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What's cooking in Indiabulls Group? Recurring allegations on quid-pro-quo between lenders, corporates expose loopholes in regulation

Dinesh Unnikrishnan

In the last two days, investors have been dumping shares of Indiabulls group firms, one of the well-known names across the non banking financial companies (NBFC), real estate and housing businesses in India. Indiabulls Housing Finance shares fell 5.28 percent in past two days to Rs 424.25. Indiabulls Real Estate dropped 2.8 percent to Rs 64.25, Indiabulls Integrated Services was down 5.72 percent to Rs 80.75 and Indiabulls Ventures fell 7.58 percent to Rs 153 apiece. Reason: The company has been taken to court by a group of whistleblowers--Citizens Whistle Blower Forum.

A PIL has been filed in the Delhi High Court that basically alleges that Indiabulls promoters have been roundtripping funds lent to various companies back to their pockets violating rules. The PIL seeks investigation into the matter by respective regulators and agencies probing financial irregularities, according to PTI.

At a glance, the allegations are indeed serious in nature and points to a complex web of transactions which Indiabulls promoters apparently used to roundtrip money. Firstpost couldn't independently verify the truth behind the allegations in the PIL. In response to an email query, Indiabulls said: "It has come to our notice through media reports that a PIL has been filed against Indiabulls Housing Finance and its Promoters in Delhi High Court. The petition hasn't yet been filed in the High Court as per the website records of Delhi High Court, but has been leaked in the social media with malicious intent and vested interests to create turbulence in the stock price of the Company and fulfill ulterior motives," Indiabulls said.

However, the PTI report said that the petition is filed indeed and likely to listed for hearing next week. Indiabulls has fiercely defended its position. It said the purported PIL allegations are the same as in the petition of earlier petitioner Abhay Yadav which was subsequently withdrawn.

"Instead of going to the right forums of various regulatory agencies and making the complaint [where 8 earlier similar complaints with exactly similar allegations are already filed under various individual names in July 2019], the petitioners have deliberately chosen the route of PIL to attract attention and play into the hands of blackmailers and corporate rivals at a sensitive time of merger process of Indiabulls Housing Finance and Laxmi Vilas Bank€¦ The Company is determined to fight out the petitioners in the court," an Indiabulls statement said.

According to the PIL, IBHFL has been extending huge loans to various companies and these companies, in turn, are routing a substantial part of the money back as an investment in equities to companies apparently belonging to the key-shareholders/promoters of IBHFL including Sameer Gehlaut, the founder and Chairman of IBHFL and his family members. In other words, borrowing companies bestow huge benefits to the key shareholders and Chairman of IBHFL for the favour they get in the form of loans from IBHFL.

Thus, the petition says, a substantial part of the money loaned by IBHFL to various companies has been invested/ploughed back into companies owned by promoters/owners of Indiabulls, either directly or indirectly through subsidiaries. It lists three ways the promoters have allegedly used to invest this money back to IB promoter companies. By investing in Preference Shares of IB group subsidiaries, Compulsory Convertible Debentures or by receipt of Mobilization Advance-an advance paid to a contractor for mobilization of resources for a project.

Even more problematic, according to the PIL, is the fact that many of the companies to which IBHFL has extended these loans have a small paid-up capital, do not have any fixed assets and are not even engaged in any business activities. The directors and office addresses of many of these companies are also common. Where the plot is turning even more interesting is the involvement of big names.

According to the PIL, a good part of the loaned money has been ploughed back into various Indiabulls Group companies owned or promoted by Sameer Gehlaut. These include Americorp Group, Reliance ADAG, Chordia Group, Vatika Group and DLF Group, apart from Indiabulls' promoter group companies.

According to Indiabulls annual report, for the fiscal year 2017€"18, IBHFL has disbursed loans totaling a sum of Rs. 1,22,578 crore, registering a 34.3 percent growth over the previous year. The company saw its revenues grow by 25.1 percent to Rs14,640 crore in the period. It had total outstanding debt of Rs96,204.58 crore and its liabilities stand at Rs1,13,463.50 crore as on March 2019.

In a broader context, the allegations, if proved true, will be another case of how powerful individuals at the top of large lending institutions loot public money by forming a nexus with corporations, something we saw in the ICICI-Videocon episode involving Chanda Kochhar and Videcon's Venugopal Dhoot. Further, it will raise fresh questions on the efficacy of existing regulations on shadow banks. Only a detailed probe will tell if there is truth in the allegations of roundtripping of money and financial irregularities against Indiabulls promoters.

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