Although the state-run power sector lender doesn’t follow RBI guidelines on loan restructuring norms yet, the CAG has in the past pointed to gaps in its due diligence process.
Although the state-run power sector lender doesn’t follow RBI guidelines on loan restructuring norms yet, the CAG has in the past pointed to gaps in its due diligence process.
Credit: PTI
New Delhi: Unconcerned by its rising bad loans, the Indian Energy Development Agency (IREDA) is aggressively lending to renewable power generators.
If it continues at this pace, experts say, it could suffer the same fate as Power Finance Corporation (PFC), which saw its non-performing assets (NPAs) jump by 300% to Rs 30,702 crore in 2016-17 after it adopted the Reserve Bank of India’s loan restructuring norms.
IREDA sanctioned loans of Rs 10,199 crore in 2016-17, 30.65% higher compared to the previous year. It also disbursed 54.78% more loans during the year.
At a press conference on October 8, the former power minister Piyush Goyal spoke in glowing terms about the large number of loans that the public sector firm had made to entrepreneurs in the windmill and solar power business.
The latest data, however, shows that the state-owned lender has been aggressive in lending at a time when its NPAs are rising steadily. IREDA’s gross NPA jumped by 65% between 2014-15 and 2016-17.
According to media reports, it plans on disbursing Rs 13,000 crore in the next fiscal year and aims to capture 20% of the renewable loan market share.
IREDA’s loan sanctions, disbursal in recent years (Rs crore)
Year
Loan sanctions
Loan Disbursal
2014-15
4,549
2,619
2015-16
7,806
4,257
2016-17
10,199
6,593
Source: Company’s financial statements
IREDA had to write off loans worth Rs 40.56 crore in 2014-15 and it could be forced to take similar measures to clean up its balance sheets in future as well given its rising NPA level.
On its end, PFC was able to hide its staggering loans because it was following the power ministry’s loan restructuring guidelines which are less stringent compared to those prescribed by the banking sector regulator. Being a 100% government-owned company, IREDA too is subjected to relatively relaxed regulatory supervision by the RBI.
During its performance audit of IREDA between 2008-09 and 2012-13, the national auditor found several deviations from RBI’s lending norms.
“Several weaknesses were noticed in the operational controls of IREDA such as non-conduct of periodic inspections of project, non-appointment of nominee directors on the board of directors of the borrowers and non-framing of functional manuals for strengthening internal controls,” the CAG observed.
It added, “Out of 42 cases selected by audit, it was observed that in 17 cases (40%), IREDA had deviated from the norms prescribed in the financing guidelines for credit exposure limits, creation of mortgage, promoters’ contribution, conduct of inspections, etc.” Only company management can tell if internal regulations relating to loan disbursals have been tightened enough to prevent recurrence of similar breach.
IREDA’s non-performing assets during 2014-17
Timeframe
Gross NPA (Rs crore)
Gross NPA as % of outstanding loans
At end of March 2015
475.84
5.34
At end of March 2016
591
5.71
At end of March 2017
784.08
5.76
Source: Company’s annual reports
The CAG has detected non-compliance by PFC and Rural Electrification Corporation (REC) with key RBI lending guidelines in its recent performance audit of these companies.
According to 2013 RBI guidelines, financing agencies should not depend on certificates issued by chartered accountants and strengthen their internal controls and credit risk management system to enhance the quality of their loan portfolio.
However, the CAG found that there was no policy in place at PFC and REC to ensure end utilisation of funds by the borrowers. It noted that there was a diversion of Rs 2,457.60 crore by the borrowers and promoters in the sample reviewed by the auditor.
Riding high on power sector growth, PFC saw a phenomenal increase in its loan book over the last decade. PFC’s total assets increased from Rs 51,568 crore at the end of 2007-08 to Rs 2.40 lakh crore by the end of 2016-17, registering 400% growth. The PSU lender sanctioned 55% more loans in 2016-17 compared to the preceding year. Its loan disbursal too grew by 35% over the previous year.
