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January 25, 2021

Managing Director and a Chartered Accountant remanded in ED custody in PMC Fraud Case

by CA Shivam Jaiswal in Circular and Notifications

Managing Director and a Chartered Accountant remanded in ED custody in PMC Fraud Case

A Mumbai court on 23rd January, 2021 remanded the Managing Director of Viva group Mehul Thakur and a Chartered Accountant in Enforcement Directorate custody till 27th January, 2021 in connection with the Rs 4300 crore PMC Bank fraud case.

Directorate of Enforcement is a specialized financial investigation agency under the Department of Revenue, Ministry of Finance, Government of India, which enforces the following laws:

  • Foreign Exchange Management Act,1999 (FEMA) – A Civil Law, with officers empowered to conduct investigations into suspected contraventions of the Foreign Exchange Laws and Regulations, adjudicate, contraventions, and impose penalties on those adjudged to have contravened the law. 
  • Prevention of Money Laundering Act, 2002 (PMLA) – A Criminal Law, with the officers empowered to conduct investigations to trace assets derived out of the proceeds of crime, to provisionally attach/ confiscate the same, and to arrest and prosecute the offenders found to be involved in Money Laundering.

What was the PMC bank fraud?

  • Former Punjab and Maharashtra Co-operative Bank (PMC) Managing Director Joy Thomas had admitted to deceiving the auditors, bank’s board and the RBI for many years by concealing the default on loans to the tune of Rs. 6,500 crores taken by real estate firm Housing Development and Infrastructure Ltd (HDIL).
  • He said that the bank was very optimistic on the repayment plan of the HDIL group. He had also presented a roadmap for recovering part of its dues and bringing the things back on the track.
  • Thomas decided to conceal the information as disclosing it would have resulted in loss of reputation for the bank as well as for HDIL, which gave the majority of business to the bank, and had maintained a good track record of servicing their loans since 1990s.
  • Declaring the loans availed by HDIL, the firm started defaulting after it suffered a series of setbacks in the business, as NPAs would have caused further loss to the bank as it could no longer earn interest from those accounts.
  • Some of the large accounts were not reported to RBI because of fear of reputational risk.
  • As the loans outstanding were huge and if these were classified as NPA it would have affected the profitability of the bank and the bank would have faced regulatory action from RBI.
  • The bank continued to report all accounts as standard accounts. Though some of the accounts were not performing well, it was not brought to the notice of the notice of the Board.
  • The subsequent overdues of various loans were also not reported to the Board.
  • Since the bank was growing, the statutory auditors, due to their time constraints, were checking only the incremental advances and not the entire operations in all the accounts.
  • They scrutinised the accounts which were shown by the bank.
  • The stressed legacy accounts belonging to this group (HDIL) were replaced with dummy accounts to match the outstanding balances in the balance sheet.
  • As the loans were mentioned as loans against deposits and were of lower amounts, they were never checked by the RBI.

Arrest of Chartered Accountant

  • The ED has filed a criminal case of money laundering against HDIL as part of its probe into the alleged loan fraud in Punjab and Maharashtra Co-operative (PMC) Bank, its promoters Rakesh Kumar Wadhawan, his son Sarang Wadhawan, its former chairman Waryam Singh and ex-managing director Joy Thomas.
  • On 22nd January, 2021, the agency searched five residential and business premises linked to the Viva Group, promoted by Bahujan Vikas Agadhi (BVA) party chief and MLA Hitendra Thakur, its associates and two of its financial consultants in the Vasai-Virar area of Maharashtra’s Palghar district and Andheri, Juhu and Chembur suburbs of Mumbai.
  • The raids were conducted to collect more evidence after it was found that the Wadhawans in connivance with Viva Group had diverted more than Rs 160 crore from HDIL to many companies and entities belonging to Viva Group in the garb of commission.
  • Managing Director of Viva group Mehul Thakur and CA Gopal Chaturvedi were arrested under the Prevention of Money Laundering Act (PMLA) after the ED searched the residential and business premises linked to the Viva Group.
  • The two were produced before a holiday court which remanded them in ED custody after the agency told court it has to question them on money that came into different accounts of the group firms from HDIL.
  • Action was taken against the two as they were allegedly not cooperating in the investigation.
  • Rs 73 lakh cash, incriminating digital and documentary evidences were recovered during the operation

Another Angle to be probed by ED

  • Thakur’s party had pledged the support of its three MLAs, including his legislator son Kshitij Thakur, to the Maha Vikas Aghadi (MVA) government led by Shiv Sena chief and Maharashtra Chief minister Uddhav Thackeray. The NCP and the Congress are also part of the MVA.
  • One of the HDIL subsidiaries, Guruashish Constructions Private Limited, controlled by Pravin Raut, is suspected to have diverted funds to Viva groups. The ED has already provisionally attached properties worth Rs 72 crore belonging to Raut under Prevention of Money Laundering Act (PMLA).
  • The agency said in a statement that it is also probing another instance involving the searched firm where the Wadhawans allegedly siphoned Rs 200 crore loan sanctioned by Yes Bank to a company called Mack Star Marketing Pvt Ltd.
  • This loan was siphoned by the Wadhawans by showing it for fictitious purpose.
  • Yes Bank, its promoters and executives are being probed by the ED as part of a separate money laundering case linked to sanction of illegal loans to various entities.
  • ED earlier stated that investigation had revealed that Rs 95 crore was siphoned off through HDIL by Pravin Raut in conspiracy and connivance with others.
  • The source of the funds were illegal availed bank loans or advances by HDIL. There was no document or agreement etc. in support of these payments made to Raut. Further, as per the HDIL ledger, the funds were given to Raut for acquiring land in Palghar area.
  • ED’s investigation also revealed that Raut paid Rs 1.6 crore to his wife Madhuri Pravin Raut from the proceeds of crime. Of this, Madhuri transferred Rs 55 lakh as interest free loan to Shiv Sena MP Sanjay Raut’s wife Varsha Raut.
  • The amount was reportedly utilised for purchase of a flat in Dadar East, the ED said.
  • Investigation revealed that Varsha and Madhuri are partners in Avani Construction from which the former has received Rs 12 lakh as overdrawn capital converted to loan.
  • ED had questioned Varsha in this connection and has summoned her for a second round of questioning.

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