The document summarizes a criminal complaint filed against First Leasing Company of India (FLCI) and its executives for financial fraud. An investigation revealed that FLCI had been falsifying its books for years, portraying a positive net worth when it actually had negative net owned funds and annual losses. Recast accounts showed receivables were overstated by Rs. 1672 crores. Top executives from FLCI, credit rating agencies, auditors are accused of colluding in the massive fraud and misuse of bank loans over Rs. 1100 crores. The RBI inspection uncovered the scam but both RBI and FLCI failed to publicly disclose the actual financial position.

1. FIRST LEASING FINANCIAL SCAM: A SCAM BIGGER THAN SATYAM
A criminal complaint has been presented before the Upper Chief Judicial Magistrate No.3, Jodhpur pursuant to which an F.I.R. has been registered with P.S. Mahamandir, Jodhpur bearing No. 580 dated 11.11.2013 against Dr. A.C.Muthiah, Chairman First Leasing Company of India Ltd. Chennai, Farouk Merwani Irani, Managing Director, Maharaja Jai Singh, Ex Director and Chairman Audit Committee and others including D.R. Dogra, Managing Director of Credit Analysis and Research Limited (CARE), its Deputy Managing Director Rajesh Mokashi, Brick Works Rating India Pvt. Ltd. And its Vice President Business Development K.C.Holla, partners of statutory auditors M/s Sarthy & Balu namely N.R.Sridharan and V. Balasubramanium and internal Auditors M/s M.K. Dandekar & Co. and its partners all related to First Leasing Company of India Ltd. as credit rating agencies, auditors etc. The F.I.R. has been filed under Section 420, 406, 467, 468, 471, 477A & 120 B of IPC read with Section 68, 217, 292 and 628 of Companies Act. It has been filed by one T.R. Bhandari who has been a share holder of the company pursuant to Reserve Bank of India inspection and directions issued to FLCI through its press release No. 2013-2014/563 issued under the signature of Alpna Killawala, Principal Chief General Manager wherein it has issued directions to FLCI barring it from compromising in any way its property and assets without proper written permission of RBI or declaring and distributing any dividend or transacting any business or incurring any further liabilities. The Reserve Bank of India in its letter No. DNBS (CHE)/512/13.23, .513/2013-14 dated September 13, 2013 addressed to the Managing Director, FLCI wrote to the company pursuant to an inspection of its accounts that “on the basis of the financial position of the company as disclosed in its balance sheet and other information submitted to the Bank from time to time the company was classified as a non-depositing accepting systematically important NBFC (NBFC-NDSI). The inspection revealed that the company has been, over several years, falsifying its books of accounts and other financial statements thereby portraying a positive net worth. The company has negative net owned funds and has been incurring losses year on year. The company has also been violating the Reserve Bank’s regulation and reporting false information in its regulatory returns.” It further says that “during the course of inspection it was disclosed that the company is going to declare dividend in the A.G.M. scheduled to be held on 18.09.2013. In view of the losses incurred by the company and erosion of the NOF of the company and its general financial condition, the Bank has issued directions, inter alia, directing the company not to alienate assets, incur further liabilities or declare or distribute any dividend until further orders”. It further says that, “please place this letter and the enclosed directions before the Board of Directors of the company and ensure strict compliance”. “Attention of the company “was” also invited to the provisions of Section 58B read with Section 58C of the Act, in terms of which, contravention of these “directions” would render the company and every Director and other officials of the company liable to penalties provided in the Act.” This harsh action of Reserve Bank of India was consequent to the inspection of books accounts and submission by the authorized signatory of First Leasing Company of India Ltd; the recasted accounts giving the actual financial position of the company which as per the documents available were for the kind attention of Mr. A. Madhawan, General Manager. As per the recast accounts based on “actual” figures it came out that against total receivables of Rs. 1901.6 crores as per the published balance-sheet the “actual realizable” figure was only Rs. 228.64 crores meaning thereby, that the books of accounts were so fabricated as to reflect false and non-existent receivable of Rs. 1672.52 crores. Net owned funds changed from positive of Rs. 363.94 crores to a negative of Rs.

