SEBI, police ex-chiefs are shareholder directors in ARC under I-T scanner

G N Bajpai, former chief of Securities and Exchange Board of India (SEBI), and M N Singh, former Mumbai police commissioner, are shareholder directors of Invent Assets Securitisation and Reconstruction Private Limited, one of four asset reconstruction companies (ARCs) that have come under the scanner of the Income Tax (I-T) department for “unfair and fraudulent trade practices in acquiring the non-performing assets (NPA) from the lender banks”, according to records seen by The Indian Express.

Bajpai, who owns a stake in Invent Assets Securitisation and Reconstruction, is also chairperson of a working group that is tracking the outcomes under the Insolvency and Bankruptcy Code, 2016, and suggesting policy changes to the Insolvency and Bankruptcy Board of India (IBBI).

A source said transactions that run into crores executed by Invent Assets Securitisation and Reconstruction are being probed by the tax agency. The I-T department has alleged that only about 20 per cent of this was passed on as recoveries from the assets they had acquired from the NPAs acquired from the bank.

According to documents seen by The Indian Express, Invent Assets Securitisation and Reconstruction was set up in 2003 as an ARC. The company began its operations in 2009. As per the Registrar of Companies (RoC), as on March 2021, the shareholders of Invent ARC include G N Bajpai and M N Singh . Singh was Mumbai police commissioner from 2000 to 2002, while Bajpai was SEBI chief from 2002 to 2005.

For the financial year 2021, Invent Assets Securitisation and Reconstruction has booked a profit before tax of Rs 2.31 crore as against a loss of Rs 30 crore a year ago, according to its annual report. Its revenue from operations stood at Rs 100 crore as against Rs 70 crore in 2020-21. The company said that the Assets Under Management as on March 31, 2021 stood at Rs. 4223 crore.

The company, in its latest available directors report of FY 2021, said it acquired debts / loan portfolios with an aggregate due of about Rs. 2707 crore from Banks / FIs for a total consideration of Rs. 105.27crore. The aggregate recoveries effected by the company during the year from the acquired assets amounted to Rs. 894 crore”.

Reached for comment, Bajpai said: “I am a non-executive director of the company and I am not involved in the day-to-day running of the company.”

Singh said he is down with fever and would not like to be disturbed. “Only the ITD (income tax department) can say what they have to say and they have already issued a press handout. Besides, I’m down with fever and would not like to be disturbed,” he said in a text message.

On December 8, the tax authority had searched over 60 premises linked to four ARCs — Invent Assets Securitisation and Reconstruction Private Limited, CFM Asset Reconstruction Pvt Ltd, Omkara Assets Reconstruction Pvt Ltd and Rare Asset Reconstruction Pvt Ltd, seized about Rs 4 crore cash and found “an unholy nexus” between the borrower groups and these ARCs. The tax department, in a statement, said it found that the ARCs have used “shell/dummy” companies and “offshore structures” in the process.

“The amount at which the NPA has been acquired by the ARC has been found to be far less than the real value of the collateral securities covering the said asset/NPA,” the tax department said in its statement.

The tax authority has alleged that the minimum cash payout made out by the ARCs to lenders for acquiring the stressed assets were made through the funds of the borrower group that have been routed through several layers of dummy companies controlled by the borrower group or through “hawala channels” . The tax department has alleged that the ARCs have disposed of the assets that were acquired by them from the banks in a non-transparent way.

“More often than not, the underlying assets had been re-acquired by the same borrower group, albeit at a fraction of their real values. The ARCs are found to have concealed the profits on disposal of the underlying assets by diverting the actual profit to their related concerns, under the garb of consultancy receipts or unsecured loans/investments. Through this method, the ARCs have not only evaded the payment of due taxes but also deprived the lender bank(s) of their share of actual profits,” the tax authority said.

It has also found handwritten diaries containing detailed entries “substantiating the deliberate act of layering of transactions by the promoter group and use of a network of middlemen for the same”.