Zoom Developers Ltd, which figures prominently on the willful defaulters list, owes Rs 3,002 crore collectively to 26 state-owned banks. According to an investigative audit conducted by the lenders, Zoom has allegedly diverted funds borrowed from these banks to 350-odd subsidiaries, related parties based in India and abroad, and to purchase jewellery for the wife of its promoter, Vijay Chaudhary.
At the same time, however, several of these lenders also issued bank guarantees to the company without due diligence and allowed it to roll over bank guarantees for four years till 2009-10, according to four people familiar with the case.
Moreover, while the banks collectively issued guarantees of Rs 3,000 crore, the collateral with them is only Rs 150 crore, according to a person connected with the audit. Sources didn’t want to be identified as investigations are in progress.
The Central Bureau of Investigation (CBI) has registered six cheating and forgery cases, a CBI special court has issued a non-bailable warrant against Chaudhary who failed to appear before it in one of these cases, the Enforcement Directorate (ED) has booked two cases related to money laundering and forex violations, and the Economic Offence Wing of the Mumbai police has also registered two cases.
The Indian Express sent a detailed mail to all the banks that have an exposure to Zoom Developers, but none of them responded. Zoom also did not comment on this story. An email sent to Zoom’s company secretary, Sharad Kabra also remained unanswered for weeks.
How did this happen?
Zoom Developers’ main business was scrapping a plant and then relocating it. In 2004-05, the company decided to use five aggregators, mostly from Europe, to get international orders. Zoom used to sign contracts with these aggregators to execute projects for third parties. The aggregators would make advance payments to Zoom and used to secure this with a bank guarantee from an Indian bank of an equal amount issued to the company.
The investigative audit alleges that these project contracts did not have any clause on the final payment of money to the company. Some contracts did not have the name of the third party for which work was being commissioned or the location where work was to be executed.
“Despite serious loopholes in the contracts, the lenders issued bank guarantees to the company. No one knows if there was any real business from overseas,” said a second person connected with the audit. “A total of about 140 bank guarantees were issued between 2005 and 2010. While 40 to 50 bank guarantees were honoured by the company, around 80 to 90 of them were rolled over for 4 to 5 years. This rolled over amount is the NPA that the banks are staring at,” he added.
Secondly, investigators have found that the foreign aggregators were not independent parties. For instance, Chaudhary’s son was a former director of London-based Llondenium Trading, one of the aggregators. The ED says that others like Astikor AG, Project Engineering Management and Hi-Tech Engineer were all controlled by Chaudhary through a trust called Beverin Stiftung in Liechtenstein. Chaudhary is the sole beneficiary of the trust set up in 1997-98.
According to the audit, Zoom Developers diverted at least 35 per cent of the borrowed money to subsidiaries. Another 15 per cent was siphoned off to shell companies such as Bebra Engineers P Ltd and Zio Technologies Pvt Ltd.
“Bebra Engineers did not operate from its registered address. We found a Zoom subsidiary operating from the same address,” said the second person. A CBI probe has now found that Bebra Engineers was used for round tripping for three years till 2008.
“In 2006, some lenders of Zoom asked it to raise capital. Zoom, in turn, borrowed money from other lenders and diverted it to Bebra Engineers which in turn gave this money to five shell companies. These shell companies then individually invested the money in Zoom Developers. This cycle was repeated for three years till the company’s capital increased from Rs 40 crore in 2006 to Rs 500 crore in 2008,” a CBI
An ED investigation too alleges that Zoom diverted at least Rs 287 crore out of the Rs 410 crore borrowed from Punjab National Bank for projects in China and Singapore. So far, the ED has identified 30 properties of Zoom Group and multiple foreign bank accounts of Chaudhary. The ED has issued letter rogatories (LRs) — a request for assistance from an Indian court to a foreign court through the External Affairs Ministry – to Singapore, US, Italy, Germany and Switzerland asking them to help with the investigation.
On July 3, it issued an order for attachment of 1,208 acre land worth Rs 1,000 crore in Soledad in California. The ED has also arrested Zoom’s company secretary, Sharad Kabra in connection with some cases.
“Kabra was on the board of at least 150 companies connected to Zoom Developers in India and Singapore, US, Dubai and Philippines. According to Zoom’s bank statements, a lot of money was diverted to these group companies,” said the ED official. Kabra was also the authorised signatory for one of Zoom’s aggregators, Astikor AG, the official added. But Zoom officials are challenging these findings.
On June 15, Kabra moved court retracting all statements made to ED. “In his application, Kabra has said that he was made to sign certain documents by ED under coercion,” said M Ramesh, advocate representing Kabra. On July 1, Vijay Chaudhary moved the Madhya Pradesh High Court seeking to quash the probe initiated by ED against his company and him.
“Zoom is not a simple case. It has the highest number of banks, and since it is an old case the documents pertaining to Zoom are not readily available. All this happened when there was no core banking facility and everything was done manually,” said a person familiar with the Zoom NPA account.