banking fraud

CBI Registers Case Against S Kumars for Rs 1,245 Crore Fraud, Raids 13 Locations

According to the agency, promoters/directors of the company allegedly misused or diverted funds received from a consortium of banks between 2012 and 2018, which resulted in a loss of about Rs 1,245.15 crore.

New Delhi: The CBI has registered a case against textiles major S Kumars Nationwide Limited (SKNL) and 14 people, including its promoters and directors for an alleged bank fraud worth Rs 1,245 crore, officials said Wednesday.

Following the registration of the FIR, the central agency on Wednesday searched 13 locations in Maharashtra, Gujarat and West Bengal linked to the accused and recovered “incriminating documents”, CBI spokesperson R.C. Joshi said.

He said the company was engaged in the business of manufacturing high-value fine cotton fabrics and home textiles.

The company had availed credit from a consortium of banks led by IDBI bank.

Joshi said promoters/directors of the company were booked for allegedly “misusing/diverting the bank funds during the period 2012 to 2018” which resulted in a loss of about Rs 1,245.15 crore to the banks.

“The complaint was filed by the IDBI Bank Ltd. and also on behalf of four other member banks of the consortium, namely, Central Bank of India, The Jammu & Kashmir Bank Ltd., Punjab National Bank and Indian Bank,” he said.

India Inc’s Scams: How Hard Should the Hammer Fall on Independent Directors?

At scam-hit PMC Bank, a well-known gynecologist was a member of the loans and advances board committee.

In December 2019, three independent directors of the ill-fated PMC Bank – Jagdish Mookey, Mukti Bavisi and Trupti Bane – were arrested.

Mookey was a member of the audit committee, while Bavisi was a member of the loans and advances committee. Bane was a member of the loan recovery and the loans and advances committee.

As they were independent directors, there are several issues that need to be addressed.

The first is that as independent members of the board, they have no part in the day-to-day running of the bank. As a result, should they have been arrested?

Another question that looms is whether they were the right persons for the committee positions they occupied on PMC Bank’s board. And, perhaps more importantly, could they have prevented the fraud that took place?

All these questions lead to the larger issue of the culpability of independent directors.

Also Read: Public Sector Banks Report Fraud of More Than Rs 958 Billion in 6 Months

Independent directors are appointed to be the representatives of stakeholders and guard their interests. They are expected to, with their knowledge and expertise, inspire and guide the company. They are also supposed to bring an element of objectivity that is not confined to narrow corporate interests.

Now, the Companies Act (2013) holds independent directors liable for any contravention of the legislation’s provisions which have taken place with their knowledge. This ‘knowledge’ is usually derived from discussions in board meetings or board committee meetings.

Protestors gather near PMC bank in Mulund on October 2. Photo: Sukanya Shantha

Because of her position, the independent director is expected to initiate action if she becomes aware of a wrong. Specifically, they are supposed to dissent at board meetings where they don’t agree with a proposal and, equally importantly, have that dissent recorded in the minutes of the meetings.

In some instances, it has further been interpreted by legal experts that even if an independent director does not attend a board meeting but is aware, through the agenda or otherwise, of a matter that would be detrimental to the interests of the company, she should inform the company of her concerns and have that recorded in the minutes. If not and the company suffers, she would be culpable.

It is in this scenario that one should view the incarceration of PMC Bank’s three independent directors.

Jagdish Mookey, a tax practitioner, is 75 years old. Mukti Bavisi is the owner of a steel facility. Trupti Bane is a well-known gynaecologist who works at a public hospital. They have been arrested presumably for not exercising due diligence in approving loans and not being diligent in the recovery of loans. The charges also hint that they may have been complicit in the fraud, but their innocence or guilt will only be known when the law takes its course.

The larger question here is whether they actually had the time or the credit expertise to actually evaluate the loans that they were being sanctioned. At the loans and advances meetings, Bavisi and Bane would be presented with proposals. Would a gynaecologist – or indeed anyone who is not a finance or industry professional – be able to ask the right questions and exercise due diligence?

Also Read: PMC Bank Scam: Ex-BJP MLA’s Son and Bank Director Rajneet Singh Arrested

After all, even the Reserve Bank of India’s auditors — highly trained professionals who are expected to delve deep into those to whom loans have been given to — were not successful in unearthing the fact that the loans had been initially given to multiple fictitious companies. When these inspectors, who have access to everything and are expected to look under every stone, could not discover the hidden trail, how can directors who have limited time, no real understanding of the nuances of banking and are given minimal information (though they could theoretically claim access to everything) unearth the subterfuge?

