India's Enforcement Directorate (ED) says it has attached assets worth the equivalent of US$22 million in a fraud case involving letters of credit (L/Cs) that were devolved despite an agreement that they would not be.

The case centres on alleged fraud at government-owned State Trading Corporation (STC) in respect of its dealings with Future Metals and Future Exim India, the two companies that have had their assets attached.

Trade facilitation

STC is an international trading house owned by the Indian government that arranges the import of goods into India and helps Indian exporters find markets overseas for their products.

The case, which has been under investigation since 2009, allegedly began in 2008 when the two companies approached STC for help with deals they said they were arranging with overseas buyers and sellers of scrap copper and nickel.

Corporate and personal guarantees

STC agreed to act as their facilitator to arrange merchandising trade transactions in the scrap metals in third countries. As part of this arrangement, Future Metals and Future Exim India signed agreements that overseas buyers in the deal would guarantee payments due to Indian sellers.

The two companies as well as their chairman, Naveen Sriram and managing director Sudheer Sriram provided corporate and personal guarantees in favour of STC that could be invoked by the state-owned trading house in the event of non-payment by overseas buyers.

L/Cs devolved

STC established irrevocable L/Cs for the usance period of 90 days for the purchase of goods with a condition that the companies agreed to that the L/Cs would not be devolved under any circumstances.

However, the L/Cs were devolved due to non-payment by overseas buyers which caused STC an overall loss of nearly US$250 million according to the directorate.

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