The CBI has registered a case against Kanpur-based Shri Lakshmi Cotsyn Limited and its directors for allegedly cheating a consortium of 23 banks to the tune of ₹6,833.82 crore.
“Searches are being conducted at nine locations, including Noida, Roorkee, Fatehpur and Kanpur,” said a CBI official.
Among the accused persons named in the First Information Report (FIR) are Dr. Mata Prasad Agarwal, Pawan Kumar Agarwal, Devesh Narain Gupta and Sharda Agarwal.
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The role of bank officials, chartered accountants, statutory auditors, stock auditors and empanelled valuers responsible for preparing company balance sheets, financial papers and issuing various compliance certificates, would also be investigated by the agency to determine if they were also involved in the fraud.
The company, which is in the textile business, had taken financial a assistance of ₹7,377.37 crore from the banks for manufacturing blended suiting and shirting, quilted fabrics, denim fabrics, terry towel, ready-made garments, technical fabrics and other products. The Central Bank of India was the consortium leader with a total exposure of ₹1,361.56 crore.
Owing to non-adherence of financial discipline by the company, the account turned non-performing asset (NPA). Even after restructuring the debt, it could not meet the obligations. The loan account was declared a fraud on July 20, 2020, by the Central Bank of India and reported to the Reserve Bank of India.
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A forensic audit of the transactions detected a series of financial irregularities. The company had booked inventory loss. The cost of its obsolete stocks was ₹882.92 crore. However, the sale value of the obsolete stock in 2013-14 was shown as ₹78.91 crore and for 2014-15, it was ₹77.87 crore, thus leading to a loss of ₹726.14 crore.
Anomalies in obsolete stocks’ sale
There were several anomalies in the sale of obsolete stocks. The auction details were not advertised and the stocks were sold to 42 customers, of which 12 were related parties. No collection was received from the sale of obsolete stocks from two parties, while partial payments were received from five parties. During the field visits, five customers could not be traced.
The company had, from 2010 to 2013, bought fixed assets worth ₹1,524.35 crore, apart from plant and machinery worth ₹786.39 crore. Verification indicated to a variation in the purchase price compared to the then prevailing rates. The company wrote off receivables of ₹319.72 crore from 145 customers. The banks could not trace 11 debtors.
The accused company had no policy for extending discounts on the goods sold, still it gave voluminous discounts worth ₹207.29 crore to its related parties, customers operating in different line of business and non-existent entities.
A money trail analysis revealed that ₹1,238.57 crore was used by the company for purposes other than those specified in the terms of financial facilities, as alleged.