PMC Bank Case: HDIL’s Rakesh And Sarang Wadhawan Arrested, Shares Fall
An executive escorted in handcuffs. (Photographer: Daniel Acker/ Bloomberg News.)  

PMC Bank Case: HDIL’s Rakesh And Sarang Wadhawan Arrested, Shares Fall

The Economic Offences Wing of the Mumbai Police has arrested realty firm Housing Development & Infrastructure Ltd. directors Rakesh and Sarang Wadhawan in the PMC Bank case. Reacting to the news, HDIL shares on Friday fell as much 4.11 percent to Rs 3.50 apiece.

“They were called for questioning today at the EOW office. The response from them was not sufficient and not satisfactory. Sufficient ground was found for the arrest for their role in this case,” Pranay Ashok, deputy commissioner of Mumbai Police, said in a media briefing Thursday, adding that the two will be interrogated and produced before court in 24 hours. “The SIT (special investigating team) that has been formed is looking into all aspects and the investigation is on.”

The EOW also attached Rs 3,500 crore worth of properties belonging to the Wadhawans and HDIL, a senior official at the EOW told BloombergQuint. Sarang Wadhawan is the managing director, while his father Rakesh Wadhawan is the chairman at the Mumbai-based slum redeveloper.

Also read: PMC Bank Case: ED Raids Six Locations, Files Money Laundering Case

The arrests came after the EOW on Monday filed a first information report against the officials of PMC Bank and HDIL, and formed a special investigation team to probe the matter. The FIR alleged that the bank faked loan records to under-report the company as a non-performing asset.

The loan amounts of roughly Rs 2,000 crore, according to EOW, were diverted to the Wadhawans’ personal accounts. EOW has also shared its FIR with the Enforcement Directorate. EOW has also frozen a demat account worth Rs 100 crore of Waryam Singh, chairman of PMC Bank.

The police is also interrogating the bank staff to find out why accounts of HDIL and its linked firms were not reflected in PMC Bank’s system. The probe suggests PMC employees tampered with bank software, the official quoted earlier said on the condition of anonymity is investigation is on. That’s why 44 accounts mentioned in FIR did not reflect in the bank’s system, he said.

The FIR was filed under Sections 409 (criminal breach of trust by a public servant or banker), 420 (cheating), and 465, 466 and 471 (related to forgery) of the Indian Penal Code along with 120 (b) (criminal conspiracy). HDIL promoters, according to the FIR, allegedly colluded with PMC Bank’s management, to draw loans from the bank’s Bhandup branch.

Despite failure to repay debt, the bank officials did not classify the loans to HDIL as non-performing advances and intentionally hid the information from Reserve Bank of India, an official statement from the police said. They also created fictitious accounts of companies which borrowed small sums of money, and created fake reports of the bank to hide from the regulatory supervision, it said.

India’s Ministry of Corporate Affairs too is examining the book of accounts of HDIL to look for any irregularities.

The probe was initiated after the Reserve Bank of India found that PMC Bank had total exposure of 73 percent to HDIL. The loans from the cooperative bank helped HDIL delay insolvency proceedings, the bank’s former Managing Director K Joy Thomas had said.

RBI had imposed restrictions on PMC Bank last week as it capped withdrawals by customers at Rs 1,000 for six months. The restrictions were placed after RBI invoked Sections 35A and 56 of the Banking Regulation Act that allow the banking regulator to impose conditions on banks, including cooperative lenders, to protect the interest of the depositors.

The curbs led to a massive public outcry with people thronging the branches for their money. The RBI has that 60 percent of the accounts have balances under Rs 10,000 and will not be impacted by the measures.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.