Srei companies' resolution applicants fail to deposit earnest money

Two potential buyers of the twin Srei companies have not submitted earnest money deposits (EMD) in compliance with stipulated bidding norms within the deadline that ended Monday, two people aware of the development told ET, theoretically invalidating both resolution offers.

Terms of the request for proposal (RFP) required both offers – by Arena Investors in partnership with Varde Partners, and Shon Randhawa with Viren Shah – to furnish the EMD for the proposals to be considered valid. The administrator, Rajnish Sharma, said that lenders would consider only those plans that comply with the RFP terms.

A resolution applicant was required to submit Rs 150 crore unconditional EMD along with the plan. The RFP further said that the EMD amount would be forfeited if the Reserve Bank of India (RBI) did not approve of the winning bidder.


“Both have not complied with the RFP terms until Monday-the deadline set by RP to perfect the EMD,” said a lender to Srei.

The administrator did not respond to ET’s request for comments.

For a finance company, the RBI has the final word on deciding the winning bidder as it must be deemed ‘fit and proper’ by the regulator.

In March 2020, the RBI rejected The Chatterjee Group’s (TCG) offer to acquire the troubled Religare Finvest in an out-of-court resolution process. The RBI rejected TCG on the grounds that it did not comply with its ‘fit and proper’ guidelines.

The EMD submitted by Arena Investors with Varde Partners is valid for six months only, while it is unclear if Shon Randhawa has submitted the entire EMD amount of Rs 150 crore. The lenders say that EMD should be such that it can be invoked anytime, and not just six months.

Lenders can consider the commercial terms of offers only if EMD is compliant, said a banker that lent funds to the Srei companies.

"If both plans are rejected for the sake of EMD, lenders may have to seek the tribunal's approval to restart the sale process, liquidate the company or accept the EMD terms offered by applicants," the same lender said.

Hemant Kanoria-promoted Srei Equipment Finance and Srei Infrastructure Finance were admitted for insolvency proceedings on October 4, 2021.

The total consolidated claims by financial creditors for the companies stood at Rs 32,750 crore, including a Rs 257-crore claim by Srei Equipment Finance.