ED files first chargesheet in Cox and Kings money laundering case

The Enforcement Directorate (ED) has filed the first chargesheet in the Cox and Kings money laundering case. The investigating agency has named as many as 12 individuals and entities in the chargesheet, including former promoter of Cox and Kings Group (CKG) Ajay Ajit Peter Kerkar, former promoter of Yes Bank Rana Kapoor, former chief financial officer of CKG Anil Khandelwal and its former internal auditor Naresh Jain.

Last week, Kerkar was arrested by the ED, as part of its money-laundering probe against Yes Bank’s founder Rana Kapoor. Khandelwal and Jain are also in ED custody. The debt-ridden travel company is one of the defaulters of Yes Bank.

Today, the special court has sent Kerkar to judicial custody.

"During the investigation, it was found that Yes Bank had a total outstanding of Rs 3,642 crore to Cox and Kings Group of Companies," a source told Moneycontrol.

The travel company fell under the ED’s scanner after the agency detected alleged irregularities in the grant of loans worth Rs 3,642 crore to it by Yes Bank, which are still outstanding. The agency suspects that the loan sum was allegedly siphoned abroad via subsidiaries located in India.

The investigation revealed that CKG forged its consolidated financials by manipulating the balance sheets of its overseas subsidiaries. Yes Bank, in its complaint dated March 18, 2020, submitted that the statutory auditor of CKG, DTS & Associates, had prepared the consolidated accounts of CKG on the basis of audited and signed financials of one of its overseas subsidiaries Prometheon Enterprises Limited, UK (PEL) for the year ended March 31, 2019.

The resolution professional (RP) appointed by the National Company Law Tribunal (NCLT), Pipara & Co, as a regular due diligence practice, requested certain confirmations from Raffingers UK LLP, the statutory auditor of PEL.

Raffingers UK informed that since they could not complete the audit of PEL for the year ended March 31, 2019, they have not signed any audited financials of PEL for the same. It is found that a forged financial statement supposedly audited by Raffingers UK LLP was submitted to DTS Associates, the statutory auditor of CKG for consolidation of its accounts from a fictitious domain name and email id of a Raffingers employee, who had already left the organisation in 2016.

Further, Yes Bank also alleged that CKG had siphoned a large sum of monies to their various related parties without proper approval or loan documentation in its place.

The investigation further revealed that, during FY15 to FY19, sales of Rs 3,908 crore were shown to be made to 15 non-existent/fictitious high-value debtors/customers. Another 147 sets of customers are also suspicious and not existent. Further investigation revealed that these were paper transactions made to inflate the balance sheet. The addresses provided for these customers were residential premises of the staff and employees of CKG and no business whatsoever was carried out from these premises.

Further investigation revealed that from Ezeego One Travel and Tours, a sister concern of CKG, Rs 150 crore was diverted to Redkite Capital Private Limited, which was promoted by family members of Khandelwal, who owns 51 percent of share, and Jain, who owns the remaining 49 percent share. These funds were then used to buy controlling stake in Tourism Finance Corporation of India Ltd (TFCI), a listed NBFC.

Khandelwal, Jain and others fraudulently took Rs 80 crore from Ezeego in the garb of a loan and subsequently converted the said loan into Redkite's 800 non-convertible debentures (NCDs) at a very nominal rate of interest to Ezeego. Ezeego thereafter sold these NCDs to SSG Capital. Ezeego suffered a loss as NCDs were sold at an accrued interest rate of 2.5 percent per annum. In short, the benefit of redemption premium was not given to Ezeego. The majority of the collection shown in ledgers from Ezeego was not found in the bank statements.

The ED investigation also indicated that Khandelwal and Jain played an important role in the transfer of funds of Rs 500 crore illegally by using CKG’s Virtual Credit Card, into Ezeego’s bank account, and from Ezeego’s account, the money was transferred to Redkite. For all these aforesaid bank transactions, Ezeego suffered huge financial losses.

Further, it is noticed that in the case of some financial transactions, there was a practice of transferring money from CKG’s bank account to Ezeego’s bank account and then immediately transferring the said money to Redkite bank account and thereby illegally using Ezeego bank account as a carrier to transfer money from CKG to Redkite.

According to the chargesheet, during the year 2016, to further the conspiracy, Khandelwal got an account opened by Sagar Deshpande, senior accountant of CKG, who had no affiliation with Ezeego and was not an authorised signatory of Ezeego, in Axis Bank.

Khandelwal and Deshpande have illegally used the said Axis Bank account to transfer money from Ezeego to Redkite, which was promoted by family members of Khandelwal and Jain, to hide the fraudulent transaction from Ezeego management. Even more shocking is the fact that Khandelwal and Jain were not holding any position in Ezeego and they had absolutely no right to make such transactions on behalf of Ezeego.

Govind Dhavan, DGM (Accounts) of Ezeego, on the instructions of Khandelwal and Jain, transferred funds from Ezeego to Redkite. Jain remains the managing director of Redkite from 2011 till date and has control over the firm.

Investigations further revealed that, on the instruction of Khandelwal, Deshpande submitted false documents to Yes Bank showing nil liability to Axis Bank. This was done in order to obtain an additional loan from banks, which was otherwise not available. By this act of falsification of records, Yes Bank was defrauded.