An investigation by the Serious Fraud Investigation Office (SFIO), the government agency that probes white-collar crimes, had revealed that ex-promoters of Bhushan Steel - Brij Bhushan Singal and Neeraj Singal - have used illegal means to receive bank loans to the tune of Rs 45,800 crore between 2013/14 and 2016/17.
In the charge sheet filed by SFIO in the court, the government investigation agency has also accused both the ex-promoters along with other Bhushan Steel top executives including former CFO Nittin Johari of siphoning off funds from Bhushan Steel and Bhushan Energy for various purposes including purchase of movable and immovable properties.
The investigation reveals that funds were siphoned off through a web of 157 companies, which were directly or indirectly controlled by the Singals. Of the 157 companies, 62 of them were directly controlled by Brij Bhushan Singal and Neeraj Singal, while 85 others were operated through employees of Bhushan Steel and Bhushan Energy and eight others were run by entry operators on behalf of the Singals.
The SFIO probe suggests that due to promoters siphoning off funds, the company's financial health deteriorated and the company went into insolvency with outstanding liabilities of Rs 56,000 crore. The company was acquired by Tata Steel for a sum of Rs 47,500 crore under the Insolvency and Bankruptcy Code.
Both Brij Bhushan Singal, the founder of the group and his son Neeraj Singal transferred funds from Bhushan Steel and Bhushan Energy to its associated companies as capital advances. These companies through more layers of companies ultimately invested the fund in Bhushan Steel as promoters equity. The fund was routed through a web of companies to make it difficult to detect the origin of funds.
Between 2009/10 and 2010/11, Bhushan Steel and Bhushan Energy transferred Rs 1,770 crore through 32 associate companies controlled directly or indirectly by Singals. Out of this, Rs 1150 crore was transferred through another set of 19 associated companies into the bank account of Uma Singal, wife of Brij Bhushan Singal. This fund was then transferred as investment in Bhushan Steel against issuance of preference shares to the promoters.
Bhushan Steel and Bhushan Energy then transferred amount from the head Capital Advances to the head Capital Work In Progress in the year 2013-14 and 2014-15 in their books of account thus 'adjusting' the receivables from 32 associated companies. Between 2009/10 to 2014/15, these companies showed no expenditure or revenue or any execution of work in their financial statements.
Further to meet a cash flow shortfall between 2013/14 and 2015/16, Bhushan Steel needed loan of Rs 6,900 crore. To meet the requirements of the lenders, Singals used the siphoned off funds to the tune of Rs 800 crore to show capital being infused in the company by way of issuance of equity and preference shares.
The SFIO also found that the money paid in advance to some of Bhushan Steel's suppliers made their way into associated companies on the same day. For example, in one particular case, Bhushan Steel made an advance payment of Rs 27 crore to one of its service providers KNK Traders, which provided maintenance services. The amount was transferred on the same day to KBN Infra, a company controlled by Brij Bhushan Singal and Neeraj Singal.
The investigation also revealed that the promoters used Rs 37 crore of the siphoned off money to purchase properties in the name of partnership firm BN Associates in 2012-13. In another instance, Bhushan Steel paid rent of Rs 357 crore to nine associated companies directly controlled by the Singals between 2015 and 2018. The chargesheet says that while Bhushan Steel was bleeding, the promoters were buying properties through siphoned off funds and charging high rents from the company.
The Singals also incorporated companies abroad, which were controlled directly and indirectly through the associated companies. These companies bought materials worth Rs 1,700 crore from Bhushan Steel between 2013/14 and 2017/18. Investigation revealed Rs 85 crore was still not paid to Bhushan Steel by these companies.
Gaming the banks
The promoters inflated the Stock-in-Transit to avail Drawing Power against Cash Credit Facility. The promoters also misused letter of credit by enclosing fabricated documents (proforma invoice of Hindustan Zinc Limited and JSW) to avail loan from banks.
The investigation revealed that by using fake and fabricated documents, the Singals with the help of bankers and statutory auditors and other company staff managed to get a fund flow of up to Rs 45,818 crore between 2013/14 and 2016/17.
The SFIO probe accuses the board of directors, audit committee, key officials and statutory auditors of Bhushan Steel for performing their duties diligently.
The case is currently being heard in special court. Ranjana Roy Gawai of RRG & Associates law firm, which is representing the Singals and most of the main accused, when contacted, refused to make a comment saying that when a matter is sub-judice before a court of law, lawyer should refrain from making comments on the merits of the matter.