Supreme Court Action on ₹1.2 lakh Crore Shriram Finance Promoters Expected to Have Broad Impact on FDI in India

The Supreme Court of India is poised to take significant action on 2nd September against the promoters of Shriram Finance, a company that has been a key player in the Indian financial sector. The court's forthcoming decision stems from a long-standing legal dispute where the company has been ordered to pay ₹300 crores, a payment that remains unpaid despite multiple court orders.

This case, which has largely remained under the radar, could have serious consequences for the Non-Banking Financial Company (NBFC) sector and the broader investment landscape in India. Shriram Finance, valued at around ₹1.2 lakh crores, has enjoyed a reputation for reliability but is now under scrutiny, potentially impacting investor confidence.

The controversy began with a petition filed by GPE (India) Ltd. against Twarit Consultancy Services and SEPC Limited, associated with Shriram Finance. The dispute escalated to the Supreme Court, resulting in an order dated 29th January 2024, directing the payment of ₹125 crores with interest. The failure to comply with this order has led to further legal proceedings, with the court considering contempt action.

The Supreme Court has expressed concern over the non-compliance with its orders, noting that “the order dated 29.01.2024, directing payment of Rs.125 crores along with interest at the awarded rate of 7.25% per annum from the date of award, that is, 07.01.2021, has not been complied. The court has warned that if the payment is not made by the next hearing date, it may “consider initiation of contempt proceedings” further ordering presence of the directors of the company in the court.

This situation has attracted attention within the Indian business community, but more importantly has raised serious concerns among foreign investors. Gaja Capital, a significant player in India's private equity market, has been impacted, leading to broader questions about the investment climate in the country.

The Shriram Group, led by its founder, R. Thyagarajan, is a major conglomerate with substantial interests across various sectors, including finance, insurance, and infrastructure. With a valuation of approximately $34 billion, the group has grown into one of India's most significant business entities, with a widespread presence in both urban and rural markets.

As the court prepares to issue its ruling, the matter has highlighted potential governance issues within the promoters of the NBFC sector. Investors and lenders connected to Shriram Finance are closely monitoring the proceedings, as the outcome may prompt other creditors to seek repayment especially given the rogue behaviour of the group entities defying Supreme Court orders.

The Supreme Court's judgement in this matter could have lasting effects, not only on Shriram Finance but also on the investment climate in India. The events of 2nd September are likely to be critical in determining the future of the company and may set a precedent for how similar cases are handled in India.