The Economic Offences Wing FIR against the Singh Brothers in the Religare Group fraud case shows their chicanery and duplicity. It points out to how Modland, Platinum, Prius and ANR -- entities controlled by Shivinder Mohan Singh (SMS) and Malvinder Mohan Singh (MMS) -- acted as a single economic entity.
The registered office of all these entities is D-3, District Centre, Saket. Shockingly, it is evident from the above that Modland and Platinum admit receipt of money and admit that since the inception of the transaction they never intended to repay the money back to RFL. Instead, as intended they transferred the money to other entities (as mentioned above) which are controlled by SMS, MMS and stockbroker NK Ghoshal (NKG).
This is a clear case of cheating whereby Religare Finvest Ltd has been cheated and defrauded of hundreds of crores. The loans advanced were never repaid, and it appears from the replies that these entities (through persons acting as their alter egos) colluded with entities like Prius, ANR, Annies, Saubhagya, Torus and Gurudev (through persons acting as their alter egos) to siphon away money from RFL, thereby causing a wrongful loss to RFL.
In the present case, it appears from the admissions in the replies that RFL was cheated by the directors/persons controlling all these entities.
It is believed that NKG in addition to the directors, controlled A&A Capital Services Ltd.; Tara Alloys Limited; Shri Dham Distributors Pvt Ltd.; Annies Apparel Private Limited; and Gurudev Financial Services Pvt. Ltd.
Further, it is believed that SMS and MMS in addition to the directors, controlled Platinum Infrastructure Pvt Ltd. and Modland Wears Pvt Ltd.
Since there are admittedly cross-transactions between entities controlled by NKG and entities controlled by SMS and MMS, it is reasonably believed that NKG, SMS and MMS conspired to siphon away RFL's assets and caused it a wrongful loss and made a wrongful gain for themselves.
The Reserve Bank of India in its communications pointed out that there were linkages between the entities which had availed loans under the Corporate Loan Book portfolio and there was cross-shareholding as well.
It is pertinent to mention that at the time the loans were extended, SMS, MMS and Sunil Godhwani (SG) were fully controlling RFL and were acting as its alter egos. Therefore, it is impossible that the aforesaid transaction was carried out without their knowledge and support.
In addition to cheating, SMS, MMS and SG are also liable for the offence of criminal breach of trust. It appears that similar to the aforesaid loans, loans under the CLB portfolio had been advanced earlier over a period of time. Such loans were serviced for a considerable period of time through a process of ever-greening and round-tripping to build confidence and a track record. Therefore, when the aforesaid loans were extended, they appeared to be part of the normal process.
From the replies of the entities as described above it appears that though a complex maze of interconnected transactions, which are layered to prevent detection, the properties of RFL have been misappropriated.
At this stage, the Company also deems it necessary to state that in the last few months, there have been several investigations/legal proceedings initiated by investigative authorities such as Securities and Exchange Board of India (SEBI), third parties and even SMS, which give a glimpse of the scheme adopted by MMS, SMS, SG and other unknown persons, for misappropriating the funds of the Company and their other group entities.
The findings are briefly discussed below: (i) Interim Order passed by SEBI: after conducting a preliminary inquiry into MMS and SMS group company. Fortis Healthcare Limited, on 17.10.2018. SEBI passed an interim Order against 11 entities, including the Company (SEBI Interim Order). Pertinently, the Interim Order demonstrated how, in a structured movement, various companies related/controlled/owned by MMS and SMS were used by them as vehicles to route funds from Fortis Healthcare Limited.
(ii) Petition filed by SMS: In September 2018, SMS filed a petition under Section 241 and 242 of the Companies Act, 2013 before the National Company Law Tribunal against MMS and SG (NCLT Petition). In this petition, SMS raised serious allegation of oppression and mismanagement against MMS and SMS. Particularly, SMS stated that during the period of 2016-2018, MMS and SG abused their position of influence and control and conducted the affairs of the Company in a manner prejudicial and oppressive to the Company by siphoning funds from the Company and its subsidiaries.
This petition was eventually withdrawn.