PFC had a similar rate of growth in loan sanctions and disbursal in the entire past decade. Naturally, it witnessed a period of high profits and nominal NPA.
But high growth led to complacency on the part of the lender in conducting due diligence on loan applications and supervision of fund utilisation by borrowers, which finally proved its undoing.
IREDA too is riding high on credit demand growth of the renewable energy sector. Since the clean energy sector is expected to remain top priority for the government in the foreseeable future as well, IREDA’s loan book will continue to rise. But the challenge for the company management would be to maintain compliance with robust loan appraisal guidelines.
During high credit growth phase, lenders tend to slump into complacency in implementation of internal controls as observed by the CAG in its performance audit report on PFC and REC.
“Audit noticed that REC and PFC did not conduct appropriate due diligence during credit appraisal and assumed higher risks on the loan accounts. Both REC and PFC deviated from their own internal guidelines and failed to conform with RBI guidelines applicable to NBFCs. The experience of the promoters to develop the project was not objectively assessed. The financial capacity of the promoter to bring in equity for the project in the face of competing demands was not ensured. Due diligence regarding viability of the project or conflict of interest, in the event the promoter also functions as principal contractors, was also not done. This led to loans being sanctioned to financially weak and technically inexperienced promoters who failed to implement the projects in time, resulting in time and cost overruns,” the national auditor said.
It appears that like PFC, IREDA too is in no mood to ignore the siren call of high growth. But if it will be able to avoid the fate of PFC remains to be seen.
Growth in bad loans raises questions about due diligence measures followed by renewable energy, power PSUs over last five years.
Growth in bad loans raises questions about due diligence measures followed by renewable energy, power PSUs over last five years.
While a substantial chunk of the loans that have gone bad in the last three years may have been given out before 2014, the task of ensuring more stringent due diligence measures should have fallen to Piyush Goyal. Credit: PTI, Reuters
New Delhi: Defending the Indian Renewable Energy Development Agency’s (IREDA) grant of a Rs 10.35 crore loan to BJP president Amit Shah’s son, railway minister Piyush Goyal recently stated that the financing agency had lent money to about 2,000 applicants “in the past one year or so”.
While this growth in lending may be commendable, a close look at IREDA’s balance sheets reveals that the state-owned lender’s bad loans more than doubled between March 2013 and March 2016, raising questions about the organisation’s due diligence measures.
IREDA, a dedicated lender to renewable power projects, comes under the administrative control of the Ministry of New and Renewable Energy (MNRE). Goyal held the MNRE portfolio when the IREDA loan was approved to Jay Shah in March 2016.
At the end of March 2013, IREDA’s gross non-performing assets (NPAs) stood at Rs 254.80 crore but jumped to Rs 475.84 crore by the end of March 2015. This figure further increased to Rs 591 crore by the end of March 2016.
IREDA’s gross NPA galloped to 5.34% of its outstanding loans by the end of March 2015 from the low level of 3.86% at the March 2013 and further to 5.71% by the end of March 2016.
IREDA’s surging bad loans
Timeframe
Gross NPA (Rs crore)
Gross NPA as% of outstanding loans
At end of March 2013
254.80
3.86
At end of March 2014
341.55
4.18
At end of March 2015
475.84
5.34
At end of March 2016
591
5.71
Source: Company’s annual reports
It is also clear from the company’s annual reports for 2015-2016 and 2016-17 that there was no independent director on the IREDA board when the loan was sanctioned to Jay Shah in March 2016. This means that at the time the company was in violation of corporate governance norms as stipulated in the Companies Act 2013.
The status of Shah’s windmill project in Ratlam, Madhya Pradesh is not known. According to his lawyer, he still owes IREDA Rs 8.52 crore in terms of principal and interest but the loan is being properly serviced:
“The loan taken from IREDA for setting up a 2.1 MW wind energy plant is based on the equipment prices prevailing at that point of time as per industry standards (approx Rs.14.3 crores) and duly appraised and sanctioned in the normal course of business. The outstanding loan as on 30-06-2017 is Rs.8.52 crore and interest and repayment of loan are regular.”
