New affidavit in Indiabulls case accuses Yes Bank of dubious loans of thousands of crores

An affidavit in the Delhi High Court accused Yes Bank of disbursing dubious loans worth thousands of crores to Indiabulls group companies. In turn, the affidavit stated, Indiabulls Housing Finance Limited lent over Rs 2,000 crore to companies controlled by Bindu Kapoor, the wife of Yes Bank’s promoter, Rana Kapoor, and by their daughters. Raajessh Kashyap / Hindustan Times / Getty Images
25 November, 2019

In an affidavit submitted to the Delhi High Court, the Citizens Whistle Blower Forum stated that Yes Bank, a private-sector lender founded by Rana Kapoor, advanced “dubious” loans amounting to at least Rs 5,698 crore to various companies of the Indiabulls group and others owned by its founder and promoter, Sameer Gehlaut. Publicly available documents reveal that many of these loans were issued after the respective companies had reported a negative net worth. The affidavit stated that “in order to return the favour,” Indiabulls Housing Finance Limited (IHFL), the flagship of the Indiabulls group, lent a sum of Rs 2,034 crore to seven companies owned, directly or through subsidiaries, by family members of Rana Kapoor, who is also the promoter of Yes Bank.

The affidavit noted that 14 companies part of the Indiabulls group received loans from Yes Bank. In effect, the affidavit accused Yes Bank of lending money over the course of a decade while Rana was at its helm, and stated that in turn, IHFL routed money into companies controlled by Bindu Kapoor, Rana’s wife, and their daughters, Radha, Rakhee and Roshni—as a result, converting public money into private wealth.

Gagan Banga, the vice chairman and managing director of IHFL, told me that ten of the 14 companies are owned by Gehlaut and have no other connection to the Indiabulls group. The other four companies—Indiabulls Housing Finance, Indiabulls Ventures, Indiabulls Distribution Services and Indiabulls Consumer Finance—are part of the Indiabulls group. According to the figures in the affidavit, Yes Bank lent at least Rs 2,698 crore to the ten firms owned by Gehlaut and Rs 3,000 crore to the four Indiabulls companies. The Indiabulls group has submitted its response to the allegations, accusing the petitioners of “misleading” the court and noting that as of 21 October, only Rs 1,417 crore was outstanding, while the rest had been paid back.

The Citizens Whistle Blower Forum is a civil-society collective that provides a platform to whistleblowers and litigates on their behalf. It submitted this affidavit in an ongoing public interest litigation, which it had filed in early September. The PIL had stated that IHFL disbursed loans via similar circuitous routes to several large business groups. These included the Reliance Anil Dhirubhai Ambani Group, and real-estate powerhouses such as the DLF Group, the Vatika Group and the Chordia Group. Cumulatively, the PIL and the affidavit accuse the Indiabulls group of disbursing questionable loans to the tune of over Rs 11,000 crore.

The CWBF submitted the affidavit before the Delhi high court on 31 October, after the petitioners “received certain more information” about the transactions between Indiabulls and Yes Bank. However, the forum had made the same allegations in an earlier submission to the court. In response to the original PIL, the Indiabulls group had denied the allegations, and filed an application seeking the initiation of perjury proceedings against the CWBF. On 22 October, as part of its reply to the perjury application, the forum had first raised the allegations concerning Yes Bank and Rana Kapoor. The next day, the Indiabulls group filed a rejoinder to that application, in which it also responded to these allegations.

The CWBF affidavit, which substantiates on the allegations in its reply to the perjury application, stated that in the decade between the financial years 2009–10 and 2018–19, Yes Bank extended a “huge and steady” line of credit to 14 entities linked to the Indiabulls group. Many, but not all, of these entities are shell corporations, the affidavit noted, describing them as “companies with negative net worth, no income from business operations and huge amount of accumulated losses.”

Banga, the CEO of IHFL, denied that all of them were a part of the Indiabulls group, and that any of them were shell corporations. When I asked him how the companies qualified for loans, given their poor financial health, Banga dismissed my query. “That does not matter because the loans are secured—secured by the personal assets and personal guarantee of Sameer,” he said, referring to Gehlaut. He added that Gehlaut’s “personal worth today is in the range of ten-odd thousand crores, and he is quite capable.” An email from a company spokesperson similarly noted, “These companies derive their strength from direct 100% ownership of Sameer Gehlaut, a man of means with personal assets of over Rs. 15,000 crore.”