(iii) Serious Frauds Investigations Office (SFIO) Letter -- A letter dated 28.2.2018 was issued by the SFIO to REL. In this letter, the SFIO intimated REL that the MCA has directed it to investigate the affairs of REL. Accordingly, the SFIO sought relevant information regarding the investments made and loans given by Religare Enterprises Ltd to its related companies from the financial year 2015-16 onwards. Pertinently, this communication only provided limited information and did not disclose the extent of SFIO's investigation. Needless to say, REL submitted all information and documents with SEBI and SFIO.
(iv) SEBI investigation -- immediately after the new management of REL was appointed and was in the process of conducting a preliminary review of the prior transactions entered into by MMS and SMS, on behalf of REL, with various other entities, the Company received a letter dated 22.02.2018 from SEBI requesting REL to co-operate in relation to an investigation in the matter of the Company. In this letter SEBI sought factual data and information from the Company pertaining to the REL's associates and subsidiaries.
From the aforesaid documents it appears that SMS and MMS in connivance with SG, NKG and the directors and officers of entities which have received funds from the Complainant Company on account of the CLB (especially the aforesaid 7 entities) have used a complex web of interconnected transactions to siphon away money of the public shareholders.
As mentioned above, the Complainant Company reasonably believes that these illegal transactions were caused by MMS and SMS, so as to siphon away the funds of the Complainant Company before they ceased to be in control of the Complainant Company.
By way of background, it is relevant to mention here that over the years, MMS and SMS had pledged their shares (and shares held by entities controlled by them) of REL with various banks/financial institutions and raised finance against such pledges.
It appears that in or around the year 2016, MMS and SMS realized that the said pledges could be invoked on account of defaults and that consequently, they would lose control over REL and RFL. The possibility of invocation of share pledges could have been within the special knowledge of only SMS and MMS and their confidantes/ associates. Therefore, others around them continued to function as usual and did not realize the financial scam which SMS and MMS were orchestrating. The timing of the defaults by the aforesaid entities must be noted, i.e, contemporaneous with SMS with SMS's and MMS's exit from REL and thus the Complainant Company.
While the promoters promised to take corrective action, the promises did not translate into any tangible action and the exposure of RFL to such loans kept ballooning. Importantly, even though the shares of the promoters in REL were pledged, they kept assuring the RBI and REL that they would address RFL's CLB by sale of their shares in REL.
In this context it is relevant to mention that RFL is ultimately owned by REL which in turn is largely held by public shareholders. Any loss caused to RFL is a loss to public shareholders. It is evident from the replies of the aforesaid 7 entities that they did not intend to return the loan to RFL from inception of the transaction. The MoUs signed were documents created dishonestly to give the colour of genuine transactions to sham transactions the purpose of which was only to siphon away/misappropriate money(s) of the Complainant Company.
It appears that SMS, MMS, SG, NKG and other unknown persons (being the directors and employees of the 7 entities at the relevant time) colluded to wrongfully gain at the expense of the Complainant Company. SMS and MMS breached the trust reposed in them by the Complainant Company, its shareholders, including REL and the public shareholders of REL. Internal inquires have also revealed that in many instances the documents regarding the loan under the CLB portfolio were prepared after disbursal of the loan. In some cases they were antedated and thus forged.
The Complainant Company deems it necessary to reiterate at the cost of repetition that since the Complainant Company is a subsidiary of a listed entity, i.e., REL, any loss caused to the Complainant Company in turn causes a loss in value to REL on account of consolidation of accounts and also causes diminution in the value of the REL's assets (being the shares held by it of the subsidiary companies).
SMS, MMS and SG were fully aware that the commission of such illegal transactions would have a huge impact on the financial positions of both REL and the Complainant Company, however, despite this, they, in connivance with their unknown associates, abused their position and caused wrongful loss to the Complainant Company and wrongful gain to themselves.
On the basis of the above it is submitted that MMS, SMS and SG in collusion with NKG by abusing their position caused the Complainant Company to enter into transaction, whereby money(s) was transferred to shell companies/suspicious entities and siphoned away.
Additionally, MMS, SMS and SG by concealing facts and abusing their position caused the Complainant Company to lend money to entities owned and controlled by them and NKG (directly or indirectly) with no intention of ever returning the said money(s). It is clear that the aforesaid acts and omissions on the part of MMS, SMS and SG and their officials/associates, including NKG, who abused their position in REL and the Complainant Company have greatly hampered the interests of the Complainant Company, its shareholders and public shareholders of REL.