An Ernst & Young survey of Indian bankers in September this year revealed that at least 87 per cent felt that diversion of funds to unrelated businesses through fraudulent means is one of the root causes of the bad loan crisis.
Surya Vinayak Industries Ltd, a Delhi-based perfume maker which has defaulted on loans of over Rs 2,487.34 crore, is facing similar accusations, according to documents accessed by The Indian Express. These documents have been given by a consortium of banks to Delhi-based Right to Information (RTI) activist Harinder Dhingra in response to his query.
Surya Vinayak is currently being investigated by the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED). A couple of years ago, the Reserve Bank of India (RBI) directed the lender consortium of 23 banks to classify the account as fraud.
A June 27, 2013 communication of RBI to these lenders said the company has “diverted funds on a large scale” and “indulged in fraudulent activities”. RBI said the company diverted working capital funds to wholly-owned overseas subsidiaries as investment and loans.
“The company did not export commodities in the case of export finance availed by it from consortium member banks. It diverted working capital funds to Falcon Jersey Pvt. Ltd., an entity controlled by it and various other accounts including current accounts of Sanjay Jain and Rajiv Jain (promoters of Surya Vinayak ),” said RBI.
Following this, Punjab National Bank, the lead bank of the consortium declared Sanjay Jain and Rajiv Jain, the promoters of Surya Vinayak as wilful defaulters.
The RTI documents reveal that Surya Vinayak is part of the Floriana Group that manufactures essential oils, sandalwood oil and perfumery compounds and is also into trading of agro products. Floriana also commercially cultivates sandalwood in Katni district of Madhya Pradesh.
However, lenders are finding it difficult to locate the assets of the group and the company. They have now appointed a detective agency to find out assets (other than those charged to the bank) owned by the company and its promoters.
The Indian Express sent a detailed mail to all the banks that have an exposure to Surya Vinayak but none responded. An email sent to the firm and its company secretary remained unanswered till date.
According to a CBI official who spoke on condition of anonymity, while the credit facility given to Surya Vinayak was over Rs 2,200 crore the underlying collateral is only Rs 11 crore. The CBI is also probing the role of bank officials who sanctioned the loans to the company.
“Even the stock of fragrances seized by the banks which the company said was of Rs 800 crore when tested at a government approved lab (Fragrance & Flavour Development Centre, Kannuaj) was valued at a mere Rs 4 crore,” said the CBI official.
A forensic audit report by Ernst & Young (EY), which forms the basis of CBI investigation, too has pointed out several irregularities in the books of the company.
The EY audit alleges that out of 50 debtors of the firm, 48 were not found at the given address when the forensic auditor independently visited their offices.
“However, two debtors viz., Ayucee Fragrances and Gazania Fragrances (comprising of 75 per cent of sales during FY12) were not found at the given address when contacted independently, but the same were available during visit with the company (Surya Vinayak) officials. There was no activity at those two units,” said the EY report which has been cited by the banks in minutes of their consortium meeting.
Similarly, the audit revealed that 92 per cent of total purchases of the Surya Vinayak were from only two suppliers — HR Perfumery and Jayana Sugandhee Products.
According to the EY audit, Surya Vinayak has passed “knock-off entries” of Rs 391 crore between four companies — Ayucee Fragrances, Gazania Fragrances, HR Perfumery and Jayana Sugandhee Products.
A November 16, 2014 caution notice by Indian Bank has alleged that aromatic compounds maker Allied Perfumers Pvt. Ltd, an associate company of Surya Vinayak, defrauded a public sector bank of another Rs 64 crore.
“The borrower was sanctioned cash credit (stocks and book debts) limit of Rs 64 crore by a bank. The company did not pay interest from March 2012 onwards, and there was nil turnover. The account became NPA on May 31, 2012 as the credits were not enough to cover the interest debited,” said Indian Bank in its notice.
“Major part of the sales of the company was confined to a single buyer, HR Perfumery who in turn sold to Surya Vinayak and major purchases were from a single seller, Ayucee Fragrances who in turn was purchasing from Surya Vinayak. While HR Perfumery is situated in a one room office that remained usually closed, Ayucee Fragrances is already a closed unit,” added the Indian Bank notice.
According to CBI, Surya Vinayak has also defaulted on Rs 400 crore loans taken from the Singapore branches of Bank of Baroda and Bank of India. These loans, according to CBI, was taken by the promoters to invest in companies abroad. According to sources, the ED has initiated separate investigations whether funds were transferred out to Dubai and the United Kingdom illegally.
Apart from this, in the past another group firm SVIL Mines has been embroiled in an arbitration with Citi Venture Capital International, a global private equity (PE) investment firm. Citi Venture had in 2007 invested Rs 150 crore in the company. In 2011, the private equity decided to exit and signed a restated share purchase agreement with the firm. The payment to the PE firm was to be done in five tranches between March 12, 2011 and June 30, 2011. Citi Venture had claimed that three out of the five post-dated cheques issued by SVIL Mines were dishonoured.