CBDT has been actively pursuing leads found in the actions taken against the J&K Bank and its erstwhile Chairman, Sh. Parvez Ahmad.  In another such follow-up action, a search and seizure operation has been conducted on a Group that is in the business of providing security to business establishments and prominent individuals, as well as in running hotels in Jammu &  Kashmir and other parts of the country.   The searched group also held a controlling share in a controversial Medical College in Punjab, which has been ordered to be closed by the Medical Council of India in 2014.  The allegations against the group include defrauding the public sector banks including J&K bank in connivance with the bank officials, unexplained cash deposits in the group entities and large scale diversion of funds taken for development of the impugned Medical College as well as hotels of the Group for private gain of the promoters.

The search action has revealed apparent siphoning of loans obtained from various public sector banks of more than ₹ 74 crore.  Digital and documentary evidences found during search also clearly reflect machinations of the bank officials in violating prudence norms as well as rules of business to safeguard the banks’ interest in grant of loans that exceed ₹ 200 crore. These loans have subsequently become NPAs.

The search action has   revealed   concrete leads of round tripping of more than ₹ 125 crore by the promoters of the Group.  The money trail of round tripping suggests use of suspect entities, which have served as a conduit to bring back ₹ 125 crore as unsecured loans in the hands of the promoter family and its close associates.

Clear evidences that establish a wilful attempt to mislead and defraud the financial institutions have also been unearthed in the search operation.  Few instances of such subterfuge are as follows;

(a)       A sale of a hotel land in Jammu & Kashmir to a family member of the main promoter, who is a man of no means for a paltry sum of ₹ 35 lakh. Subsequently, a lease rental of ₹ 1 lakh per month was debited in the books of account in favour of the dummy relative.  Hot pursuit enquiries with the dummy relation have shown him to be unaware of any of these financial transactions.  Also, the lease rental debited in the books of the Group has been layered and brought back in the books of account of the other Group entities.

(b)       Similarly, to obtain a large tranche of loan from the J&K Bank, the searched Group falsely claimed that 60 rooms of hotel being constructed by the Group at Mumbai had become operational and cash flow was being generated from such operations. The search party found that the hotel building in Mumbai was yet under civil construction and was nowhere near completion or in a shape wherein 60 rooms could be made operational to generate any cash flow to repay the loan.

The search team also found evidences of dummy manpower expenses. A large number of cheques issued to fictitious persons, who were supposedly on the rolls of the Group for providing security to businesses and prominent individuals, were found with the main promoter. Prima facie, dummy persons have been shown as employees to inflate the expenses of the security business undertaken by the Group at various locations in the country.

The main promoter and his family were the managing and controlling trustees of an educational society that ran the now closed Medical College in Punjab.  Three batches of students were admitted in the Medical College and fee, inclusive of capitation charges were paid by these students.  However, no tax return was ever filed by the society and the evidence gathered in the search strongly suggests that the impugned educational society also violated other regulatory laws. It is clear that the money collected from students as well as bank loans that were supposedly utilized for building infrastructure of Medical College, which was  actually never built or constructed has been siphoned off by the main promoter and his family for personal enrichment.

The search action has led to seizure of unaccounted jewellery and undisclosed cash of more than ₹ 1.28 crore from the promoter of the Group.

Financial fraud and loan siphoning revealed through searches showing round tripping, fabricated transactions and undisclosed asset seizures. A search and seizure operation uncovered documentary and digital evidence of loan siphoning, fund diversion, round tripping through promoter-linked conduit entities, fabrication of transactions (including nominal asset transfers and fictitious employees), false operational claims to obtain bank credit, diversion of educational society receipts, and seizure of undisclosed cash and jewellery, indicating alleged violations of prudential lending norms, asset concealment and tax compliance obligations.