Did Religare, IL&FS, and Essar promoters carry out circuitous transactions through Srei Group firms? – The Economic Times

Clipped from: https://economictimes.indiatimes.com/prime/corporate-governance/did-religare-ilfs-and-essar-promoters-carry-out-circuitous-transactions-through-srei-group-firms/primearticleshow/87869116.cms

From Left, Shivinder Singh, Malvinder Singh, erstwhile promoters of Religare group; Hemant Kanoria, former chairman, Srei Infrastructure Finance; Ravi Ruia, Vice chairman, Essar group; Ravi Parthasarathy, former chairman, IL&FS; image credit: Getty Images, BCCL

SynopsisUnder insolvency proceedings already, Srei Group’s troubled lenders could invite further scrutiny from the regulators. Public documents and corporate filings have revealed that crisis-ridden corporates, namely Religare, IL&FS, and Essar used Srei firms for questionable transactions. The RBI has already superseded the lenders’ boards, but the skeletons just keep coming out of the cupboards.

As two Srei Group-owned lenders — Srei Equipment Finance (Srei Equipment) and Srei Infrastructure Finance (Srei Infra) — answer regulatory authorities on governance issues, payment defaults, and mismanagement of funds, fresh developments have come to the fore pointing at their involvement in multiple circuitous transactions with other crisis-ridden corporates such as Religare, IL&FS, and Essar.

Corporate filings and other public documents seen by ET Prime reveal that promoters of Religare, IL&FS, and Essar used Srei Group companies as conduits to execute several transactions routing funds to their own companies.

A circuitous transaction, as in the present case, is typically an indirect flow of funds between two related entities routed through various other entities, mostly external, to bypass related party disclosure requirements and avoid regulatory scrutiny as in most of the cases these transactions are not done at arm’s length basis.

ET Prime’s detailed queries e-mailed to Religare Group, IL&FS Group, Ramakrishna Nishtala, managing director, Vistaar Financial Services, and Essar Group vice-chairman Ravi Ruia did not elicit any response till the time of publishing of this report. Additionally, queries sent to the Reserve Bank of India (RBI) appointed administrator for the Srei Group companies, Rajneesh Sharma, also remained unanswered.

Responding to ET Prime’s queries, Essar Group spokesperson said, “Essar conducts all transactions in an open and transparent manner, following all the accounting and procedures within the legal framework. Essar Oil Ltd was acquired by a consortium of Rosneft, Trafigura, and UCP, and the company is now renamed as Nayara Energy. Similarly, Essar Steel India Ltd was taken over by ArcelorMittal Nippon Steel India Limited, and both these companies are no longer within the portfolio of the Essar Group. Hence, it is not in our capacity to share any financial information of these companies”.

While the Essar spokesperson did not comment on specific deals when first reached out to, in a clarification following the publication of this article, he said the transactions were not circuitous, but independent.

The Essar spokesperson said: “We would like to put on record that the investment by Essar Oil in Srei’s India Growth Opportunities Fund was an independent investment decision made by [the] management of Essar Oil duly approved by the Board of Directors of Essar Oil. Essar Oil had surplus liquidity available which they invested in the fund and received the entire money back with interest. The fund was managed by Srei, and Essar had no role to play in how they deployed the funds.”

“Further, SREI has been a lender to Essar Group companies for many years. Various operating companies of Essar had borrowed from SREI in compliance with all the stipulated standard lending norms. All these loans have since been repaid,” the spokesperson added.

A former senior official at Srei Group said in his response that all the loans that Srei has given have been in the normal course of business, well within the policy and laid down processes. “There is no concept of circular transactions between lenders. All transactions are at arm’s length and following their procedures. Some of these matters are old cases which have been properly dealt with by all central agencies and authorities at one point of time and now these are closed cases,” he added.

The troubles for Srei Group came to a head when on October 4, 2021, RBI superseded the boards of the two non-banking financial companies (NBFCs) of the Kolkata-based Srei Group and referred them for bankruptcy. The insolvency resolution process is underway and a forensic audit is also being conducted by audit firm KPMG.

RBI’s move was triggered by a separate special audit of Srei Group conducted by the central bank back in November 2020, which unearthed several related-party transactions and under-provisioning among the two Srei lenders.

ET Prime had reported on how companies with meagre capital infusion and linked to a group of businessmen got huge sums from Srei entities as loans and how these companies were linked to the Srei Group.

In a separate instance, the group’s lenders also extended huge amounts of loans at generous repayment terms to companies linked to the Kanoria Foundation, the ultimate beneficiary of the Srei Group companies. Additionally, the troubled Srei lenders hid potential related-party transactions by routing them through public trusts.

The names involved, as per fresh findings, haven’t been away from their share of regulatory scrutiny. IL&FS was the first big shadow banker in India which collapsed facing similar allegations like Srei Group’s NBFCs.

Religare Group is promoted by Malvinder Singh and Shivinder Singh. The Singh brothers are currently in Tihar jail on charges of misappropriation of funds from their group companies — Religare Finvest and Religare Enterprises, the flagship company of the group.

The Essar Group, too, under the Ruia brothers, has been charged with similar accusations.

This way the dirty money of these troubled corporates moved through Srei Group-linked firms, bringing the Srei Group into the picture.

Srei Group and Singh brothers
Kolkata-based OSPL Infradeal Private Limited, incorporated in 2012, received INR200 crore from Religare Finvest, a Religare Group NBFC, in the form of non-convertible debentures (NCDs) during December 2016, according to the company’s filings with the Registrar of Companies (RoC).

OSPL Infradeal is a promoter group entity of Srei Group-owned Bharat Road Network Limited alongside Srei Infra, and funds operated by Srei Group such as Make in India fund and Bharat Nirman fund.

