The Allahabad High Court has directed a CBI investigation into the fraud worth crores and embezzlement of public money by Simbhaoli Sugar Limited Company in connivance with bank officials.
The Division Bench of Justice Mahesh Chandra Tripathi Justice Prashant Kumar passed this order while hearing a petition filed by M/S Simbhaoli Sugars Limited.
This is a shocking case of clear connivance of unscrupulous businessman and banks, wherein the bank officials have knowingly allowed the petitioner to syphon away almost Rs1300/- crores of the public money.
Here the banks had advanced hundreds crores of rupees to the petitioner company knowing the fact that they have already defaulted with the loans taken by other banks previously and been declared N.P.A, still the banks went ahead and approved loans running into several hundred crores and the entire loan was disbursed without following the mandatory steps/procedures, which banks are supposed to take before disbursing the loan.
After the default of the petitioner in paying back the loan of the first bank, the bank instead of proceeding to recover this amount, gave a long rope to the petitioner to take loan from the second bank.
This second bank also very easily without following the mandatory steps grants a loan without any adequate security, which was never paid back by the petitioner.
Thereafter, the petitioner moves on to the third bank for another loan and this bank also grants a loan without any due diligence, and without following the norms and guidelines of Reserve Bank of India for loans to the company, and without even adequate security or additional security and without doing any regulatory compliances this bank again disburses a huge loan and further, do not carry out the post disbursement supervision and lets the petitioner to syphon away the entire amount.
The petitioner adopted the same modus operandi again and again with 7 banks and surprisingly, rather shockingly, all the seven banks had extended loan facilities to the petitioner without any due diligence, credit approval, risk report appraisal and without following the RBI guidelines to advance loans to the companies and also without adequate security and in few of the cases a personal guarantee was given by the promoters to many banks.
Shockingly, the banks, even after declaring the petitioner’s account as NPA has not taken any effective steps to recover the amount. In fact it will not be wrong to say that no sincere effort had been taken by the banks and all the efforts shown to have been taken was nothing but just an eyewash.
The facts of the petition are that the petitioner company has a Sugar Mill in Simbhaoli, District Ghaziabad. This Mill has two other units. The petitioner herein, in the course of the business, had been taking loans from the banks. The issue started sometimes in the year 2003 where the company started defaulting in payment of the loan taken by the banks. In fact, the company had entered into an agreement for debt restructuring way back in the year 2007 with State Bank of India. It seems that they have not honored the terms of restructuring and, hence, the bank again in the year 2012 had to carry out another debt restructuring.
The petitioner company had been borrowing money from various banks and chose not to pay them back. As per the affidavits filed by the banks, the Company was declared NPA as on 31.03.2013. Once a Company is declared NPA as per the “Prudential Norms of Income Recognition” issued by the RBI no other bank would grant any kind of loan to such companies.
In spite of this, shockingly, the petitioners had been getting hundreds of crores of loans from various banks without even giving adequate security. Later, the banks came in as a consortium and wanted to settle the same through a Joint Lenders Meeting as a huge hair cut. The bank also started proceeding against the petitioner company in NCLT, Allahabad.
Before the Court, the petition has been filed by the petitioner Company seeking quashing of communication dated 26.07.2023 issued by the State Bank of India, wherein, the settlement offer of the petitioner was rejected and the bank had communicated that they will proceed to take legal action against the company.
The Court observed that,
From the above facts and record, it is evident that the instant case is a clear case of fraud being played by the petitioner in connivance with the bank officers as the banks one after the other had gone to sanction loans to the petitioner knowing the fact that the petitioner has defaulted in paying money to the other banks and shown no intention of paying back the loan. The loans given by the banks as working capital was well secured with the sugar stocks, even if the petitioner want to sell a bag of the sugar, the sale consideration, would necessarily has to come in the Escrow account.
Surprisingly, every time when the loan is given, on the security of sugar stocks how come the amount was not recovered by the banks and how the stocks were allowed to be sold without the bank getting its dues.
The banks while disbursing the loans have miserably failed or purposely did not carry out proper due diligence, credit appraisal, following the prudential norms, consider the risk report, did not take appropriate collateral security, failed to carry out regulatory compliances. Few of the banks even did not ask for personal guarantees of the promoters and the others got a personal guarantees of the promoters, who had given personal guarantees to various other banks. There was no post disbursement supervision by the banks, which is mandatory. The banks chose not to ask for additional security, no proper steps to recover the amount was taken by the banks even after the account were declared NPA. There is RBI guideline to advance the loans to the companies, which is an essential condition and surprisingly the same has not been followed by the banks.
The Court said that,
This is a case, which shocks conscience of the Court as to how few of the bank officers in connivance of the petitioner had advanced almost Rs.900 crores, of public money and had allowed the petitioner to syphon away the funds and did nothing but were the mute spectators when the entire fund was syphoned off. Even after the entire amount was syphoned off, the banks did not take any effective steps to recover the said amount.
The RBI Circular dated 01.07.2009 mandates all the banks for classification and reporting of fraud. The said Circular does not provide any exemption or relaxation to the banks not to report regarding fraud committed by unscrupulous borrowers. Even, Clause-6 of the Circular also mandates all the Public Sector Banks to report to the Fraud Cell of CBI in cases of fraud involving more than Rs 5 crores.
“In the matter, we do not find any recital in the affidavits filed by the banks, which may indicate that any point of time they had communicated to the RBI in the matter. In case, there is any fraud then in every eventuality the matter is to be referred to the CBI for investigation. Even otherwise, there is complicity as indicated above.
We also find that the bank officials had given a complete go bye to the Circular”, the Court further observed while disposing the petition.
In such situation, the Court directed to the CBI to investigate against each and every bank as to how the loans were sanctioned in contravention of the RBI Guidelines and Circulars and also enquire the officers of the banks, who had accorded approval while sanctioning the loan being Member of the Board/Credit Committee and also the officers, who had not taken any effective steps to recover the amount and also against the officers of the banks who failed to take any prompt action to realize the amount from the borrower and allowed the petitioner to siphon off the money.
“As the CBI is not a party before us, we request the Registrar General of this Court to communicate the present order to the Director, Central Bureau of Investigation, New Delhi.
In case, the CBI finds that there is a case of money laundering as per the provisions of Prevention of Money Laundering Act, 2002 they may also refer the matter to the Enforcement Directorate and take help to recover the said amount.
It is further directed that the petitioner will join the investigation and cooperate with the investigation team and if they do not do so, it is open for the investigation agency to proceed against the petitioner in accordance with law. The authorities should endeavor to find out the money trail, where it has been syphoned off and parked”, the order reads.