ED probe 'finds diversion' of Rs 310 cr from MIAL through shell companies

The federal agency is investigating a money laundering case against GVK Group, its chairman and promoter G V K Reddy, and others for alleged irregularities involving Rs 705 crore in the development of MIAL
The Enforcement Directorate (ED) has found close to a dozen shell companies and non-functional entities were being used for allegedly siphoning off Rs 310 crore from Mumbai International Airport (MIAL). A portion of this was routed back to the promoters of the GVK Group in the joint venture company through multiple complex transactions.

The federal agency is investigating a money laundering case against GVK Group, its chairman and promoter G V K Reddy, and others for alleged irregularities involving Rs 705 crore in the development of MIAL.

“These shell firms entered into bogus contracts with MIAL to develop land parcels around the airport, but contracts were fake and never executed on the ground. An analysis of various transactions between MIAL and these shell firms showed about Rs 50 crore had come back to the promoter-controlled companies,” said an ED official privy to the initial findings of the case.

The federal agency is learnt to have also summoned and questioned MIAL Chief Executive Officer Rajeev Jain last week, seeking details of work contracts and the rationale behind giving them to non-functional entities for developing airport land. Some more executives are likely to be summoned, informed a source.

In an email response to Business Standard’s query, a spokesperson for GVK Group said, “The allegations are unfounded and entirely baseless. The ED is currently investigating the allegations made in the Central Bureau of Investigation’s (CBI’s) first information report (FIR). So far, we have neither heard of, nor aware of any initial findings regarding the investigation. MIAL and GVK are cooperating with the ED and providing it with the necessary information and documents required to complete its investigation.”

In another allegedly sharp practice, from 2012 onwards, GVK used the surplus of MIAL — around Rs 395 crore — to finance other group companies.

Sources say officials during the search operations at GVK Group had seized certain crucial documentary evidence showing surplus funds were diverted to other companies allegedly belonging to the GVK promoters in the form of loans instead of securing them as fixed deposits with public sector banks.

“Even the existing fixed deposit receipts of MIAL were being used as securities to take further credit from banks,” said an official quoted earlier.

MIAL is a joint venture of GVK Group, the Airports Authority of India (AAI), and foreign entities. The AAI entered into an agreement for operating, managing, and developing the airport.

In 2017 and 2018, AAI gave GVK 200 acres of under-developed land for re-development. That is when MIAL had transferred Rs 310 crore to these firms, against which these companies also availed of fake input tax credit. This caused significant loss to the exchequer, ED alleged.
The ED probe is based on the July-end CBI FIR, which had stated that the promoters of GVK Group in MIAL had diverted funds by executing bogus work contracts, underreporting revenue, inflating expenses, and misusing reserves.

The CBI also alleged that the staff GVK Group’s head office in Hyderabad had been transferred along with the employees of their group companies to the payrolls of MIAL. Employees not connected with the operations of MIAL, too, were being paid all these years by the AAI.

Besides, it underreported the revenue of MIAL by entering into related-party contracts and meeting personal expenses of the promoters of GVK and their families.

The group allegedly abused the agreement provisions and used the AAI funds to book train and flight tickets and hotel rooms of its group employees not connected with the airport company.

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