The promoter and managing director of a Hyderabad-based company have been arrested under an anti-money laundering law in connection with a bank loan fraud of Rs 402 crore, the Enforcement Directorate (ED) said on Tuesday, January 18. A consortium of public sector banks were allegedly cheated by the company. The managing director of Servomax India Private Limited (SIPL) Avasarala Venkateswara Rao was arrested on Monday and was produced before a special court that deals with cases lodged under the Prevention of Money Laundering Act (PMLA), on Tuesday. The court has sent Rao to judicial custody for 14 days.
The ED, in a statement, said that Rao was arrested "for indulging in the offence of money laundering and for causing a loss of around Rs 402 crore to a consortium of public sector banks by indulging in various fraudulent practices."
A money laundering case was filed at the ED after taking cognisance of a 2018 FIR lodged by the Central Bureau of Investigation (CBI) against the accused. The ED said that SIPL had taken loans from the consortium of banks and Rao was the promoter-cum-key managerial person, who was responsible for the entire business operation.
"He indulged in fraudulent transactions and the loan amounts were not repaid, following which the consortium of banks suffered an NPA (Non-Performing Asset) of Rs 402 crore. SIPL had circulated loan amounts to various related entities to inflate its books of accounts to become eligible for higher loans and had issued LCs (Letters of Credit) to related entities without any real purchase of goods, which ultimately devolved, causing losses of Rs 267 crore to the banks," the agency said.
The ED said that its probe established that Rao had indulged in "benami" transactions and "diverted" loan funds for personal benefits.
"Rao used a web of more than 50 entities to route proceeds of crime and layer the same. He was non-cooperative during the investigation and was not supplying documents of his own business entities on one pretext or the other," the ED alleged.
Once the loan accounts became non-performing assets (NPAs), Rao had used his own shell entity (with his employee as its controlling director) to initiate the CIRP (corporate insolvency resolution process) by "fraudulently" declaring it to be a creditor by passing bogus journal entries.
"He even managed to get his own person appointed as IRP (Interim Resolution Professional) for some time. He has also managed to retain the brand name of 'Servomax' illegally and even during the CIRP, he controlled the website of the company and diverted work orders to his related entities," the ED alleged.
With PTI and IANS inputs