Creditors to Review Scheme Directions for SEFL Financial Challenges, RBI Circulars

The application was disposed of with directions to hold meetings of various classes of creditors to consider and approve the proposed Scheme of Arrangement. The Tribunal provided comprehensive procedural guidelines to ensure the smooth implementation of the Scheme, addressing the financial challenges faced by SEFL due to the pandemic and RBI Circulars.

---

---

Issues Involved:
1. Justification and necessity of the Scheme of Arrangement.
2. Impact of COVID-19 and RBI Circulars on SEFL.
3. Proposal of the Scheme of Arrangement.
4. Convening meetings of various creditors.
5. Legal and procedural directions for implementing the Scheme.

Issue-wise Detailed Analysis:

1. Justification and Necessity of the Scheme of Arrangement:
The Scheme is a natural consequence of the First Scheme that SEFL proposed with its creditors, which is pending before the Tribunal. It aims to protect the interests of both sets of creditors, achieving harmony and synergy to maintain SEFL as a going concern. The Scheme addresses the asset liability mismatch caused by the economic downturn due to COVID-19 and RBI August Circulars, enabling SEFL to focus on operational flexibility and support MSME and infrastructure sector borrowers by extending necessary moratorium and restructuring support as mandated by the RBI.

2. Impact of COVID-19 and RBI Circulars on SEFL:
The pandemic caused unprecedented challenges, leading to financial difficulties for the NBFC sector, including SEFL. RBI issued circulars granting a moratorium on payments and later extended the period to mitigate the debt servicing burden. However, the benefits of these circulars were not extended to the NBFC sector, leading to an asset liability mismatch for SEFL. SEFL's borrowers sought one-time restructuring, causing severe cash flow shortages, necessitating the Scheme to address these issues.

3. Proposal of the Scheme of Arrangement:
SEFL proposed the Scheme to efficiently deal with the asset liability mismatch caused by the pandemic and RBI Circulars. The Scheme involves arrangements with six types of creditors: Secured Debenture Holders, Unsecured Debenture Holders, Secured ECB Lenders, Unsecured ECB Lenders, PDI Holders, and Individual Debenture Holders. The Scheme does not involve any arrangement with shareholders, and no issuance or allotment of shares/securities is proposed. The Scheme aims to support MSME and infrastructure sector borrowers, ensuring an orderly payment structure in consonance with SEFL's cash flows.

4. Convening Meetings of Various Creditors:
The Tribunal directed SEFL to hold separate meetings for each class of creditors to consider and approve the Scheme. Meetings were scheduled for Secured Debenture Holders, Unsecured Debenture Holders, Secured ECB Lenders, Unsecured ECB Lenders, PDI Holders, and Individual Debenture Holders on specified dates. No meeting of Equity Shareholders was required. Notices of the meetings were to be advertised and sent to creditors, with provisions for virtual meetings and online voting.

5. Legal and Procedural Directions for Implementing the Scheme:
The Tribunal provided detailed procedural directions for convening and conducting the meetings, including the appointment of Chairpersons and a Scrutinizer for the meetings. The quorum for each meeting was fixed as per Section 103 of the Companies Act, 2013. The Tribunal directed that the creditors maintain the status quo regarding their contractual terms, dues, claims, and rights until the Scheme is considered. Credit Rating Agencies were directed not to consider non-payment as a default and maintain SEFL's rating at investment grade. The Tribunal emphasized the need for orderly cash flow management and collections to protect the interests of creditors.

Conclusion:
The application was disposed of with directions to hold meetings of various classes of creditors to consider and approve the proposed Scheme of Arrangement. The Tribunal provided comprehensive procedural guidelines to ensure the smooth implementation of the Scheme, addressing the financial challenges faced by SEFL due to the pandemic and RBI Circulars.

---