OSPL Infradeal, which is 86% owned by Bharat Nirman Fund, further invested INR269 crore in another entity linked to Srei Group — Optimum Infratel Private Limited.

Using the investment from OSPL Infradeal, Optimum Infratel made two investments during 2017-2018 of the exact amount. The company invested INR192 crore in Addon Realty Private Limited and INR77 crore in Hillgrow Infrastructure Private Limited by subscribing to optionally convertible debentures (OCDs).

Both Addon Realty and Hillgrow Infrastructure are Delhi-registered companies incorporated in February 2008.

Hillgrow Infrastructure is equally owned by two individuals, namely Gurpreet Singh Sodhi and Rajveer Singh. Two companies — Prius Real Estate Private Limited and ANR Securities Private Limited own OCDs in the company, as per the RoC filings of the company.

Like Hillgrow Infrastructure, Addon Realty is also equally owned by Sodhi and Singh. The company also lists Prius Real Estate, ANR Securities, and Hillgrow Infrastructure as its debenture holders.

How money flowed back to _Religare through Srei Group firms@2x

Both Addon Realty and Hillgrow Infrastructure list Yuvraj Narain Growaney and Vikas Sethi as the current directors.

And here enter the Singh brothers.

Addon Realty and Hillgrow Infrastructure along with their shareholders and debenture holding entities are all linked to the financial mismanagement and squandering of funds from Religare Group companies involving the Singh brothers and Gurinder Singh Dhillon — the spiritual head of Radha Soami Satsang Beas.

Interestingly, Optimum Infratel declared its investment in Addon Realty and Hillgrow Infrastructure as bad and unrecoverable just two years after it was made.

The annual report for Optimum Infratel filed by the company for 2019-2020 with the RoC states that considering the poor financial position of both the companies (Addon Realty and Hillgrow Infrastructure), as evident from their last audited financial statement, the company declared the entire investment amount of INR269 crore as bad.

So, in effect, a loan from Religare Group NBFC, Religare Finvest, was routed through two Srei Group-linked companies and was invested back in companies linked to the Singh brothers — the promoters of Religare Group — in a circuitous manner.

Speaking about the transactions, the former official from Srei, quoted earlier said, “It is a normal business practice among lenders to refer borrower clients to each other in view of the fact that there would be opportunities of co-lending. Therefore, there have also been occasions, where many banks and NBFCs, including Religare and IL&FS, have referred customers to Srei. Those clients would have been evaluated by the credit teams and after following the due process and in accordance to getting proper securities and/or cash flows, would have been given loans. If the borrower does not pay, then necessary legal action is initiated accordingly”.

Srei’s IL&FS association
Srei Group’s connection with IL&FS starts with Vistaar Financial Services Private Limited. Vistaar is a non-deposit-taking NBFC incorporated in Bengaluru. Vistaar received a loan worth INR205 crore from IL&FS Financial Service Limited (IFIN) during 2017-2018 while it was having a net worth of mere INR5 crore.

The said loan was extended by IFIN based on a referral letter by Srei Infrastructure, an ex-director of Vistaar revealed to Serious Fraud Investigation Office (SFIO) while the latter was investigating financial irregularities of the IL&FS Group under the Prevention of Money Laundering Act, looking at circuitous transactions involving third-party firms.

In its probe, the SFIO had found that since November 2017 IFIN fraudulently routed funding of over INR2,300 crore to IL&FS Group companies using external parties including companies associated with the Srei Group.

Vistaar had used the amount to repay their short-term loan worth INR185 crore from Srei Infra. With the proceeds received from Vistaar, Srei Infra further extended an INR200 crore loan to a Mumbai-based entity called Fagne Songadh Expressway Limited, an IL&FS Group company, a direct subsidiary of IL&FS Transportation Networks Limited.

Srei Group’s Essar connection
Srei Group has also been pulled up earlier by Sebi for violating alternative investment fund rules by Srei Multiple Asset Investment Trust and Srei Alternative Investment Managers Limited (name changed to Trinity Alternative Investment Managers Limited). In the said case, funds managed by these alternative investments trusts were involved in similar questionable transactions with Essar Oil.

Sebi’s inspection revealed that the India Growth Opportunities Fund, launched by Srei Alternative Investment Managers Limited, was only having three investors — Essar Oil with an investment worth INR1,195 crore along with Srei Infra (INR60 crore) and Srei Alternative Investment Managers (INR5 crore).

It was further revealed that the fund only granted loans to Essar Group companies — Essar being the sole external investor in the fund with around 95% of the investment contribution.

The fund had granted loans to Essar Steel Chhattisgarh, Essar Steel India, Essar Steel Jharkhand, and Essar Shipping among others. Apart from these, the fund also gave money to Loop Mobile Holdings India and Loop Telecom — indirectly controlled by Ruias, the promoter family of Essar Group.

Loop Telecom was used as a front company by Essar Group to acquire 2G licences by circumventing the procedures.

The bottom line
Were these transactions a result of an error in judgement and poor due diligence or was Srei Group a deliberate attempt to circumvent related-party regulatory disclosures?

The multiple occurrences of such transactions with corporates, already under the scanner of the regulatory authorities, do raise a red flag.

The ongoing forensic audit of the Srei Group companies as part of the resolution process of the two Srei lenders would answer the mystery behind these questionable transactions involving Srei Group companies.

The Srei Group-owned lenders owe over INR28,000 crore to the banks and various other bondholders including pension funds.

(Graphic by Sadhana Saxena)
(Originally published on Nov 24, 2021, 12:00 AM IST)

The latest from ET Prime is now on Telegram. To subscribe to our Telegram newsletter click here.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s