The country’s financial investigation agency has held the Yash Birla Group guilty of diverting investor funds raised for a power project into unrelated land transactions. It says one of the group’s companies, Birla Power Solutions, raised Rs 250 crore from individual investors and small firms for a power project. But when the project failed to take off, it did not refund the money to investors: instead, a sizeable portion of the money was routed through a series of banking transactions to buy land and shares in the name of other group companies.



“The movement of money to other group companies is nothing but integration and layering of proceeds of crime to purchase land and shares,” said an order passed by the Enforcement Directorate’s adjudicating authority on January 19, 2015. Scroll.in has a copy of the order. “The company and its directors are guilty of money laundering,” it added.



Money laundering is the process of hiding the source of income by passing it through a series of transactions. The Prevention of Money Laundering Act empowers the Enforcement Directorate to recover investor money and prosecute the guilty for imprisonment of up to seven years.



The group has challenged the Adjudicating Authority’s order in the Appellate Tribunal. Until the matter is fully heard there, it would be inappropriate to say the company was involved in money laundering, said the spokesperson for the Yash Birla Group in response to queries sent by Scroll. Refuting many of the Enforcement Directorate's findings, the spokesman claimed that the case is based on a frivolous first information report filed by some creditors whose payments have been settled.



Investments and payments



The Yash Birla Group, founded in 1935, has 20 subsidiary companies and a workforce 5,000 employees across the globe. Its current chairman Yashovardhan Birla inherited the empire at the age of 23 after his father, Ashok Birla, died in an air crash in 1990.



One of the group’s subsidiaries, Birla Power Solutions, makes power equipment like generators, inverters, pump sets and batteries. In 2008, this company, currently valued at Rs 2,500 crore, decided to raise funds to set up a thermal power plant in Maharashtra, but banks refused to finance the project reportedly because of the failure of the company’s other thermal and solar power plants.



The company management finally agreed to reach out to the public for funds, according to the Enforcement Directorate’s report. In 2008-'09, it raised Rs 500 crore by way of fixed deposits and inter-corporate deposits (which are taken from small firms), said the report, although the group maintained in the defence that it raised only Rs 160 crore.



Despite corporate fixed deposits being unsecured in nature, nearly 9,000 investors made investments in the company. The company promised a minimum return of 10.75% on the investments.



While the company managed to pay investors for the initial two or three years, it started defaulting from mid-2012. “The company promised us that it would clear all the outstanding dues at the earliest,” said Vikram Singh Rathore, who invested nearly Rs 1 crore in the fixed deposit scheme. “But even after six months, it could not honour the post-dated cheques and in fact some of the fresh cheques also bounced.”



When the company defaulted on payments for more than a year, Bhavin Seth, one of the investor, filed a complaint with the Mumbai police. Based on that, the police registered a first information report in December 2013 against Birla Power Solutions and its directors, including chairman Yash Birla.



Offences were made under section 406 (criminal breach of trust) besides sections 420 and 120-B of the Indian Penal Code. Section 420 relates to cheating and dishonestly inducing delivery of property, while section 120-B pertains to punishment for criminal conspiracy. The case was subsequently transferred to the Economic Offences Wing of the Mumbai Police.



After three months of investigation, the Economic Offences Wing filed charges in the court against PVR Murthy, managing director of Birla Power Solutions. The chargesheet alleged that Murthy was guilty of defaulting on payments of Rs 250 crore to the company’s investors.



Since section 420 and 120-B of the Indian Penal Code also fall under the provision of the Prevention of Money Laundering Act 2002, the Enforcement Directorate took suo motu cognisance of the charges filed by the Mumbai police and registered another case in January 2014 under the same Act.



What the investigation found



The Enforcement Directorate’s investigation found that the funds raised by Birla Power Solutions were not used for a power project but were transferred to other group companies.



The Directorate’s report states that the company, over a period of four years between March 2009 and March 2013, directed Rs 180 crore of investors’ funds to six other group companies through multiple transactions involving eight bank accounts.



Birla Surya Limited, a green energy division of group, received Rs 82 crore. The remaining Rs 98 crore went to five other group companies.



Three of these companies – Shearson Investment Trading Company Ltd, Nirved Traders Pvt Ltd and Birla Cotsyn Ltd – subsequently transferred Rs 88 crore to Birla Surya Ltd.



The group then engaged a Satara-based real estate agent, Alaka Madan Diwan, to buy agricultural land from farmers in Maharashtra and convert the usage to non-agricultural land.



Birla Surya Ltd, which had ended up receiving a total of Rs 170 crore of investors’ money, transferred Rs 140 crore to Diwan and his five associate real estate companies.



Diwan, through his companies, bought 72 acres of land in Maharashtra’s Satara district for Rs 8 crore. The lands were then transferred to Birla Surya Ltd. In a separate transaction, Birla Power Solutions, the original recipient of investors’ money, bought 30 acres of land in Bikaner, Rajasthan, for Rs 17 lakh. Meanwhile, Birla Surya Ltd used another Rs 4.25 crore to buy shares in Vijay Puranjay Minerals Pvt Ltd.



The Directorate is still trying to establish how the remaining Rs 237 crore raised from investors was utilised.



Attachment of properties



The spokesperson for the Yash Birla Group denied the Enforcement Directorate’s report on the purchase of land from Diwan out of the funds raised by Birla Power Solutions. The group said the matter is being contested in the Bombay High Court, where it has been established that the land was bought by Birla Surya Ltd from its own funds.



On the transfer of funds from Birla Power Solutions to Birla Surya Ltd, the group said that it was done to give “better value to the shareholders of the Birla Power Solutions”, for which all the statutory approvals were taken. Though the group initially defaulted on payment, payments were subsequently made to all the fixed deposit holders amounting to Rs 54 crore, the company claimed.



In September 2014, while investigating the money laundering case, the Enforcement Directorate had, based on prima facie evidence, attached Birla Power Solutions’ properties to ensure they were not sold further. But the company moved the Directorate’s adjudicating authority against the order.



The authority has now upheld the decision. The company can file an appeal in the Directorate’s appellate tribunal. Prosecution can be initiated in a special court only after the tribunal dismisses the appeal. Confiscation of property can take place only after the court upholds the charges.



Whichever way the case goes, the investigation comes at an awkward time for the Yash Birla Group, when its chairman Yash Birla’s name was recently found on the leaked list of HSBC Swiss accounts. Published by the Indian Express last month, the list has 1,195 names of individuals and companies who allegedly held money in HSBC’s Swiss arm. The Indian government is verifying the source of the money to rule out tax evasion.



In the case of Yash Birla, no amount was mentioned against his name. A company chartered accountant told the Indian Express, “We have no assets which are undisclosed under our name except what is required as per Indian laws. We have always complied with the legal system.”



