SEBI in a March order directed Religare Enterprises and its subsidiary to recover funds to the tune of Rs 2,315.09 crore that had been diverted to various entities for the ultimate benefit of erstwhile promoters of REL
The Economic Offences Wing (EOW) of the Delhi police arrested Malvinder Singh in Ludhiana in a late night drama on allegations of cheating and diverting funds of Religare Finvest to the tune of Rs 2,397 crore.
Earlier on October 10 his brother Shivinder, former Religare top executive Sunil Godhwani and two other officials were arrested and taken into custody for questioning.
Religare Finvest is a subsidiary of the Religare Enterprises (REL). Shivinder and Malvinder, popularly referred as Singh brothers, were former promoters of REL.
Delhi Police said the accused were arrested under Section 409 (criminal breach of trust) and Section 420 (cheating) of the Indian Penal Code. “The alleged persons, having absolute control of REL and its subsidiaries, put Religare Finvest in a poor financial condition by way of disbursing loans to companies having no financial standing and controlled by the alleged persons," it said in a statement.
What led to the arrest of Singh brothers?
Several financial irregularities have come to light during independent audits by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). The market regulator in a March order directed REL and its subsidiary to recover Rs 2,315.09 crore that had been diverted to various entities for the ultimate benefit of its erstwhile promoters.
The SEBI order documented diversion of Rs 729.13 crore through entities belonging to Singh brothers by availing a loan against a Religare Finvest fixed deposit of Rs 750 crore held with Lakshmi Vilas Bank (LVB)
The NBFC's liquidity profile was badly hit when LVB adjusted the Rs 791-crore (including interest) fixed deposit due to Religare Finvest against the loans granted by LVB to RHC Holding Pvt and Ranchem Pvt.
There was no lien or security which was provided by RFL on loans granted by LVB to these erstwhile promoter entities.
SEBI found that Religare Finvest was made to invest Rs 200 crore in the non-convertible debentures of a firm related to the Singh brothers. The regulator said funds had been transferred by Religare Finvest to OSPL Infradeal without any approval and the entire documentation was done retrospectively three months after the actual transfer of funds.
Similarly, a corporate loan of Rs 50 crore was granted by Religare Finvest to another entity Bharat Road Network, which is related to the erstwhile promoters, without approval or documentation.
Loans worth Rs 1,260.9 crore given by Religare Finvest to various entities were found to have allegedly landed in bank accounts of entities related to the Singh brothers.
The amounts are much smaller, but the modus operandi of alleged siphoning money from Fortis Healthcare, another company promoted by Singh brothers, is eerily similar. Here too, SEBI asked Fortis Healthcare to recover Rs 403 crore with interest. Fortis Healthcare is now owned by Malaysia's IHH Healthcare.What's at stake for Religare Enterprises?
In February last year, the Singh brothers stepped down from REL board, in the wake of reports about them siphoning off around Rs 500 crore from Fortis Healthcare.
After their exit, the boards of REL and Religare Finvest were re-constituted with new directors. Singh brothers hold less than a percent in REL and they were reclassified as public shareholders from promoters.
All of this had nearly destroyed REL. As of March 31, Religare Finvest has made provisions on its entire corporate loan book of Rs 2,037 crore. The company suffered a loss of Rs 1,500 crore in FY19.
Under the new management the company has been trying to raise capital at the group and subsidiary level, which includes sale of its assets. It made some headway in July when it entered into a binding term sheet with TCG Advisory Services for sale of its entire stake in Religare Finvest and the latter's housing finance subsidiary: Religare Housing Development Finance Corporation (RHDFC).
Consummation of the deal may take time given the regulatory hurdles. Meanwhile, the company has managed to service its liabilities. But given the challenging operating environment, how long it will do so is a big question.
Also, getting monies back from Singh brothers is a challenge.
REL has already initiated recovery proceedings through a corporate insolvency resolution process under the Insolvency & Bankruptcy Code, 2016 against Singh brothers and their entities.Will Singh brothers pay-up?
That's a million dollar question with no easy answers. With Singh brothers and other key executives of REL in custody, the investigating agencies task is cut out -- first, find out the money trail, and second, who were the beneficiaries.The Great Diwali Discount!
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