A day after Malvinder and Shivinder Singh – former promoters of erstwhile pharma giant Ranbaxy – were arrested for allegedly misappropriating funds of Religare Finvest Limited (RFL), a Delhi court granted the police four days’ custody of them and three others.
The alleged fraud, which the Economic Offences Wing (EOW) of the Delhi police has now pegged at Rs 2,397 crore, has its roots and tentacles spread across a number of companies and transactions.
Here’s how the alleged fraud has unravelled so far.
The Ranbaxy Sale
In late 2008, when Ranbaxy was at its peak, the Singh brothers sold the company to Japanese drug maker Daiichi Sankyo in 2008 for $4.6 billion, out of which $2.4 billion went to them.
On the back of the fresh infusion of cash this brought in, the duo set about expanding Fortis Healthcare and Religare – two other groups of companies also promoted by the brothers.
Soon, Fortis was the country's largest hospital chain and Religare one of the largest non-banking finance companies (NBFCs).
The Religare Mess
the EOW's action follows a complaint filed by Religare Finvest Limited (RFL), a subsidiary of Religare Enterprises Limited (REL).
RFL had last December filed a criminal complaint against the Singh brothers, Sunil Godhwani, the former chairman and managing director of REL and others for cheating, fraud and misappropriation of company funds to the tune of Rs 740 crore.
In March this year, the EOW had registered an FIR alleging that the accused siphoned money from the company and granted dubious loans to other companies.
However, the EOW has now said that the loss caused to RFL is to the tune of Rs 2,397 crore, much more than what was mentioned in the initial complaint.
What’s Wrong With the Granted Loans?
In the filed complaint, RFL had alleged that the loans were given on a “non-arms-length basis”, which is in violation of corporate governance norms, as well as other regulations for NBFCs prescribed by the RBI.
In finance parlance, financial transactions between parties which are connected need to be on an “arms-length basis”, ie, their existing relationship does not influence the terms of the transaction, and it is commercially viable from a neutral perspective.
If a transaction between related parties is not an arms-length basis, this means it is viewed as being entered into because of collusion, which appears to have been the case with the loans granted by RFL at the behest of the Singh brothers and the other accused.
“Internal inquiries showed that poor financial health of Religare Finvest was to a large extent on account of wilful default on significant unsecured loans, defined for internal purposes as corporate loan book by borrower entities either related, controlled or associated with the promoters,” Religare had alleged in the complaint with EOW.
The complaint further said that Singh brothers, in their capacity as promoters of REL, had siphoned off money from the company by issuing non-convertible redeemable preference share (NCRPS) for themselves and later redeeming them. Promoters and owners aren’t allowed to just withdraw money from a company for personal use, but using an instrument like these redeemable preference shares allowed them to get away with this.
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