ED raids 17 locations in HDIL-Yes Bank case

The Directorate of Enforcement (ED) has said that it has conducted search operations at 17 locations across Mumbai and Delhi in connection with an ongoing money laundering investigation linked to the Housing Development and Infrastructure Ltd (HDIL)-Yes Bank case, uncovering evidence of alleged loan diversion, circular transactions and irregular acquisition of distressed assets.

The searches were carried out under the provisions of the Prevention of Money Laundering Act (PMLA), 2002. According to the agency, the premises covered during the operation included the offices of Suraksha Asset Reconstruction Company Ltd (SARCL), Suraksha Realty Ltd, Khyati Realtors Pvt Ltd, and other individuals and entities connected to the investigation.

The action stems from an Enforcement Directorate probe initiated on the basis of an FIR registered by the Central Bureau of Investigation's Anti-Corruption Branch against Housing Development and Infrastructure Ltd (HDIL) and others for allegedly obtaining loans amounting to Rs 200 crore illegally and diverting the proceeds.

According to the ED, its investigation has revealed that HDIL promoters Rakesh Kumar Wadhawan and Sarang Wadhawan, allegedly acting in conspiracy with Rana Kapoor, former Managing Director and Chief Executive Officer of Yes Bank, fraudulently secured six term loans aggregating approximately Rs 200.30 crore in the name of Mack Star Marketing Pvt Ltd (MSMPL) during 2011-16.

The agency alleged that instead of being utilised for the sanctioned purpose, the loan proceeds were diverted towards repayment of liabilities of HDIL group entities.

The probe further found that several properties owned by MSMPL were allegedly alienated to associates of the accused persons.

The ED claimed that subsequent investigations uncovered the role of Rana Kapoor in facilitating the diversion of MSMPL loan proceeds to settle HDIL liabilities.

The agency alleged that Kapoor also caused the premature assignment of the MSMPL loan account to Suraksha ARC, a move that investigators suspect was aimed at "evergreening" the stressed exposure.

Evergreening refers to the practice of extending or restructuring loans to conceal the deterioration in asset quality and prevent accounts from being classified as non-performing assets.

The ED further alleged that during financial years 2017-18, Suraksha ARC acquired a substantial portion of stressed assets assigned by Yes Bank, including the MSMPL loan account.

At the same time, investigators found that Yes Bank had extended credit facilities to various entities belonging to the Valia Group. The agency suspects that these funds were utilised, either directly or indirectly, to meet cash margin requirements associated with the acquisition of these loan accounts by Suraksha ARC.

The ED said investigators also noticed "certain other irregularities" during the course of the probe, although it did not elaborate on the nature of those findings.

During the search operations, the agency seized:

• Cash amounting to Rs 50 lakh
• 10 kilograms of silver bars
• Bank lockers
• Several incriminating documents and materials
• Digital devices considered relevant to the investigation

The ED said the evidence collected so far points to a series of circular transactions among group entities.

According to investigators, these transactions involved, among other things, Yes Bank loans being camouflaged as cash margin payments by the asset reconstruction company, enabling what the agency described as the liquidity- and interest-neutral acquisition of stressed assets.

The findings indicate that investigators are examining whether financial arrangements among borrowers, lenders and entities involved in distressed asset acquisitions were structured in a manner that masked the true source and end use of funds.