A depositor of the Punjab and Maharashtra Co-operative Bank (PMC) reacts during a protest over the Reserve Bank of India (RBI) curbs on the bank, outside a RBI office in Mumbai (Reuters) A depositor of the Punjab and Maharashtra Co-operative Bank (PMC) reacts during a protest over the Reserve Bank of India (RBI) curbs on the bank, outside a RBI office in Mumbai (Reuters)

A complex web of firms, including ones based overseas, linked to Housing Development Infrastructure Ltd (HDIL) and their promoters Rakesh Wadhawan and Sarang Wadhawan, with little or no revenue, borrowed money from Punjab & Maharashtra Co-operative (PMC) Bank Ltd and, in turn, invested in each other and related companies, according to records investigated by The Indian Express. These transactions constitute a key element of the fraud that’s under the scanner.

An oil and gas firm promoted by Rakesh Wadhawan and Sarang Wadhawan invested about Rs 174 crore in two Mauritius firms that have not “conducted any business operations” since their inception in June 2010, records show.

Rakesh and Sarang Wadhawan have been arrested by the Economic Offences Wing (EOW) of the Mumbai police for their alleged involvement in the Rs 4,355.46-crore loan fraud at Punjab & Maharashtra Co-operative (PMC) Bank Ltd.

Read | PMC bank fraud case: Several red flags fluttered right under RBI’s nose

According to the Registrar of Companies (RoC) records, Privilege Oil & Gas Pvt Ltd, promoted by the Wadhawans, invested money into two Mauritius-based entities Sunsara Investments Ltd and Sunshine Overseas Ltd between 2010 and 2014. These foreign subsidiaries of Privilege Oil & Gas are both managed by Abax Corporate Services Ltd, a global advisory, corporate and business service provider, from their office in Ebene in Mauritius.

Explained Why the onus is on RBI The wrongdoings at PMC Bank suggest laxity in RBI’s regulatory oversight. Increasing the deposit insurance limit, static at Rs 1 lakh for more than 25 years now, will provide immediate comfort to depositors.

Interestingly, the same office of Abax Corporate Services has also been used to manage several offshore companies that have been named in The Panama Papers and The Paradise Papers investigated by the International Consortium of Investigative Journalists (ICIJ) and The Indian Express.

Records show that Privilege Oil & Gas, which has not generated any revenue from operations since 2012-13, is one of 65 companies, limited liability partnerships and partnership firms directly and indirectly connected to the Wadhawans.

According to its 2018-19 annual report, HDIL has only five subsidiaries: BKC Developers Private Ltd, Guruashish Construction Pvt Ltd, Lashkaria Construction Pvt Ltd, Mazda Estates Pvt Ltd and Privilege Power and Infrastructure Pvt Ltd. But the Wadhawans’ business empire spans from real-estate to infrastructure, logistics, financial services, media, oil & gas, healthcare and breweries among others.

Records filed by these companies with the RoC show that most of them have negligible or zero revenue from their operations between fiscal 2014 and 2018.

Waryam Singh was one of the four accused against whom the EOW had registered an FIR, and had been detained yesterday. (PTI Photo) Waryam Singh was one of the four accused against whom the EOW had registered an FIR, and had been detained yesterday. (PTI Photo)

Read | Behind PMC Bank collapse: Its close links with HDIL promoters

The key findings:

* Besides HDIL, at least 16 firms linked to the Wadhawans borrowed Rs 2042.45 crore from PMC Bank. Some of the borrower firms include Privilege Power & Infrastructure Pvt Ltd (Rs 320 crore), Awas Developers and Constructions Pvt Ltd (Rs 145.01 crore), HDIL Budget Home Spaces Pvt Ltd (Rs 120 crore), Privilege Healthcare Services Pvt Ltd (Rs 61.5 crore) and Somerset Construction Pvt Ltd (Rs 239 crore).

* Some of the money borrowed from PMC Bank was ultimately used to invest in HDIL by allegedly routing it through multiple related entities. For instance, Sapphire Land Development Pvt Ltd, a firm that has been named by the EOW in its FIR against the Wadhawans, received about Rs 145 crore from PMC Bank in financial year 2017-18. The same fiscal, Sapphire advanced Rs 122 crore to Dheeraj Consultancy Pvt Ltd, a firm owned by Wadhawan Family Business Assets Trust. Dheeraj Consultancy, which booked a revenue of only Rs 4.12 lakh that year and has a net worth of Rs 2 crore, invested Rs 118 crore in HDIL through share subscription.

* A number of firms that have negligible or zero revenue from operations received huge inter-corporate deposits (ICDs) — an ICD is an unsecured borrowing by firms and financial institutions from other corporate entities — which was then used to invest in related entities. For instance, Emerald Realtors P Ltd, a firm linked to the Wadhawans, received Rs 189 crore through ICDs in fiscal 2018, despite the company booking revenues of only Rs 2.7 lakh. The company has a net worth of Rs 48 crore. The ICDs were used to invest in at least half-a-dozen related entities.

* About 85 per cent of the firms have been audited by the same auditor until 2017. Interestingly, the branch office of the auditor is in the same building as some of these companies.

At the entrance of a PMC Bank branch in Mumbai. (Reuters) At the entrance of a PMC Bank branch in Mumbai. (Reuters)

Read | HDIL, PMC bosses were ‘horsing’ around as well

* A large number of firms also have a common pool of directors and cross-holdings. For instance, a current employee of HDIL is on the board of at least 11 companies linked to the Wadhawans. Two former directors of HDIL are on the board of a dozen firms. Bidco Studs Pvt Ltd, a company linked to the Wadhawans, holds a 15 per cent stake in Derby Developers Pvt Ltd, which, in turn, holds a 10.6 per cent stake in Bidco Studs. Another firm Awas Developers and Constructions owns 16.66 per cent stake in Suansa Power Pvt Ltd, which holds 13.15 per cent in Awas Developers.

* At least nine firms allegedly connected to the Wadhawans operate from a building developed by HDIL under the Slum Rehabilitation Authority (SRA) scheme at Bandra East in Mumbai. While 10 firms operate from HDIL Towers, which is also the headquarters of HDIL, at least 13 others are registered at Dheeraj Arma, in Bandra East, developed by Rakesh Wadhawan’s relatives.

PMC Bank has an exposure of over Rs 6,200 crore to HDIL. The bank is under regulatory restrictions after the Reserve Bank of India found out financial irregularities in its functioning, hiding and classification of loans given to HDIL.

The ongoing EOW investigation has found that there were nearly 44 accounts at the bank that were password-protected. Sources said that a lot of money has been diverted to these accounts, linked to the Wadhawans and HDIL-linked entities. The police is also probing the 21,049 dummy accounts created by the bank to hide its bad loans.

HDIL is also facing bankruptcy proceedings at the national Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code.

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