Auditor flags Rs 13,110 cr of fraud deals in Srei Equipment Finance

Sum includes transactions amounting to Rs 1,283 cr determined as undervalued; Srei Equipment Finance is currently undergoing corporate insolvency resolution process

Transactions of Rs 13,110 crore that were allegedly fraudulent have been flagged in Srei Equipment Finance (SEFL), currently undergoing corporate insolvency resolution, by the transaction auditor, BDO India, appointed by the administrator of the company.

While announcing its results for the quarter ended September 30 this year, Srei Infrastructure Finance (SIFL) said the administrator received from BDO audit reports indicating in SEFL there were transactions amounting to Rs 13,110 crore that were “fraudulent” under Section 66 of the Insolvency and Bankruptcy Code (IBC).

It included transactions of Rs 1,283 crore determined to be “undervalued”.

Accordingly, the administrator filed applications under Section 60(5) and Section 66 of the IBC before the Kolkata Bench of the National Company Law Tribunal (NCLT) on various dates till October 21, 2022, for adjudication, it said. SEFL is a wholly owned subsidiary of SIFL.

The administrator did not respond to an email sent by Business Standard.

Dhruv Bhalla, a spokesperson for the former promoter family, the Kanorias, said: “We unequivocally refute these allegations as being incorrect, meritless, unfair, unilateral, prejudiced, malafide and against the IBC provisions and principles of natural justice.”

“All these allegations portray complete lack of BDO’s competence, credibility and business understanding - resulting in misunderstanding of tagging normal business practices as otherwise,” Bhalla added.“These claims, which are yet to be validated by the tribunal and are pending adjudication, stand dismissed and the promoters will be taking appropriate legal action to protect their rights and reputation if these allegations are not withdrawn immediately. A letter has also been served to the administrator in this regard,” he further said.  

SIFL and SEFL have been informing the stock exchanges periodically about reports from BDO India indicating transactions “fraudulent in nature”.

The auditor was appointed to investigate the Srei companies. This followed the supersession of the boards of SIFL and SEFL by the Reserve Bank of India in October 2021. Thereafter, the Corporate Insolvency Resolution Plan was initiated on applications by the central bank.

Srei is not the only financial services company where an independent auditor has flagged fraudulent transactions. In June this year, the Central Bureau of Investigation (CBI) booked Dewan Housing Finance, its former chairman and managing director Kapil Wadhawan, director Dheeraj Wadhawan and others for bank fraud of Rs 34,615 crore. This was after the auditor, KPMG, conducted a special review audit of the DHFL books in February 2019.

KPMG in its audit highlighted funds were diverted in the garb of loans and advances to related and interconnected entities. DHFL was later taken over by the Piramal group.

In the case of Reliance Capital, BDO India’s report said loans given by the entity to various group entities during 2019-20 caused a financial impact of over Rs 1,755 crore to the company. Reliance Capital is undergoing a debt resolution.

In March 2019, Grant Thornton identified financial irregularities of Rs 13,000 crore in infrastructure financial services firm IL&FS, which had defaulted on its loans.

Meanwhile, the consolidated committee of the creditors of SIFL and SEFL, which met on Friday, decided to extend the deadline for the submission of the resolution plans for SIFL and SEFL by prospective resolution applicants till November 25, 2022.