Negligible revenues, insufficient collateral yet Srei Group lenders gave crores to obscure firms – The Economic Times

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SynopsisAmid insolvency proceedings, Srei Group-owned lenders’ decisions, taken as recent as two years back, could bring more trouble for the group. Documents filed with the RoC show that Srei Equipment Finance gave loans worth hundreds of crores to newly incorporated firms having revenues under INR1 lakh.

Facing bankruptcy under a Reserve Bank of India (RBI)-appointed administrator, Srei Group-owned non-banking financial companies (NBFCs) could be in for more trouble as its filings with the Registrar of Companies (RoC), reviewed by ET Prime, have revealed that Srei Equipment Finance (Srei Equipment) gave loans worth hundreds of crores to companies that had negligible revenues, and that too without sufficient collateral.

What’s more striking is that these loans were sanctioned during 2020-2021 when Srei Equipment’s deteriorated quality of books of accounts was noted by the RBI and it had ordered a special audit in November 2020. This was when the issues with the Srei Group first came to surface.

A special audit is typically undertaken if there is a sharp deterioration in the quality of a lender’s books of accounts.

Apart from a special audit, the RBI took another serious step. On October 5, 2021, the central bank superseded the boards of the two lenders, namely, Srei Infrastructure Finance (Srei Infra) and its wholly owned subsidiary Srei Equipment, and had referred them to the bankruptcy court.

The creditors are now considering a joint insolvency proceeding for the Srei lenders in order to ensure a better recovery for around INR30,000 crore stuck with the two NBFCs.

Even as the insolvency proceedings continue, Srei Equipment and Srei Infra have more reasons to worry as the loans as mentioned above, worth over INR825 crore, were given to newly incorporated companies with no revenue stream and without proper collateral.

The erstwhile promoters of the Srei Group, that ET Prime approached for comments, deny any wrongdoing. “Whatever loans were given, were made in the routine course of business and at arm’s length. All due processes laid down by the management were being followed. At present, we do not have access to any data from Srei (Srei Infra and Srei Equipment) at this point, since the companies are now under the RBI administrator. Until we have access to this data, it would be impossible for us to make any statement,” the official spokesperson of Kanoria Foundation told ET Prime.

Kanoria Foundation is the holding entity of the Kanoria family, the erstwhile promoters of Srei group of companies.

Loans extended without sufficient collateral
Three months before RBI superseded the boards of Srei Group-owned lenders, in June 2021 to be precise, Srei Equipment granted a loan worth INR277.6 crore to a Kolkata-based entity named Bristi Real-Tech Private Limited.

Notably, this was after the RBI initiated a special audit on the Srei Group lenders in November 2020.

The company’s ownership is equally divided among two individuals, namely, Gita Pandit and Sarmistha Halder since incorporation and it currently counts Samir Maity and Bidyadharan Ray as the only two directors on board since March 2021.

The deed of hypothecation pertaining to the said loan reveals that there was no specific collateral provided by Bristi Real-Tech against the loan.

Srei has only hypothecated all assets of the company, book debts, receivables, and operating cash flows arising in future to secure due repayment of the loan.

Companies that received loans worth hundreds _of crores from Srei Equipment Finance@2x

So in effect, Srei Equipment sanctioned an INR277.6 crore loan to a company with no visible revenue stream and an asset base of mere INR1 lakh. There is also no clarity on how the loan proceeds are going to be utilised by the company.

ET Prime tried to reach out to Sarmistha Halder, promoter of Bristi Real-Tech, on her phone number available with RoC.

As Sarmistha Halder was unavailable, her father, J Halder, said, “Sarmistha Halder is no longer associated with the company (Bristi Real-Tech). She, along with the other promoter Gita Pandit, resigned from the company around four months back. I was running the company on her name trying to build up an export business. However, we are no longer associated with the company and have transferred stake (without any consideration) to an Orissa-based individual.”

He added, “We (Halder family) have no association with the Srei Group, Kanoria Foundation or Kanoria family. We are not aware of any loan granted by Srei Equipment Finance.”

According to RoC filings, Halder resigned from the board on March 12, 2021, while Pandit had resigned from the board of directors a few years back on June 28, 2019.

In August 2020, Srei Equipment also gave a loan to another Kolkata-based company, namely, Samgrahah Commercial Private Limited. Samgrahah Commercial, incorporated in March 2018, is promoted by Sanjay Pada and Sarika Pada.

As on March 31, 2020, the Pada duo was holding a stake of 50% each in the company, as shown in the company’s filings with RoC. Like Bristi Real-Tech, Samgrahah too has posted zero revenues from operation since incorporation and has an insignificant asset base of less than INR1 lakh.

During 2020-21, the shares in the company changed hands.

