Bank loan fraud: ED attaches ₹ 109.8 crore assets of Simbhaoli Sugars

It is alleged that the company has diverted the loan funds intended for farmers

In the case of fraud perpetrated by Hapur-based Simbhaoli Sugars Limited, Enforcement Directorate (ED) has attached its assets worth Rs 109.80 crores. The attached assets include land, buildings and plant and machinery of distillery unit of the company situated at Simbhaoli, ED informed in a press note.

A first information report (FIR) was registered by Central Bureau of Investigation (CBI) against Simbhaoli Sugars Ltd and others for cheating and defrauding Oriental Bank of Commerce on the pretext of financing the sugarcane farmers. According to the FIR, the company was given a loan of Rs 148.59 crores by the bank for providing assistance to 5762 farmers, but the funds were diverted by the company for other purposes.

ED initiated an investigation under the provisions of Prevention of Money Laundering Act, 2002 (PMLA) in a bank fraud case.

ED conducted searches at the offices of the company situated at Noida and Simbhaoli resulting into recovery and seizure of incriminating documents. “Investigation revealed that the company was facing a liquidity crunch and approached the bank for sanction of loan under interest subvention scheme of the Reserve Bank of India (RBI) under a tie-up arrangement with 5762 farmers for financing them for pre and post-harvest assistance,” the press note further stated.

A Memorandum of Understanding (MoU) was executed between the Bank and the Company on January 18 in 2012. “The funds paid by the company to the farmers were not remitted to the accounts of the farmers. Therefore as per the terms and conditions of the loan, the liability was shifted upon the company which failed to repay,” the press note said.

There were serious irregularities in KYC documents. The loan then turned into a non-performing asset (NPA) with Rs 98.7 crores (principal) outstanding and the Bank filed a recovery suit before the Debt Recovery Tribunal (DRT).

Investigation also revealed that the loan funds were diverted by the company by routing into various other accounts and finally using it towards repayment of outstanding loans including External Commercial “Borrowings, operational expenses of the company and payment of cane arrears which should have been paid from sales and revenue of the company. The company thus laundered the funds intended for assistance to the needy farmers, in utter violation of the terms and conditions and the intent of the loan,” the note stated.

Instead of settling the entire loan liability, the company again induced the Oriental Bank of Commerce to withdraw the application before the Debts Recovery Tribunal and grant a fresh Corporate Loan of Rs 110 crores on January 28 in 2015 to clear the previous loan dues, with subservient first pari-passu charge on all the movable and immovable fixed assets and Personal Guarantee of Directors and Promoters of the company.

The company again deliberately failed to repay the said Corporate Loan and at the time of the FIR, Rs 109.8 crores were outstanding (principal). “The company had offered One Time Settlement amount of Rs 14.69 crores against the entire outstanding. This highlights an ingenious modus operandi of money laundering by taking huge loans from banks and later settling them at heavily discounted sums thereby causing huge wrongful losses to such lender banks,” said the note.

The original proceeds of crime have been utilized by the accused company towards payment of cane dues, loan repayments and other operational expenses. Accordingly, assets of the company have been attached under Section 5 of PMLA value equivalent to the proceeds of crime in terms of Section 2 (1) (u) of PMLA, as these properties may be disposed off or transferred by the accused.