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How MMS & SMS stripped Religare bare of Rs 3,000 cr
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IANS | 19 Oct, 2019
Asset stripping is something that Indian promoters have perfected into
an art form. For years, the Singh Bros - Malvinder Mohan Singh (MMS) and
Shivinder Mohan Singh (SMS) have got away with the proverbial blue
murder and finally their luck ran out with their recent arrest. The
width and depth of the architecture of their fraud is gargantuan. The
FIR against the duo along with erstwhile CEO Sunil Godhwani provides
details of the modus operandi of the systematic asset stripping.
Moreover, it once again throws into stark relief the fact that
regulatory oversight failed and the company which saw an inspection as
far back as 2010 managed to operate under the radar, continuing with
innumerable irregularities without any fear.
Internal inquiries
showed that the poor financial condition of Religare Finvest was, to a
large extent, on account of wilful defaults of significant unsecured
loans, defined for internal purposes as the Corporate Law Book by
borrower entities, either related, controlled or associated with the
promoters, all of whom had been provided the loans by Religare Finvest
on a non arm's length basis, in violation of corporate governance norms
and in contravention of policies and prudential behaviour expected of a
NBFC registered with the RBI.
Red flags emerged but were
disregarded as always. The construct of the scam is listed out in
minutiae. In its inspection report of January 6, 2012 for the financial
year ending March 2010, the RBI observed that Religare Finvest had a
practice of parking a major chunk of surplus funds with fellow
subsidiary/group companies/ other companies which were often used for
taking positions in securities. This effectively means that punting or
speculation was done with these surplus funds in contravention of all
corporate governance norms.
The RBI, in its inspection report,
further observed that appraisal, sanction, purpose of loans, disbursal
report, periodic review, application from the borrowers requesting for
limit enhancement, appraisal/rationale for limit enhancement and
monitoring of such loans was not available on record.
It appears
that over a period of 10 years, 115 entities were funded through this
mechanism of the Corporate Loan Book with the total amount of Rs 47,968
crore. The exposure under the CLB peaked at approximately Rs 3,538
crore on March 20, 2012. To dodge the RBI bullet which had highlighted
this as a risk area, the exposure around the time of the quarterly
review reporting was managed but the disbursements were mischievously
re-instated soon after. By doing this, they concealed material facts
from RBI and public shareholders.
This way, Singh Brothers, in
conspiracy with Sunil Godhwani, being in control of Religare Finvest,
caused it to give unsecured, high value purported loans to shell
companies and related entities of MMS and SMS. The quantum of these
loans at the time of filing the FIR stands at Rs 2,397 crore as
principal and Rs 415 crore as interest.
It is evident from the
conduct of these entities that they never intended to repay these loans
to RFL and defaulted on their obligations simultaneously with MMS and
SMS's exit from Religare Enterprises. Clearly the CLB was used as a
mechanism to fund promoter related companies. The funds were never paid
back and actually whenever any payment was due in these loans, either
the loans were renewed for further tenure or were replaced by loans to
some other group companies to repay the loan of existing promoter group
company - a circular movement of funds.
N.K. Ghoshal, a longtime
stockbroker of the two brothers, was the principal, who through 19 of
his companies - which have all defaulted since, moved all the money
around.
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