In an interim relief, the Delhi high court has restrained Punjab and Sind Bank (PSB) from declaring the bank accounts of Srei as fraud after the erstwhile promoter of Srei had sought legal reprieve.

In an order dated April 22, 2022, the court said that till the next date, the respondent no. 1 (Punjab and Sind Bank), will stand restrained from taking any further steps or action prejudicial to the petitioner on the basis of the order declaring the petitioner’s bank account as fraud. The petition was filed by Srei founder Hemant Kanoria. The matter has been listed for hearing again on August 23, 2022.

The public sector lender on April 19, 2022, had informed the stock exchanges that it has classified Srei Equipment Finance and Srei Infrastructure Finance with cumulative dues of Rs 1,234.34 crore as fraud and has informed the Reserve Bank of India. The bank also said that the accounts have been fully provided for as per prescribed prudential norms.

According to Srei sources, the order will help Srei preserve the resolution process while protecting the lenders and the stakeholders from any value erosion on account of such unnecessary reclassification. The move will also act as a deterrent to other lending banks from acting unilaterally in reclassifying loans based on the KPMG forensic report which has been challenged in court.

The erstwhile promoters of Srei had moved the NCLT with an appeal to set aside the audit process conducted by KPMG in light of the initiation of the insolvency resolution process and refrain the lenders from publishing any audit to the Central Repository of Information on Large Credits.

The lenders had appointed KPMG in April 2021 for the audit. But in October 2021, the RBI had superseded the boards of the two Srei NBFC companies and the corporate insolvency resolution process was initiated.

The resolution professional appointed by the RBI selected BDO India LLP for carrying out the transaction audit of the corporate debtor.

Kanoria has also written to RBI governor Shaktikanta Das that any action based on the "improper" report may hamper the ongoing resolution process being undertaken by the administrator appointed by RBI under IBC.