The probe into the Rs 4,355-crore scam at the Punjab and Maharashtra Co-operative (PMC) Bank, which allegedly provided loans to the bankrupt Housing Development and Infrastructure Ltd (HDIL)and its subsidiaries despite ignoring their dismal financials, is expected to expand further. The Economic Offences Wing (EOW) of the Mumbai police may put auditors of the embattled realtor under the scanner, sources in the know told Mint.
Top directors in HDIL have already been arrested, but now the findings of the auditors in financial reports will be scrutinised as part of the investigations. Mumbai-based chartered accountant firm Rajeswari and Associates was the legal auditor of HDIL. "However, at present, the priority for EOW is to interrogate those arrested and get as much information from them," an official told the daily.
The role of an auditor is to ensure that its client firm adheres to all accounting principles. However, the auditors validate a company's financials based on information furnished by the client. The report is then submitted to shareholders and the board for risk assessment.
Last May, while submitting its report for FY18, the auditor noted that one of the units of HDIL, Guruashish Construction Pvt. Ltd, was referred to bankruptcy court by its lenders. "As a result thereof, the ability of this subsidiary to continue as a going concern is dependent upon the company's performance in terms of the resolution plan to be approved by NCLT," the auditor had stated. "However, in view of the large amount of debt of the company (HDIL), we are unable to express an opinion on the extent of repayment of the aforesaid debt of the company. The consequential effect of the above, on the consolidated financial results for the period ended 31 March 2018 is not ascertainable," it added.
The auditors of PMC Bank will reportedly also be scrutinised as they did not classify loans to HDIL as non-performing assets (NPA) as per RBI guidelines despite multiple payment defaults on the company's part. PMC Bank's cash reserves stand at around Rs 1,000 crore, which is well short of the loan given to HDIL. The bank allegedly replaced 44 loan accounts of the HDIL group with over 21,000 fictitious loan accounts, and thus camouflaged defaults by the group.
The PMC Bank fraud came to light after the RBI found irregularities at the bank and imposed restrictions on the lender. Former managing director of the bank, Joy Thomas, wrote a letter to RBI, detailing the chain of events which led to the bank's Rs 6,500 crore exposure to HDIL. This amount is four times greater than the regulatory cap or at least 73 per cent of PMC Bank's entire asset pool of Rs 8,880 crore.
The EOW has already registered an FIR against HDIL promoters Rakesh Wadhawan and his son Sarang Wadhawan as well as PMC Bank and Thomas after it found out that the bank did not report its exposure to HDIL for over six years. The Mumbai police has already arrested the Wadhawan duo, Thomas and former PMC Bank chairman Waryam Singh.
Citing potential audit lapses, PMC Bank was asked by the EOW to appoint a forensic auditor to revalidate its financials, money trails and audit reports. Grant Thornton has been hired by PMC Bank as a forensic auditor. Based on the Mumbai Police's FIR, the Enforcement Directorate has also registered an Enforcement Case Information Report against the erring officials.
Last week, EOW reportedly attached total assets worth around Rs 4,000 crore, of which around Rs 3,500 crore belong to HDIL and the Wadhawans. The ED separately has been conducting raids on locations associated with HDIL, and seized luxury cars and private jets belonging to the Wadhawans.
The father-son duo and Singh are scheduled to appear in a special EOW court in Mumbai on Wednesday, but the police is likely to seek extension of their custody.