In December 2020, Hyderabad police sleuths arrived in Bengaluru to arrest three persons. These three people were part of 4 companies that ran 42 instant loan apps, through which they scammed people, sometimes even harassing clients to an extreme, forcing them to die by suicide. One of these companies was registered at an office in Manipal Centre, in the heart of Bengaluru city. But a visit to the office showed that there was no tech company situated there, instead it was the office of a Chartered Accountant. A quick search showed that it was not just Nabloom technology, but at least 20 other tech companies that ran loan apps were registered with the same address.
The address, apartment number 201 on the second floor of Sudha Square in Kondapur of Hyderabad, doesn't exist. The address is of Cubevo Technology Private Limited, a loan app firm with three Indian directors. The three men were employees of a Delhi-based loan app firm, Skyline Innovations Technologies India Private Limited, which operated over 11 loan apps and call centres.
When the lift door on the second floor opens, a yet to be occupied unfurnished floor greets you; there is no apartment number 201 in the building. âThere is no firm by the name of Cubevo in the building,â says the building watchman, the floor has never been occupied before, he adds. But this address has been used with the Registrar of Companies (RoC) to open six companies. Dennis aka Yi Bai, the Chinese citizen along with three Indians behind Cubevo, Skyline and its web of shell companies, were arrested by the Telangana police in January 2021. Here too, the police say there were chartered accountants (CA) who helped set up these companies but are not under the police scanner. Police say CAs helping set up a company isn't a crime. However, many investigators did tell TNM that it's a matter of ethics and people in the profession should exercise more caution.
(The listed address of Cubevo Technology Private Limited was used to open six other shell companies in the Chinese loan app case.)
SaveThem India Foundation, a team of cybersecurity researchers and criminologists investigating the loan app scam in India, alleges that a few CAs specialised in setting up Non-Banking Financial Company (NBFC) and Foreign Exchange Management Act (FEMA) regulations are actively colluding with foreign entities to open these shell firms.
Balaji Vijayaraghavan, a criminologist with the foundation says several persons have died by suicide, unable to repay the loans taken from these loan apps that the CAs helped register. "The highest-profile case is that of Abhishek Makwana, the writer of the TV show Taarak Mehta Ka Ooltah Chashma from Mumbai. The app that he had taken the loan from, was registered with the Delhi RoC and the email address used to register the company was that of a CA," he says, adding that, âWe found as many as eight CAs who have given their own email addresses and physical addresses to register Chinese loan app firms that went on to harass defaulters, leading to suicides.â
To open any company in India, one needs a CA or an advocate or a cost accountant for declaring that all requirements under the Companies Act 2013 and rules pertaining to incorporation are complied with. A CA is also required to make annual audits and company tax filings. For foreign entities looking to open their companies in India, there exists a niche category of CAs who help register the foreign companies with various Indian government authorities and help procure relevant licences. Many of them also assist these foreign entities to procure a licence to operate a Non Banking Financial Service (NBFC) or help procure a licence on lease. NBFCs are entities that engage in the business of loans and advances and come in two types, ones that can accept public funds like Muthoot Finance or Bajaj Finance or Shriram Chit; the other type can only lend, like digital lending apps.
âWe looked at the people who are directors of these loan app companies. Most of them are listed as directors of multiple shell companies that the CAs helped set up,â says Balaji, who also is a victim of the loan app scam. âMy personal data was compromised to get loans from several lending apps and Ocash app was one of them. I got to know my data was misused only when calls of harassment and threats began. My investigations into loan apps began with finding details about the Ocash app,â he adds.
In the case of the loan app Ocash, the company that owns the app, Bornbrave Technologies Private Limited, was incorporated by a chartered accountant identified as Shilpa Makadia. "The directors of Ocash are also directors of other loan app companies. We followed the thread of directors and after checking profiles of 18 directors, found that one person with links to the ruling political party. The person has bankrolled several shell companies, many of them attributed to illegal Chinese apps,â Balaji adds.
Shilpa Makadia, partner at S Makadia and Co, based out of Ahmedabad, says she was unaware that the Chinese investors were operating loan apps and had created a web of shell companies. âThe Chinese investors approached us as software companies. Foreign companies approach us either after viewing our website or through referrals,â says Shilpa. âThe loan app companies came to me through referrals from a skill development agency. Itâs routine for us to provide our address and email to help foreign companies register in India. They change the email and address after incorporation. The whole process is online and we have no physical interaction with the foreign client. In the case of these loan app firms, I only helped them register the firms. I did not do their audits or annual tax filings,â says the CA, who adds that her office has refused to engage further with these entities.
