The alleged financial fraud by Parekh Aluminex Ltd was first unearthed in June 2013, when a due diligence audit by Deloitte Touche Tohmatsu India Pvt Ltd found “irregularities of serious nature” in the day-to-day affairs of the company. A financial audit of the company was ordered by a consortium of lenders, including State Bank of India (SBI), as part of its efforts to restructure the debt of the company. The debt of the firm stood at Rs 2,545 crore as on November 2015, according to an order of the capital markets regulator and complaints filed by at least six banks with the Central Bureau of Investigation (CBI).
According to documents reviewed by The Indian Express, at least 22 banks and financial institutions have lent Rs 2,545 crore through fund-based and non-fund based facilities. The banks include — Indian Overseas Bank (Rs 292 cr), SBI (Rs 148 cr), Bank of Baroda (Rs 100 cr), Union Bank (Rs 75 cr), Punjab National Bank (Rs 125 cr), Exim Bank of India (Rs 13 cr), Axis Bank (Rs 327.75 cr), Dena Bank (Rs 209.47 cr), Central Bank (Rs 159 cr), SBT (Rs 147 cr), Allahabad Bank (Rs 109 cr), Vijaya Bank (Rs 103 cr), Kotak Mahindra Bank (Rs 111 cr), Dhanalaxmi Bank (Rs 110 cr), Canara Bank (Rs 81 cr), Corporation Bank (Rs 89 cr), South Indian Bank (Rs 78 cr), Uco Bank Bank (Rs 71 cr), Federal Bank (Rs 66 cr), IDBI Bank (Rs 62 cr), ICICI Bank (Rs 24 cr), LIC (Rs 39 cr).
The Deloitte report on Parekh Aluminex found irregularities in the firm’s inventories record, provision for doubtful debts, insurance of plant and machinery, cash and bank balances and drawing power calculations.
For instance, the audit report said loans of Rs 1,314.78 crore given by Parekh Aluminex to seven private firms and a few related entities as on December 2012 were without any documentation defining the terms and conditions and security against which the loans were disbursed. Out of this, at least Rs 869.25 crore was extended to these firms as interest free loans. The seven private firms are JK Shah Group, Kamlesh Kanungo Group, Kirti Kedia-Transcon Group, Orbit Group, Shanti Dalal, Vishal Sharma Group, YA Mamaji Group.
The audit report also raised concern about the company’s Rs 27.46 crore interest free loans to three related parties — AAP Entertainment Ltd, Arsenel Bulls Securities and AAP Realtor Ltd.
“Loans amounting to Rs 38.16 crore extended to companies trading in bullion were adjusted against expenses not directly attributable to company’s business,” said the Deloitte audit report. The report also found that the actual inventory of the firm was 97 per cent less at Rs 26.57 crore in December 2012 from Rs 918.25 crore in November 2012. It added that the company inflated its records to avail maximum drawing power from the lenders.
In December 2015, SBI, submitted the Deloitte audit report on Parekh Aluminex with the Securities and Exchange Board of India (Sebi). Sebi investigated the firm and in August 2017, barred it from securities market and issued show-cause notices to its statutory auditor and a former executive director for alleged accounting fraud, diversion of funds and understatement of loans by over Rs 1,000 crore.
At least six banks — SBI, Dena Bank, State Bank of Travancore, Corporation Bank, IDBI Bank and Indian Overseas bank — have filed a complaint with the CBI between 2015 and 2017 alleging fraud by Parekh Aluminex and its directors.
The banks alleged that the company “had borrowed many times more than its possible annual turnover” and “diverted around Rs 1,400 crore out of the total bank finance of Rs 2,000 crore. They have also alleged that the firm “consistently” showed inflated sales, stock holdings and trade debtors. “Book debts statement was given with the assumed and artificial figures with intention to cheat the bank. Names of debtors were not mentioned by the company which shows their fraudulent intention of non verifiable source to the bank and have more drawing power/ funds with actual sales,” said one of the complaints filed by the lead banker of the consortium of lenders, Indian Overseas Bank, with the CBI in May 2017.
SBI complaint stated that the company had a “drastic” reduction in assets in December 2012 and had diverted loan money to entities that had business activities in sectors (iron and steel, real estate) that were not the core business of Parekh Aluminex. Allahabad Bank has declared Parekh Aluminex as a “wilful defaulter”, a tag the firm has challenged in the High Court. ICICI Bank has filed a winding up petition against the firm in the National Company Law Tribunal.