The Economic Offenses Wing (EOW) of Mumbai Police is preparing to investigate serious allegations related to loan assignment through alleged “closed-loop funding” and nexus. This step is being taken after a detailed complaint given by former HDIL promoter Rakesh Kumar Wadhawan.
Wadhawan is also a suspended director of Housing Development and Infrastructure Limited (HDIL). He has demanded a criminal investigation into several loans sanctioned between financial years 2017 to 2019, their restructuring and subsequent assignment. The complaint alleges that these transactions lacked transparency, fair pricing and independent valuation and the funds were allegedly channeled to Suraksha Asset Reconstruction Private Limited in suspicious manner.
The main allegation of the complaint is that the 15 per cent margin money given by Suraksha ARC to purchase stressed assets was not genuine third-party investment. It has been claimed that this amount came through group companies which had received financing from YES Bank during the same period. This has been described as “closed-loop funding” and “round-tripping” arrangements, indicating that the money ultimately originated from the same bank.
Reference to Yes Bank report
The complaint also cites Yes Bank’s internal special audit report, which raised questions over the absence of auction or competitive bidding before the sale of stressed assets. It also said that in many cases valuation reports were not available and SMA-2 category accounts were also sold without mandatory recovery efforts, raising doubts over balance sheet management and possible evergreening.
In an important transaction, there is mention of a loan of Rs 150 crore given to Sapphire Land Development Pvt Ltd. According to the complaint, the internal credit sanction was for Rs 100 crore, but Rs 150 crore was released. It is also alleged that this loan was transferred to ARC in just ten months before the account became NPA and during the moratorium period.
In the complaint, the assignment of dues of Rs 154.53 crore for Rs 150 crore has been described as a “ploy to change the complexion”. In this, questions have been raised on issues like independent valuation, market based price discovery and subsequent approval from the board. It is also alleged that YES Bank retained economic interest in the assets through security receipts worth Rs 127.50 crore, which casts doubt on the terms of the “true sale”.
Apart from this, violation of SARFAESI Act and RBI guidelines has also been alleged. The complaint said that through these transactions, Suraksha ARC made inflated claims in the insolvency process and acquired more voting rights in matters related to HDIL, which may have affected the corporate insolvency resolution process.
EOW has been asked to investigate possible crimes like criminal conspiracy, fraud, breach of trust, manipulation of records and fund diversion. The investigating agency has also been asked to examine the audit report, transaction trail and internal approvals. According to sources, EOW can start preliminary investigation and if the allegations are found true, a formal case can be registered. Questions sent to YES Bank and Suraksha ARC in this regard had not received any response till the time of publication.
If the investigation proceeds, it could have wide-ranging implications for corporate governance and regulatory oversight in the asset reconstruction sector. The market will keep an eye on whether this case proves to be a step towards sale of stressed assets and improvement in the funding structure in the banking sector.