Earlier this year the Karnataka and Delhi police arrested 11 persons for running a Rs 250 crore scam through the apps Power Bank and EZ plan. The apps promised high returns for investments made. The police arrested 2 Chinese nationals along with 2 Charted Accountants in this cheating case. The CAs, Avik Kedia and Ronak Bansal, allegedly incorporated 110 shell companies for the Chinese entities. The Indian Express reported that these shell companies were sold to the Chinese entities for Rs 2-3 lakhs each. The CAs were approached on Telegram.
In January, G Chandra Shekar, a warehouse employee from Hyderabad died by suicide after accumulating loans worth Rs 2 lakh from 11 loan apps. The Hyderabad police arrested three persons in connection with the case from three different loan app companies, viz. Flash Cash Pvt Ltd, Juss IT Technologies Pvt Ltd, and TGHY Trust Rock Pvt Ltd. In the case of Juss IT Technologies Pvt Ltd, police booked cases against Ashwin and Sandip Chhajed, listed as the companyâs Directors. Sandip Chhajed a CA by profession was named director of the firm from 2019 when it was incorporated, until July 2020. Sandip did not wish to be quoted for the story and Ashwin did not respond.
Balaji says various state police investigators should also book the CAs who helped incorporate the loan apps being investigated, âIn recent months, we have seen the Enforcement Directorate raise alarm about these Chinese entities funnelling money out of India through crypto exchanges. They are stealing the personal data of Indians and taking them to Chinese servers. These entities are not just operating loan apps, they also operate other apps such as betting apps, gambling apps and dating apps. Their aim is not just to make money. There are CAs who are aiding such entities and this needs to be taken seriously and investigated by law enforcement agencies,â says the activist.
He points out that in one case the company was registered as an IT firm with the RoC but operated in the fintech sector. âThe Chartered Accountant who helped float the company had mentioned in the portfolio on her website that it is a fintech firm. There are pictures of the CA with its Chinese founders which were taken down in January. The CA was well aware that the companies being incorporated were loan apps,â the activist alleges.
A bad name to the profession
CAâs can't be held liable if the companies they help incorporate go on to do fraudulent activities, says Atul Kumar Guptha, president of the Institute of Chartered Accountants of India (ICAI). He says they're not mandated to check the genuineness of the foreign company being registered in India.
âWe deal strictly with those who do violate ethics through our disciplinary committees. When CAs are getting involved in collusion to set up shell firms, it gives a bad name to the profession. Out of the 4 lakh CAs, less than 0.1% are involved in such activities,â says Atul, who adds that collusion between CAs and investors for committing frauds is rare.
âIn most cases, the CA is the victim, they do not know that the firm they are incorporating is indulging in fraud and risk getting blacklisted. We have a disciplinary mechanism in place that acts as a deterrent. The CA, if found guilty, will lose his licence and in the last two years, we have taken efforts to improve the mechanism and dispose of complaints quicker. In 2020, we cleared 750 cases against CAs. The most common violation is negligence, there is also collusion and lack of due diligence. If found guilty, we remove their name from the ICAI for a certain period or lifetime. Collisions are extreme cases and rare in nature. I am aware there are black sheep in the CA community, it's important that we follow the disciplinary actions to bring accountability and trust in the profession,â he adds.
Though the Institute of Chartered Accountants of India (ICAI) says that CAs are not liable if their clients commit fraud, an official with the Department of Economic Affairs, Ministry of Finance said if the police are not booking the CAs who commit fraud, those with grievances can approach the National Financial Reporting Authority (NFRA).
NFRA is a statutory body under the Companies Act, 2013, meant to oversee regulations on accounting and auditing policies, standards to be adopted by companies. The NFRA is also required to enforce compliance with accounting and auditing standards. This includes overseeing the quality of professionals associated with ensuring compliance, such as CAs.
The official under the Department of Economic Affairs says, âDue diligence is the job of a CA. When the police aren't booking the CAs, the aggrieved party can send a complaint to NFRA. They'll book them and take away their licences if wrongdoing is found. The CAs sign the form verifying the existence of these foreign entities and the directorsâ existence, etc.â When asked if law enforcement agencies can book fraudulent CAs under existing laws, the official adds, âWe can put professionals to task âtheoreticallyâ as per existing laws, on grounds of giving false statements as to the identity of those owing the company, etc.â
Srikanth L, of Cashless Consumer -- a consumer collective working on awareness among digital payment users, who along with a team of cybersecurity experts analysed thousands of these instant loan applications on Google Playstore says, âThere is also the concern that if you bring CAs under a legal oversight, maybe through an amendment to the Companies Act or through an order, it will not sit well with the CA community. They will object to it,â says Srikanth, who adds that the Chinese entities choose to work in the financial landscapes where regulations are weak or are yet to be framed. The techie pointed out that the NFRA is a nascent organisation and is yet to become fully functional.
Read: Chinese loan apps misuse KYC details of Indians to set up fake bank accounts