The transaction auditor had alleged fraudulent transactions to the tune of ₹3,025 crore

Srei founder Hemant Kanoria will challenge the report by transaction auditor BDO India LLP alleging fraudulent transactions to the tune of ₹3,025 crore during FY20 and FY21 in the group company.

“We will be taking legal recourse. The report seems to have been drawn up without having any discussion with the erstwhile management or borrowers respectively. The methodology adopted by BDO is clearly against the principles of natural justice and fairness, therefore the legal sources have said that the report will not be standing the scrutiny of the adjudicating authority,” a source close to Kanoria said.

The administrator appointed by Reserve Bank of India, had, in a stock market notification, said an initial report from the professional agency appointed as the transaction auditor, indicated that there are certain transactions which are fraudulent in nature, as per Section 66 of the Code.

Administrator files application

On the basis of the investigation and observations of the transaction auditor, the administrator filed an application in respect of disbursements made to certain entities, referred to as the Power Trust group of entities, before the Kolkata Bench of the National Company Law Tribunal.

The entities include Kanoria Foundation and its trustees, India Power Corporation Ltd, India Power Corporation (Bodhgaya), Tuticorin Electriclty Supply Pvt Ltd, Bhaskar Silicon Pvt Ltd, Green Utility Pvt Ltd, Environ Energy Corp India Pvt Ltd, Meenakshi Energy, Dev1 Trading and Holding Pvt Ltd, and certain others.

“It is to be noted that this is an initial filing based on the report submitted by the transaction auditor and further filings may be undertaken, in due course,” the administrator said in the stock market filing.

Monetary impact

The application was in relation to certain fraudulent transactions undertaken by the company in the past. As per the transaction auditor report shared with the administrator, the monetary impact of the above transactions covered under the application amount to ₹2,512 crore, being the amount outstanding in the books of the company as on October 8, 2021 and ₹514 crore being the amount considered as due and outstanding towards notional loss on account of fraudulently charging lower rate of interest to certain entities referred to as the Power Trust group of entities.

“Thus, the total impact of the  transaction (excluding interest payment calculations) amounts to approximately ₹3,025.73 crore,” the filing said.

Sources close to Kanoria said the methodology being adopted by BDO seems to be suspicious due to the “haste and opaque approach”.

“The moot question is why the due process of law and principles of natural justice cannot be followed but the reports have to be submitted surreptitiously,” the source said.

Again protracted legal battle will begin with BDO, which will derail the resolution process.

“The courts should intervene to ensure that a transparent process, where all sides are given an opportunity to put across their views and contentions, are encouraged. After which only the Courts can decide to declare an account as fraud,” he said.

Published on June 15, 2022