In an alleged case of fraud perpetrated by Simbhaoli Sugars Ltd, the Enforcement Directorate (ED) has attached its assets worth ₹109.80 crore. The attached assets include the company’s land, buildings and plant and machinery of a distillery unit in Simbhaoli, Uttar Pradesh, the ED said in a press note.

The CBI has filed an FIR against Simbhaoli Sugars and others for cheating and defrauding Oriental Bank of Commerce (OBC) on the pretext of financing sugarcane farmers. According to the FIR, the bank loaned the company ₹148.59 crore for providing assistance to 5,762 farmers, but the funds were diverted by the company for other purposes.

Firm faced liquidity crunch

The ED launched a probe under the provisions of the Prevention of Money Laundering Act (PMLA), 2002. It conducted searches at the offices of the company at Noida and Simbhaoli, resulting in the recovery and seizure of incriminating documents. “Investigation revealed that the company was facing a liquidity crunch and approached the bank for sanction of loan under the interest subvention scheme of the Reserve Bank of India under a tie-up arrangement with 5,762 farmers for financing them for pre- and post-harvest assistance,” the press note said.

The company and OBC signed an MoU on January 18, 2012. “The funds paid by the company to the farmers were not remitted to the accounts of the farmers. Therefore, per the terms and conditions of the loan, the liability was shifted upon the company, which failed to repay,” the press note added.

There were serious irregularities in the KYC documents, it further said. The loan then turned into a non-performing asset with ₹98.7 crore (principal) outstanding, and the bank filed a recovery suit before the Debt Recovery Tribunal (DRT).

Diversion of funds

Investigation revealed that the company diverted the loan funds into various other accounts. It finally used it towards repayment of outstanding loans — including external commercial borrowings, operational expenses and payment of cane arrears — which should have been paid from its sales revenue. The company “thus laundered the funds intended for assistance to the needy farmers, in utter violation of the terms and conditions and the intent of the loan,” the note said.

Instead of settling the entire loan liability, Simbhaoli Sugars induced OBC to withdraw the application before the DRT and grant it a fresh corporate loan of ₹110 crore on January 28, 2015, to clear the previous loan dues, with subservient first pari passu charge on all the movable and immovable fixed assets and personal guarantee of the company’s directors and promoters, said the note.

The company again deliberately failed to repay the corporate loan and, at the time of the FIR, ₹109.8 crore was outstanding (principal). “The company had offered a one-time settlement of ₹14.69 crore against the entire outstanding. This highlights an ingenious modus operandi of money laundering by taking huge loans from banks and later settling them at heavily discounted sums, thereby causing huge wrongful losses to such lender banks,” said the note.