This isn’t the first time IREDA has come under the scanner for giving a politically-connected loan. In a 2015 audit report, the Comptroller and Auditor-General (CAG) named Nitin Gadkari, currently surface transport minister in the Modi government, as one of the “promoters and/or directors” of Purti Sakhar Karkhana Ltd., a company that it said was given a loan of Rs. 84.12 crore by IREDA in violation of guidelines. “… IREDA could recover only Rs. 71.35 crore out of Rs. 84.12 crore recoverable from the borrower, resulting in a sacrifice of Rs. 12.77 crore,” the report said.
The contentions of the management of Purti for doing so were untenable, the national auditor’s report added. Purti, however, claimed that it never defaulted on the loan and that Gadkari was “never involved” in the company’s day-to-day operations.
Power loans turning bad
IREDA is not alone in terms of accumulating NPAs. It is a similar picture when one considers the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC). Both entities have seen a sharp rise in their bad loans over the past three years.
The national auditor has slammed both power sector lenders in a recent audit report for not complying with internal guidelines and the Reserve Bank’s prudential norms in sanctioning loans to private power project developers.
Together, REC and PFC had Rs 11,762 crore in NPA at the end of March 2016, of which Rs 10,360 crore (or 86%) was recognised during the last three years. Significantly, the Narendra Modi government took office in the last week of May 2014 and therefore, accountability for a major part of this state of affairs squarely lies at Goyal’s doorstep as he was also power minister.
Considering that REC and PFC had disbursed Rs 47,706 crore to IPPs during the same period, the NPA generation works out to a significant 21.72% of the amount disbursed between 2013-14 and 2015-16, the CAG observed in its audit report titled, “Loans to Independent Power Producers by Rural Electrification Corporation and Power Finance Corporation”.
The national auditor observed that REC and PFC estimated a higher tariff at the time of appraisal of loan proposals which resulted in sanction of loans worth Rs 8,662 crore in six cases where the levelised generation cost was higher than the actual levelised tariff. In other words, viability of these projects was doubtful right from the beginning.
As per CAG’s findings, nine projects had to be restructured several times, leading to increase in interest during construction by Rs 13,312 crore in six and NPA of Rs 3,038 crore in three loan cases.
The financial capacity of the promoters was not appropriately assessed in these cases and the promoters failed to bring in equity for the project in the face of competing demands, it said. In seven loan cases, the contractor and the promoter were the same or related entities. The loan sanctioned by REC and PFC to the promoter for execution of the project remained with the promoter group and thus, the actual stake of the promoter in implementing the project was difficult to assess, the CAG said.
The credit-worthiness of the contractors and their ability to fulfil contractual obligations was not appraised by REC and PFC, it observed.The CAG also found that Rs 2,457 crore worth of loans was diverted by the borrowers in five cases. Moreover, both REC and PFC solely relied on auditors’ certificate to confirm end use of the funds, despite specific RBI guidelines advising financing agencies to strengthen their internal controls and credit risk management system to enhance the quality of their loan portfolio.
Not only that, REC and PFC relaxed the pre-disbursement conditions from time to time. Subsequent disbursals were often made to save the funds already released, further relaxing the conditions and extending the timelines, the CAG observed.
It also found that REC and PFC sanctioned additional loans for meeting cost overruns in several cases by relaxing conditions of internal prudential norms, which prescribe that the promoters and borrowers should not have defaulted on existing loans with any financial institution (including REC and PFC) and the core promoter should not have loss or cash loss or accumulated loss in its financial statements during the past three years.
My client, Mr. Jay Shah, having received a questionnaire from you, has instructed me to answer the questions posed by you as under:
Temple Enterprise . Ltd.
This company is engaged in the business of import and export of Agri commodities like Rapseed DOC, Castor DOC meal, Desi Chana, Soyabean, Corainder seeds, Rice, Wheat, Maize etc. The business ownership and management was principally held by Mr. Jay Shah and Mr. Jitendra Shah (an old family friend) and their associates. Mr. Jay Shah is a qualified Engineer having done his B.Tech from the renowned Nirma University and Mr. Jitendra Shah was already engaged in the business of commodities for the last several years and his companies had been recording an annual turnover of over Rs.100 Crores.
