Ex SEBI head, Cops are shareholder-directors of firm under Income Tax's radar

Mumbai: Former head of Securities and Exchange of India (SEBI) and former Mumbai police commissioner, GN Bajpai and MN Singh, respectively, are shareholder directors of Invent ARC Pvt Ltd, which has come under the Income Tax department's radar, The Indian Express (TIE) reported.

The firm is one among the four asset reconstruction companies (ARC), which have come under the tax authorities' watch for their illegal practices to acquire the non-performing assets (NPA) from lender banks, TIE found from Income Tax Department records.

According to the department, Invent ARC has done transactions of Rs 20,000 crore, and only 20% of it was sent to the respective bank as recoveries from NPAs.

Bajpai is the chairperson of a working group that tracks the outcomes under the Insolvency and Bankruptcy Code, 2016. The group also suggests policy changes to the Insolvency and Bankruptcy Board of India (IBBI).

When TIE contacted Bajpai, he responded that he is just a non-executive director of Invent ARC and does not involve in its daily activities. But MN Singh refused to comment and added that the Income Tax department had issued a press handout.

The ARC, set up in 2005 and initiated operations in 2009, has shareholders including Atul Kumar Gupta with 74% stake, GN Bajpai 11.5% and MN Singh 11.5 %. The company's annual report for the financial year (FY) 2021 states that it recorded Rs 10,001 against the Rs 5.01 lakh the year before.

Revenue from operations was stated as Rs 4.73 lakh for FY 2021 against Rs 12.87 lakh in the year before. The company's FY 2021 report says that it urges banks to appoint itself as their Enforcement cum Recovery agents under the SARFAESI Act. Also, their Debt Recovery Tribunal (DBT) receivers are in cases pending in the DRT.

On December 8, the Income Tax department did raids on 60 premises related to the four ARCs they put under scanner, namely Invent ARC, CFM Asset Reconstruction Pvt Ltd, Omkara Assets Reconstruction Pvt Ltd and Rare Asset Reconstruction Pvt Ltd.

The department had seized around four crores in cash and unearthed the illegal nexus between borrower groups and ARCs. It found that the ARCs acquired NPAs for amounts that were significantly less than the actual value of the collateral securities covering those NPAs.

The department alleged that ARCs paid out the lender banks for acquiring the recovered assets with funds issued by borrower groups through many layers of dummy companies or by hawala channels, which were evident from detailed diary entries.

The ARCs disposed of the assets they acquired from banks in a non-transparent way; meanwhile, the borrowing group re-acquired the 'recovered' assets for a fraction of its actual values. The ARCs concealed their profits on disposal of the assets to evade tax payments, and consequently, the lender banks didn't receive their real share of profits, the tax authority said.