Bank loan fraud: ED arrests MD of Hyderabad firm

The ED case of money laundering was filed after taking cognisance of a 2018 FIR lodged by the CBI

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 was allegedly cheated, the Enforcement Directorate (ED) said on Tuesday.

Avasarala Venkateswara Rao of Servomax India Private Limited (SIPL) was arrested on Monday.

He was produced before a special court that deals with cases lodged under the Prevention of Money Laundering Act (PMLA) on Tuesday. The court sent Rao to judicial custody for 14 days.

The ED, in a statement issued here, said Rao was arrested "for indulging in the offence of money laundering and for causing a loss of around Rs 402 crore to a consortium of public sector banks by indulging in various fraudulent practices".

The ED case of money laundering was filed after taking cognisance of a 2018 FIR lodged by the Central Bureau of Investigation (CBI) against the accused.

The ED said SIPL had taken loans from the consortium of banks and Rao was the promoter-cum-key managerial person who was responsible for the entire business operations.

"He indulged in fraudulent transactions and the loan amounts were not repaid and the consortium of banks suffered an NPA of Rs 402 crore.

"SIPL had circulated 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 real purchase of goods and which ultimately devolved, causing losses of Rs 267 crore to the banks," the agency said.

The ED said its probe established that Rao indulged in "benami" transactions and "diverted" loan funds for personal benefits.

"Rao used a web of more than 50 entities to route proceeds of crime and layer the same.

"He was non-cooperative during the investigation and was not supplying documents of his own business entities on one pretext or the other," the ED alleged.

Once the loan accounts became non-performing assets (NPAs), Rao used his own shell entity (with his employee as its controlling director) to initiate the CIRP (corporate insolvency resolution process) by "fraudulently" declaring it to be a creditor by passing bogus journal entries.

"He even managed to get his own person appointed as IRP for some time. He has also managed to retain the brand name of 'Servomax' illegally and even during the CIRP, he controlled the website of the company and diverted work orders to his related entities," the ED alleged.

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