Mr. Jay Shah, Mr. Jitendra Shah and their associates invested share capital and unsecured loans in this company. Since working capital facilities were not available to a new business/ company, interest bearing Inter Corporate Deposits (ICD) were taken from time to time from KIFS Financial Services Ltd., a registered NBFC, to run this business. Tax has been deducted on the interest paid (TDS) regularly and the principal and interest amount has been repaid in full.
Mr. Rajesh Khandwala, the promoter of KIFS is the sharebroker for the family of Mr. Jay Shah for the last several years. This NBFC has been providing loans to Mr. Jay Shah’s and Mr. Jitendra Shah’s other businesses regularly for the last several years. Mr. Jay Shah has had family relations with Mr. Rajesh Khandwala much prior to the marriage of Mr. Nathwani’s son to Mr. Khandwala’s daughter, about 4 years ago.
It may be noted that in the commodity business, a turnover of about Rs.80 crores is not an abnormally high turnover, since this is a high risk, high volume and low margin business, more particularly, in view of the fact that Mr. Jitendra Shah’s companies were already having annual turnover of over Rs. 100 Crores. Unfortunately, the business activities of the Temple Enterprise Pvt. Ltd. resulted in losses due to which the business activities were stopped sometime in October, 2016.
All the above transactions are through banking channels and duly reflected in the account books and the tax records of the company.
Sattva Tradelink
Though this LLP was formed by Mr. Jay Shah with Mr. Khandwala, in view of adverse market conditions no business was carried out and the LLP was wound up and has already been struck off from the Registrar records.
KusumFinserve
This entity is engaged in the business of trading in stocks and shares, import and export activities and distribution and marketing consultancy services. This entity has also been regularly raising ICDs / loans from KIFS Financial Services for the last several years and the amount of Rs.4.9 crores was the outstanding closing balance from them. These amounts were used for regular working capital. Tax has been deducted on the interest paid (TDS) and principal and interest amount has been repaid in full.
The LLP has not taken any funding /loan from Kalupur Commercial Co-op. Bank Ltd. Only a Non Fund based Working Capital facility in the form of Letter of Credit (LC) upto Rs.25 crores has been sanctioned and is availed from time to time. This facility has been secured on usual banking terms which include hypothecation of the goods purchased under the LC, cash margin of 10% and collateral security of a property belonging to Mr. Jay Shah’s father and another property of Kusum Finserve (Purchased on 5th April, 2014 through a duly executed purchase deed) which is duly reflected in the financial statement of April, 2014 to March, 2015.
In fact, the goods purchased under LC are stored at the Warehouse/port under CM (Collateral Manager) arrangement and goods are allowed to be lifted from the warehouse only on the basis of PAY & PICK, meaning thereby, upon deposit of the full amount of the goods sought to be lifted, in a Fixed Deposit. The bank issues Delivery Order after receiving full payment and then goods are released from the custody of the CM. The bank receives payments before the retirement of LC on its due date resulting in this being a non-funded and no-risk facility for the bank.
The loan taken from IREDA for setting up a 2.1 MW wind energy plant is based on the equipment prices prevailing at that point of time as per industry standards (approx Rs.14.3 crores) and duly appraised and sanctioned in the normal course of business. The outstanding loan as on 30-06-2017 is Rs.8.52 crore and interest and repayment of loan are regular.
It may be noted that the sum of Rs.21.2 crores is the total revenue of the company and not the profit. This includes Rs.16.2 crores which is the trading turnover from the sale of shares and not the profit. The profit earned by this company was only approximately Rs. 15,000/-. All the above transactions are through banking channels and duly reflected in the account books and the tax records of the company.
It may be noted that LLP has no dealing with JSW or any company controlled by Mr. Sajjan Jindal.
