The administrator of Srei Infrastructure Finance and Srei Equipment Finance, Rajneesh Sharma, will seek a mandate from lenders to control the cash flows of the subsidiaries of the two bankrupt companies and appoint EY as its financial advisor, said two senior officials aware of the development.

The mandate is being sought based on an internal assessment by lenders led by

that the promoters – the Kanoria brothers – allegedly diverted money borrowed from banks to infuse equity in the subsidiaries, the officials said.

The administrator will seek this mandate from the lenders in the upcoming first committee of creditors (CoC) meeting scheduled in the first week of November. These proposals were discussed at an informal meeting held on October 19 by the administrator, the people said.

For instance, Bharat Road Network, a subsidiary of Srei Equipment, has seven special purpose vehicles (SPVs) for strengthening expressways, of which two SPVs have been sold but lenders can access the revenues of the remaining ones, said a banker present in the meeting. Similarly, Srei has a business interest in the energy and hospitality sector, so lenders may be able to access cash flows of these units as well.

Some lenders have questioned the feasibility of the administrator taking control over the cash of subsidiaries because not only they are run by different boards but also because they may have different lenders. This move could lead to litigation and further delay resolution, said one of the leaders present at the meeting. One of the suggestions by lenders was to appoint a director on the boards of the subsidiaries of Srei Infrastructure and Srei Equipment to monitor their operations.

During the same meeting, Sharma also sought lenders’ consent to propose a resolution in the first CoC on appointing EY as financial advisor to the administrator.

At least two large commercial banks objected to the proposal of EY becoming financial advisor on concerns of ‘conflict of interest’, the first person cited said. Before being admitted for the corporate insolvency and resolution process on 8 October, EY was advising Srei’s promoters, the Kanoria brothers on debt restructuring, said one of two persons quoted above.

The administrator indicated to lenders EY was favoured for the experience it had gained in the resolution of DHFL- the first financial entity admitted for resolution under the Insolvency and Bankruptcy Code (IBC).

EY was among the six consultants including Alvarez & Marsal and KPMG that made a pitch to lenders for the role of a financial advisor on October 16.

This apart, Sharma also discussed the possibility of restarting the lending business of both the Srei companies, the first person said.

The Srei administrator and EY did not respond to request for comments.

KPMG, which is conducting a forensic audit of both the Srei companies, is yet to submit its report to the lenders. In the middle of this calendar year, Srei Infrastructure disclosed that a report by the Reserve Bank of India has identified Rs 8,576 crore of loans as related party transactions and directed Srei Infrastructure to “re-evaluate the relationship with the said parties to assess whether they are related parties to the parent firm or Srei Equipment Finance Ltd and also whether these are on an arm’s length basis.”