Banks may tag Amtek Auto as fraud account after MCA finds fund diversion

The Ministry sought to recover funds from former promoters by moving the Chandigarh bankruptcy court last month

The Indian lenders, who have Rs 25,000-crore exposure to Amtek Auto group companies, are looking at the option to classify the accounts as “fraud” after the Ministry of Corporate Affairs (MCA) sought to recover funds from the former promoters by moving the Chandigarh bankruptcy court last month.

The National Company Law Tribunal, Chandigarh, will hear the petition filed by the MCA on March 31, which seeks to freeze assets of Amtek Auto promoters.

A banking source said after the MCA has taken action to freeze the promoter’s assets in the courts citing fraud, they will also take steps against the companies, though the loans have been written off. “There are discussions going on about Amtek Auto, especially after the action taken by the investigating agencies against ABG Shipyard,” said a source, asking not to be quoted.

Amtek Auto was in the first list of 12 companies, which were identified by the Reserve Bank of India (RBI) for debt resolution in 2017, according to the Insolvency and Bankruptcy Code (IBC), 2016. During the bankruptcy process, a forensic audit was ordered, which found evidence of fund diversion by the company promoters.

According to the court documents, Ernst & Young, a chartered accountant firm, carried out a transaction audit of Amtek Auto for two years between July 2015 to and July 2017 and submitted its report to the resolution professional in March 2018. The report found that the company had carried out preferential transactions, undervalued transactions and transactions defrauding creditors during the two years.

In February 2020, the MCA ordered SFIO probe against another group company, Castex Technologies on the basis of the findings of an audit report during the resolution process. The MCA moved the NCLT, Mumbai, for recovery of Rs 3,454 crore from the promoters of another group company, Metalyst Forgings.  NCLT Mumbai ordered freezing of assets of promoters in September last year. Another group company, Amtek Ring Gear had also defaulted on loans.

On December 1 last year, the Supreme Court ordered implementation of a resolution plan by Deccan Value Investor LP, a US-based fund for Amtek Auto within four weeks. DVI had offered Rs 500 crore as upfront cash to the lenders for acquisition of the company. This would be among the lowest recoveries of Indian banks under the IBC.

Bankers said the company fell into bad times due to its aggressive growth plans in which the company expanded but the returns on investments did not match with debt obligations. Later for its acquisitions, Amtek took additional debt on its books. When the company's international business declined, it was unable to service the debt from its domestic operations.