In recent years, several scams have rocked the Indian corporate world. In the Satyam scandal, all the independent directors were held accountable and fined. One of the directors, Harvard University professor Krishna Palepu was fined Rs 2.66 crore by a Hyderabad court in 2018. Other luminaries on the board were fined Rs 20,000 each.

In the Satyam episode, all the independent directors were held accountable and fined. Photo: Reuters

The role and possible culpability of the independent directors of IL&FS is currently being examined by the Serious Fraud Investigation Office. When the Yes Bank imbroglio broke, several independent directors hastily resigned. There were resignations of independent directors too after Jet Airways crashed out. At a governance seminar in November 2019, several independent directors voiced serious fears regarding their being held accountable.

I am not for a moment saying that independent directors are above any form of accountability. If they take on the role of independent director and a fraud occurs that could have been prevented if they had asked the right questions, they must be held responsible. They are being paid to be on the board and the shareholders who have elected them have placed their trust in them.

Also Read: After Depositors, the PMC Scandal’s Second Potential Victim is Trust in India’s Financial System

What I am saying though is that more thought and effort should be made while appointing independent directors. The directors in the loans and advances committee should be finance professionals or bankers with experience and credit experience. The independent directors in an audit committee should be auditors and lawyers. And they must know that they will be held accountable if they are less than diligent. Only then will the scams that have become commonplace will cease.

Apart from this, those being offered these positions should only accept if they believe they can do justice. They cannot accept lucrative positions on prestigious boards and then claim they had wool pulled over their eyes. Or worse, simply throw in the towel the moment a scam breaks out.

Raghu Palat is a banker, chartered accountant and an author.

After Depositors, the PMC Scandal’s Second Potential Victim is Trust in India’s Financial System

If the trust deficit between the common depositor and the broader system widens, it will have serious consequences for the nation.

Even as the so-called partners in alliance BJP and Shiva Sena are engaged in an open power struggle after the assembly polls in Maharashtra, the unfolding crisis at Punjab and Maharashtra Co-operative (PMC) Bank is worsening by the day, pushing common depositors into a deep misery that they had never bargained for.

The bank hit national headlines when fraud worth Rs 6,500 crore by promoters of Housing Development Infrastructure Ltd (HDIL) was detected. More than 70% of the co-operative lender’s total loan book allegedly had an exposure to HDIL. With authorities ordering a freeze on withdrawals by depositors, the situation is turning murkier by the day.

In the meanwhile, reports of the deaths of a few shocked depositors have only added to the aggravated pains of the depositor-community. What will happen to depositors and their money?

The deposit insurance scheme that is currently in place provides protection for a maximum of Rs 1 lakh per depositor in the bank. This protection is per depositor even if she has multiple deposits in the bank. This protection money will remain the same for a depositor should authorities decided to amalgamate or merge this bank with others.

Also watch: The Wire Business Report 2: HDIL & DHFL – A Tale of Two Brothers

In the wake of the PMC imbroglio, there have been calls for increasing this ceiling, which was fixed very many years ago and is laughable in the current times. In fact, immediately in the wake of the crisis, private lender HDFC Bank went viral by obliquely informing its depositors of the existing Rs 1 lakh protection. This information, which spread through WhatsApp, predictably pressed the panic button and the bank had to quickly recall this information.

India’s investigating authorities, no doubt, will dip deep into the fraud at PMC. And, in the meanwhile, voices will get shriller for a legitimate and practical protection for depositors’ money in the bank.This is well nigh understandable.

But more than the debate on the right protection level, the PMC imbroglio has triggered a certain kind of fear across the spectrum.

Past rescues

And, this fear – if it is not assuaged – will trigger a kind of no-confidence in the system. Very many summers ago, the government did step in to the rescue of the Units 64 holders when the Unit Trust of India (UTI), which was under the government then, faltered in its commitment.

In the 90s, the NBFC (non-banking finance companies) sector went through a turmoil when finance companies of unincorporated kind played pied-piper on gullible depositors especially in Tamil Nadu by offering unimaginable interest rates by unleashing strong ad campaigns in publications.

The Reserve Bank of India (RBI), the banking regulator, woke up fairly late. By the time it initiated action, the damage was enormous. And, one saw a slew of toughening measures from the RBI following the havoc unleashed by those unincorporated finance companies.

