Religare Finvest Ltd (RFL) on Sunday said Karnataka Bank’s decision to report the company’s loan as fraud to the Reserve Bank of India (RBI) is arbitrary and a violation of the principles of natural justice.
“…the decision seems to be arbitrary and contrary to RBI's directions. Classification of RFL’s account as fraud by Karnataka Bank is contrary to law and in complete violation of the principles of natural justice. No opportunity for a hearing was provided to RFL by Karnataka Bank before reporting a fraud in RFL’s account(s)," it said.
The company added that it will pursue all available remedies against the “unilateral action" of reporting fraud in RFL’s account.
On 5 June, private sector lender Karnataka Bank informed stock exchanges that it has reported four accounts, including Religare Finvest as fraud to RBI. The bank had said that the company has been dealing with the bank since 2014 and had availed various credit facilities under a consortium arrangement.
“The borrowing account was classified as non-performing asset on 30 October. On the basis of forensic auditor's report submitted to the consortium, some of the member banks have reported to the Reserve Bank of India regarding fraud in the borrowing account. Accordingly, we have reported to RBI a fraud amounting to ₹43.44 crore in the credit facilities extended earlier to the aforesaid borrowing account, on account of diversion of funds," the bank had said on 5 June.
Meanwhile, Religare Finvest said in its statement on Sunday that the company is itself a victim of fraud.
“RFL has not committed any fraud on any of its lenders, including Karnataka Bank. Pertinently, pursuant to a forensic audit, the Securities and Exchange Board of India (Sebi) in its interim order dated 14 March, 2019, found that funds have been diverted from RFL by the erstwhile promoters," it said.
According to Religare Finvest, it has also initiated various legal proceedings against its erstwhile promoters and their associates for restitution of funds siphoned away from RFL. Pursuant to initiation of such proceedings, the company said, erstwhile promoters and their associates have been arrested by the Economic Offences Wing, Delhi Police, as well as the Directorate of Enforcement.
“It appears that the mandatory procedure laid down by RBI in its master directions, for declaring an account as fraud, has not been followed by the bank," it said.
Mint had reported on 30 September, 2019 that a forensic audit of Religare Finvest Ltd ordered by the State Bank of India (SBI) has hinted at diversion of funds.