has also classified the accounts of Srei Equipment Finance and Srei Infrastructure Finance as fraud due to alleged diversion of funds. The bank, in a stock exchange filing on May 19, said it will initiate the “appropriate legal proceedings” in this regard in due course of time.

Significantly, the Kolkata bench of the National Company Law Tribunal (NCLT) on May 17 dismissed a plea filed by Kanoria contesting the forensic audit conducted by KPMG, which had been appointed by the lenders to the two Srei firms. The bench also dismissed a contempt application, moved by him, against Punjab and Sind Bank over alleged violation of an interim order of the tribunal by declaring accounts of the two firms as ‘fraud’ and intimating it to the stock exchanges.

Commenting on the NCLT orders, Kanoria Foundation spokesperson Dhruv Bhalla said, “We are evaluating the order and would be firming up our next move shortly. All options, including filing with higher courts, are open for consideration.”

Insolvency proceedings against SIFL and SEFL, two NBFCs, commenced from October last year after the insolvency petitions, filed by the Reserve Bank of India, had been approved by the Kolkata bench of the NCLT.

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