The Kolkata bench of the National Company Law Tribunal (NCLT) on Tuesday dismissed a plea filed by Srei founder Hemant Kanoria contesting the forensic audit conducted by KPMG, which had been appointed by the lenders to Srei Infrastructure Finance (SIFL) and Srei Equipment Finance (SEFL). The bench also dismissed a contempt application, moved by Kanoria, against Punjab and Sind Bank over alleged violation of an interim order of the tribunal by declaring accounts of SEFL and SIFL as ‘fraud’ and intimating it to the stock exchanges.
Commenting 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.”
Advocates appearing on behalf of Kanoria said the main issue for consideration involved an audit being conducted by KPMG at the “instance of the consortium of banks”, and whether the same could still be continued after the commencement of the corporate insolvency resolution process (CIRP) against SIFL and SEFL.
Notably, 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.
In their submissions, Kanoria’s counsels appealed to set aside the audit process in the light of initiation of the CIRP, and refrain the lenders from publishing any audit report to the Central Repository of Information on Large Credits. They cited an issue of parallel auditing under the insolvency process as the RBI-appointed administrator, Rajneesh Sharma, had appointed BDO India LLP as the transaction auditor.
On Punjab and Sind Bank declaring accounts of Srei Equipment Finance and Srei Infrastructure Finance as ‘fraud’ and intimating it to the stock exchanges, counsels for Kanoria said the lender made a “wilful and deliberate violation” of the interim order, passed by the NCLT on February 7. The Kolkata bench of the NCLT, in its order dated February 7, directed banks not to disseminate the report of the two NBFC accounts by KPMG, they said.
Notably, lenders had appointed KPMG in April 2021 for a forensic audit, when a loan recast was being considered.
The advocate, representing lenders, argued that the act of the Punjab and Sind Bank was not a contempt. The order said lenders could not disseminate the KPMG report, but that did not stop them to take any action further.
Earlier, 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. In an order dated April 22, the high court said till the next date, the bank will stand restrained from taking any further steps or action prejudicial to the petitioner on the basis of the order declaring the petitioner’s bank account as fraud. The matter was listed for hearing on August 23.
Private sector lender Karnataka Bank on May 10 informed the stock exchanges that it had reported to the RBI regarding “fraud” in credit facilities extended earlier to Srei Equipment Finance.