The Reserve Bank of India (RBI)-appointed administrator at SREI Equipment Finance Ltd has found fraudulent transactions worth ₹3,025.73 crore in 2020-21. BDO India LLP, which was appointed as the transaction auditor to conduct the probe, found these fraudulent transactions and submitted the report to the administrator.

As per the transaction auditor report shared with administrator Rajneesh Sharma, loans worth ₹2,512.06 crore were connected to these fraudulent transactions, which caused the notional loss worth ₹513.67 crore to the company. The loss was caused on account of “fraudulently charging a lower rate of interest” to certain entities referred to as the “power trust group” of entities.

The administrator filed the application against 14 respondents, including Power Trust, Kanoria Foundation and its trustees, India Power Corporation Ltd, India Power Corporation (Bodhgaya) Ltd, Tuticorin Electricity Supply Private Ltd, Bhaskar Silicon Private Ltd, Green Utility Private Ltd, Environ Energy Corp India Private Ltd, Meenakshi Energy Ltd, Devi Trading and Holding Private Ltd and certain other entities as reported by the transaction auditor.

"The preliminary estimates included in the application place the monetary impact of the concerned transactions at around ₹2,512.06 crores, as being the amount outstanding in the books of the company as of June 30, 2019, and additionally ₹513.67 crore being the amount considered as due and outstanding towards notional loss to the company on account of fraudulently charging a lower rate of interest to certain entities referred to in the application," the company informed the stock exchanges.

The application was filed before the National Company Law Tribunal (NCLT) on June 10, 2022. The company says this is an initial filing based on the report submitted by the transaction auditor and further filings may be undertaken, in due course.

All relevant details regarding these proceedings have been included in the application filed before the Kolkata bench of NCLT, and are presently pending consideration, it adds.

The RBI had superseded the boards of SREI Infrastructure Finance and SREI Equipment Finance in October 2021, citing governance concerns and defaults by the two companies.

According to Care Ratings, the debt of the two companies exceeds ₹29,000 crore (around $4 billion), with dues from SREI Infrastructure Finance to lenders and other creditors pegged at ₹11,828 crore and that of SREI Equipment Finance at over ₹17,400 crore.

The RBI had flagged off lending to probable related parties by SREI group of companies in its inspection and risk assessment report for the year ended March 31, 2020.

In fact, SREI was directed by the regulator to reassess and factor in the impact of certain parties during the finalisation of the balance sheet for FY21, and to provide relevant accounting treatment and appropriate disclosures. Following this, the company had to provide for credit loss provisions of ₹4,685 crore and additional provisions of ₹4,475 crore under the income recognition and asset classification norms.

The SREI referral was the second instance where RBI initiated insolvency proceedings against a non-banking lender. In November 2019, the central bank had referred Dewan Housing Finance Corp. to the IBC and later, the Piramal Group wrapped up the transaction for ₹34,250 crore.

SREI risk assessment report

SREI crisis: Administrator finds fraudulent transactions worth ₹3,025 cr