Finally, there is no overdue of principal or interest on any loan.
In view of the answers and explanations detailed above, the facts are absolutely clear and you are requested not to publish anything in this behalf, which would not only infringe my clients’ privacy rights but would also be libelous and/or defamatory.
Mr Jay Shah is a private citizen doing his legitimate business. His business transactions are honest, legal and bonafide. Your questionairre indicates that your intention is to drag him into a false and a manufactured controversy. Any slant or imputation which alleges or suggests any impropriety on his part will not only be false but also malicious and defamatory. It will also be a breach of his fundamental right to privacy. He shall, in that event reserve the right to prosecute you for defamation and also sue you for the civil wrongs.
Notwithstanding the above, if you or anyone in the print, electronic or digital media carries and/or broadcasts any defamatory and/or false imputations including those which breach his fundamental right of privacy and/or defame him, Mr. Jay Shah reserves the right to prosecute and sue such person/entity including anyone who carries or broadcasts a repetition of such libelous / defamatory statement.
BJP president Amit Shah’s son, Jay Shah, has seen a dramatic increase in some of his businesses since Narendra Modi became prime minister.
BJP president Amit Shah’s son, Jay Shah, has seen a dramatic increase in some of his businesses since Narendra Modi became prime minister.
Jay Shah, Prime Minister Narendra Modi and BJP president Amit Shah, seen here at the wedding reception of Jay in 2015. Credit: BJP
Key highlights:
Turnover of a company owned by Shah’s son increased 16,000 times over in the year following election of PM Narendra Modi
Revenue from company owned by Amit Shah’s son jumped from just Rs 50,000 to over Rs 80,00,00,000 in a single year
Firm of Amit Shah’s son, whose business is chiefly stock trading, turns to windmill generation with PSU loan
Do a story on Amit Shah’s son’s ‘honest, legal, bonafide’ businesses and ‘he shall reserve right to prosecute you’, his lawyer warns The Wire
New Delhi: The turnover of a company owned by Jay Amitbhai Shah, son of Bharatiya Janata Party leader Amit Shah, increased 16,000 times over in the year following the election of Narendra Modi as prime minister and the elevation of his father to the post of party president, filings with the Registrar of Companies (RoC) show.
Company balance sheets and annual reports obtained from the RoC reveal that in the financial years ending March 2013 and 2014, Shah’s Temple Enterprise Private Ltd. engaged in negligible activity and recorded losses of Rs 6,230 and Rs 1,724 respectively. In 2014-15, it showed a profit of Rs 18,728 on revenues of only Rs 50,000 before jumping to a turnover of Rs 80.5 crore in 2015-16.
The astonishing surge in Temple Enterprise’s revenues came at a time when the firm received an unsecured loan of Rs 15.78 crore from a financial services firm owned by Rajesh Khandwala, the samdhi (in-law) of Parimal Nathwani, a Rajya Sabha MP and top executive of Reliance Industries.
One year later, in October 2016, however, Jay Shah’s company suddenly stopped its business activities altogether, declaring, in its director’s report, that Temple’s net worth had “fully eroded” because of the loss it posted that year of Rs 1.4 crore and its losses over earlier years.
The Wire sent a questionnaire to Jay Shah on Thursday seeking details about the shifting fortunes of Temple Enterprise and his other business ventures, as obtained from RoC filings, which he said he could not immediately respond to as he was travelling. On Friday, however, Shah’s lawyer, Manik Dogra, sent in a response with a warning that criminal and civil defamation proceedings would be launched in the event of “any slant or imputation which alleges or suggests any impropriety on his part.”
As is obvious, the story the RoC documents themselves tell do not indicate anything more than the bare fact of various loans and revenues, which have not been denied by Shah’s lawyer. The world over, it is normal for the business affairs of politicians’ relatives in democracies to be subjected to public scrutiny, especially when there is a sudden change in fortunes that coincides with an uptick in the political cycle. During UPA-II, for example, the Congress party spent the better part of three years confronting questions about how party president Sonia Gandhi’s son-in-law, Robert Vadra, had managed to grow his real estate businesses on the basis of loans, including unsecured advances by real estate giant DLF. Indeed the sharpest attacks on Vadra’s affairs were from the BJP.