Like the RBI, the rating agencies too, more often than not played, only a reactionary role. Be it in the infamous Satyam case or in the latest IL&FS episode, the reactionary initiatives of the RBI and raters cannot be beyond scrutiny.

Punjab National Bank, PMC and even in IL&FS – the inference can only be that the regulator has not really kept its eyes on automatic detection system.

Also read: A Bumbling Strategy Won’t Inject Confidence Into the State-Run Banking System

Somewhere along, the supervision mechanism has failed in all these instances. Arguments and excuses notwithstanding, the happenings in the PMC will trigger a new round of investigations and fresh rules.

The fact, however, is that PMC-like episodes will slowly chip away the confidence of the people in the banking system. For long, a high savings rate was touted as a significant strength of the Indian financial system. People, especially senior citizens, have always viewed banks and other sovereign institutions such as Life Insurance Corporation of India (LIC) with an enormous amount of trust. This wasn’t built up one day, but can come crashing down in a surprising short period.

If the trust deficit widens, that is unlikely to do any good to the nation as a whole.What is the guarantee that this will not push people slowly to hold more cash?

Common citizens cannot be faulted for demanding the safety of their hard-earned money parked in banks.

CBI Approaches Nigeria for Information on Absconding Businessman Nitin Sandesara

Promoter of Gujarat-based Sterling Biotech Nitin Sandesara is being probed in a Rs 5,300 crore banking fraud case and is believed to have fled from UAE to Nigera, a country with which India does not have an extradition treaty.

New Delhi: The CBI has asked the Interpol wing of Nigeria to confirm if absconding promoter of Gujarat-based Sterling Biotech, Nitin Sandesara, being probed in a Rs 5,300 crore banking fraud case, has moved to that country, officials said on Tuesday.

The move came after reports that Sandesara, along with his family members, also accused in the scam, have fled from the United Arab Emirates to Nigeria, a country with which India does not have any extradition treaty.

The agency has said it has no input on the whereabouts of Sandersara and his family members.

Following the reports, the agency has approached the Nigerian Interpol authorities to find out details of Sandesara and his family members.

Last October, the agency booked Sterling Biotech, its directors Chetan Jayantilal Sandesara, Dipti Chetan Sandesara, Rajbhushan Omprakash Dixit, Nitin Jayantilal Sandesara and Vilas Joshi, chartered accountant Hemant Hathi, former director of Andhra Bank Anup Garg and other unidentified persons.

The CBI has alleged that the company had taken loans of over Rs 5,000 crore from a consortium led by Andhra Bank which have turned into non-performing assets.

The FIR has alleged that the total pending dues of the group companies were Rs 5,383 crore as on December 31, 2016.

The directors of the company “connived with the in-house chartered accountant and falsified material records of the company”, such as production, turnover and investments in capital assets, the FIR alleged.

“This was allegedly done using various India-based entities and those situated abroad,” it said.

The company was earlier booked by the CBI in August for allegedly bribing senior Income Tax department officials.

On June 28, 2011, the IT department had conducted searches and seizures at 25 premises of Sterling Biotech Ltd, during which a diary containing hand-written records of financial transactions was found, the FIR in that case had alleged.

“Some of these names were appended with further references such as IT or Commissioner etc,” it had alleged.

In the present case, the CBI has booked all the accused for criminal conspiracy, cheating, forgery and corruption among other charges.

The CBI has alleged that false and fabricated documents and manipulated balance sheets were prepared for getting loans sanctioned from the banks which were later diverted for personal purposes.

It said that in an attempt to cheat the banks and falsely represent market capitalisation of the group companies, the shares in India and abroad in the names of non-promoters were held by directors themselves and were concealed from banks.

The CBI FIR alleged that the directors had quoted false documents under their signatures with “mala fide intention” to induce banks to sanction and release the credit limits.

“In three areas manipulation was substantial — reporting of turnover of companies, reporting of investments in capital goods (fixed assets) and taxes to be paid on the manipulated turnover,” it alleged.

(PTI)

With No Bail Out Option, Adani Power Mundra May Move NCLT for Bankruptcy Protection

The urgency of the move can be attributed to RBI’s new guidelines for identification of stressed assets, under which the Adani Power subsidiary has time till August to regularise its defaulted loan account.

New Delhi: Adani Power Mundra – a subsidiary of Adani Power that owns the beleaguered 4,620 MW Mundra power plant in Gujarat – may soon move the National Company Law Tribunal (NCLT) to seek bankruptcy protection, according to people with direct knowledge of the matter.