2. 692.64 crores eroding completely the net worth of the share holders. Unfortunately, both Reserve Bank of India and the company have failed to disclose this huge financial scam immediately and transparently on its own after unearthing and thus allowing trading in the scrip to continue. Though the share price has fallen precipitously to about Rs. 13-14 consequent to the RBI’s press release. Small and gullible investors are getting trapped into this scrip by buying the same which is probably being unloaded on the market by the promoter group and its associates. It is interesting to note that there is an exposure of about Rs. 1100 crores of bank funds as per the recasted accounts the figure is Rs. 1168.45 crores lent by a consortium of banks. Besides this, there is a further exposure by way of commercial paper of Rs. 50 crores.
It is worth noting that a scam of such huge magnitude has been originated and perpetuated for years together despite regular Reserve Bank of India inspections, internal audit and external statutory audit by reputed firms of Chartered Accountants on a regular basis. Not only this, a man of the stature of Maharaja Jai Singh belonging to the Ex Royal family of Jaipur has been the Chairman of Audit Committee of the Board for years together in his capacity as a Board Member. Even rating agencies like CARE have been a part and parcel of this fraud. It is notable that FLCI was a promoter share holder of CARE and continued to be so for years together and sold its holding of a face value of Rs. 25 lacs for over rupees 50 crores of consideration only about two years ago. During all these years CARE continued to provide and publicize AA+ rating to the company on a regular basis. It defies all imagination that high profile promoters, Directors including A. Satish Kumar an IIM(A) alumni, rating agency and firms of Chartered Accountants all colluded to create and perpetuate such a massive fraud and siphoning off more than Rs. 12 billion of loan funds, besides the investors money right under the nose of Reserve Bank of India. It also speaks volumes about the due diligence of both nationalized and private banks who exposed themselves by such large amounts apparently without going into the details of receivables and earning streams by way of interest and lease rentals and a reconciliation thereof with the turn-over in the accounts of FLCI with them which is a basic requirement. It appears that under the blinding glare of supposedly high profile promoters and directors they got over awed and parted with public money which now it appears is impossible to recover. Or was it a case of collusion, only the police investigation will be able to reveal. How R.B.I. failed to uncover the scam for years together allowing it to balloon to such huge proportion despite inspections at regular intervals and why it has failed to publicly declare the recast accounts or lodge an F.I.R. of its own against the company and its officials for fabrication of accounts and fraud defies all logic. Probably it is one fit case after Satyam for a court supervised C.B.I. investigation.
The First Leasing Company of India (FLCI), as the name suggests, has been the promoter of the concept of leasing and front runner in leasing business in the country. It was promoted, as the company’s website says by Farouq Irani with the support of his industrialist friend Dr. AC Muthiah, about 3 decades ago. As per its Annual Reports, it continued to prosper and grow, albeit at a slow pace, but on supposedly very firm ground. It projected itself as a very conservative and safe NBFC. Farouq Irani, even wrote a book, ‘Inside Leasing’, on leasing business and was very active as India representative of leasing firms in international forums and was considered to be the father and doyen of leasing finance in India. He and the company also fought path breaking court cases relating to tax treatment of leasing

3. transactions in the country. As per the information available in public domain Dr. AC Muthiah (son of late MA Chidambram) belongs to the supposedly venerated industrialist family of south India, earlier known as MAC or MA Chidambram group. He is considered to be politically influential. He is also the first cousin of present union finance minister P. Chidambaram. He has been ex-president of BCCI and also remained Hon’ble Counsel to Belgium on behalf of the country for a long time. However, lately, he was terminated from this position by the Ministry of External Afffairs on a complaint by the Belgium Government of financial irregularities. Dr. AC Muthaia has been ex-president elect of FICCI too. However, he could never become its president, again due to alleged financial irregularities, while he was president of BCCI. He is Chairman/MD of a number of companies including SPIC.