The Bombay High Court last week dismissed a petition filed by a promoter of Srei group challenging an order of the Reserve Bank of India (RBI) through which it had appointed an administrator superseding the board of directors of the Company.
Adisri Commercial Private Limited (Adisri) had not only challenged the order of October 1, 2021, but also challenged the press release of October 4, 2021, which reinforced the order and added that RBI intended to shortly initiate the insolvency proceedings under the Insolvency and Bankruptcy Code.
A Bench of Justices Ujjal Bhuyan and Madhav Jamdar observed that courts cannot enter such areas which are earmarked for expert bodies like the RBI.
"These are matters of financial, economic and corporate decision making to handle, which corporate statutory bodies like RBI are fully empowered and competent. It would be hazardous and risky for the courts to enter into such domain which are dealt with by expert bodies," the Court said.
Senior Advocate Janak Dwarkadas arguing for Adisri, stated that the order had been passed in extreme haste.
He stated that a statutory inspection had been carried out on Srei Infrastructure Finance Ltd (SIFL) by RBI far back in March 2020 and hence there was "no proximate cause for taking such a drastic step as supersession of Board and appointment of administrator".
As for the press release, he stated that SIFL had informed RBI that it had received non-binding term sheets from Makara Capital and Arena Investment with investment proposal.
The "sudden impugned decision" and related "threat of approaching NCLT" for initiating corporate insolvency resolution process would jeopardise not only such investment proposals but the very future of the two NBFCs - SIFL and Srei Equipment Finance Ltd. (SEFL).
Senior Advocate Ravi Kadam for RBI stated that this is a clear case of complete financial mismanagement by SIFL and SEFL
He stated that there were serious allegations against both NBFCs of misdirection of companies funds - of non-compliance with RBI supervisory and regulatory instructions.
The two companies had defaulted in their debt obligations of all the creditors and are in a precarious financial condition.
Regarding the abruptness of the action was concerned, Kadam responded that there was a stay by National Company Law Tribunal (NCLT) and only after the stay was vacated by the appellate tribunal, was the action taken.
His concluding submission was that RBI had to step-in for discharge of its obligations when there is a question of poor corporate governance.
After considering submissions of both counsel, the Bench opined that there need not be any proximate cause for an action like the present one.
After considering the financial position of SIFL it was noted that despite opportunity granted to rectify governance issues and improve financial condition, nothing was done by the NBFCs.
Hence the present case was not a fit one to exercise its jurisdiction under Article 226 of the Constitution, the Court said.