Assets worth more than Rs 90 crore of a Hyderabad-based road construction company have been attached under the anti-money laundering law in a case linked to an alleged bank loan fraud, the Enforcement Directorate (ED) said on Saturday.
A provisional order was issued on Thursday under the Prevention of Money Laundering Act (PMLA) to attach 105 land properties located in Telangana (Hyderabad), West Bengal and Andhra Pradesh (Visakhapatnam, Prakasam and Krishna districts) and movable assets worth Rs 7.36 crore, including shareholding of the promoters in the company called Madhucon Projects Ltd, totalling Rs 96.21 crore.
The money laundering case stems from a March, 2019 CBI FIR registered against Ranchi Expressways Limited (a Madhucon Group company) and its directors.
The case started after the National Highways Authority of India (NHAI) awarded a project for four-laning of NH-33 from 114 km to 277.50 km (approx 163.50 km) on Ranchi-Rargaon-Jameshdpur section on annuity basis on design, built, finance, operate and transfer (DBFOT) pattern to Madhucon Project Limited on 18.03.2011.
“A special purpose vehicle called Ranchi Expressway Limited (REL) was incorporated by Madhucon Group to execute this project. Kamma Srinivasa Rao, S Nama Seethaiah and Nama Prithvi Teja were the founder directors of the said company and Madhucon Project Limited was the Engineering Procurement Construction (EPC) contractor of the project,” the ED said in a statement.
The ED alleged Madhucon Group “could not complete” the project despite availing the full loan amount, and subsequently, their contract was terminated and the company was booked based on the directions of the High Court which were in turn based on reports of the serious fraud investigation office (SFIO) and the NHAI.
Probe found Ranchi Expressways Limited represented by its directors and promoters obtained loans of about Rs 1,030 crore from a consortium of banks led by Canara Bank, the agency said.
Madhucon Group “did not” utilise the entire loan amount for its stated purposes, and diverted it to its associated entities for other works and also directly “siphoned off” the loans by giving bogus works to its related shell entities, it said.
“The work on the ground suffered and they could not complete the work despite drawing the entire loan amount. They also managed the maintenance reports and work progress reports to falsely claim higher expenses,” the ED alleged.
The group, it said, were not doing well financially for many years and after winning the tender for the Ranchi-Jamshedpur Project, the Madhucon Group created the SPV (REL) and did “round-tripping” of loan funds to show bogus promoters investment for obtaining the very first drawdown of the loan from the bank.
Therefore, it is clear that from the very beginning that Madhucon Group was involved in creative drawings of the accounts to cheat the banks/NHAI, the agency alleged.
Ultimately, Madhucon Group could not repay the loans and the account turned into NPA (non performing asset).
A “key finding” of the case has been, the ED said, that the LIE (lender’s independent engineer) chosen for this project was a completely related party of Madhucon Group and thus it was not independent and it consistently issued wrong reports favourable to the group.
“Multiple inspections by the forensic auditors and NHAI revealed that the on-ground progress of the work achieved by Madhucon Group was only 50.24 per cent, whereas, they had already drawn…90 per cent of loan amount,” the ED said.
“Direct cash of amount Rs 75.50 crore was generated by paying money and then receiving back the amount through six shell entities (Usha Projects, Shree BR Visions, Sri Dharma Saastha Constructions, Sree Nagendra Constructions, Ragini Infrastructure and, Varalakshmi Constructions) which were completely under the control of their chairman Nama Nageshwara Rao and Nama Seethaiah.”
“These sub-contractors did no work, had no sufficient expertise, were based in AP/Telangana, whereas the project was in north India, and they took large advances from MPL from the loan funds and then paid back huge amounts to Madhucon Group on the pretext of using the equipments and labour of Madhucon Group,” it said.
The funds came back to the Madhucon Group and the ED said it has identified direct diversion of Rs 361.29 crore from the loan funds.
