NCLAT Lifts Restriction On RBI Action Against SREI Equipment Finance

The stay granted by NCLAT will remain effective till the pendency of RBI’s appeal against the Kolkata NCLT order.

The Reserve Bank of India (RBI) logo is displayed outside the central bank in Mumbai, India. (Photographer: Kanishka Sonthali/Bloomberg)
The Reserve Bank of India (RBI) logo is displayed outside the central bank in Mumbai, India. (Photographer: Kanishka Sonthali/Bloomberg)

In a partial relief for the Reserve Bank of India, the appellate tribunal has stayed the NCLT’s direction which prevented the central bank from taking any coercive action against non bank lender SREI Equipment Finance Ltd. The stay, as per the order, will remain effective till pendency of the central bank’s application.

A two-member bench of the National Company Law Appellate Tribunal observed that any opinion on NCLT’s power to pass an order against RBI can affect the merits of the appeal. And so, the tribunal deemed it fit to pass an ad-interim order, the NCLAT said.

That comes after the RBI filed an appeal citing that it was not made a party to the case at the Kolkata NCLT.

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To recap events so far—the Kolkata NCLT had directed that any non-payment of dues by SREI Infrastructure Finance and SREI Equipment Finance will not be recognised as an event of default, till a scheme of arrangement is signed by all creditors, which included its lenders as well as bond holders.

The NCLT, while disposing one of the applications had restrained governmental and regulatory authorities from taking any action against SREI Equipment Finance or changing its account status.

Counsel representing the RBI made following arguments in support of its appeal:

  • The RBI wasn’t made a party before the NCLT. Further, the directions passed by the tribunal were contrary to the law as it exceeded its jurisdiction while passing the order.
  • The tribunal is not empowered under the NCLT rules to pass an order that runs contrary to the RBI’s July 2015 master circular on prudential norms and asset classification.
  • It received a copy of the NCLT’s order and notice from the non bank lender on Jan.1 but couldn’t file an appeal against the order within the statutory limitation period of 45 days due to the outbreak of Covid-19.

The non-bank lender argued that the RBI was indulging in “forum shopping” and its master circular didn’t apply to an application filed under section 230 of the Companies Act, which deals with schemes of compromise or arrangements. Lastly, the class of creditors covered under the scheme are not regulated by the RBI.

The SREI group entities have been facing liquidity issues for the last two years. SREI Infrastructure Finance—a group entity has been pursuing a scheme of arrangement with SREI Equipment Finance Ltd. since 2019.

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