The Central Bureau of Investigation (CBI) has registered a criminal case against Rakesh Wadhawan and Sarang Wadhawan, promoters of Housing Development and Infrastructure (HDIL), a realty firm, for allegedly misappropriating Rs 200 crore worth of loans from YES Bank.
These loans were disbursed to Mack Star Marketing, a joint venture in which HDIL entities hold a minority stake. This company owns a well-known commercial property in Mumbai in the Andheri East area.
The CBI alleged that the loans from YES Bank to the JV were not authorised by the majority shareholder. Ocean Deity Investment Holdings, an erstwhile firm of DE Shaw, holds a majority stake of 78 per cent in the JV.
The money, meant for Mach Star, was allegedly transferred to the accounts of HDIL group companies to repay loans taken by the promoters. Following the first information report, the central agency on Friday conducted the search operation at nine locations in Mumbai, including the residences of the Wadhawans and two offices of HDIL, the CBI confirmed.
The CBI said in the report that YES Bank officials dishonestly ignored the terms of Mack Star’s articles that expressly prohibited the firm from availing of loans without the majority shareholder’s approval.
It said some people in the bank deliberately avoided alerting the foreign company about these loans and disbursed them without fulfilling the conditions of the lenders’ sanction letter. “The entire circular flow of the funds was happening within the YES Bank system and they were immediately diverted to accounts of HDIL group companies,” the CBI said. The promoters allegedly used these funds to discharge their liabilities.
The CBI said, though Mack Star was sanctioned a loan of Rs 200 crore, only Rs 138 crore was credited in its current account. The remaining Rs 64 crore was directly transferred towards the settlement of liabilities HDIL group owed to YES Bank.
Further, the Rs 135 crore was also transferred from the bank to HDIL and its group firms, including Privilege Power, Sapphire Land Development, on the same day of disbursement. These companies used more than Rs 96 crore to settle their liabilities.
CBI also charged Mack Star’s auditor Ashok Jayesh & Associates with criminal conspiracy as it allegedly acted in collusion with Wadhawans and HDIL. The majority shareholder was unable to discover any of these fraudulent transactions because the auditor was involved, the central agency said.
It was only in 2016 that the investor discovered the alleged fraud and informed the bank about it.