TIL, promoter and senior execs fined Rs 2.5 cr for making up transactions to get bank loans

During the investigation, the regulator's officials found that the modus operandi was to issue fictitious sales invoices, cancel these sales through through issue of credit notes, and then reissue the sales invoices to increase the sales turnover. Credit notes are issued by the seller to a buyer to show return of funds because of various reasons such as damaged goods or cancellation of the purchase.

This was being done to maintain the credit facilities availed from the banks.

For example, the regulator's officials found that the company had sold goods to a customer Chennai Radha Engineering Works Pvt Ltd (CREWPL) for Rs 29.88 crore and then the sales invoices were reversed by issuing credit notes to the same customer for a similar amount (Rs 29.8 crore.)

After the issue of these notes, TIL reinvoiced goods worth the same amount and then these sales were written off in FY20 and FY21.

The order noted that the company "had not provided any justifiable reason for issuing Credit Notes & for re-invoicing and not provided any supporting documents/ information pertaining to the aforementioned invoices and Credit Notes".

The CFO submitted to the regulator that this mechanism was kept in place to keep the company afloat based on the promoter-CMD Mazumder's instructions, and that if this procedure was not followed, the banks would have recalled loans given to the company.

The regulator's officials found that TIL's purchases and sales were concentrated with a few entities during these two years.

The company had accounted for 36.02 percent (Rs 20.91 crore) and 76.12 percent (Rs 79.83 crore) of its fictitious purchases with two entities Ganesh International and Upgrade Tracom, respectively. These entities accounted for more than one-third and three-fourths of purchases for FY20 and FY21, respectively.

TIL had accounted for 41.42 percent (Rs 48.35 crore) and 86.65 percent (Rs 111.09 crore) of fictitious sales transactions for FY20 and FY21,
respectively, with the entities CREWPL, Roshini Enterprises, Maa Tara Electricals, Upgrade Tracom, BPS Foundations and Dutta & Associates. Again these entities accounted for more than one-third and three-fourths of sales for the FY20 and FY21, respectively.