- INTRODUCTION:
Corporate deception/ fraud is becoming a major issue and has emerged as the main risk to which firms are susceptible. The number of fraud incidents is rising at a concerning rate, and in the process:
(i) undermine investors’ faith in equity markets;
(ii) causes a massive devastation of investors’ wealth;
(iii) harm the impacted company’s management and board of directors reputations;
(iv) reduce the impacted company’s capacity to borrow money, putting them under financial strain.
When big-time scams like Enron or the Lehman Brothers raise questions about a company’s ability to remain in business shortly, they are considered concern difficulties. Regular tightening of regulations is necessary to guarantee procedures for monitoring, vigilance, and disclosure, including complaints from whistle-blowers. It is a well-known fact that con artists consistently outsmart law enforcement.
It is imperative that we acknowledge the inevitability of fraud and that organizations establish solid systems, processes, corporate governance standards, and recruitment procedures to guarantee the hiring of honest and morally driven individuals. It’s also critical to guarantee that staff receive thorough training about areas susceptible to fraud, that frauds are impartially investigated, and that offenders are held accountable on a timely basis.
Currently, we look at the case of Corporate Deception based on Religare Enterprises Ltd., in which Malvinder and Shivinder Mohan Singh, the Singh brothers, established Religare Enterprises Ltd. (REL) as a holding company for NBFC, insurance, and other related industries.
- DISCUSSION ON DECEPTION COMMITTED:
In a charge sheet submitted to the local court, the Enforcement Directorate (ED) claimed that the Singh brothers and a co-accused, Sunil Godhwani, had embezzled Rs 2,100 crore from REL subsidiary RFL funds that were obtained through bank loans. According to the agency, 19 shell companies were employed by the brothers and co-accused to launder the money. There are rumors that some of that money was diverted to foreign countries. The fraud was perpetrated sometime in 2016. The Singh brothers were then taken into custody on suspicion of fraud, criminal conspiracy, and criminal breach of trust. A senior Religare manager, who was also identified as a stockbroker and an acquaintance of the Singh brothers, filed a complaint, which led to the case being opened. According to the complaint, properties valued at “100 Crores have been misappropriated, siphoned, and diverted through a labyrinth of financial transactions,” which also claims that Religare and RFL have deceived.
The Singh brothers controlled RFL’s management and served as its promoters until February 2018. Following the invocation of shares that they and other promoter entities had pledged with various banks, to borrow money, they lost all control over the firm and its subsidiaries.
The Singh brothers were accused by RFL of embezzling money and misusing loans that the organization had given them, leading to the filing of an FIR. On December 12, 2019, Shivinder Singh was taken into custody by the ED.
Additionally, it was claimed that the Singh brothers conspired with Lakshmi Vilas Bank (LVB) staff members to steal two fixed deposits (FDs) worth Rs. 400 crore and Rs. 350 crore that RFL had made with the bank.
Based on a First Information Report (FIR) submitted by the Delhi Police’s Economic Offenses Wing (EOW), the ED filed a money laundering investigation against the Singh brothers. The investigation into the matter, which was submitted in September 2019, revealed that the two stole the money by applying for a bank loan against the two FDs they owned in RHC Holdings Pvt. Ltd. therefore reducing their obligations. The Singh brothers and other fraudsters were being held, according to the most recent information in the public domain. Godwani was given temporary release under bond, and as of October 15, 2020, he had not turned himself in. In April 2021, the Supreme Court denied the Singh brothers’ and others’ second bail motion.
The SC cited the ruling in Y.S. Jagan Mohan Reddy v. Central Bureau of Investigation [(2013) 7SCC 439], whereby the Apex Court made the following significant observations, in its decision to deny bail.
Economic offenses that involve extensive financial losses and long-standing conspiracies should be taken very seriously as major offenses that threaten the nation’s financial stability by negatively impacting the economy as a whole. The nature of the accusations, the quality of the evidence supporting them, the seriousness of the punishment that a conviction will bring, the accused’s character, any unusual circumstances, the likelihood that the accused will be present at the trial, the reasonable fear that the witnesses will be tampered with, the larger interests of the public and the state, and other similar considerations must all be taken into account by the court when granting bail. Fraud’s elements:
- Avaricious promoters;
- Integrity issues with promoters;
- Board of directors: quiet and reassuring;
- Money laundering via associates, affiliates, and front companies in India and elsewhere;
- Bankers’ lack of supervision, thoroughness, and end-use monitoring of funds;
- One of the main factors leading to the scam was the promoters’ total authority and control in the context of the previously mentioned favorable environment.