The affidavit detailed the alleged money flow from Yes Bank to the Indiabulls group and Gehlaut-controlled companies. For instance, it noted that IHFL had received a total of Rs 850 crore—including a sum of Rs 750 crore in the financial year 2018–19 alone. According to the affidavit, Indiabulls Ventures, the group’s­ financial-services company, received Rs 50 crore in the financial year 2011–12, whereas its wholly owned subsidiary, Indiabulls Consumer Finance Limited received a sum of Rs 2,100 crore over the financial years 2017–18 and 2018–19.

The affidavit also noted that Yes Bank had lent large amounts of money to other companies, owned by Gehalut. Bobinar Infrastructure received Rs 310 crore; Keysha Mining received Rs 190 crore; Paidia Softinfo received Rs 150 crore; Chakrika Properties received Rs 200 crore; Tupelo Land Development received Rs 375 crore; and Tupelo Construction received Rs 335 crore.

The affidavit recorded huge loans given out to companies that matched its description of shell corporations. For instance, it stated that Airmid Aviation Services Limited is a loss-making company with a negative net worth, but it received Rs 245 crore from Yes Bank in the financial year 2016–17. An Indiabulls spokesperson told me that Airmid’s primary business was leasing private jets. Similarly, Paidia Conconnection Private Limited, which also has a negative net worth, according to the affidavit, as well as no income from its business operations, received Rs 408 crore from Yes Bank during the financial years 2014–15 and 2016–17.The affidavit also noted that two other such entities, Gomini Properties Limited and Vishwamukha Properties Private Limited, received Rs 315 crore and Rs 170 crore, respectively.

According to the Indiabulls group’s rejoinder, all the loans have been repaid in full except for the amounts lent to the two Indiabulls companies and to Airmid Aviation. The rejoinder noted that a total of Rs 1,417 crore is left to be repaid from these three companies.

Publicly available documents with the ministry of corporate affairs confirm that the ten companies owned by Gehlaut have repaid the loans in full. They also note that many of these companies had a negative net worth, meaning their liabilities were greater than their assets, when these loans were issued. The net worth is one of the parameters that indicates a company’s financial health, and banks usually use it to ascertain whether a firm is eligible for loans—a positive net worth indicates a successful business. Several of the companies listed in the affidavit reported a negative net worth before they received the loans. For instance, Yes Bank granted Paidia Softinfo a loan of Rs 50 crore in the financial year 2017–18, at a time when its reported net worth in the previous year stood at negative eleven crore. In the same time period, Gomini Properties received a loan of Rs 115 crore, and the previous financial year, it reported a net worth of Rs 5.75 crore. Similarly, Yes Bank lent Rs 245 crore to Airmid Aviation in 2015–16, after the company recorded a negative net worth of Rs 16.53 crore.

According to the MCA documents, most of these loans were secured with the current assets and moveable fixed assets of the respective companies. For five of them—Bobinar, Keysha, Gomini, Paidia Softinfo and Paidia Conconnection—the listed securities also mentioned, “Irrevocable and unconditional personal guarantee of Mr Sameer Gehlaut.” Banga, on the other hand, had told me that the loans to the ten companies outside the Indiabulls group were secured with Gehlaut’s personal guarantee. The Indiabulls group’s corporate communications team refused to share Gehlaut’s phone number or email address. An email sent to the address listed with the Bombay Stock Exchange was returned undelivered. I also emailed an address with a slight variation from the one listed on the BSE, but did not receive a response by the time this story was published.

The affidavit noted that in turn, IHFL lent Rs 2,034 crore to seven firms owned directly or via subsidiaries by members of Rana Kapoor’s family. None of these firms filed the relevant paperwork for these loans with the ministry of corporate affairs and many of them did not disclose them transactions in their annual reports, according to the affidavit. It further stated that “in certain transactions the name of the lending company i.e. IBHFL is not disclosed but the petitioner has confirmed the same from unimpeachable sources that the lending company is IBHFL.”

Among the seven companies, Rab Enterprises (India) Private Limited, a firm owned by Bindu Kapoor, received the largest loan, a total of Rs 735 crore. According to the affidavit, three subsidiaries of Rab—all of which are operating at losses without any fixed assets—received loans as well. Bliss Habitat, which recorded a total loss of Rs 15.47 lakh as on 31 March 2017, is stated to have received Rs 200 crore; Imagine Realty, which had a loss of Rs 64,921 as on 31 March 2016 and had no income from its business operations, received Rs 225 crore according to the affidavit; and Bliss Abode, which was operating under a loss of Rs 1.40 crore as on 31 March 2018 and also had no income from its business, is said to have received a loan of Rs 375 crore.

