One more fraud of Rs. 4000 cr with 20 banks

The Mumbai Police has arrested three directors of city-based Parekh Aluminex Ltd (PAL), as part of an ongoing investigation into the non-payment of dues estimated at Rs 4,000 crore, several media reports said.

Following a complaint by Axis Bank against PAL for defrauding it of Rs 250 crore, the Economic Offences Wing (EOW) of the Mumbai police arrested Bhawarlal Bhandari, Premal Goragandhi and Kamlesh Kanungo on Friday on charges of cheating, forgery, breach of trust and criminal conspiracy, The Times of India reported.

As many as 20 private lenders including the State Bank of India (SBI), Indian Overseas Bank (IOB), are also seeking the recovery of their dues.

According to Sify, Axis Bank's internal investigation found that directors of PAL cheated and manipulated the system to obtain loans and fraudulent letters of undertaking (LoU). The arrested directors have reportedly been raising fake invoices and issuing manipulated bills through bogus companies. 
Between 2011 and 2013, the accused availed a number of short loans and credit facilities from Axis Bank, totalling Rs 290 crore, according to Hindustan Times.

“The bank’s internal probe concluded that the loan amount given to the firm was diverted to the company’s loan accounts maintained with other banks and was used for purposes other than what it was taken for. To get the loans, the names and documents of many firms were misused by the accused,” an investigation officer told Hindustan Times on the condition of anonymity.

Recent bank loan frauds
Persons, entities involved	Rs crore
Nirav Modi- Mehul Choksi-PNB scam	12,700
Vijay Mallya-Kingfisher bank loan fraud	9,000
Sterling Biotech-Andhra Bank scam	5,000
Parekh Alluminex - Axis Bank scam	4,000
Rotomac-Vikram Kothari-BoB scam	3,695
RP Info System-Shibaji Panja-Canara Bank-scam	515
Simbhaoli Sugars-OBC scam	109
Total	35,019

PAL's dubious record

In August 2017, the Securities and Exchange Board of India (SEBI) had barred PAL from the securities market and issued show-cause notices to its statutory auditor and a former executive director for alleged accounting fraud, diversion of funds and understatement of loans by over Rs 1,000 crore. The SEBI action followed a SBI complaint, filed with the CBI, which alleged that PAL and its directors had defrauded and cheated a consortium of banks.

The complaint filed by SBI had alleged that PAL and its directors fraudulently availed credit facilities from a consortium of banks including SBI, misused such credit facilities with an intention to defraud and cheat the banks, thereby causing losses to the tune of 122.07 crore and interest and other charges to SBI, the SEBI order had said.

Parekh Aluminex debt stands at Rs 2,545 crore at November 2015

According to documents reviewed by The Indian Express, at least 22 banks and financial institutions have lent Rs 2,545 crore through fund-based and non-fund based facilities. The banks include — Indian Overseas Bank (Rs 292 cr), SBI (Rs 148 cr), Bank of Baroda (Rs 100 cr), Union Bank (Rs 75 cr), Punjab National Bank (Rs 125 cr), Exim Bank of India (Rs 13 cr), Axis Bank (Rs 327.75 cr), Dena Bank (Rs 209.47 cr), Central Bank (Rs 159 cr), SBT (Rs 147 cr), Allahabad Bank (Rs 109 cr), Vijaya Bank (Rs 103 cr), Kotak Mahindra Bank (Rs 111 cr), Dhanalaxmi Bank (Rs 110 cr), Canara Bank (Rs 81 cr), Corporation Bank (Rs 89 cr), South Indian Bank (Rs 78 cr), Uco Bank Bank (Rs 71 cr), Federal Bank (Rs 66 cr), IDBI Bank (Rs 62 cr), ICICI Bank (Rs 24 cr), LIC (Rs 39 cr).

The Deloitte report on Parekh Aluminex found irregularities in the firm’s inventories record, provision for doubtful debts, insurance of plant and machinery, cash and bank balances and drawing power calculations.

For instance, the audit report said loans of Rs 1,314.78 crore given by Parekh Aluminex to seven private firms and a few related entities as on December 2012 were without any documentation defining the terms and conditions and security against which the loans were disbursed. Out of this, at least Rs 869.25 crore was extended to these firms as interest free loans. The seven private firms are JK Shah Group, Kamlesh Kanungo Group, Kirti Kedia-Transcon Group, Orbit Group, Shanti Dalal, Vishal Sharma Group, YA Mamaji Group. The audit report also raised concern about the company’s Rs 27.46 crore interest free loans to three related parties — AAP Entertainment Ltd, Arsenel Bulls Securities and AAP Realtor Ltd.

“Loans amounting to Rs 38.16 crore extended to companies trading in bullion were adjusted against expenses not directly attributable to company’s business,” said the Deloitte audit report. The report also found that the actual inventory of the firm was 97 per cent less at Rs 26.57 crore in December 2012 from Rs 918.25 crore in November 2012. It added that the company inflated its records to avail maximum drawing power from the lenders.

In December 2015, SBI, submitted the Deloitte audit report on Parekh Aluminex with the Securities and Exchange Board of India (Sebi). Sebi investigated the firm and in August 2017, barred it from securities market and issued show-cause notices to its statutory auditor and a former executive director for alleged accounting fraud, diversion of funds and understatement of loans by over Rs 1,000 crore.

At least six banks — SBI, Dena Bank, State Bank of Travancore, Corporation Bank, IDBI Bank and Indian Overseas bank — have filed a complaint with the CBI between 2015 and 2017 alleging fraud by Parekh Aluminex and its directors.

The banks alleged that the company “had borrowed many times more than its possible annual turnover” and “diverted around Rs 1,400 crore out of the total bank finance of Rs 2,000 crore. They have also alleged that the firm “consistently” showed inflated sales, stock holdings and trade debtors. “Book debts statement was given with the assumed and artificial figures with intention to cheat the bank. Names of debtors were not mentioned by the company which shows their fraudulent intention of non verifiable source to the bank and have more drawing power/ funds with actual sales,” said one of the complaints filed by the lead banker of the consortium of lenders, Indian Overseas Bank, with the CBI in May 2017.

SBI complaint stated that the company had a “drastic” reduction in assets in December 2012 and had diverted loan money to entities that had business activities in sectors (iron and steel, real estate) that were not the core business of Parekh Aluminex. Allahabad Bank has declared Parekh Aluminex as a “wilful defaulter”, a tag the firm has challenged in the High Court. ICICI Bank has filed a winding up petition against the firm in the National Company Law Tribunal.