India's Enforcement Directorate (ED) has provisionally attached land parcels and residential properties valued at approximately 48.71 crore rupees (Rs48.71 - US$5.9 million) belonging to Transstroy (India) in a case involving the misuse of letters of credit (L/Cs).

This action was taken under India's prevention of money laundering act (PMLA) of 2002, as part of an ongoing investigation into a significant bank fraud case.

Background

Transstroy, a company involved in infrastructure development, had secured loans and credit facilities from a consortium of banks. However, investigations revealed that Transstory did not utilise these funds for their intended purposes. Instead, the company engaged in several irregularities.

The company is accused of arranging L/Cs for fake or improper transactions. When the time came for the company to pay the amounts under these L/Cs, they failed to do so. As a result, the responsibility to cover the payments fell on the banks, creating financial losses for them.

A consortium of 15 banks suffered significant financial losses due to the company's fraudulent activities. The consortium was led by Canara Bank

Diversion of funds

The borrowed funds were redirected to group companies, shell entities, and entities controlled by the promoters and directors of Transstroy.

These actions resulted in the loan accounts becoming non-performing assets. The fraudulent activities meanwhile led to a substantial loss of approximately Rs5,115 crore to the consortium of banks.

Devolved L/Cs

Transstroy is accused of showing inflated turnover through bogus sales and purchase transactions to fraudulently obtain L/Cs.

When these L/Cs devolved, the liability fell on the banks, contributing to their significant financial losses.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.