British citizens Ripu Sudan Kundra alias Raj Kundra and his parents used a layered offshore trust-company structure to channel EUR 2 million to pick up direct and indirect interests in two companies each in India and the UK in 2009, according to records maintained by Bermuda law firm Appleby.
In facilitating the investment, records show, Appleby struggled to extract an undertaking that the funds were not sourced from India for an investment in the same country.
On behalf of a Kundra family trust, the money was sent from a Bahamas company to one in Mauritius, which invested in an Indian company that through its Indian subsidiary owned stakes in two British companies.
Records show that Credit Suisse Trust Limited (Guernsey), the trustee of the Kundras’ The Eclipse Global Trust, took over Radec VII Ltd (Mauritius) through Selloma Limited (Bahamas), a front company, and renamed it Green Energy Limited on March 25, 2009. Kundra’s parents Bal Krishan and Usha Rani Kundra were the beneficiaries and settlers of The Eclipse Global Trust, records show.
On March 27, records show, Foulden Limited (Bahamas) — “part of an associated structure” under The Eclipse Global Trust — transferred EUR 2 million to Green Energy Limited (Mauritius) for acquiring 40 per cent of the issued and paid-up share capital of Preah Renewable Energy Private Limited (India) by March 31, 2009.
A Board meeting of Green Energy Limited noted that Preah Renewable Energy had 57.38% interest in Freeplay Energy India Private Limited, which in turn owned 93.98% stake in Freeplay Energy UK Limited, and 10% in Baylis Generators Limited (UK).
Devender Raj (Devin) Narang of the Narang Group and his wife Preah Narang were the promoters of Preah Renewable Energy and Freeplay Energy.
Appleby records also show that the 72-hour deadline for transferring Euro 2 million — without converting to INR — from the Standard Chartered Bank account of Green Energy Limited to a Yes Bank account of Preah Renewable Energy was met in the nick of time. In an email on April 1, 2009, Devin Narang confirmed that “the remittance came in yesterday” and thanked Credit Suisse and Appleby officials.
Appleby, however, had a difficult time with the Kundras, records show. Several reminders for “a duly signed letter from Credit Suisse Trust Limited confirming the value of the assets of the Eclipse Global Trust” remained unanswered at least till January 2010. As for the source of EUR 2 million, Appleby was told that it was an unsecured, interest-free shareholder’s loan “with no fixed repayment terms” and that “the original source of funds was from personal accounts in the (Kundra) family name”.
To safeguard against round-tripping, Appleby made several attempts to obtain an undertaking to meet the requirements of the Financial Services Commission (FSC) of Mauritius “that these funds are not coming from sources within India from Indian Residents for investment purposes in the company”, which was investing in India.
But Credit Suisse Trust refused to oblige on the ground that “if the directors of Green Energy Limited decide to accept funds from a third party then Selloma Limited (the proxy shareholder on behalf of Credit Suisse) may not have any knowledge of the source of those funds, or indeed that funds have been received by Green Energy Limited from a third party.”
From available records of Appleby, it is unclear how or if at all the requirements of FSC was met.
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In February 2011, Credit Suisse Trust stopped communicating with Appleby on the Kundras’ Green Energy Limited.
While Appleby struggled with compliance issues, Raj Kundra became a director in Preah Renewable Energy in April 2009, within a month of his family trust making the investment. He also joined the board of Freeplay Energy (India) in August 2009.
Devin Narang set up Freeplay (India) in January 2007 and Preah Renewable Energy Private Limited as its holding company in April 2008. Before the Kundras invested in Freeplay (India) through Preah, Delhi-based IFFCO Kisan Bazar Limited acquired 30% equity of Freeplay (India) in July 2008.
In 1994, British inventor Trevor Baylis, who popularised the hand-crank mechanism to power electronic devices, set up Baylis Generators Limited. In 1995, Freeplay (UK) — then BayGen Power International Limited — launched its first human-powered radio brand ‘FreePlay’. Narang and IFFCO together acquired Baylis Generators and FreePlay (UK) in August 2008.
While Freeplay (India) had started indigenously manufacturing and marketing electrical lanterns in 2008, the company registered a net loss of Rs 1 crore in 2008-09, the year the Kundras moved in. The same year, Freeplay (UK) booked a loss of USD 4.6 million.
Appleby records, however, show that Green Energy Limited claimed a revenue projection of USD 16.47 million in five years by 2013 while investing in Freeplay through Preah in 2009.
In February 2009, Kundra and his then partner Shilpa Shetty announced their investment in Rajasthan Royals, the IPL team. In July, Shetty announced that she had tied up with FreePlay Energy India as the supplier of crank lanterns which her NGO — Shilpa Shetty Foundation — would distribute for free.
As the companies booked heavy losses, Preah and Devin Narang resigned as director from Freeplay (UK) and Baylis (UK) in January and August 2010, respectively. Freeplay (UK) was placed in administration and subsequently in liquidation. In February 2011, Credit Suisse Trust stopped communicating with Appleby on the Kundras’ Green Energy Limited.
An internal resolution of Appleby in June 2011 noted that Green Energy Limited had an outstanding bill of USD 14,719 and an ultimatum served in May for settling FSC fees along with the firm’s dues went unanswered. Appleby decided to serve an one-week notice before terminating its services.
There is nothing on Appleby records to suggest that the firm continued its service or the FSC dues were paid. Mauritius corporate registry shows the status of Green Energy Limited as defunct without specifying a timeline. There is nothing on Appleby records to suggest that the company cleared its EUR 2 million liability to the Kundra family.
Neither Preach Renewable Energy nor Freeplay (India) filed their balance sheet after March 2013 or held AGMs after September 2013. In November 2014, Raj Kundra resigned as director from both companies. Their status is “strike off” on RoC records.
Raj Kundra’s publicist confirmed receipt of a questionnaire emailed by The Indian Express but this newspaper did not receive any response the Kundras or any of their representatives.
Speaking to The Indian Express over phone, Devin Narang confirmed that the Kundras invested in Preah Renewable Energy. “I was satisfied that the offshore funds were not sourced from India because Raj Kundra was an NRI,” he said. Narang said he would email a detailed response to queries from The Indian Express but did not do so.