The Chennai bench of the National Company Law Tribunal (NCLT) has ordered initiation of the corporate insolvency resolution process (CIRP) against power management products, systems and services company Eason Reyrolle, acting on petitions filed by financial lenders State Bank of India (SBI) and Canara Bank.
Though both the lenders have moved NCLT to initiate CIRP against the company and appoint resolution professional separately, the applications were taken up together by the bench comprising R Varadharajan, member-judicial, and Anil Kumar B, member-technical, for disposing off through a common order via video-conferencing on May 5.
The banks had claimed over Rs 260 crore as default dues from the company with further interest and other charges.
In its application, SBI submitted that it has around Rs 204.89 crore of outstanding from the company as of August 2019 with further interest and other charges, minus recoveries if any. Canara Bank said it had an outstanding amount to the tune of Rs 59.31 crore with interest till July 2019 as a default that has arisen in relation to the overdraft cash credit facility granted by it to the company.
Eason Reyrolle is engaged in the business of providing complete range of power management products, systems, solutions and services spread across generation, transmission, distribution and industrial application. The Chennai-based company is a public-listed entity with around 13,400 shareholders. Canara Bank had classified the account as non-performing asset (NPA)in September, 2017 while SBI classified the account as NPA in 2015.
Defending its case, the company submitted that it has been in the process of locating investors or other financial sponsors to take over some of the liabilities owed to the banks and the company was in the stage of final discussions. Initiating CIR process at this point would affect the ability of the company to effectively continue as a going concern.
Eason Reyrolle argued that though it has been a pioneer in the industry and the relevant product market it deals in, there were certain setbacks which brought down the performance of the company. The working capital has been affected resulting in loss in the past few years. The trend of the industry has shifted to offering turn key projects leaving the independent equipment manufacturing entities to a backseat.
While the company shifted its main focus to undertaking turn key projects, some of the projects were delayed and some other had to come to a standstill because of certain extraneous factors like security issues and issues with right of way clearances for lines, among others.
The company had receivables to the tune of Rs 103.88 crore from various state utilities and other companies such as Andhra Pradesh Power Utility Corporation, Assam Power Distribution Company, Bengaluru Electricity Supply Corporation, Eastern Power Distribution, Indian Oil Corporation, Karnataka Power Transmission Corporation, Power Grid Corporation of India and Tamil Nadu Electricity Generation Corporation. The situation further led to a cash crunch and liquidity issues, as the receivables could not be materialised. Despite various issues, the company has been trying to turnaround its operations.
The NCLT, while allowing the CIRP, observed that the plea of company being a going concern cannot be made a ground for delaying the initiation of CIRP or to keep the application of the banks in abeyance. It has also appointed an IRP and imposed moratorium on certain actions including transferring, encumbering, and disposing of any of the assets or legal right or beneficial interest by the company.