Former Fortis promoters - Malvinder and Shivinder Singh's arrest spells bad news for shareholders of Religare Enterprises Limited (REL). A share once priced at ₹ 643 a piece has crashed to ₹ 44. Just before making their exit from Religare, the Singh Brothers created a maze of 115 companies to hijack at least ₹47, 968 crore, an allegation that the Economic Offences Wing (EOW) is investigating.

Singh brothers were also former promoters of REL, a financial services group that has been long been in red. On Tuesday, REL was trading at ₹44.05 a piece on National Stock Exchange (NSE), 4.95 per cent lower than last week’s closing. The trading sentiment has been weak after the Singh brothers were picked up along with Sunil Godhwani, who was the CEO of REL until August 2017. Godhwani, known to be close to the brothers, was also the Chairman and Managing Director of REL from 2010 to 2016.

Read more:Former Fortis promoters, three others sent to 4-day police custody

The EOW has slapped Section 409 (criminal breach of trust), Section 420 (cheating and dishonesty) and Section 120B (criminal conspiracy) punishable by lifetime imprisonment or imprisonment between six months to two years.

Curiously, EOW has not yet arrested co-accused in FIR, NK Ghoshal. Ghoshal is stock broker of the Singh brothers who ran five entities which received funds for round-tripping all of them registered at one office address in North Delhi. Officials said that they ought to file the chargesheet within ninety days of the accused’s arrest which remains to be seen.

In it’s 2018 annual report, REL admitted that it has incurred a loss on consolidated basis due to one time provision of ₹1,017.85 crore taken by Religare Finvest Limited (RFL), subsidiary company on its corporate loan book (CLB). And if RFL’s FIR to the EOW is to be believed, the Singh brothers had funded 115 entities through CLB and the total amount bungled runs in to a whopping ₹47, 968 crore. This fact alone gave EOW the Singh brothers’ police custody for interrogation.

EOW officials said that they are now quizzing the Singh brothers and other accused on the money trail and they are in the process of tracing where the monies have finally landed and been parked. Officials also hinted that they have acquired sufficient evidence and a charge sheet against the accused is expected soon.

REL, formed in 1984, had seen a period when its share prices had reached a record high. The shares were trading at ₹643 a piece on January 11, 2008. Post 2017, they have come tumbling down. And they barely have any buyers for devalued shares.

This is evident from the fact that the court commissioner appointed by the Delhi High Court in 2018 could not sell upto 81 per cent of the Singh Brothers’ non-pledged shares while trying to sell the shares at the then price of ₹48 a piece. The commissioner was assigned the task to execute arbitral award for Japanese drug maker Daiichi Sankyo to whom Singh brothers have to cough up to ₹3500 crore.

On October 11 when the brothers were arrested and after a significant movement in price was observed by the exchanges, National Stock Exchange wrote to REL in order to ensure that investors have latest relevant information about the company so that their interest is safeguarded. Even as REL assured that all disclosures have been made to the exchanges, things are not all that hunky dory with the company.

Also read:Former Fortis promoter Shivinder Singh arrested in fraud case

On October 7, REL had notified the exchanges that it wants to cut off ties and divest entirely from RFL and wants to sell, dispose off, or lease RFL assets. It also wants to divest from Religare Housing Development Finance Corporation (RHDFC), another subsidiary, which is also a part of the alleged round-tripping maze. The company expects the postal ballot results of shareholders to be announced by November 18, to see if the divestment will occur as planned.

EOW is investigating that Singh brothers used RFL’s Corporate Loan Book (CLB) to fund their shell companies. “The funds were never paid back and actually when any payment was due in these loans, either these loans were renewed for further tenure or were replaced by loans to some other group companies to repay the loan of existing group company leading to circular movement of funds,” the FIR states.

For instance, according to proofs received by EOW, on June 17, 2009, ₹34 crore were received from Blue Line Finance, GYS Real Estates, Ligare Aviation, Ligare Voyage, Linear Commercial and Sharan Hospitality, and on the same very day, ₹54 crore were funded to Dion Global, Religare Technova Business Intellect and Religare Technova IT services. On January 31, 2011 repayment of ₹175 crore was received from Adept Creation, Leon Realtors, SVIIT softwares, Vectra Pharmaceuticals and on the very next day on February 1, 2011, ₹174 crore was extended to Ligare Aviation, Oscar Investments, Religare Comtrade, RHDFC, RWL Healthworld.

According to HC court documents accessed by BusinessLine, companies like Oscar Investments and Ligare Voyage, in which Singh brothers accept that they have investments, are also being investigated by EOW.

Apart from this, the EOW FIR states that five entities to whom loans were extended namely A&A Capital Services Ltd, Shri Dham Distributor Pvt Ltd (earlier known as Abhiruchi Distributors Pvt Ltd) (₹92.40 crore), Annies Apparel Pvt Ltd (₹100 crore on February 1, 2017), Gurudev Financial Services Pvt Ltd (₹100 crore on May 24, 2017), Tara Alloys Ltd (₹85 crore on May 24, 2017) are related to and controlled by Ghoshal, a co-accused who is the Singh brother’s stock broker, are functioning as a single economic unit. The registered address of all these five entities is one, at Mori Gate in North Delhi.

All these entities’ loans were repayable but they never paid back the loan and transferred the money forward to other companies. Parallel to EOW's criminal investigation, Daiichi too, in the civil case, has submitted similar proofs of unscruplous links of these entities to the brothers in Delhi HC.

Also, the EOW FIR states that RFL extended loans cumulating to ₹120 crore to Vithoba, Devera, Best and those loans have yet not been repaid, companies for which the Singh brothers act as ‘alter egos.’ Other companies like Platinum Infrastructure Private Limited which admitted in NCLT that ₹109.30 crore were received by it, funds were transferred to Prius Real Estate.

Both companies have been back linked in Delhi HC to Singh brothers. Also, there are companies in question like Modland Wears and ANR Securities. The EOW FIR states that all these companies act as a single economic entity, all have same address and registered office in Saket. Other companies being probed like Torus Buildcon and Saubhagya Buildcon have also been acknowledged by Singh brothers in their affidavits in HC as companies in which they hold investments.

Since 2012, Reserve Bank of India (RBI) had been expressing concerns over the CLB portfolio of RFL. RBI pointed out that the aforesaid entities had linkages and cross shareholding. The EOW is also investigating the brothers’ concerted effort to hoodwink RBI by not reporting the actual extent of the exposure on CLB by mischievously bringing down reporting at the time of reporting. For example, on June 30, 2012 the exposure from CLB stood at ₹1738.50 crore, but on July 3, 2012 it stood at ₹2772.10 crore. On March 28, 2013, the CLB exposure stood at ₹2167.80 crore but was reduced to ₹ 1755.80 crore on March 31, 2013, but the same further rose to ₹2009.40 crore on April 2, 2013.

Around March 20, 2012 exposure under the CLB peaked at ₹3538 crore, RFL alleged in the FIR. As of March 2019, when the FIR was filed quantum of loans in RFL’s CLB to related or friendly borrower entities stood at ₹2397 crore as principal amount and ₹415 crore as interest.

While the aforesaid transactions have been taking place for sometime through round tripping of funds, the loans were purportedly serviced, and when the brothers in 2016 realised they would lose control over REL and its subsidiaries, they wilfuly defaulted on the loans, the FIR alleges.

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