From Cooking Books To Buying Gold With Bank Loans: What Unfolded At Transstroy
Transstroy (India) Ltd. is the latest addition to corporates that have allegedly siphoned off funds from the banking industry. The infrastructure and construction firm is facing charges of cheating and forgery after an official from Union Bank of India filed a complaint with the Central Bureau of Investigation.
The complaint submitted to the investigative agency in December 2019 explains how Transstroy India and officials of the company diverted funds by transferring money to companies on paper without actually sending the funds and also donated gold to temples using bank loans extended to the company.
On Friday, the CBI conducted searches at Transstroy India and premises owned by the other accused on the basis of the complaint. A statement by the investigative agency noted that the accused misappropriated bank funds and diverted the loan amounts sanctioned by the banks, causing loss to the tune of Rs. 7,926 crore to state-owned Canara Bank and other member banks.
In a clarification to the stock exchanges on Saturday, Canara Bank, which is the lead lender to Transstroy India, said the total limit sanctioned to the company by banks was Rs 4,676 crore, in which its share was Rs 678 crore. It also said that the case had been reported as fraud to the Reserve Bank of India in February and that Canara Bank had made 100% provision against the outstanding loans, as required.
According to the complaint, the lenders led by Canara Bank had marked Transstroy (India) as a non-performing asset in 2015, following persistent irregularities in repayments, frequent devolvement of letters of comfort, non-payment of dues on working capital loans and for not routing operations through consortium banks.
In December 2017, an audit was conducted by global consulting firm EY, which stated in its report multiple instances of siphoning off of funds by the infrastructure firm and a fraud perpetrated by it. Some of the instances are listed below:
- Writing off Rs 794-crore worth debt and adjusting it to the company’s reserves, where the receivables were hypothecated to the banks.
- Borrowing money for projects which never took off and banks weren’t informed.
- Amount worth Rs 2,261.58 crore routed through non-consortium banks without informing the consortium.
- Acquisition of a hydel power project from Sri Jayalakshmi Power Corp. for Rs 36.5 crore without informing banks.
- Procurement of similar machinery from two different vendors with same engine and serial number by manipulating records to secure more loans than the eligibility.
- Transferring funds worth Rs 2,341 crore to another company on the books, without the funds reflecting in the accounts of the company concerned.
- Inflating inventory statistics to provide security cover to banks.
- Using Rs 5.28 crore worth bank loans to purchase gold and silver to donate to three different temples in South India.
According to the executive director of a public sector bank with loan exposures to Transstroy (India), the company was tagged as a wilful defaulter in 2018, after the fraud investigation report was studied by the consortium.
As per the RBI’s regulations, a wilful default is said to have occurred under three conditions. The first is if the borrower has the capability to repay its lenders but has not, the second when the defaulting borrower has not used the funds extended to it for the specific purposes laid out in the loan contract and third, when the funds extended by lenders have been siphoned off from the entity they were extended to.
Lenders had also initiated insolvency proceedings against the company in October 2018, which eventually led to Transstroy (India) going under liquidation, on the orders of the Amaravati bench of the National Company Law Tribunal in September 2019. According to data available on the company’s website, its resolution professional has admitted claims worth Rs 8,217 crore from financial creditors and Rs 38 crore from operational creditors.
Separately, bankers to the company are pursuing legal action against the promoters to recover personal guarantees provided by them, the public sector banker cited earlier said.
According to the CBI’s FIR, the agency is also investigating why it took time for banks to file a complaint against the company after they were aware of the fraudulent activities in 2018.