TMI Blog2019 (3) TMI 2040X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, to the Noticee nos. 3 to 25 along with due interest, within three months of the date of this order who inturn pending completion of the investigation and till further orders, not dispose of or alienate any of their assets or divert any funds, except for meeting expenses of day-to-day business operations, without the prior permission of SEBI.Noticee nos. 24 and 25 shall not associate themselves with the affairs of REL and RFL, in any manner whatsoever, till further directions The preliminary findings are made on the basis of the report of the forensic auditor. The Noticees may file their replies, if any, to SEBI within 21 days from the date of receipt of this order. In the event the Noticees intend to avail an opportunity of personal hearing, they may indicate the same in their replies. - In Re. Platinum Infrastructure Pvt. Ltd. , Ad Advertising Pvt. Ltd. , Artifice Properties Pvt. Ltd, Best Health Management Pvt. Ltd, Devera Developers Pvt. Ltd., Vitoba Realtors Pvt. Ltd, Fern Healthcare Pvt. Ltd, Modland Wears Pvt. Ltd, Rosestar Marketing Pvt. Ltd, Star Artworks Pvt. Ltd, Tripoli Investment Trading Co. , Volga Management and Consultancy Pvt. Ltd. , Zolton Properties P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising concerns regarding its Corporate Loan Book ( CLB ) for the FY 2014-15. RBI, in its letter, inter alia, mentioned that some of the top borrowers of RFL were related entities and financials of such borrowers were weak and raised concerns regarding the creditworthiness of some borrowers and inefficient credit appraisal methodologies adopted by RFL to advance loans to group companies with weak financial standing. Further, RBI had raised concerns regarding improper practices followed by RFL and observed that accounts of various borrowers were used by RFL to route the funds to group companies. RFL had submitted its reply to RBI (letter dated February 20, 2017) stating that it would be able to reduce the CLB portfolio by Rs.100 Crores in the first quarter of FY 2017-18. However, the total CLB exposure increased from Rs.1,846 Crores as on March 31, 2017 to Rs.2,517 Crores, as on October 31, 2017. e) With regard to the aforesaid CLB, it was alleged that companies to whom loans have been given by RFL under CLB were not the actual users of loans and that they were primarily used as vehicles for usage of the funds by others as well as by various group companies of the promoters of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 10.19% for Overdraft loans, resulting in a direct loss of over 5% on the whole amount. (c) As the cost of funds to RFL was much higher (almost double) than the rate of return i.e. interest on fixed deposits it was getting from LVB, the fixed deposits placed by RFL were not in the normal course of business. (d) The audit report stated that apart from the two fixed deposits placed with LVB, RFL had opened multiple fixed deposits during the year 2016-2017 for various business purposes, such as for availing Overdraft Facility, giving guarantees to Regulatory Authorities or for facilitating securitization transactions. All of these fixed deposits were pledged and made with specific business related purposes. Given that the fixed deposits placed with LVB were the only ones against which no lien was created and no business transaction was facilitated, it strengthens the concern that the fixed deposits were not created as part of normal business transactions. (e) Moreover, RFL and REL were having banking relations with some of the largest banks in India, including State Bank of India, Punjab National Bank, HDFC Bank, Bank of India, ICICI Bank, among others. LVB is comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 Crores received on November 11, 2016 and Rs. 332.50 Crores received on January 09, 2017) to pay off its debts to multiple entities. Balance Rs. 22.33 Crores was utilised by RHC for various internal purposes. Thus it can be concluded that RHC Holding was the ultimate beneficiary of the loan of Rs. 729.13 crores . B. Investment by RFL in Non-Convertible Debentures (NCDs) of OSPL Infradeal Private Limited (OSPL) of Rs. 200 Crores and Corporate Loan given to Bharat Road Network Limited (BRNL) of Rs. 50 Crores (a) RFL had made investment of Rs. 200 Crores in the NCDs of OSPL on December 14, 2016 and on the same day a corporate loan amounting to Rs. 50 Crores was also given by RFL to BRNL. (b) These loans were part of back to back loan transactions entered by RFL with OSPL BRNL (backed by SREI Infratsructure Limited SREI ) and with the promoter group company RHC Holding on December 14, 2016. The loan transactions were carried out in the following manner: i. On December 14, 