CVC enquires into Rs 200 crore frauds by Kinetic Group

Gangadhar S Patil

Mumbai: The central vigilance commission (CVC) has ordered a probe into alleged misuse of Rs200 crore by a subsidiary of Kinetic group companies eight years back.

Kinetic Finance Limited (KFL) misappropriated the money borrowed from a consortium 23 banks led by State Bank of India (SBI). The CVC has directed SBI and several other public sector banks to investigate the matter and submit its report. Kinetic Finance Limited, presently known as Athena Financial Services Limited, which is under liquidation, is a non-banking financial company (NBFC) into lease and hire purchase of two wheelers manufactured by Kinetic Engineering Ltd.

“In view of the serious nature of alleged fraud, a large amount involved in the fraud and the facts being verifiable to a great extent we may seek an investigation and report in the matter from the public s banks named in the complaint and also seek a status report from the RBI,” according to a CVC file noting. The noting further said that the fraud has been alleged to be perpetrated on banks by manipulating the stocks and also through issue of non-convertible debentures of Rs 55 crores against the security of two office premises actually valuing only Rs 4.5 crores.

This was following a complaint filed by a Delhi-based RTI activist, who alleged KFL of manipulating stocks and other records to cheat the consortium of banks in his complaint filed with CVC. While all the five private sector banks in the consortium filed cases against the company, none of the public sector banks did it.

In 2001, the consortium signed a working capital loan agreement with KFL, Pune, for a sum of about Rs 200 crore. Subsequently, in 2002, a stock audit report conducted by SBI indicated inflated stock position. Audit also found procedural lapses on the part of the company. According to a criminal complaint filed with district court Pune the company “has fraudulently violated the terms and conditions of all the loan agreements jointly and severally with the intention to defraud the consortium bank members.” KFL had misrepresented and fraudulently concealed the material facts from the banks right from the beginning and obtained the loans fraudulently,” it added.

And by August 2003 the company started defaulting on regular payments of debts and evading submission of monthly stock statements. In 2004, the consortium conducted a special investigation audit which showed that the company had violated the terms and conditions of the loan agreements. 

However, Kinetic management in their official response denied all allegations. " The Company did not misuse or divert any funds it borrowed. In fact, the banks conducted an independent audit through a third party auditor to examine the operations of the company and concluded that the company was following the norms laid down by RBI for NBFCs," said the response.

The company has never diverted any funds it borrowed and it had been regular in its payments to banks since its inception in early nineties, it added. In the year 2003, the banks themselves entered vehicle financing business due to which the company faced severe financial difficulties owing to sudden fall in its business and recovery of loans, said the response.

The company then tried its best to revive the business and ensure repayments by putting in place a new business model and through proposal of CDR (Corporate Debt Restructuring) led by SBI. However, one of the lenders, BOB Mutual, filed a liquidation petition and caused the Company to hand over its assets and operations to the official liquidator's office, as per directive of the Honorable High Court.  Post the liquidation, the official liquidator has been given the charge of recovery of loans and sale of assets of the Company, towards repayment of lender dues. In fact, in the liquidation of Athena Finance, Kinetic group and Promoters suffered a bigger financial loss, more than loss suffered by any of the lenders, said the response.

Even after the fraud was detected, none of the public sector banks reported the matter to appropriate authority as per the Reserve Bank of India (RBI) guidelines. Further, cases filed by the private banks against the company have been dropped, said the complainant.

Box 1:

Public sector banks in the consortium:                                     

UTI Bank

Allahabad Bank

Corporation Bank

Canara Bank

Punjab National Bank

Bank of Baroda

IDBI Bank Ltd

Bank of Maharashtra

Box 2:

According to RBI, the amount outstanding on account of Non-Performing Assets (NPAs) by 2012 is 1, 37,102 crores which is equal to 10% of India’s annual budget. Out of the total, Rs 21,604 has already been written off.