AML watchdog of India arrested Sanjay Aggarwal in the GDR scam.
What is GDR scam?
Global Depository Receipt is the mechanism to raise capital in the foreign markets. Indian companies issue these receipts in foreign markets and get the money to India. However, few years back when Securities Exchange Board of India detected this fraud they identified that the whole process of GDR issuance was manipulated.
Modus Operandi of GDR scam
The modus operandi of GDR scam was as follows
- Single company subscribed to the complete issue of Global Depository Receipts
- Proceeds of the GDR were offered as the security to a bank which was controlled by conspirator.
- Shares issuing company raised the loan from this bank against the GDR proceeds.
- As the loan was not repaid, the bank revoked the pledge. The bank was indirectly controlled by same company which subscribed to GDR.
- The GDRs were converted to shares in India and were sold off on the Indian bourses for a premium. This ultimately caused damage to the Indian investors. The whole scheme was orchestrated in such a way that it helped the conspirators to take advantage of price arbitrage
Many companies were found to have taken this route to beat the insider trading norms. The GDR scam dates back to issue of shares made in the year 2010.
In this regards, the AML watchdog of India arrested Sanjay Raghunath Aggarwal under PMLA, 2002. The case relates to issue of a Hyderabad based firm M/s Farmax India Ltd.
Who filed the complaint?
Directorate of Enforcement (ED) has arrested Sanjay Raghunath Aggarwal in connection with an ongoing investigation under PMLA, 2002 initiated on the basis of FIR registered by Telangana Police in the case of GDR scam of a Hyderabad based firm M/s Farmax India Ltd. In the year 2022, the company shares are hardly traded. It has become a penny stock.
Sanjay Raghunath Aggarwal along with the promoters of the GDR issuing Company Farmax India Ltd and others created a scheme of cheating the Indian investors by fraudulently subscribing to the GDR of Indian companies from loan obtained from EURAM Bank by pledging the proceeds from the same GDR issue.
Farmax India Ltd, with the financial advisory services of Sanjay Raghunath Aggarwal through his entity La Richesse Advisors Pvt. Ltd, had raised US$71.91 million (Approximately Rs. 318 Crore in June-August 2010) in Europe by issuing GDR.
During this period another person Anuj Batra along with Preeti Aggarwal were also the directors of this La Richesse Advisors.
Entire GDR was subscribed by only one entity Vintage FZE floated and controlled by Arun Pachariya out of loan funds taken from EURAM Bank by pledging the GDR proceeds of the Indian Company, even before the GDRs were subscribed.
The Indian Company in connivance with Sanjay Aggarwal and Arun Pachariya and others fraudulently offered the GDR proceeds as mortgage security to the Bank to arrange loan.
Eventually, borrowers did not repay the loan and the GDR proceeds were adjusted by the Bank against outstanding loan.
The GDR proceeds were never repatriated to India. These GDRs were later converted into equity by the FIIs controlled by Arun Pachariya and sold in Indian Stock market at higher and inflated price. This caused a loss to Indian investors of around Rs. 54 Crores.
GDR scam was one of the brilliantly perpetrated scam in the history of India n stock markets. The Certified Stock Market Forensic Accountant program discuss these scams in detail.
