SBI seeks new consolidated transaction review, forensic audit of Lavasa

State Bank of India has sought a new consolidated transaction review and forensic audit of Lavasa Corporation, the real estate subsidiary of HCC, to provide a clear picture of the company’s financial metrics on a consolidated basis.

The new forensic audit was necessitated after the National Company Law Tribunal (NCLT) cleared a consolidated bankruptcy process of all Lavasa companies. 

Lavasa Corporation was sent for debt resolution in 2018 after the real estate company failed to repay Rs 7,700 crore. Among Lavasa’s creditors, Axis Bank claimed the highest amount of Rs 1,266 crore. Lavasa’s parent, HCC has also defaulted on bank loans.

In the committee of creditors’ (CoC’s) meet held on June 9, SBI said there were several inter-connected transactions among Lavasa’s related parties, and individual transaction review audit (TRA) might not be able to provide a complete overview.

Certain transactions, SBI said, are so complicated that it would be difficult for CoC to interpret the interlinkages based on individual TRA reports for each entity. SBI said a fresh audit would be in a position to capture such interlinkages through a consolidated TRA report for all entities.

Reacting to the SBI’s demand, CoC Chairman Shailesh Verma said a TRA in respect of Lavasa Corporation and Warasgaon Assets Maintenance had already been conducted by their respective erstwhile resolution professionals and necessary applications had been filed with the NCLT.

Accordingly, Verma said he did not see the benefits of a consolidated TRA and explained in any event the existing TRAs take into account the transactions with related parties already and the objective is already met.

Interestingly, other banks said if SBI wants a consolidated forensic audit, it must pay for the audit and not all banks should be asked to pay for it.  One of the creditors, ARCIL, said it would be up to the CoC to decide whether a forensic audit is required to be undertaken or not and said the conclusions of the consolidated TRA report would be similar to individual TRA reports as the interconnected transactions of the entities have been examined in their respective individual TRA itself.

Another creditor, Union Bank of India said it would be prudent to save time and expenditure on such a TRA as there won’t be any value addition by having a TRA on a consolidated basis.  

The legal advisor to CoC, Shardul Amarchand Mangaldas, clarified that conducting a forensic audit can be the individual decision by a certain class of creditors, and that the bank will be required to bear the cost for the same.

To this, Verma said if SBI wants to conduct a forensic audit, then it can proceed and the RP would provide the required support, however, the cost for such an audit would be incurred by SBI.

Several companies had submitted their offers for Lavasa as a standalone entity. These include Delhi-based food major, Haldiram Snacks, Pune-based builder Aniruddha Deshpande, and UV Asset Reconstruction Company (UV ARC).  Oberoi Realty, US-based fund Interups, joined the race at a later stage.

Set up by HCC in 2000, Lavasa Corporation was set up as a picturesque hill station near Pune in Maharashtra but defaulted to bank loans after the environment ministry issued a stop work order to the project in 2010. Since then, the city has turned into a ghost town with few tourists visiting it during week-ends. Several home owners are either awaiting possession of their house or several, who received keys to their houses, have moved out. Due to Covid, the footfalls have reduced to zero.

Once the audit is over, the CoC will again invite bids for the company by July end.