Though Shah’s lawyer has not disputed the information drawn from Shah’s submissions – filings that companies must mandatorily make with the RoC to enablepublic viewing and examination – The Wire will be happy to publish any response from Shah as and when it is received.
The shifting fortunes of Temple Enterprise
Temple Enterprise was incorporated in 2004 with Jay Shah and Jitendra Shah listed as its directors. BJP president Amit Shah’s wife, Sonal Shah, also has a stake in the company.
In 2013-14, Temple Enterprise did not own any fixed assets and had no inventories or stock. It also got an income tax refund of Rs 5,796. In FY 2014-15, it earned Rs 50,000 as revenue. However, in 2015-16, the firm’s revenues jumped to over Rs 80.5 crore, a growth of 16 lakh percent. Reserves and surplus turned negative to Rs 80.2 lakh from Rs 19 lakh the previous year. Trade payables were Rs 2.65 crore, up from Rs 5,618 the previous year. The assets of the company were only Rs 2 lakh. The firm had no fixed assets the year before. Short-term loans and advances were Rs 4.14 crore, up from Rs 10,000 the year before. Inventories were Rs 9 crore, up from zero the previous year, according to the firm’s filings.
The massive increase in revenues is described in the filings as coming from the “sale of products”. This included Rs 51 crore of foreign earnings, up from zero the previous year.
The filings also reveal an unsecured loan of Rs 15.78 crore from a listed entity, KIFS Financial Services. The revenue of KIFS Financial Services for the same financial year when the loan was given was Rs 7 crore. The annual report of KIFS Financial Services also does not reflect the Rs 15.78 crore unsecured loan given to Temple Enterprise.
Rajesh Khandwala, the promoter of KIFS Financial Services, first agreed to respond to The Wire’s questionnaire sent on Thursday seeking clarification on his firm’s dealings with Shah’s companies but subsequently did not respond to calls and messages. KIFS, a non-banking financial company (NBFC), has had run-ins with SEBI in the past.
Parimal Nathwani (left) and Rajesh Khandwala (right), with their respective spouses. Credit: parimalnathwani.com
Khandwala’s daughter is married to Parimal Nathwani’s son. Ahmedabad-based Nathwani heads the Gujarat operations of Reliance Industries and has operated for years at the intersection of business and politics. He is an independent member of parliament from the upper house. His re-election to the Rajya Sabha in 2014 was supported by BJP legislators in Jharkhand.
A source close to Amit Shah told this reporter that neither Nathwani or Reliance had any role to play in the facilitation of the unsecured loan from Khandwala’s firm to Temple Enterprise. On his part, Jay Shah’s lawyer said in his written response to The Wire that Khandwala is an old friend of the family.
“Rajesh Khandwala, the promoter of KIFS is the sharebroker for the family of Jay Shah for the last several years. This NBFC has been providing loans to Jay Shah’s and Jitendra Shah’s other businesses regularly for the last several years. Jay Shah has had family relations with Rajesh Khandwala much prior to the marriage of Nathwani’s son to Khandwala’s daughter, about 4 years ago,” says the statement from Shah’s lawyer.
In response to the query about the loan, Jay Shah’s lawyer wrote:
“Jay Shah, Jitendra Shah and their associates invested share capital and unsecured loans in this company [Temple Enterprise]. Since working capital facilities were not available to a new business/company, interest bearing Inter Corporate Deposits (ICD) were taken from time to time from KIFS Financial Services Ltd., a registered NBFC, to run this business. Tax has been deducted on the interest paid (TDS) regularly and the principal and interest amount has been repaid in full.”
