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The Usual Suspect

Yes Bank's former promoter, his family are accused of using shell companies to defraud the bank

The Usual Suspect

Yes Bank, being a listed company, needs to disclose not just its subsidiaries but related-party transactions too

Bliss Abode Private Ltd, a company incorporated on March 6, 2017, has its registered office at 40, Amrita Shergill Marg, New Delhi-110003. According to filings with the Registrar of Companies (RoC), one of the two directors of the company, Bindu Kapoor, is wife of Rana Kapoor, the founder and former MD and CEO of Yes Bank. The address curiously is that of the property previously owned by Gautam Thapar, the former promoter of CG Power and Industrial Solutions who was removed as company chairman over alleged financial irregularities. The property, now owned by Bliss Abode, is under the scrutiny of the Enforcement Directorate (ED), the agency that investigates money laundering cases, as also the Central Bureau of Investigation (CBI). The ED believes it has enough evidence to link purchase of this property to a larger 'scam' of quid pro quo between the then Yes Bank MD and CEO, Rana Kapoor, and corporate houses which took loan from Yes Bank.

Thapar's CG Power and Industrial Solutions had taken a loan of Rs 400 crore from Yes Bank by mortgaging the property. The ED alleges it was later purchased by Bliss Abode for Rs 380 crore. The agency also thinks that Bliss Abode was incorporated especially to buy the property and that it has no other economic activity. Bliss Abode is among the 30-odd 'shell' companies - which the ED says has established links with the scam - that the Kapoors floated to allegedly siphon off the kick-back money from corporate debtors of Yes Bank.

In a similar case, the CBI has filed an FIR against a dozen companies and people, including Rana Kapoor, his wife Bindu Kapoor and three daughters - Roshini, Rakhee and Radha - alleging criminal conspiracy to receive kickbacks of Rs 600 crore from DHFL in lieu of Rs 3,700 crore loan to the Kapil Wadhawan-promoted company. The kickbacks were in the form of builder loan to a company called DoIT Urban Ventures (India) Private Ltd. As per RoC filings for FY19, Doit Urban Ventures is a retail trading company which has two directors, Roshini Kapoor and Radha Kapoor Khanna. DoIT is fully owned by Morgan Credit Private Ltd, which in turn is equally (33.33 per cent) owned by the three Kapoor daughters.

Like most corporate frauds in India, the fall of Yes Bank is linked to alleged funds siphoning by promoters, allegedly through layers of 'shell' companies directly or indirectly controlled by the former promoter and his family.

Wading Through the Web

Morgan Credit, till June 30, 2019, held 3.03 per cent in Yes Bank. It now does not hold any Yes Bank share. Morgan Credit has three 100 per cent subsidiaries - DoIT Urban Ventures, DoIT Creations and Rurban Agriculture Ventures - and 22 indirect subsidiaries. An indirect subsidiary is one where the parent company may not have full control but enough interest to influence operations. Till FY17, DoIT Urban Ventures was a 100 per cent subsidiary of Rab Enterprises (India) Private Ltd, before it became a subsidiary of Morgan Credit.

Rab Enterprises has 16 subsidiaries including Bliss Abode Private Ltd, the Bindu Kapoor company that owns the Amrita Shergill Marg property, one of the many being probed by the ED. Bliss Villa (Delhi) Private Ltd, another 100 per cent subsidiary of Rab Enterprises with same directors as Bliss Abode, has its registered address at 18 Kautilya Marg, Chanakyapuri. This property is also under the ED scanner. Bliss Villa has the same directors as Bliss Abode Private Ltd - Bindu Kapoor and Ajita Potdar.

ED sources told BT that most of these 'shell' companies have no business activities to show and are a conduit to receive kickback money. The ED has zeroed in on several properties across Delhi, Mumbai, the UK, the US and France which it says were bought using the kickback money.

