The Enforcement Directorate (ED) is conducting searches in the Mumbai International Airport Limited case. On Tuesday, the ED began searches at the GVK Group's offices in Mumbai and Hyderabad. The searches cover the residences of the GVK Group's promoters as well.
On July 7, the Enforcement Directorate (ED) had registered a case against the promoters of GVK Power & Infrastructure, Mumbai International Airport (MIAL) and others companies under the Prevention of Money Laundering Act (PMLA).
The case was registered a week after the Central Bureau of Investigation (CBI) registered a case of cheating and forgery against the GVK Group, its promoter GVK Reddy, Sanjay Reddy, MIAL and nine other companies for causing a loss of Rs 705 crore to the government.
MIAL is a joint venture between the Hyderabad-based GVK group’s GVK Airport Holdings, Airports Authority of India (AAI) and some foreign companies. GVK Airport Holdings and AAI hold a 50.05 percent and 26 percent stake, respectively, in MIAL.
The CBI’s First Information Report
The CBI had also carried out searches on the company last month in this case.
In its First Information Report, the CBI has divided the MIAL scam case into four parts:
1) Siphoning funds by showing execution of bogus contract work
2) Misusing MIAL’s surplus or reserve funds by inflating expenditure through diversion of funds
3) Under-reporting MIAL’s revenue by entering into related-party contracts
4) Meeting the personal expenses of GVK group promoters and their families using MIAL funds.
The alleged irregularities were spread over a six-year period, from 2012 to 2018.
Moneycontrol reached out to GVK for a response but without success. However, A GVK source has confirmed searches at Mumbai and Hyderabad offices.
'Bogus' work contract
AAI had in 2006 signed an agreement with MIAL for modernisation, operation and maintenance of the Mumbai airport. Under the terms of the pact, MIAL was to share 38.7 percent of its revenue with the AAI as an annual fee.
The AAI granted a 200-acre land parcel near the Mumbai airport to MIAL for development and generative revenue, the CBI said. But in 2017, MIAL allegedly entered into a bogus contract with Aishwaryagiri Construction Pvt, Kotia Enterprises, SBK Trade & Infrastructure, Subhash Infra, Aqua Tech Solutions, MV Omni Projects, Richa Industries, Nice Projects and Aditi Infrabuild for real estate development, the agency said.
MIAL transferred around Rs 310 crore to these nine companies but no work was carried out, causing a loss to the Airports Authority of India, the CBI’s FIR said.
The nine companies also took fake input credit, which resulted in a loss to the exchequer.
Misuse and diversion of funds
GVK group allegedly misused Rs 395 crore of MIAL’s reserved funds to finance its other companies. “As per source information from 2012 onwards, the promoter of GVK used surplus funds of MIAL (to the) tune of Rs 395 crore to finance their own other group companies,” the CBI said in the FIR.
The promoters created forged MIAL board resolutions authorising them to keep the reserve in the form of a fixed deposit with a public sector bank in Hyderabad, even though MIAL is a Mumbai-based company, the FIR said.
“GVK used overdraft facilities and loans on this FDR. They have given benefits to other companies at the expense of MIAL. Similarly, the company has used surplus funds of MIAL in Hyderabad in other nationalised banks and availed loans and overdraft facility,” it said.
The CBI has accused the GVK group of inflating MIAL’s expenditure. It said employees of other GVK group companies, who had nothing to do with the airport business, were shown on the payrolls of MIAL, causing a loss to the AAI.
The GVK group connived with family members and employees to gain an undue monetary advantage and cause a loss to the AAI, the CBI said. “As part of the conspiracy, they assigned the premium retail areas of Mumbai airport to their family members at exorbitantly low rates, thereby reducing the revenue of MIAL," the CBI said.
The GVK promoters also used MIAL funds to book air tickets and hotel stays for family members.
This the second time in as many years that GVK group is facing scrutiny over Mumbai airport. Last year, the Ministry of Corporate Affairs conducted an inspection of the group companies on a whistleblower’s complaint that also included MIAL.
Commenting on the CBI searches, the spokesperson for Mumbai International Airport Ltd (MIAL) had said: “MIAL is surprised to note the registration of a case by CBI against MIAL and others. MIAL would have provided every assistance had the agency sought explanation or any document even if a preliminary enquiry had been initiated. MIAL is a transparent and responsible corporate entity which is committed to co-operate with the agency in its investigation to arrive at the truth.”