The promoter and managing director of a Hyderabad-based company has been arrested under the anti-money laundering law in connection with a bank loan fraud of Rs 402 crore, where a consortium of public sector banks allegedly been cheated, the Enforcement Branch (ED) said Tuesday.
Avasarala Venkateswara Rao of Servomax India Private Limited (SIPL) was arrested on Monday.
He was brought before a special court on Tuesday which deals with cases brought under the Prevention of Money Laundering Act (PMLA). The court sent Rao into custody for 14 days.
The ED, in a statement posted here, said Rao was arrested “for engaging in the offense of money laundering and for causing a loss of approximately Rs 402 crore to a consortium of banks of the public sector by engaging in various fraudulent practices”.
The ED money laundering case was filed after learning of a 2018 FIR filed by the Central Bureau of Investigation (CBI) against the accused.
The ED said SIPL took loans from the consortium of banks and Rao was the promoter and the key management person who was responsible for all business operations.
“He engaged in fraudulent transactions and the loan amounts were not repaid and the consortium of banks suffered an NPA of Rs 402 crore.
“SIPL had distributed loan amounts to various related entities to inflate its books of accounts to become eligible for higher loans and had issued LCs (letters of credit) to related entities without any actual purchase of goods and which have ultimately devolved, causing losses of Rs 267 crore to the banks,” the agency said.
The ED said its investigation established that Rao engaged in “benami” dealings and “misappropriated” loan funds for personal gain.
“Rao used a network of more than 50 entities to route and layer the proceeds of crime.
“He did not cooperate during the investigation and did not provide documents from his own business entities under one pretext or another,” the ED alleged.
Once the loan accounts became non-performing assets (NPA), Rao used his own shell entity (with his employee as controlling manager) to initiate the CIRP (corporate insolvency resolution process) by “fraudulently” claiming to be a creditor by making false journal entries.
“He even managed to get his own person named as an IRP for some time. He also managed to retain the brand name ‘Servomax’ illegally and even during the CIRP he controlled the company’s website and misappropriated the work orders to its related entities,” the ED alleged.
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