PMC Bank Case: Magistrate Court Extends Custody Of Wadhawans Till Oct. 9

The Mumbai Metropolitan Court on Friday extended the custody of Housing Development & Infrastructure Ltd.’s Directors Rakesh and Sarang Wadhavan till Oct. 9.

This comes after the Economic Offences Wing of the Mumbai Police arrested the real estate company’s directors Rakesh and Sarang Wadhawan in connection with their alleged involvement in the PMC Bank case.

Earlier this week, the police had filed a first information report against the officials of PMC Bank and HDIL, and formed a special investigation team to probe the matter involving irregularities at the bank.

Grounds For Seeking Relief

Amit Desai, counsel representing Rakesh and Sarang Wadhawan, opposed the extension of custodial interrogation and extension of custody. He argued:

Sufficiency Of Reasons For Arrest

One of the reasons stated for the arrest of the Wadhawans by the EOW was custodial interrogation. Counsel for Wadhawans argued that the interrogation could be done with or without seeking their custody. The overnight arrest of Wadhawans would not immediately resolve the problem.

Police remand must be an exception, and not a rule. As the charges against the Wadhawans were only preliminary and consequences would follow only if they were found guilty, the police custody must not be extended.

Investor Interest

Counsel for Wadhawans argued that the problem at PMC Bank could be addressed by liquidating assets of HDIL. However, as the title deeds and documents relating to HDIL’s properties were in the custody of PMC Bank, relief from custody would enable them to sign the sale deeds, which would ensure quick liquidation of HDIL’s assets by the administrator appointed by the Reserve Bank of India.

Counsel for Wadhawans further argued that the arrest and subsequent encumberment due to attachment of HDIL’s assets would deteriorate their value, which could hamper the recovery at PMC Bank. The ongoing problems at PMC Bank have only been alleviated due to the attachment of properties which even included clean assets.

Excessive Penal Provisions Imposed

Among others, the EOW had charged the Wadhawans under Section 406, 409, 420, 471 of the Indian Penal Code. Wadhawan’s counsel argued that the sections imposed by police were excessive. For instance, the police has invoked Section 409 of the IPC against the Wadhawans, which provides for punishment on account of criminal breach of trust.

However no material was existing to show a breach of trust by the Wadhawans.

EOW’s Grounds For Remand

Counsel for the government opposed the relief sought by Wadhawans on the ground that the irregularities at PMC bank were committed using multiple fictitious accounts. This, as per the counsel, was not a fraud of ordinary nature and hence, the custody of the Wadhawans must be extended.

In its application for availing custody of the accused, the EoW sought confinement of the Wadhawans for a period of 14 days for detailed interrogation. It sought so on the following grounds:

21,049 Fictitious Loan Accounts

HDIL group companies were the largest borrowers from PMC Bank and had unpaid dues to the tune of Rs 4,335.46 crore towards PMC Bank. In the details of loan accounts filed by PMC with the Reserve Bank of India, PMC had replaced the details of HDIL’s 44 loan accounts with 21,049 fictitious loan accounts which showed lesser exposure.

These bank accounts were not actual accounts in the bank’s accounting system but mere entries in the details filed with the RBI. The EOW has alleged that the Wadhawans were involved in this offense along with Joy Thomas, managing director of PMC Bank.

Other Grounds

• The PMC Bank case is a case of a “huge financial fraud” and the Wadhawans had played an active role in commission of offense.
• Being at the helm of HDIL group companies, the interrogation of the Wadhawans was necessary as PMC had credit facilities to all such companies.
• The documents gathered by the EOW during the course of investigation point towards the role of Wadhawans.
• Scrutiny of the documents by the EOW indicates diversion and misappropriation of funds by the Wadhawans in large amounts.
• False records were submitted to the RBI and hence a detailed interrogation of Wadhawans was necessary to know the mode of fraud. HDIL had borrowings from other banks apart from PMC. A detailed investigation by EoW is necessary to find whether borrowings from PMC were used to pay-off debts from other banks.