The ownership got transferred to Srei Multiple Asset Investment Trust (Vision India Fund) on August 22, 2020. Just three days after the change in ownership, the company received a huge amount of loan of INR500 crore from Srei Equipment.

The change in ownership also brought a change in directorship where Shilpa Modi and Dipen Chatterjee joined the company’s board of directors.

Modi is a Srei representative, while Chatterjee is a partner in a Mumbai-based law firm, Khaitan & Co. Samgrahah Commercial shares the same registered address as that of Srei Equipment, Srei Infra and other Srei Group companies.

The hypothecation deed signed between Samgrahah Commercial and Srei Equipment also does not specify any particular collateral for the loan. The deed looks similar to that of Bristi Real-Tech where all future assets, cash flows and other things have been hypothecated.

ET Prime spoke with Shilpa Modi on a call where she denied any association with Samgrahah Commercial. “I am no longer a director with Samgrahah Commercial as I have resigned from the directorship of the company. I am also no longer associated with Srei Group anymore. Can’t provide any further details,” she said.

On a phone call with ET Prime, Dipen Chatterjee said, “I represent Khaitan & Co. and hold directorship in Samgrahah Commercial in the capacity of a lawyer. The company is an SPV (special purpose vehicle) and can’t divulge details any further.”

Another company that received INR50 crore as loan from Srei Equipment is Svayambhut Marketing Private Limited. It was incorporated in January 2017.

The loan was sanctioned in June 2020.

The company has two promoter shareholders — Vicky Kumar Modi and Saurav Agarwal — holding equal stakes in the company as on March 31, 2020, as per the company’s filings with RoC.

The company has not posted any revenue since its incorporation until March 2020 — the latest financials available with RoC.

The books of accounts of Svayambhut Marketing show that the company had taken INR49 crore worth inter-corporate loan during 2017-18 from a corporate body, payable at demand, according to documents filed with RoC. However, the company’s annual report does not specify the name of the corporate body. Svayambhut Marketing used the proceeds of the loan to buy a commercial property worth INR47.69 crore during 2018-19.

The company received an INR50 crore loan from Srei equipment during June 2020 in two equal tranches.

Unlike Bristi Real-Tech and Samgrahah Commercial, the hypothecation deed signed between two parties did mention the assets put as collateral.

Svayambhut Marketing owns commercial space in fourth to ninth floor in the Westin Hotel property located in Rajarhat, Kolkata. The company has around 8,099 square metre of built-up area under its possession. Interestingly, Westin Hotel is owned by Shristi Hotel, the firm is privately held by the Kanoria family — promoters of Srei Equipment.

It raises a few valid questions: what was the source of funds for Svayambhut Marketing? Which corporate body gave a loan to the company to buy the said commercial property from Shristi Hotel, a Kanoria family-owned company, which later got bailed out by a loan from Srei Equipment?

Emails sent to Sanjay Pada, Sarika Pada, Vicky Modi did not elicit any response till the time of publication.

Vicky Modi’s connection with Srei
ET Prime had previously reported around the haze of Srei’s curious transactions with a trio of businessmen. Srei lenders have lent a huge sum of money to companies related to three businessmen with negligible capital investments to own stakes in Kanoria family-owned entities.

Vicky Modi, the promoter of Svayambhut Marketing also owns 50% stake in Mriduhasini Power which bought 40.97% stake in Bhaskar Silicon Private Limited during 2018-19.

During the same year, Bhaskar Silicon received loans worth INR730 crore from Srei Infra and Srei Equipment, which was further transferred to Power Trust with an advance of INR655 crore for purchase of energy projects (Hiranmaye Energy Limited) of Power Trust.

It further extended loans to other entities such as Adhyatma Commercial Private Limited, owned by the Kanoria family and Environ Energy Corp, indirectly linked to the Kanorias.

Similarly, another company named Predicate Consultants Private Limited received INR143 crore as a loan from Srei Infra during 2018-19 to buy a stake of 11.34% in Bharat Road Network Limited (BRNL), in which Srei Infra directly owns 19.8%, while another 33.5% is held by Srei Venture Capital Trust, in which Srei Infra has an economic interest.

Predicate Consultants now counts Sanjay Pada and Sarika Pada as the only directors, appointed since June 2021.

The bottom line
Extending huge amounts of loans to companies with no prior track record, negligible assets and zero revenues raise a red flag. Moreover, the inter-relationships between the companies and promoters to which these loans have been extended make it even more murky.

The insolvency process of the two Srei lenders is underway, and the report of the special audit initiated by the RBI is expected by the end of month. The report is likely to reveal what went behind such transactions mentioned above and what actually went wrong at the two Srei Group NBFCs.

(Graphic by Sadhana Saxena)

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