How a debt-free SREI was pushed into insolvency

Mumbai: Amid renewed public scrutiny and commentary following recent CBI raids linked to the alleged UCO Bank fraud case, the Kanoria Foundation has said it will place all material facts on record regarding the insolvency of Srei Infrastructure Finance Ltd. (SREI). The Foundation has outlined the sequence of events that led to SREI’s admission into insolvency, raising serious questions over the process and the role of lending banks. Speaking toBizz Buzz, a company spokesperson said “Srei Infrastructure Finance Ltd. (SIFL) was a listed company with no debt since October 2019, a fact consistently reflected in its audited annual accounts for FY20, FY21, FY22 and subsequent years.”

“This raises a fundamental question: how can a company with no debt be admitted into bankruptcy?” the spokesperson said. Despite this, SIFL was admitted into insolvency under the Insolvency and Bankruptcy Code (IBC), resulting in shareholders losing their entire investment. According to the Foundation, the collapse was not due to business failure or financial mismanagement, but the result of a deliberate and coordinated attempt to dismantle the company.

SIFL’s subsidiary, Srei Equipment Finance Ltd. (SEFL), followed a similar trajectory. SEFL, which was initially a joint venture with BNP Paribas before becoming a wholly owned subsidiary, had no payment defaults and was run under professional management. The sequence of events after the administrator assumed control on October 4, 2021, has raised serious concerns. Within three days, UCO Bank declared Srei in default on October 7, and the very next day, October 8, the company was admitted into insolvency. “This speed defies commercial logic,” the spokesperson said, adding that since November 2020, SREI’s bank accounts and financial ops were under the control of UCO Bank—the same bank that issued the default notice.

Allegations against the former board and promoters claim that loans were extended at interest rates of 14–18 per cent and that structured finance was provided to weak borrowers. The Foundation said these charges ignore the very nature of the NBFC business model. “As facts emerge, the conspiracy of the lending banks is increasingly surfacing,” said Dhruv Bhalla, Group Head–Corporate Affairs, Kanoria Foundation.