This move, sources say, comes at a time when the negotiations that the firm was having with the Gujarat state government for a majority stake sale have fallen through.

Although the Adani group is heavily indebted, no company from its stable has so far gone into bankruptcy proceedings.

The Mundra plant is saddled with unpaid loans of over Rs 22,000 crore as at the end of March last year while it continues to incur huge operational losses due to non-recovery of increased fuel costs.

If the Adani firm gets bankruptcy protection from the NCLT, there will be a 180-day moratorium on repayment of loans. During this period, the borrower and lenders will try to work out a repayment plan. If no plan is agreed to within the stipulated time frame, lenders can sell off borrower’s assets to recover their dues.

The urgency for the Adani group to move the NCLT has increased after the Reserve Bank of India (RBI) issued new guidelines for identification of stressed assets in February this year. New rules replaced all the existing mechanisms for loan restructuring.

Under the new regime, the Adani Power subsidiary has time till August to regularise its defaulted loan account.

When contacted by The Wire, the Adani group did not rule out the possibility of Adani Power Mundra going to the NCLT for seeking shelter under the Insolvency and Bankruptcy Code (IBC), though it admitted that keeping the plant viable was a challenging proposition for it due to legal hurdle to recovering full costs of imported fuel.

“On account of unforeseen factors such as fuel cost increase, shortages of domestic coal and recently revised financial regulations, many power projects of IPPs, including the Mundra project, are facing challenges to remain viable. At Adani Power, we are working with the stakeholders to resolve the challenges faced by Mundra Project in the large interest of consumers and the nation. Accordingly various options are being evaluated in consultation with Procurer States and Lenders,” an Adani group spokesperson told The Wire in a written reply.

The Adani group’s fuel cost calculations for the Mundra plant went haywire when the Indonesian government introduced international indices-based pricing for coal exports in 2012.

The private power plant was banking on regulatory approval for passing on the increased fuel costs to consumers. However, the Supreme Court dashed its hopes last April when it quashed the Central Electricity Regulatory Commission (CERC) order awarding compensatory tariff for the project.

Consequently, Adani Power had to write off more than Rs 4,300 crore in receivables that it had booked as compensatory tariff in the last two years.

Following the Supreme Court verdict, which sealed the fate of the plant, Adani Power board in June approved slump sale of the generating station to Adani Power Mundra for an equity value of Rs 106 crore, though it had invested Rs 6,000 crore in the project. Besides, the plant accounts for nearly half of Adani Power’s Rs 50,000 crore debt as of March 2017, according to the group’s regulatory filings.

Adani Power will turn from a power generating company to an entity to route investments into new power projects. The asset transfer will allow the company to source its funding more efficiently for capacity expansion or acquisitions, the company had said.

Tata Power’s Mundra ultra mega power project and Essar’s Salaya plant too have been hit hard by the SC verdict.

Essar’s Salaya plant. Credit: Essar Energy

After the SC judgement, the group, along with Tata Power and Essar, had initiated talks with the Gujarat government for the sale of a 51% stake to the Gujarat Urja Vikas Nigam Ltd (GUVNL) in each of the three projects for a token amount of Re 1.

The State Bank of India (SBI), the lead banker for all the three embattled plants, was ready to cooperate. In fact, sources say, SBI suggested that the state government buy imported coal and supply to the plants while only paying the generators the fixed cost, which accounts for 40% of the tariff.

However, after the RBI issued a revised framework for resolution of soured loans, SBI and other lenders have developed cold feet and talks have ended inconclusively, sources said.

This has forced Adani group to consider moving the NCLT for bankruptcy protection. In contrast, Tata Power and Essar are reportedly exploring options to cut fuel costs and restore the viability of their respective projects.

Faced with mounting operational losses, Adani Power Mundra has already started scaling down generation from the plant. The average plant load factor in the January-March 2018 quarter dropped to 37%, from 73% a year ago.

Under its new framework, the RBI has abolished half a dozen loan-restructuring mechanisms and instead provided for a stringent 180-day timeframe for banks to agree on a resolution plan in case of a default. Failing that, they will have to initiate insolvency proceedings against the defaulter.

The banking sector’s overall non-performing assets (NPAs) are already staggeringly high at Rs 8.40 lakh crore, as at the end of December 2017.

Meanwhile, there are fears that another Rs 1.75 lakh crore loan to the power sector could turn into NPAs if the RBI does not relax its norms.