2016, RFL gave loans worth Rs. 250 Crores to SREI backed entities OSPL and BRNL. ii. On the same day i.e. on December 14, 2016, SREI gave loan of Rs. 250 Crores to RHC Holding through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RHC Holding entered into an arrangement of back to back loans of Rs. 250 crores. According to the arrangement, first RFL extended loan of Rs. 200 Crores to OSPL, which was utilized by OSPL to pay off the loan from SREI. Additionally, a loan of Rs. 50 Crores was extended by RFL to BRNL. On the other hand, SREI extended a loan of equal amount i.e. Rs. 250 Crores to the promoter entity of REL i.e. RHC Holding through Torus. This was done as RHC Holding was required to obtain funds amounting to Rs. 250 cr. from RFL for repayment of its debt. (i) Further at the end of the loan tenure, i.e. on December 14, 2017, RHC Holding was unable to service its loan taken through Torus from SREI. Consequently even SREI did not repay the loan it had taken from RFL in the books of BRNL OSPL. C. Corporate Loan Book of RFL in respect of which the Reserve Bank of India made adverse comments and Investment in Commercial Papers of Religare Group Companies and Promoter Group Companies (a) RFL had given unsecured loans to a number of entities under its Corporate Loan Book ( CLB ). Reserve Bank of India ( RBI ) had raised concerns over the loans given under the CLB vide letter dated Janu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Trading Company 150.00 18 Vitoba Realtors Pvt. Ltd. 35.00 19 Volga Management and Consultancy Pvt. Ltd. 150.00 20 Zolton Properties Pvt. Ltd. 160.00 21 Religare Enterprises Ltd. 185.50 REL Group Company 22 Bharat Road Network Ltd. 50.00 Mr. Bajrang Choudhary Total 2,397.20 (c) As the number of entities were large in number, the findings related to the CLB have been grouped according to the name of the contact persons for each of the loans which are as follows:- i. Companies for which Mr. Narendra Goushal has been mentioned as contact persons ii. Companies for which Mr. Sanjay Gupta / Mr. Sanjeev Singhal and Mr. Sandeep Shukla have been mentioned as contact persons iii. REL Group Companies iv. BRNL for which Mr. Bajrang Choudhary has been mentioned as contact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes. (f) Further, all the companies, where the contact person as specified by REL were Mr. Sanjay Gupta / Mr. Sanjeev Singhal and Mr. Sandeep Shukla, were seen to have followed a similar modus operandi of transferring the proceeds of their respective loans to promoter group companies of RFL/REL. The same is illustrated below with instances of loan given to few entities:- Illustration 1:- Loan given to Platinum Infrastructure Pvt. Ltd ( Platinum ) (g) A loan amounting to Rs. 109.30 Crores had been given by RFL to Platinum on September 27, 2017. The said loan amount was subsequently transferred by Platinum to Prius Real Estate (hereinafter referred to as Prius ) which Prius utilized for repayment of an earlier loan of Rs.100 Crores taken by it from RFL on December 30, 2016. The said earlier loan taken by Prius on December 30, 2016 had been previously utilized by Prius to give a loan of Rs.100 Crores to Oscar Investments (hereinafter referred to as Oscar ) on the same date i.e. December 30, 2016. Oscar utilized the said loan from Prius to settle an earlier loan of Rs.100 Crores taken from RFL on December 27, 2016. It was noted that the earlier loan taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid three entities are as follows:- Sr. No. Date of the loan Name of borrower Amount (Rs. in crores) 1 March 23, 2016 Best 40 2 March 23, 2016 Devera 40 3 March 23, 2016 Vitoba 35 Total 115 (p) The utilization of the aforesaid loan is graphically depicted below:- (q) Thus, from above it is concluded that the fund of Rs. 115 Crores given by RFL to Best, Devera and Vitoba were utilised by/benefitted RHC Holding to pay off liabilities in the books of A-1 Book Company due for payment to multiple mutual funds on 23rd March 2016. Ultimate utilisation of the loans where contact person was Mr. Sanjay Gupta / Mr. Sanjeev Singhal and Mr. Sandeep Shukla (r) Pursuant to examination of all the loans mentioned at Table no. 4 , the audit report concluded that Rs. 1,260.96 Crores of loans given by RFL were ultimately u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 150.00 RHC Holding :- used for debt payment to multiple MFs. 9 Tripoli Investment Trading Co. 150.00 150.00 RHC Holding:- used for debt payment to multiple MFs on 25th Feb. 2016 10 Volga Management and Consultancy Pvt. Ltd. 150.00 100.00 RHC Holding, used for debt payment to multiple MFs on 25th Feb. 2016 26.48 Paid to promoter group companies ( Best and Fern ) on 30th June 2017, balance used to pay interest back to RFL for loans given to multiple companies. 