As investigative agencies tighten their grip not only on defaulting companies but also the lenders, the Serious Frauds Investigation Office (SFIO) has issued notices to 17 banks that lent money to the now-defunct Kingfisher Airlines after they themselves borrowed from banks, reported Financial Express citing sources.
The SFIO, limited to investigating frauds relating to a company under the Companies Act, has asked the 17 companies to disclose the source of the funds given to Kingfisher. The agency is investigating movement of the loan money from one company to another.
"These companies which are not Non Banking Finance Companies (NBFC) have borrowed money from the banks and lent to Kingfisher Airlines," reported FE.
The SFIO probe has allegedly found instances of "corporate misgovernance" at Kingfisher Airlines.
Enforcement Directorate's (ED) probe
In another ongoing probe of alleged suspicion of money laundering by the Enforcement Directorate (ED), the 17 lender banks were asked to explain why they agreed to convert around 20 percent of their loan into equity at a time when the carrier was faltering, the Times of India reported.
The daily, citing sources, said the decision, taken when KFA was facing financial trouble, amounted to a virtual write-off.
A report by accounting firm EY that suggested that KFA paid more money than others to lease aircraft was being looked into to verify whether funds lent by banks found their way into other projects or not, reported ToI. The CBI is also investigating the matter. It was in fact an audit ordered by the banks themselves, following which, several of them started the process of declaring KFA a "wilful defaulter."
At the end of 2010, lenders led by the SBI had restructured loans of Rs 8,000 crore, including converting around Rs 650 crore into preference shares, which were later to be turned into equity when the now-defunct airline was listed overseas. And another Rs 850 crore was converted into redeemable shares, the daily reported.
Questions were raised about the need to restructure the loans afresh. In particular, pricing of the debt conversion was a big area of concern but bankers had brushed it aside saying they had followed the SEBI-prescribed formula.