RBI Can’t be Everywhere, says Urjit Patel, One Month After Multi-Crore PNB Fraud Came to Light

The RBI governor blamed the system of “dual regulation” of banks by the RBI and the finance ministry and pitched for making regulatory powers “ownership neutral”.

New Delhi: Close to one month after the Rs 13,600 crore fraud in the public sector Punjab National Bank (PNB) made news, Reserve Bank of India Governor Urjit Patel has finally spoken. He defended the regulator’s role in one of the biggest banking scams in the country, saying it was difficult to be present everywhere to contain such instances.

“There has been a tendency in the pronouncements post revelation of the fraud that RBI supervision team should have caught it. While that can always be said ex post with any fraud, it is simply infeasible for a banking regulator to be in every nook and corner of banking activity to rule out frauds by “being there”, Patel said at an event held in Gujarat National Law University.

Patel has been facing flak for not having spotted and prevented the fraud which came out in the open on February 14 after PNB complained to the Central Bureau of Investigation that its own officials had handed out guarantee letters to help firms owned by diamond king Nirav Modi and his uncle Mehul Choksi. Modi had incidentally left the country by the time the scam broke out, giving rise to speculation that he may have been tipped off.

Calling for stronger regulatory powers, Patel said “from the RBI’s standpoint, legislative changes to the Banking Regulation Act that make our banking regulatory powers fully ownership neutral – not piecemeal, but fully – is a minimum requirement. It might also be the most readily feasible of these options”.

Patel also blamed the system of dual regulation of banks by the RBI and the finance ministry for creating problems in the banking system, adding that “banking regulatory powers in Indian are not ownership neutral”.

The Banking Regulation Act has “in effect led to a deep fissure in the landscape of banking regulatory terrain: a system of dual regulation, by the Finance Ministry in addition to RBI,” said adding that this “fissure or the fault line is bound to lead to tremors such as the most recent fraud”.

Calling for greater legal deterrence, the RBI governor said the “ temptation to engage in fraud at the level of employee or employees is always present, in banks (or in corporations), be it in public sector or private sector.”

He said in private banks , the real deterrence arise from market and regulatory discipline, while in public sector banks such discipline is “comparatively weaker”.

“…Perhaps since the original idea behind bank nationalisation was complete government control over credit allocation to the economy, the situation in India is exactly the reverse: RBI’s regulatory powers over PSBs are weaker than those over the private sector banks,” Patel said.

PNB Discloses Rs 9.42 Billion Additional Exposure in Fraud Probe: Document

The new disclosure takes PNB’s overall exposure in the still unravelling fraud case to well over the $2 billion mark.

Credit: Reuters/Toby Melville/Files

Mumbai: The Punjab National Bank has told police that it has uncovered additional exposure of about Rs 9.42 billion ($145.2 million) in connection with a massive alleged fraud, according to a court filing seen by Reuters.

In what has been dubbed as the biggest fraud in India’s banking history, PNB, the country’s second-biggest state-run lender, said last month it had been defrauded of about $2 billion by two jewellery groups who raised credit from overseas banks based on fraudulent guarantees issued in collusion with rogue PNB staff.

In a court filing on Tuesday, police said the Gitanjali group of companies controlled by jeweller Mehul Choksi allegedly defrauded PNB of Rs 70.8 billion ($1.09 billion). PNB had previously pegged its exposure to the Gitanjali companies at 61.38 billion rupees.

The new disclosure takes PNB’s overall exposure in the still unravelling fraud case to well over the $2 billion mark.

A lawyer for Gitanjali group’s head, Mehul Choksi, said he was unaware of the new allegations and declined to comment. Choksi and his nephew Nirav Modi, who is the other main accused in the case, have both denied any wrongdoing.

(Reuters)

‘Jan Gan Man Ki Baat’ Episode 199: Arun Jaitley’s Statement on Nirav Modi-PNB Scam

Vinod Dua discusses finance minister Arun Jaitley’s statement on the Punjab National Bank scam.

Watch: The Nirav Modi and PNB Scam Explained

Nirav Modi, the billionaire jeweller, along with his relatives, scammed Punjab National Bank of over Rs 11,400 crores in one of the biggest frauds in India’s banking history. How did this go unnoticed and who is responsible?

Nirav Modi, the billionaire jeweller, along with his relatives, scammed Punjab National Bank of over Rs 11,400 crores in one of the biggest frauds in India’s banking history. How did this go unnoticed and who is responsible?