Srei Group Transaction Auditor Reports Rs3,025-crore Fraud; Hemant Kanoria To Challenge the Report
Moneylife Digital Team 15 June 2022
The Reserve Bank of India (RBI)-appointed administrator at Srei Equipment Finance Ltd has found fraudulent transactions worth more than Rs3,000 crore conducted over financial year (FY) 2019-20 and 2020-21. The fraudulent transactions were found by BDO India LLP, which acted as transaction auditor for the administrator, according to the company's filing with exchanges. 
Loans involved with these fraudulent transactions were at Rs2,512 crore, while the notional loss to the company stood at Rs513.67 crore, the filing said. The notional loss was on account of charging lower interest rates while lending to 14 companies.
The administrator has filed an application with the Kolkata bench of the National Company Law Tribunal (NCLT) in this regard. The 14 respondents include: Power Trust, Kanoria Foundation and its trustees, India Power Corporation Ltd, India Power Corporation (Bodhgaya) Ltd and Tuticorin Electricity Supply Pvt. This is an initial filing based on the transaction auditor's report and further filings may be made in this case, the company said. 
Moneylife reached out to the erstwhile promoters of Srei group for their side of story. Sources close to Hemant Kanoria said he is already seeking legal recourse and plans to challenge the report. They questioned the validity of the report and said it followed an opaque approach. The sources also raised questions about how just when the resolution is around the corner why are such vested interests trying to discourage investors. They highlighted that such reports are likely to impact ongoing the resolution process, scare/discourage potential investors and erode value. 
The response further adds: “It is a travesty of fate of how the auditors have made it a habit of coming out with reports (earlier by KPMG and now BDO) that are improper and one sided, thus causing damage to the reputation of everyone. The BDO report has unfortunately shown loans given to the power sector labelling them as fraudulent, while many of them have been either regularly servicing these loans or have sought restructuring in view of the COVID issues from last year. This report seems to have been drawn up without having had any discussion with the erstwhile management or borrowers respectively. The methodology adopted by BDO is clearly against the principles of natural justice and fairness, therefore legal sources have said that the report will not stand the scrutiny of the adjudicating authority.”
The resolution process at Srei group has been ongoing since December 2020, much before the banking regulator initiated insolvency proceedings. The group had previously proposed to invite investments in Srei Equipment Finance from international private equity investors. But the plan did not materialise. 
In October 2021, the banking regulator put both the group companies—Srei Infrastructure Ltd. and Srei Equipment Finance—under insolvency proceedings, after superseding the board and appointing Rajneesh Sharma as the administrator. 
Financial creditors have claims worth Rs11,070 crore against Srei Infrastructure Finance and Rs34,223 crore against Srei Equipment Finance. A protracted legal battle with the agency could derail the resolution process.
Meanwhile, last week, lenders to the Srei group companies—Srei Infrastructure Finance Limited and Srei Equipment Finance Limited—voted to extend the deadline for submission of binding bids for the companies to 30th June. The initial deadline for submission of firm bids was set for 17th May, which was later extended to 7th June. However, given the complex nature of the deal involving the Srei group companies, bidders have sought more time before making their final offers. 
Fourteen suitors had submitted expressions of interest (EOI) to acquire Srei group companies under the insolvency and bankruptcy code (IBC) in March 2022. Assets reconstruction companies, including JM Financial ARC, Asset Reconstruction Company of India Limited (ARCIL) and Prudent ARC, are among the suitors that submitted EOIs. 
New York-based Arena Investors LP Ltd, Varde Investment's affiliate VFSI Holdings, Jindal Power, and Welspun group’s company Diameter Trading, too submitted EOIs for the twins. New York-based private equity firm Charlestown Capital Advisors and Star Asia Group have also jointly submitted an EOI, among others.
Lenders to Srei firms had invited EOIs for Srei group companies in the last week of February. The EOIs invited were for the resolution of Srei Infrastructure and Srei Equipment Finance together as a going concern. Interests for selective assets would not be accepted by lenders, it was said. 
Key lenders to Srei Infra include: Union Bank of India, Punjab National Bank, Canara Bank, Indian Bank, and Bank of Baroda, among others, while key lenders to Srei Equipment Finance include: Canara Bank, Union Bank of India, Punjab National Bank, State Bank of India and Bank of Baroda, among others.
2 weeks ago
No one talking about individual NCD investors who have put in hard earned money in to SREI for the sake of little extra interest.These people are in lurch.Any resolution should uphold the interest of such NCD investors
2 weeks ago
This is what happens when IBC takes more than two years to invite bidders.
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