In 2015, the same year KIFS provided an unsecured loan to Shah’s firm, Khandwala and Shah also formed a limited liability partnership (LLP), Sattva Tradelink, though this was dissolved later. The Wire had asked Jay Shah to describe his dealings with Khandwala, incuding Sattva Tradelink. Replying on Shah’s behalf, his lawyer said: “Though this LLP was formed by Jay Shah with Khandwala, in view of adverse market conditions no business was carried out and the LLP was wound up and has already been struck off from the Registrar records.” (emphasis added).
It is not clear what Shah’s lawyer meant by ‘adverse market conditions’, for the year the LLP was formed was also the year Khandwala’s firm lent Rs 15.78 crore to Shah’s company and the latter went on to book revenues of Rs 80.5 crore.
Specific questions to Khandwala about why the annual report of KIFS Financial Services for the loan year does not mention the loan to Jay Shah’s company went unanswered.
After the boom, the bust
According to Shah’s RoC filings, Temple Enterprise is described as being engaged in wholesale trade and more than 95% of revenues come from the sale of agricultural products. “Temple Enterprise is in the business of import and export of agri commodities like rapeseed DOC, castor DOC meal, desi chana, soyabean, coriander seeds, rice, wheat, maize etc,” notes the statement from Shah’s lawyer. The statement also credits the business acumen of Shah’s partner, Jitendra Jayantilal Shah, and the education Amit Shah’s son received for the performance of the company. “The business ownership and management was principally held by Jay Shah and Jitendra Shah (an old family friend) and their associates. Jay Shah is a qualified engineer having done his B.Tech from the renowned Nirma University and Jitendra Shah was already engaged in the business of commodities for the last several years and his companies had been recording an annual turnover of over Rs.100 crore,” says the statement.
Shah’s lawyer also said a turnover of Rs 80 crore in the commodity business is not “abnormally high.”
What does appear a little abnormal, however, is that the firm, whose revenues jumped from just Rs 50,000 to over Rs 80 crore in a single year (FY 2015-16) stopped its business activities last year. The explanation offered by Shah’s lawyer: “Unfortunately, the business activities of the Temple Enterprise Pvt. Ltd. resulted in losses due to which the business activities were stopped sometime in October, 2016.”
From stock trading to power generation
Kusum Finserve is a limited liability partnership incorporated in July 2015 with Jay Shah owning a 60% stake in it. It was formerly a private limited company, Kusum Finserve Private Ltd, before being converted into an LLP. The private limited company also got inter-corporate deposits from KIFS Financial worth Rs 2.6 crore in FY 2014-15. The partnership generated Rs 24 crore as income as per its last filings.
The filings also reflect an unsecured loan of Rs 4.9 crore but do not specify from whom. Shah’s lawyer says the main business of Kusum Finserve is “trading in stocks and shares, import and export activities and distribution and marketing consultancy services.” He adds that KIFS Financial Services has regularly been giving it loans. “This entity has also been regularly raising ICDs/loans from KIFS Financial Services for the last several years and the amount of Rs. 4.9 crore was the outstanding closing balance from them. These amounts were used for regular working capital. Tax has been deducted on the interest paid (TDS) and principal and interest amount has been repaid in full,” the statement says.
While the main business of the firm is trading in stocks, its RoC filings reveal it is involved in diversifying into a completely unrelated field: it is setting up a 2.1 megawatt windmill plant worth Rs 15 crore in Ratlam, Madhya Pradesh.
Loans from a cooperative bank, and a PSU
Shah’s filings with the RoC also reflect Rs 25 crore worth of finance from the Kalupur Commercial Cooperative Bank. The board of directors of the bank include individuals from the Nirma group and Nirma university. The chairman emeritus of the bank is Nirma’s Ambubhai Maganbhai Patel.
File photo of wind turbines in Rajasthan Credit: REUTERS/Pawan Kumar
The properties mortgaged include one owned by BJP president Amit Shah, valued at Rs 5 crore, and another transferred by an associate of Amit Shah, Yashpal Chudasama, to Kusum Finserve Private Limited in 2014. Shah did not reveal what the value of the 2002 square foot property was but market estimates put it at Rs 1.2 crore. Chudasama, a former director of the Ahmedabad District Cooperative Bank, was chargesheeted by the CBI in 2010 for attempting to “convince, coerce, threaten, and influence witnesses on [Amit Shah’s] behalf to conceal the truth from the CBI” about the fake encounter of Sohrabuddin and his wife Kauser-bi. In 2015, a special CBI court discharged Chudasama from the case, just as it had discharged Amit Shah too in December 2014.
