ED conducts search operations against Kwality Ltd promoters for ₹1,400 crore bank fraud
The Directorate of Enforcement (ED), Delhi Zonal Office, conducted extensive search operations on November 27, 2024, at 15 locations in Delhi and the National Capital Region (NCR) linked to the erstwhile Kwality Ltd and its former promoters and directors, Sanjay Dhingra and Siddhant Gupta. The searches also targeted shell companies associated with them.
New Delh-based Kwality Ltd went through corporate insolvency resolution process and was ordered to be liquidated in January 2021. Later it was acquired by Sarda Mines Pvt Ltd as going concern under the liquidation process.
The ED initiated investigations based on an FIR filed by the Central Bureau of Investigation (CBI), New Delhi, accusing the aforementioned individuals of defrauding a consortium of banks. Kwality Limited, once a prominent name in the processing and trading of milk, ice creams, and various dairy products, has been accused of falsifying and fabricating its financial records to misrepresent sales, purchases, debtors, and creditors. The alleged fraudulent activities resulted in a financial loss of ₹1,400.62 crore to the consortium of banks.
Details of the Investigation
The ED investigation revealed that the former promoters and directors of Kwality Limited orchestrated an elaborate scheme to manipulate the company’s financial records. Key findings include:
- Fabrication of Financial Records
- The company inflated its sales and accounts receivable by recording fictitious transactions without any actual physical delivery or receipt of goods.
- False entries were made in the books of accounts to present a misleading financial position to the banks.
- Use of Sham Companies
- Several shell entities and firms, managed by dummy or planted owners, were used to channel funds and apply for loans. These entities were operated by either Kwality Limited employees or associates of its directors.
- The receivables against credit sales were artificially inflated, with many purported debtors being bogus entities controlled by insiders.
- Fund Diversion and Money Laundering
- The diverted funds were layered and circulated through multiple accounts to obscure their origin.
- These funds were ultimately used for purposes unrelated to the loans, often benefiting the promoters directly.
Seizures and Freezing of Assets
During the search operations, ED unearthed significant evidence of financial irregularities and assets acquired through the fraudulent proceeds. Key recoveries and actions include:
- Cash Seizures: ₹1.3 crore in cash was seized from the premises.
- High-End Luxury Cars: Vehicles such as Porsche, Mercedes, and BMW, worth approximately ₹4 crore, were found to be purchased in the names of shell companies.
- Investments: Demat accounts holding investments valued at ₹2.5 crore were frozen.
- Evidence of Shell Companies: Documents revealed that several shell companies were managed by drivers and employees of the promoters, with these entities holding significant assets.
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