11 Zolton Properties Pvt. Ltd. 160.00 150.00 RHC Holding:- used for bond payment through NSE on 05th Sept. 2016 10.00 ANR Securities (belonging to the promoter group):- used to settle loan with REL. Total 1,559.30 1260.96 (s) It is observed that all the companies where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 2017 and subsequently, the amount was rolled over. Rs. 13.50 Crores had been utilised by REL for subscribing to Religare Health Insurance Company Ltd. Right Issue on 31st August 2017. Rs. 160 Crores had been utilised by REL for payment of NCD Maturity amount of Rs 154.62 Crores to Standard Chartered Bank on 30 June 2017. The NCDs were taken for subscription of Preference Share in Religare Capital Market Ltd for Rs 545 Crores. (w) Thus, the audit report has noted that out of total loans mentioned at Table 6 above, an amount of Rs 75 Crores was ultimately utilized by RHC Holding for making payments to Mutual Funds. Overall Observations Ultimate utilization of aforesaid funds 4. It was observed that funds amounting to Rs. 2315.09 Crores had been diverted from the books of RFL for the utilization of promoters and promoter group entities of REL. The details of the same are as follows:- Table 8: Details of funds diverted from the books of RFL Sr. No. Particulars Loan amount (Rs. in Crores) 1 FDs with LVB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of Section 12A(a), (b) (c) of the SEBI Act, 1992 and Regulations 3(b), (c) (d), 4(1) and 4 (2) (f) (r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations, 2003). i. Further, the non-disclosure of funds routed by RFL, through unrelated entities for the benefit of promoters and promoters group entities, in the books of REL was to circumvent the provisions of Listing Agreement (including Clause 32 of Listing Agreement) and Regulation 53(f) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Further, misrepresentation of financial position by rolling over the loans as specified in point no. 4 (C) REL has also violated Regulations 4(1)(b), (c), 30(1), 51(1) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. 8. The abovementioned provisions of law provide as under: SEBI Act, 1992 12A. No person shall directly or indirectly (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealing in securities; (r) planting false or misleading news which may induce sale or purchase of securities. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 Principles governing disclosures and obligations. 4. (1) The listed entity which has listed securities shall make disclosures and abide by its obligations under these regulations, in accordance with the following principles: (b) The listed entity shall implement the prescribed accounting standards in letter and spirit in the preparation of financial statements taking into consideration the interest of all stakeholders and shall also ensure that the annual audit is conducted by an independent, competent and qualified auditor. (c) The listed entity shall refrain from misrepresentation and ensure that the information provided to recognised stock exchange(s) and investors is not misleading. Disclosure of events or information 30. (1) Every listed entity shall make disclosures of any events or information which, in the opinion of the board of directors of the listed company, is material. Disclosure of information having bearing on performance/ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Healthcare Pvt. Ltd, Modland Wears Pvt. Ltd, Rosestar Marketing Pvt. Ltd, Star Artworks Pvt. Ltd, Tripoli Investment Trading Co, Volga Management and Consultancy Pvt. Ltd, Zolton Properties Pvt. Ltd, Religare Comtrade Limited, RHC Holding Pvt Ltd , Ranchem Pvt. Ltd , ANR Securities, Shivi Holdings Pvt. Ltd, Malav Holdings Pvt. Ltd, Shri Malvinder Mohan Singh and Shri Shivinder Mohan Singh), along with due interest, within three months of the date of this order. ii. The Noticee nos. 3 to 25 shall, pending completion of the investigation and till further orders, not dispose of or alienate any of their assets or divert any funds, except for meeting expenses of day-to-day business operations, without the prior permission of SEBI. iii. The Noticee nos. 24 and 25 (viz. Shri Malvinder Mohan Singh and Shri Shivinder Mohan Singh) shall not associate themselves with the affairs of REL and RFL, in any manner whatsoever, till further directions. 11. The preliminary findings contained in above paragraphs of this order are made on the basis of the report of the forensic auditor. The Noticees may file their replies, if any, to SEBI within 21 days from the date of receipt of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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