Some confusing questions about the fraud:
- Abnormally long wait times for probes at almost every level. Even now, there are still outstanding cases against the offenders.
- It appears that corporate management discovered fraud instead of the banks. How are banks able to remain blind to fraud when money is moving through accounts, especially when multiple companies are involved in loans and other bank accounts? That will be further analyzed in the below case briefings.
- CASE HISTORY BRIEFING:
In the Rajender Aggarwal Vs State & Anr [Bail Appln. 1384/2021 & Crl. M.A. 17699/2021, 6975/2022, Del. HC] case of the suspected vandalism of financial assets of Religare Finvest Ltd, the Delhi High Court granted bail until the completion of the investigation and the filing of both the main chargesheet and supplementary chargesheet before the learned Trial Court.
Facts:
Following a complaint from Mr. Manpreet Singh Suri, an Authorized Representative of Religare Finvest Limited (‘RFL‘), the case file was opened. The complaint claimed that the promoters of Religare Enterprises Limited (‘REL‘) – Shivinder Mohan Singh and Malvinder Mohan Singh, as well as the then-chairman-turned-managing Director – Sunil Godhwani and Narendra Kumar Ghoushal – had committed financial fraud.
It was claimed throughout the investigation that the applicant was both the director and a shareholder of M/s Tara Alloys Pvt. Ltd. at the time that RFL issued a loan of Rs. 85 crores to the firm as mentioned earlier. In addition, he served as a shareholder and director of M/s Neelanchal Holding Pvt. Ltd., to which M/s Tara Alloys Pvt. Ltd. transferred Rs. 59 Crores. Additionally, it was claimed that M/s Sridham Distributors Pvt. Ltd., which the applicant also owned, obtained a loan of Rs. 92.50 crores, of which Rs. 66.40 crores were subsequently transferred to M/s Neelanchal Holdings Pvt. Ltd.
The main accusation made against the applicant is that he helped the promoters, Malvinder Mohan Singh and Shivinder Mohan Singh, siphon funds from RFL by conspiring with Narendra Kumar Ghoushal. To accomplish the goal as mentioned earlier, he set up shell businesses under his and his allies’ control to route and reroute the funds through several corporations before they were ultimately directed to RHC Holdings Pvt. Ltd., which Malvinder and Shivinder Mohan Singh owned.
- CONCLUSION:
Held that the gravity of an offense would be a factor at the time of consideration for the grant of bail, but, at the same time, it cannot be the only basis for refusing bail either. According to the precedents mentioned above, the purpose of bail is to ensure that the accused person appears at the trial and is not intended to be punitive or preventive. The fundamental tenet of the aforementioned court rulings is that an individual who meets the other general requirements for release and who is otherwise well-established in the community should not be subjected to prolonged judicial detention as a form of punishment after the investigation is finished, even before the trial is over. In this instance, the court believes that if the applicant is released on bail after giving due consideration to protecting the prosecution’s interests—particularly since other co-accused parties have also been granted bail—no potential harm can be done to the prosecution’s case before the learned Trial Court.
The current case has undergone a thorough investigation, and the learned Trial Court has received both the primary chargesheet and the supplemental chargesheet. It is also acknowledged that the majority of the evidence in this case is documentary in nature; the prosecution has possession of all relevant papers that have been seized. It is also important to emphasize that no evidence has been presented to show that the applicant attempted to manipulate witnesses, falsify evidence, or abuse his freedom in any other way while he was on interim release. The current application is granted in light of the law established by the judicial precedents mentioned above as well as the particular facts and circumstances of the case.
- REFERENCES:
- Poonam Gandhi, Bail granted in Religare Finvest Misappropriation of Funds Case after Completion of Investigation, Tax Guru – complete tax solution, [12 June 2023], https://taxguru.in/corporate-law/bail-alleged-misappropriation-funds-religare-finvest-granted-investigation-completed.html
- CA Naresh Kataria, Corporate Frauds in India – Part VI, lawstreetindia, taxsutra, [dated May 04, 2021], https://www.lawstreetindia.com/experts/column?sid=557
By,
Vinodini Priya.S,
BA-LLB (Final year) student of Government Law College, Vellore. Tamil Nadu.
