In a money laundering case against M/s Ranchi Expressway Ltd. Bank Fraud, the Directorate of Enforcement has temporarily attached 105 immovable properties and other assets worth Rs 96.21 crore that belong to the Madhucon Group of Companies and its directors and promoters.
The CBI FIR filed on 12.03.2019 by CBI ACB Ranchi, against M/s Ranchi Expressways Limited (A Madhucon Group company) & its Directors, served as the foundation for the PMLA investigation in this case. The CBI then filed Charge Sheet No. 17/2020 dated December 30, 2020, against M/s Ranchi Expressways Limited and others before the Hon’ble Special Judge for CBI cases, Ranchi.
In this instance, NHAI awarded M/s Madhucon Project Limited the project of 4-laning of NH-33 from 114 Km to 277.50 KM (about 163.50 KM) in Ranchi-Rargaon-Jameshdpur Section on 18.03.2011 on an annuity basis under the design, build, finance, operate and transfer (DBFOT) pattern. The Madhucon Group established an SPV called M/s Ranchi Expressway Limited to carry out this project. The founding directors of the aforementioned firm were Shri Kamma Srinivasa Rao, Shri Nama Seethaiah, and Shri Nama Prithvi Teja, and Madhucon Project Limited served as the project’s Engineering, Procurement, and Construction (EPC) contractor.
Despite receiving the full loan amount, Madhucon Group was unable to complete the project. As a result, their contract was terminated, and an FIR was filed based on the Hon’ble High Court’s instructions and the SFIO and NHAI reports.
Searches were done, testimonies from several bankers, forensic auditors, engineers, subcontractors, and promoters of the Madhucon Group were recorded, and a fund trail inquiry was carried out by ED. During the search operations in June 2021, the ED recovered and confiscated unaccounted cash of $34,00,000 from the residence of Madhucon Group Chairman Mr Nama Nageshwar Rao. According to the ED investigation, M/s Ranchi Expressways Limited obtained loans totalling approximately Rs 1030 crore from a group of banks led by Canara Bank on behalf of the company’s directors and promoters.
Madhucon Group did not use the entire loan amount for the intended purposes; instead, it transferred the funds to associated entities and used them for other projects. Additionally, the loans were directly syphoned off by giving phoney projects to related shell entities.
Despite drawing the full amount of the loan, the work on the ground worsened and they were unable to finish it. Additionally, they controlled the maintenance records and the construction progress reports to inflate costs. After winning the Ranchi-Jamshedpur Project tender, the Madhucon Group created an SPV called M/s REL and performed round-tripping of loan funds to show fictitious promoter investment to obtain the very first drawdown of the loan from the bank. The group’s financials had been struggling for many years. Therefore, it is evident that the Madhucon Group was involved in the imaginative preparation of the Accounts to defraud the Banks/NHAI from the very beginning. In the end, Madhucon Group was unable to pay back the debts, and the account became NPA.
Another important discovery made by the ED investigation is that the LIE, or “Lender’s Independent Engineer,” chosen for this project was an entity wholly affiliated with the Madhucon Group; as such, it lacked independence and routinely produced false reports that were favourable to the Madhucon Group. The on-site progress of the work completed by Madhucon Group was only 50.24%, even though they had previously drawn a loan amount equal to 90% of the loan amount, according to several inspections by the Forensic Auditors and NHAI.
According to an ED probe, the promoters of the Madhucon Group skimmed off the loan money for this project by claiming the full EPC Contract from its SPV, receiving significant mobilisation and material advances, and then utilising those advances for their other projects rather than the work itself. Additionally, a total of Rs. 75.50 crores in direct cash was produced by paying money and then receiving it back through six shell entities (M/s Usha Projects, M/s Shree BR Visions, M/s Sri Dharma Saastha Constructions, M/s Sree Nagendra Constructions, M/s Ragini Infrastructure, and M/s Varalakshmi Constructions), all of which were entirely under the control of their chairman, Mr Nama Seethaiah.
These subcontractors took large advances from MPL from the loan funds and then paid back enormous sums to Madhucon Group on the pretext of using the equipment and labour of Madhucon Group, even though they did no work, lacked sufficient expertise, were based in AP/Telangana, while the project was in North India. The Madhucon Group received the money back as a result. The ED has found a direct theft of Rs 361.29 billion from the loan money.
To protect the proceeds of crime, the ED discovered landed properties worth Rs. 88.85 crores in Hyderabad, West Bengal, and Vishakhapatnam, Prakasham, Krishna District, as well as moveable assets worth Rs. 7.36 crores, including the founders’ stake in M/s Madhucon Projects Ltd. More research is being done.