Tamil Nadu: Chennai-based gold jewellery manufacturer defrauds 14 banks to the tune of Rs 824 crore

In a major banking fraud in Tamil Nadu, State Bank of India has filed a complaint with the CBI against Kanishk Gold Pvt Ltd (KGPL), a gold jewellery manufacturing company, its directors and others for defrauding a consortium of 14 banks to the tune of Rs 824 crore by manipulating records and financial statements to avail credit facilities and diverting funds.

Despite the SBI filing complaint on January 25, 2018, on behalf of the 14 public and private sector banks that had provided the loan to the company, the CBI is yet to register a case.

The Chennai-based KGPL is owned by the promoters cum director Bhoopesh Kumar Jain and his wife and director Neeta Jain. 

In the complaint, the SBI, the lead bank in the consortium, requested the CBI to register a criminal case under appropriate sections of the Indian Penal Code against Bhoopesh Kumar Jain, his wife Neeta Jain and auditors – Tejraj Achha, Ajay Kumar Jain and Sumit Kedia, and unknown others. “The role of the public servants, if any, may be looked into during the course of the investigation,” it said.

The complaint with the CBI was filed after all the banks declared the loan account as fraudulent and reported the same to the RBI.  

Out of the total loss of Rs 824.15 crore suffered by the bank due to the fraud by the KGPL, the banks would be able to recover Rs 158.65 crore from the company through the securities provided by it in terms of the value of immovable properties, plant and machinery.  The total outstanding dues stand at Rs 678 crore.  

According to the complaint filed by GD Chandrashekar, general manager of SBI’s Mid Corporate – I, Chennai region, KGPL and its directors in collision with the statutory auditors and others with a clear criminal and malafide intent to cheat and defraud the banks and to gain illegal profit has been misrepresenting and falsifying the records and financial statements of the company since 2009 showing a rosy picture for availing credit facilities from the bank.

SBI said that the sign of sickness was noticed when the company delayed servicing interest for March 2017 to eight banks. In April, the company did not pay interest to all the member banks. When the stock audit was initiated on April 5 for the quarter March 2017, the promoter was unable for follow up. It said that when the consortium members visited the corporate office, factory and showrooms on May 27, no activity was found there. “On the same day, Bhoopesh Kumar Jain gave a letter admitting falsification of records since 2009 and removal of the stocks secured to the lenders,” it noted. On May 30, the banks conducted a joint inspection to find out that there was no stock in the factory and showrooms were locked.

A forensic audit conducted by the bank's consortium subsequently revealed that there are misrepresentation and falsification of records, diversion of funds and disposal of the stocks by the company. It observed that the statutory auditors and stock auditors had failed to record the deficiencies in the financial records and assets registers of the company which had adversely affected the bank’s interest.

The SBI’s association with KGPL began in 2008 when it took over Rs 50 crore in working capital loan and Rs 10 crore in term loans from the ICICI Bank. In March 2011, the banking arrangement was converted into multiple banking arrangements with Punjab National Bank and Bank of India. In 2012, the banking arrangement was converted into a consortium with the SBI action as the lead bank in respect of working capital credit facilities sanctioned with the option to avail as Cash Credit (Hypothecation), metal gold loan and bank guarantee.  To avail credit facilities, the KGPL provided credit monitoring arrangement data based on the performance of the company like its income, expenses, profit, levels of assets and liabilities for the current year and expected figures for the next year. Based on the audited financial statements submitted by the company, the banks' consortium enhanced the KGPL’s working capital limit from Rs 50 crore in 2008-09 to 747 crore in 2016-17.

Out of the total loss of Rs 824.15 crore caused to the bank due to the fraud by the KGPL, the banks could only recover Rs 158.65 crore from the company through the security – immovable properties, plant and machinery, it said.  

As on December 31 last year, State Bank of India has an outstanding of Rs 240.46 crore, Punjab National Bank Rs 128.31 crore, Syndicate Bank Rs 54.94 crore, Union Bank of India Rs 53.68 crore,  Bank of India Rs 46.20 crore, IDBI Bank Rs 49.13  crore, UCO Bank Rs 45.01crore Tamilnad Mercantile Bank Rs 41.37 crore, Andhra Bank Rs 32.75 crore, Bank of Baroda Rs 32.78 crore, HDFC Bank Rs 27.06 crore, ICICI Bank Rs 27.61 crore, Central Bank of India Rs 21.99 crore and Corporation Bank Rs 22.86 crore.