The Forum for Companies Under the Resolution Process (FCRP), a grouping of businessmen, has raised concerns about an EY top executive being the resolution professional for the Srei group, which is undergoing RBI-mandated insolvency proceedings, saying his appointment “reeks of conflicts of interest”.

Abizer Diwanji, a partner and national leader for financial services practices at EY, is the resolution professional for the Srei group, which is only the second financial services player referred by the Reserve Bank of India (RBI) for resolution under the Insolvency and Bankruptcy Code (IBC) after Dewan Housing Finance Limited.

The FCRP, an advocacy group which has businessmen like Educomp Founder Shantanu Prakash, CNC Constructions' Sanjay Gupta, Su-Kam Power Systems Founder Kunwer Sachdev and MARG Group's GRK Reddy as its members, has flagged concerns over the appointment of Diwanji as the resolution professional.

The group has written to the Parliamentary Standing Committee on Finance, headed by BJP's Jayant Sinha, Insolvency and Bankruptcy Board of India (IBBI) Chairman Navrang Saini and Corporate Affairs Secretary Rajesh Verma, saying the professional's appointment reeks of conflicts of interest.

In a letter dated December 10, 2021, the FCRP said EY had worked with Srei till a few months before the RBI decided to send the entity for resolution under the IBC.

EY had acted as a financial and restructuring advisor and the same proposal that its bankers rejected is being proposed as resolution process for Srei Infrastructure Finance and Srei Equipment Finance, which collectively owe around Rs 30,000 crore to lenders led by UCO Bank, says the letter.

The RBI superseded the two companies' boards on October 4, 2021, citing governance issues and defaults. On October 8, the RBI referred these companies to the Kolkata bench of the National Company Law Tribunal for resolution.

Under the IBC, a resolution professional is appointed by the NCLT while recommendations can be made by a party that has filed the insolvency application and the committee of creditors.

The RBI did not offer a comment to PTI on why an EY executive was appointed as the resolution professional despite he and his audit firm having worked on a contract from the Srei board from May 2020 to July 2021. An EY spokesperson said they will not offer any comment on the matter. Stating that “the Srei resolution process is a fine example of how contradiction is the 'C' in the IBC”, the FCRP wanted to know “how a proposal that bankers opposed becomes the proposal the administrators propose now. Isn't it odd that the only real beneficiaries in the resolution process are the auditors?”.

Section 3 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, deals with eligibility of resolution professional.

Among other provisions, the section says, “an insolvency professional shall be eligible to be appointed as an interim resolution professional/resolution professional, if he, and all partners and directors of the insolvency professional's entity of which he is a partner or director, are independent of the corporate debtor”.

One of the provisions also mentions that a person shall be considered independent of the corporate debtor if the person is not an employee or proprietor or a partner of a legal or a consulting firm, “that has or had any transaction with the corporate debtor amounting to 5 per cent or more of the gross turnover of such firm in the last three financial years”.

According to the FCRP, after more than a month of hemming and hawing, it seems that the resolution process led by an eminent former banker has recommended consolidation of debt and liabilities of the two affected companies as a solution for finding an effective resolution.

Stating that 'I' in the IBC stands for irony, and 'C' for contradiction, the letter said it was a “strange situation that where an entity advising the management on strategic measures to revive it is now on the opposite side, examining the role of promoters Ä the complainant, the accomplish and the investigator all rolled into one”.

“This is not only unheard of, but also a clear case of conflict of interest beyond any doubt; and it is shocking that an august institution like the RBI would allow this to be glossed over,” the letter said.

While no practicing auditor PTI contacted was ready to speak on record, a former ICAI-president Uttam Agarwal said the appointment of EY executive as the resolution professional is a clear case of conflict of interest as EY had signed a non-disclosure agreement with Srei board for the contract.

He also said what is more ironical is the fact that both the contracts were/are under Abizer Diwanji.

A senior resolution professional who worked on the 12 biggest IBC cases said what is at stake is the spirit of the statutes and not a like-to-like comparison, as the IBC has drawn the eligibility terms from the Section 149 of the Companies Act, 2013.

The section pertains to appointment of auditors and company secretaries.

The resolution professional also said it was not fair business practice that as an advisor to a promoter suddenly switches sides. “But I have to admit that this job is more about relationships as they are very few people in the market to handle such jobs, so have to play different roles. I would say it's a thin line and not a blatant violation because there is no logical reason behind,” the resolution professional added.