The ED has arrested the MD of Servomax India in a Rs 402 crore fraud case.
New Delhi: The Enforcement Directorate (ED) announced on Tuesday that Avasarala Venkateswara Rao, Promoter and Managing Director of Hyderabad-based Servomax India Private Limited (SIPL), had been arrested for alleged money laundering offences.
Rao was arrested on Monday for money laundering and inflicting a loss of roughly Rs 402 crore on a consortium of public sector banks by engaging in various fraudulent acts, according to the Prevention of Money Laundering Act (PMLA), 2002.
The ED launched an investigation after the Central Bureau of Investigation (CBI) filed an FIR against SIPL on February 2, 2018, alleging multiple violations of the Indian Penal Code.
SIPL had taken loans from a consortium of banks, and Avasarala Rao was the promoter and key managerial person responsible for the entire business operations. He engaged in fraudulent transactions, and the loan amounts were not repaid, resulting in a non-performing asset of Rs 402 crore for the consortium of banks.
SIPL had distributed loan amounts to numerous linked organisations to inflate its books of accounts so that it could be eligible for larger loans, and had given LCs to related entities without making any actual purchases of products, according to the ED, which resulted in bank losses of Rs 267 crore.
Rao was found to be engaging in Benami transactions regularly and had diverted loan funds for personal gain, according to the ED inquiry.
"He has 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 stated.
Rao was utilising his shell corporation (with his employee as controlling director) to start the CIRP (Corporate Insolvency Resolution Process) process by fraudulently designating it as a creditor bypassing phoney journal entries once the loan accounts became NPA.
According to the ED, Rao was able to appoint his IRP for a while. "Rao has also managed to retain the brand name of "Servomax" illegally, and even during the CIRP process, he controlled the website of the company and diverted work orders to his related entities."
Rao was detained for money laundering under the provisions of the PML Act 2002 and appeared before the PMLA Special Court in Hyderabad on Tuesday, based on the investigation completed to date and the material evidence on record. He has been remanded in judicial custody for 14 days.