Morgan Credits Private Limited, which is a promoter group company of Yes Bank, received Rs 300 crore according to the affidavit. It also noted that the company is owned by “Radha, Raakhee and Roshni Kapoor,” who are Rana’s daughters. The affidavit further stated that two subsidiaries of Morgan Credits, Doit Urban Ventures (India) Private Limited and Doit Creations (India) Private Limited received Rs 30 crore and Rs 169 crore, respectively.

An Indiabulls spokesperson wrote in an emailed response that the loans to the seven companies “were granted in the normal course of business.” The email stated that these loans were “fully Secured Against Prime Assets.” The spokesperson further noted, “The figures provided by the petitioners of Rana Kapoor’s family loans secured by mortgage of properties are again wrong and incorrect, no attempt has been made by petitioners to check the exact figures and provide a true picture.”

The spokesperson referred me to Indiabulls’ rejoinder, but even that did not provide any specific figures about the loans to Rana’s family’s companies. It noted that some of the loans “are already paid back in full.” It also added, “All outstanding loans are standard loans, regular in their payment of instalments and no interest or principal instalments are pending in any of their accounts.”

The Indiabulls rejoinder also referred to a statement made by Ravneet Gill, who took over from Rana as Yes Bank’s CEO in January this year. In early October, during an interview with the media, Gill had said, “We feel 100% comfortable with our Indiabulls exposure.” Indiabulls submitted that Gill’s statement “holds great credibility” and argued that the CWBF had “deliberately suppressed” this information in its affidavit.

Gill succeeding Rana is likely to have taken place because of increasing troubles for Yes Bank in the past few years. An October 2019 profile of Rana Kapoor in Outlook Business noted that Yes Bank has “high exposure” to several “hard pressed” companies such Reliance ADAG, Dewan Housing and Essar Shipping. According to the article, in 2016, under Rana’s leadership, Yes Bank had reported non-performing assets of just under one percent, while its corporate exposure stood as high as 65 percent. But when the Reserve Bank of India tightened its scrutiny of bad loans in the banking sector, it turned out that Yes Bank was misreporting its bad loans. The article noted that in the financial year 2016, “the non-performing loans, or gross NPAs, were assessed at Rs 4,900.25 crore, while the official number reported was a much smaller Rs 749 crore or a divergence of Rs 4,176 crore! For the following fiscal, the divergence was a whopping Rs 6,355 crore.” In a recent filing with the Bombay Stock Exchange, on 19 November, Yes Bank reported a divergence of Rs 2,299 crore in its net NPAs.

A report in Mint from earlier this year stated that Gill was keen to distance Yes Bank from Rana’s influence, and was looking to replace the entire top management. The article noted that this included some of Rana’s close aides, in order “to remedy corporate governance lapses, and lax risk management that were pointed out by the central bank.” In 2018, the RBI had raised issues of corporate misgovernance and flagged the bank’s “highly irregular” credit-management practices. In June that year, the RBI denied Yes Bank’s request for a three-year extension for Rana and asked the lender to draw up a succession plan.

The affidavit noted that transactions surrounding Indiabulls, Yes Bank and their respective promoters, Gehlaut and Kapoor, followed close on the heels of scams involving other financial companies, such as ICICI Bank, IL&FS, and Dewan Housing Finance Limited. “It illustrates how promoters and persons in charge of large NBFCs have looted public monies invested in them and siphoned off them to their own companies using shell companies,” the affidavit stated. “In this process, huge amount of public money involving lakhs of crores is being looted. It is submitted that the clout of the promoters of these companies is such that the regulators have closed their eyes to these frauds happening right under their nose.”

The alleged modus operandi of the loans surrounding the Indiabulls group, as stated in the original PIL and the supplementary affidavit, have largely remained the same, though the route of the transactions differed in the latter. In the former, the Indiabulls companies were said to have borrowed large sums of money from various public and private banks and then diverted them to firms owned by large conglomerates through a maze of shell companies. In turn, the PIL noted, these conglomerates invested in entities owned by the promoters of Indiabulls, including its founder and chairperson, Sameer Gehlaut—a politically connected man, according to a September 2019 report by NewsClick. In the case of the loans to Yes Bank, the private lender is accused of lending money to the Indiabulls group’s and Gehalut’s companies, while IHFL gave large sums of money to companies owned by Rana’s family members.

Rana Kapoor did not respond to multiple calls and messages seeking his response. Krunal Mehta, the head of corporate communications at Yes Bank, directed me to speak to Swati Singh, a member of his team. Singh could not be reached for a comment despite multiple calls and messages. The case is listed for its next hearing on 29 November.