Asked how Kusum Finserve had managed to raise a loan of Rs 25 crore from a cooperative bank against collateral valued at under Rs 7 crore, and whether other properties had also been mortgaged, Jay Shah’s lawyer said the bank did not give the firm a “loan” but a “non fund based working capital facility in the form of a Letter of Credit up to Rs 25 crore.” This facility is availed “from time to time,” says the lawyer’s statement. “This facility has been secured on usual banking terms which include hypothecation of the goods purchased under the LC, cash margin of 10% and collateral security of a property belonging to Jay Shah’s father and another property of Kusum Finserve (purchased on April 5, 2014 through a duly executed purchase deed) which is duly reflected in the financial statement of April, 2014 to March, 2015,” says the statement.
“The bank receives payments before the retirement of LC on its due date resulting in this being a non-funded and no-risk facility for the bank,” Shah’s lawyer said.
Railways minister Piyush Goyal, formerly minister in charge of the Ministry of New and Renewable Energy. (Credit: Piyush Goyal/Facebook)
Besides the cooperative bank, Jay Shah’s partnership has also availed of a Rs 10.35 crore loan from a public sector enterprise, Indian Renewable Energy Development Agency (IREDA), described as a ‘mini ratna’ on its website, in March 2016. It is controlled by the Ministry of New and Renewable Energy. Piyush Goyal was the minister at the time the loan was sanctioned.
“The loan taken from IREDA for setting up a 2.1 MW wind energy plant is based on the equipment prices prevailing at that point of time as per industry standards (approx Rs 14.3 crore) and duly appraised and sanctioned in the normal course of business. The outstanding loan as on 30-06-2017 is Rs 8.52 crore and interest and repayment of loan are regular,” says Shah’s lawyer.
What is not clear are the parameters by which a partnership whose primary business, according to Shah’s lawyer, is “trading in stocks and shares, import and export activities and distribution and marketing consultancy services” decided to apply for and get a loan sanctioned for a 2.1 MW wind energy plant despite lacking any experience in the infrastructure or electricity sector. The Wire has reached out to IREDA about its lending policies and will add its response later.
From Shah’s lawyer, a threat
While replying to The Wire‘s questions on behalf of his client, Jay Shah’s lawyer warned that any story on Jay Shah’s business dealings could have adverse legal consequences:
“In view of the answers and explanations detailed above, the facts are absolutely clear and you are requested not to publish anything in this behalf, which would not only infringe my clients’ privacy rights but would also be libelous and/or defamatory.
“Jay Shah is a private citizen doing his legitimate business. His business transactions are honest, legal and bonafide. Your questionnaire indicates that your intention is to drag him into a false and a manufactured controversy. Any slant or imputation which alleges or suggests any impropriety on his part will not only be false but also malicious and defamatory. It will also be a breach of his fundamental right to privacy. He shall, in that event reserve the right to prosecute you for defamation and also sue you for the civil wrongs.
“Notwithstanding the above, if you or anyone in the print, electronic or digital media carries and/or broadcasts any defamatory and/or false imputations including those which breach his fundamental right of privacy and/or defame him, Jay Shah reserves the right to prosecute and sue such person/entity including anyone who carries or broadcasts a repetition of such libelous/defamatory statement.”
Rohini Singh is an investigative reporter who worked at the Economic Times till recently. In 2011, she broke the story of Robert Vadra’s business dealings with DLF.
Note: In an earlier version of the article, it was stated that the reserves and surplus of Temple Enterprise rose to 80.2 lakh in 2015-16, whereas it turned negative compared to the previous year. The reserves of the company at the end of the year are inconsequential for the larger investigation into the huge increase in turnover of the company.