A look at finances of DoIT Urban Venture - being probed by the CBI for receiving Rs 600 crore from DHFL for getting a loan of Rs 3,700 crore sanctioned from the erstwhile Yes Bank MD and CEO - since FY16 shows a topsy-turvy financial performance. The company's primary business is retail trading. According to RoC filings, its turnover was Rs 34.5 crore in FY19, zero in FY18 and FY17 and Rs 55 lakh in FY16. However, its net worth continued to grow, from Rs 10.5 crore in FY16 to Rs 251 crore in FY19. During the same time, debt grew from Rs 30 crore in FY16 to Rs 600 crore in FY19.

Rab Enterprises shows a turnover of Rs 11.7 crore in FY18 and Rs 16.8 crore in FY19. Its net worth for both the years was negative Rs 52 crore (FY18) and negative Rs 97 crore. It had a debt of Rs 746 crore in FY19, down from Rs 1,217 crore in FY18.

Though these companies did not have much to show as turnover or business activities, they continued to receive money in the form of secured/unsecured loans, rights issue, etc. The loans they received were on the basis of sub-standard mortgages. The CBI, in its FIR against Rana Kapoor and family in the DHFL case, has noted that "loan of Rs 600 crore was sanctioned by DHFL to DoIT Urban Ventures (lndia) Private Limited on the basis of a mortgage of a sub-standard property having very meagre value and by considering its future conversion from agricultural land to residential land."

Ankit Singh, Partner, Corporate Professionals, says this is a very common method for siphoning off funds. "Create companies with minimum capital, and no or very little business activities, but use them as conduit for funneling out funds from a profitable public company for private use of the promoters," he says. The idea is to create a multi-layered web of companies, and transfer funds through these companies - owned directly or indirectly by the promoters - so that the real beneficiary is not get caught easily.

Gopal K. Kedia, a Delhi-based chartered accountant who has also been a technical judge in Income Tax Appellate Tribunal Mumbai, says there are so many layers of these shell companies that one cannot go till the last layer to identify the real beneficiary. "You cannot scratch the surface beyond a few layers," says Kedia. However, in case of the Kapoors, the disguise was not that perfect, and these transactions easily led to Rana Kapoor's family. A simple search would show there are around 40 companies in which Rana Kapoor's wife is a director. Roshni Kapoor is director in 22 companies, Rakhee Kapoor Tandon in 16 companies and Radha Kapoor Khanna in close to 18 companies. Many of these have similar names - Bliss Abode, Bliss Villa, DoIT Urban Ventures, DoIT Creations, Imagine Property, Imagine Home, etc - and many share the same address. For example, many are run from the same address: 15th Floor, Tower 2, Wing-A, One Indiabulls Centre Lower Parel, Senapati Bapat Marg, Elphinstone Road, Mumbai.

Regulatory Failure?

Yes Bank, being a listed company, needs to disclose not just its subsidiaries but related-party transactions too. A related party could be promoters, directors, key managerial personnel, subsidiaries or relatives of directors. In its FY19 annual report, the bank says "there were no materially significant transactions with related parties during the financial year which could lead to a potential conflict with the interest between the bank and these parties."

Sethurathnam Ravi, a chartered accountant and former BSE chairman, says the 'shell' companies owned by Rana Kapoor's family members did not qualify as related parties because their transactions never happened directly with Yes Bank. "They dealt with the borrowers (of Yes Bank), and hence never got qualified for related party transactions," he says

Though the government has tightened regulations for 'shell' companies, Kedia says the companies owned by the Kapoors did not qualify as shell companies because they filed returns with the RoC. But did the auditors also miss these transactions? Sources close to the company say while the auditors raised the issue with audit committees on some of the whistleblower allegations around September 2018, the auditors' scope of work did not require them to go deep enough into these allegations of kickbacks. So, the audit committee has asked for a forensic investigation of the kickback allegations; the report is yet to come. Whatever may be the explanation, it is a clear case of oversight at different levels.

@dipak_journo

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