EOW arrests HDIL Directors Sarang Wadhawan, Rakesh Wadhawan in connection with PMC Bank case

The Mumbai Police on Monday filed a case against the former bank management and promoters of HDIL in the Punjab and Maharashtra Cooperative (PMC) Bank case and said a special investigation team will be probing the case.

PMC Bank case: EOW arrests HDIL Directors Sarang Wadhawan, Rakesh Wadhawan
MUMBAI: Rakesh and Sarang Wadhawan, the promoters of Housing Development and Infrastructure Ltd (HDIL), were arrested on Thursday in the first detentions over alleged irregularities at Punjab & Maharashtra Cooperative (PMC) Bank.

The Economic Offences Wing (EOW) of the Mumbai police said assets worth Rs 3,500 crore belonging to the realty company, pledged as collateral to the bank, had been provisionally attached. The fund diversion was pegged at Rs 6,500 crore or more by an official.

PMC Bank is said to have advanced between a third and two-thirds of all its loans to HDIL, currently undergoing bankruptcy proceedings. This was allegedly facilitated through the creation of more than 20,000 fake bank accounts.

“They have been arrested and will be produced before a local court as per procedure,” said the EOW chief, joint commissioner Rajvardhan Sinha.

Former PMC Bank managing director Joy Thomas proved elusive.

Grounds for Arrest
A mobile phone number said to have been provided by his family turned out to be that of an auto rickshaw driver, sending police on a wild goose chase. Thomas is wanted for questioning in the case.

The grounds for arrest of the father-son duo included alleged tampering with the bank’s core banking solution (CBS) to operate around 44 accounts that were password protected. “These ghost accounts were linked to HDIL Group and the loans sanctioned to these accounts eventually made it to HDIL or the personal accounts held by the two,” said the official cited above, seeking anonymity.

The first information report (FIR) filed on September 30 pegged the alleged irregularities at Rs 4,635.62 crore as of August 31 with Rs 2,145.78 crore transferred to the personal accounts of the Wadhawans. It said Rs 1,367.55 crore was sanctioned by PMC to HDIL and Rs 1,122.29 crore was given as loans to seven other accused borrowers mentioned in the complaint over the alleged irregularities. With information now available on additional borrowers, the amount involved is now set to rise, said people with knowledge of the matter.

“Since the FIR included only seven borrowers, fund diversions stood at a little over Rs 4,600 crore,” said the person cited above. “The other borrowers’ details will also be added to the FIR, increasing the quantum to around Rs 6,500 crore or possibly even more than that.”

ET was the first to report on October 1 that five of the seven borrowing companies had their registered offices in a Slum Rehabilitation Authority (SRA) project building being developed by HDIL Group that’s located 70 metres from HDIL headquarters in Bandra. One company is located in another HDIL Group SRA project.

When ET visited the Capri building that houses the five firms, the ‘office’ was locked. Residents told ET that the office is used by HDIL officials who visit occasionally.

They didn’t have any knowledge of the firms supposedly located there or their directors.

“There are no rooms numbered two, five, six or companies you have named. The office belongs to HDIL and one Abhay of HDIL visits it frequently,” said a resident. “The building is built by HDIL under an SRA project. While three floors are used by the builder, the slum tenants have been rehabilitated between the fourth and seventh floors.”

According to the FIR, bank officials, along with the accused borrowers (HDIL promoters), “replaced” 44 loan accounts having high individual outstanding amounts with 21,049 fictitious ones with a much lower balance outstanding.

“These 21,049 fictitious accounts were actually not created in the core banking solution of the bank, instead mentioned in the advances master indent submitted to RBI,” according to the FIR. “By doing this with full knowledge of its banking executives including (Joy) Thomas, the bank camouflaged actual loan accounts of defaulting borrowers to the detriment of depositors’ interest.” Deposits on March 31 were shown as Rs 11,617.34 crore, presenting a “rosy picture before regulators,” the FIR said.

In his “confessional statement” to the Reserve Bank of India (RBI) on September 21, Thomas had said: “The stressed legacy accounts belonging to this groups were replaced with dummy accounts to match the outstanding balances in the balance sheet.” ET has seen a copy of this statement.

With regard to the CBS, the official said that the suspended ex-chairman of the bank, Waryam Singh, and Thomas had formed a “coterie” of trusted employees who were allowed to operate the passwordprotected accounts.

“The Wadhawans were also aware of the password and other related credentials of these accounts. On Thursday, when they were called in for questioning and quizzed on the said issue, they refused to divulge any details and claimed ignorance of any such arrangement,” he said. “However, before interrogating the Wadhawans, statements of bank officials who were privy to this setup were recorded. When the Wadhawans were confronted with their statements, they claimed they weren’t aware of this. The duo was then questioned on details of Rs 2,145,78 crore transferred from the bank to their personal accounts. Since they were not able to give any satisfactory replies, they were placed under arrest.”

They were arrested under Indian Penal Code sections that relate to cheating (420), criminal breach of trust by a banker (409), forgery

(465), using as genuine a forged document (471) and criminal conspiracy (120(B)).

The assets attached include land parcels as well as residential and commercial plots owned by HDIL.

“These are provisional attachments which will be confirmed by the court in due course,” said the official cited above. “As per records with PMC, they are free of any encumbrances. However, the probe will ascertain if their titles are clear or not and if the same assets were pledged as collateral with other banks or financial institutions.”

Thomas told the RBI in his statement that he and other bank executives had met the Wadhawans on the pending dues on September 21 and “they have offered immediately to create bank’s charge on assets worth Rs 3,500 crore which were already mortgaged with some other banks.” He said the dues owed to the other banks was just Rs 500 crore, according to the statement.

In a related development, demat accounts of Waryam Singh were frozen by police and his suburban Mumbai residence was searched by the police on Thursday. “The notional value of these stand at Rs 100 crore,” said another official. A notice was posted outside Thomas’ home, asking him to join the probe.

“His son shared a mobile number, which he claimed was used by his father,” said another the official. “The number was put on surveillance and we found that the person was constantly on the move. We thought it could be Thomas who was trying to flee but subsequent verification revealed that the number was of an auto rickshaw driver who is nowhere linked to him. A team has been pressed to locate him. His interrogation and confrontation with the arrested accused is pivotal to the case.”




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