New Delhi, Oct 8 (PTI) The NCLT on Friday admitted the insolvency pleas moved by banking sector regulator RBI against two SREI Group firms and appointed an administrator to run the companies.

A two-member Kolkata Bench admitted two separate petitions filed by the RBI for initiation of corporate insolvency resolution proceeding (CIRP) against the two non-banking financial companies (NBFCs) -- SREI Infrastructure Finance and SREI Equipment Finance Ltd.

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The NCLT also appointed Rajneesh Sharma as the administrator to run the companies.

"The Petition bearing filed by the Reserve Bank of India, the Appropriate Regulator, under section 227 of the Code read with rule 5 of the Insolvency & Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 for initiating Corporate Insolvency Resolution Process against Srei Equipment Finance Ltd, is hereby admitted," said NCLT.

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Similarly, an NCLT bench comprising Rajasekhar V K and H C Suri passed an order to initiate insolvency proceedings against Srei Infrastructure Finance Ltd by admitting RBI's plea.

The tribunal observed that the documents placed on record prima facie prove that there has been a default and the sum involved in such default is in excess of the threshold limit of Rs 1 crore prescribed under Section 4(i) of the Insolvency and Bankruptcy Code (IBC).

"We are, therefore, satisfied that this is a fit case for initiation of proceedings under Section 227 read with Rule 5 of the Rules ibid, since the debt in question qualifies as a financial debt...," the tribunal said.

The NCLT also noted that RBI through its notification dated October 4, 2021, superseded the boards of both the companies.

It appointed Rajneesh Sharma, ex-chief general manager, Bank of Baroda, as the administrator of the firms.

"The RBI has proposed the name of Rajneesh Sharma as the Administrator of the Corporate Debtor. He has also filed his written consent to act as such Administrator, which has been placed on record... ," said NCLT. However, while appointing Sharma, NCLT said this would be subject to his filing other unconditional consent to act as the administrator.

NCLT also put both the NBFC firms under moratorium and directed all officers of the companies to provide all the documents to the administrator.

"During the CIRP period, the management of the Financial Service Provider shall vest in the Administrator. The officers and managers of the Financial Service Provider shall provide all documents in their possession and furnish every information in their knowledge to the Administrator within one week from the date of receipt of this Order, failing which coercive steps will follow," said NCLT.

The orders came over two petitions filed by RBI through its counsel Sanjay Ginodia, senior partner of R Ginodia & Co.

The two entities owe over Rs 30,000 crore to banks and financial institutions.

This is the second insolvency proceeding against an NBFC initiated by the RBI under the Insolvency and Bankruptcy Code (IBC). Debt-ridden mortgage firm Dewan Housing Finance (DHFL) was the first NBFC against which the RBI had initiated bankruptcy proceedings in 2019.

The Reserve Bank filed an application for initiation of corporate insolvency resolution process against two SREI group companies under Section 227 of the IBC.

The Reserve Bank had moved NCLT a day after the Bombay High Court dismissed SREI Group's plea against RBI action on SREI Infrastructure Finance Ltd (SIFL) and SREI Equipment Finance Ltd (SEFL).

SREI Group had challenged RBI's decision to supersede the boards of the two NBFCs and initiate insolvency proceedings against them.

The RBI, on October 4, superseded the board of directors of SIFL and SEFL owing to governance concerns and defaults by the companies in meeting payment obligations.

There were adverse observation by auditors for FY 2020-21. The statutory auditor's report on consolidated financial results of SIFL and SEFL for FY 2020-21 stated that the group's net worth had eroded and it had not been able to comply with various regulatory ratios or limits.

The auditors had expressed concern that there is a material uncertainty which casts significant doubt about the group's ability to continue as a "going concern" in the foreseeable future.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)