Fraud in Bhushan Steel

1. Bhushan Steel

2. • Eldest son of Brij Bhushan Singhal, also ranked among India's richest 100, Neeraj
Singhal, the promoter and former managing director of Bhushan Steel Ltd has
been arrested by the Enforcement Directorate, followed by a search operation at
his residence in connection with its probe in a bank fraud case of Rs 56,000 crore.

3. • An investigation by the Serious Fraud Investigation Office (SFIO), the government
agency that probes white-collar crimes, had revealed that ex-promoters of Bhushan
Steel - Brij Bhushan Singal and Neeraj Singal - have used illegal means to receive
bank loans to the tune of Rs 45,800 crore between 2013/14 and 2016/17.
• In the charge sheet filed by SFIO in the court, the government investigation agency
has also accused both the ex-promoters along with other Bhushan Steel top
executives including former CFO Nitin Johari of siphoning off funds from Bhushan
Steel and Bhushan Energy for various purposes including purchase of movable and
immovable properties.

4. • According to the ED, its investigation has revealed that all
accused, including Sanjay Singal, diverted huge amount of
funds out of loans taken by Bhushan Steel from 33 banks and
financial institutions between 2007 and 2014. These funds were
used for creating assets (including equity investment in BPSL
and movable and immovable properties in Delhi and London) in
the name of companies controlled by Sanjay Singal, the ED
said.
• It has been alleged that the firm was used by Sanjay Singal to
fraudulently divert huge amount of bank funds through
companies, shell companies and entities.

5. • They did not use the bank loans for the purpose for which they were
sanctioned, committed forgery for the purpose of cheating, used
forged documents and falsified the accounts causing wrongful loss to
the lending banks, financial institutions, government exchequer and
corresponding wrongful gain to themselves
• The investigation reveals that funds were siphoned off through a web of 157
companies, which were directly or indirectly controlled by the Singals. Of the 157
companies, 62 of them were directly controlled by Brij Bhushan Singal and Neeraj
Singal, while 85 others were operated through employees of Bhushan Steel and
Bhushan Energy and eight others were run by entry operators on behalf of the
Singals.

6. • The SFIO probe suggests that due to promoters siphoning off funds, the
company's financial health deteriorated and the company went into insolvency
with outstanding liabilities of Rs 56,000 crore. The company was acquired by
Tata Steel for a sum of Rs 47,500 crore under the Insolvency and Bankruptcy
Code.

8. • Both Brij Bhushan Singal, the founder of the group and his son Neeraj Singal transferred
funds from Bhushan Steel and Bhushan Energy to its associated companies as capital
advances. These companies through more layers of companies ultimately invested the
fund in Bhushan Steel as promoters equity. The fund was routed through a web of
companies to make it difficult to detect the origin of funds.
• Between 2009/10 and 2010/11, Bhushan Steel and Bhushan Energy transferred Rs 1,770
crore through 32 associate companies controlled directly or indirectly by Singals. Out of
this, Rs 1150 crore was transferred through another set of 19 associated companies into
the bank account of Uma Singal, wife of Brij Bhushan Singal. This fund was then
transferred as investment in Bhushan Steel against issuance of preference shares to the
promoters.

9. • Bhushan Steel and Bhushan Energy then transferred amount from the head
Capital Advances to the head Capital Work In Progress in the year 2013-14
and 2014-15 in their books of account thus 'adjusting' the receivables from 32
associated companies. Between 2009/10 to 2014/15, these companies
showed no expenditure or revenue or any execution of work in their financial
statements.

10. • Further to meet a cash flow shortfall between 2013/14 and 2015/16, Bhushan
Steel needed loan of Rs 6,900 crore. To meet the requirements of the lenders,
Singals used the siphoned off funds to the tune of Rs 800 crore to show
capital being infused in the company by way of issuance of equity and
preference shares.

11. • The SFIO also found that the money paid in advance to some of Bhushan
Steel's suppliers made their way into associated companies on the same day.
For example, in one particular case, Bhushan Steel made an advance
payment of Rs 27 crore to one of its service providers KNK Traders, which
provided maintenance services. The amount was transferred on the same day
to KBN Infra, a company controlled by Brij Bhushan Singal and Neeraj Singal.

12. • The investigation also revealed that the promoters used Rs 37 crore of the
siphoned off money to purchase properties in the name of partnership firm BN
Associates in 2012-13. In another instance, Bhushan Steel paid rent of Rs
357 crore to nine associated companies directly controlled by the Singals
between 2015 and 2018. The chargesheet says that while Bhushan Steel was
bleeding, the promoters were buying properties through siphoned off funds
and charging high rents from the company.
•

13. • The Singals also incorporated companies abroad, which were controlled
directly and indirectly through the associated companies. These companies
bought materials worth Rs 1,700 crore from Bhushan Steel between 2013/14
and 2017/18. Investigation revealed Rs 85 crore was still not paid to Bhushan
Steel by these companies.

14. • The promoters inflated the Stock-in-Transit to avail Drawing Power against
Cash Credit Facility. The promoters also misused letter of credit by enclosing
fabricated documents (proforma invoice of Hindustan Zinc Limited and JSW)
to avail loan from banks.
• The investigation revealed that by using fake and fabricated documents, the
Singals with the help of bankers and statutory auditors and other company
staff managed to get a fund flow of up to Rs 45,818 crore between 2013/14
and 2016/17.

15. • The SFIO probe accuses the board of directors, audit committee, key officials
and statutory auditors of Bhushan Steel for performing their duties diligently.
• The case is currently being heard in special court. Ranjana Roy Gawai of
RRG & Associates law firm, which is representing the Singals and most of the
main accused, when contacted, refused to make a comment saying that when
a matter is sub-judice before a court of law, lawyer should refrain from making
comments on the merits of the matter.