2 deals, 2 CBI cases: How banks flouted rules while lending to Videocon’s Venugopal Dhoot

On June 23, the Central Bureau of Investigation (CBI) filed an FIR against Videocon boss Venugopal Dhoot and unknown officials from a consortium of lenders led by State Bank of India (SBI) for alleged irregularities in extending loans. The lenders colluded with Videocon Mozambique Rovuma 1 Limited (VMRL), a subsidiary of Videocon Hydrocarbon Holdings Limited (VHHL), in helping the company make wrongful gains, CBI said.

This is the second instance since 2008 that Dhoot, a businessman whose company primarily makes and distributes consumer electronics and home appliances in India, has found himself in the crosshairs of an investigation for alleged bank fraud. The first one — an alleged quid pro quo deal with former ICICI Bank head Chanda Kochhar — made headlines not long ago.

The common thread in these — several — high-profile cases of corruption that have come to light in recent years has been suspect bank loans. Former liquor baron Vijay Mallya, fugitive diamond merchant Nirav Modi and his uncle Mehul Choksi are accused by investigating agencies of gaming the system and defrauding banks of millions of dollars.

As it happened in those cases, bankers are again under the scanner. The Videocon Mozambique case is based on a preliminary inquiry against officials of the consortium of banks (SBI, ICICI Bank, IDBI Bank) and the ministry of petroleum and natural gas.

Apart from its mainstay business, Videocon also has interests in the oil and gas business. VHHL, according to the company’s website, is a Cayman Islands company formed in 2009. Videocon owns interests in various international oil and gas concessions in Mozambique, Brazil, Indonesia, and East Timor, the website said.

The banks, CBI said, flouted rules and didn’t follow due process while giving a loan to Dhoot, CMD of VHHL. Banks didn’t take possession of the asset against which the loan was given. They also did not insist on the closure of an earlier loan from Standard Chartered Bank (SCB) that was repaid by Dhoot using their money.

When contacted, Dhoot said, “I don’t know about the case. I will have to see the details.” SBI, India’s largest lender, is yet to respond to Moneycontrol’s email seeking comment on the CBI charges.

Dhoot and Banks

Banks, for reasons best known to them, were always happy to oblige Dhoot. The 68-year-old Dhoot, like Mallya, who is fighting extradition to India in the UK, received loans for diversified businesses including electronics to energy.

But, to borrow an analogy from the life of Mallya, the good times didn’t last for Dhoot. Come 2010, things started going south for Videocon Group as its financial situation deteriorated. In 2018, lenders took Videocon to the National Company Law Tribunal but the damage was already done.

A series of ambitious business plans and mounting debts dragged the group deeper into a mess. Banks were left high and dry.

Similar to Mallya’s case, it wasn’t just a financial hit for banks. Financial irregularities, quid pro quo deals and rule violations in high-value loans invited the CBI’s attention. The Mozambique deal is the latest such case that the CBI suspects foul play.

The Mozambique deal

At the heart of the matter is VMRL, a subsidiary of VHHL. In 2008, VHHL acquired a 10 percent "participating interest" in an oil and gas block in the Rovuma area of Mozambique from US-based Anadarko Petroleum.

Around four years later, a standby letter of credit (SBLC) facility of $2,773.6 million, or around Rs 21,079 crore at current rupee dollar-value, was sanctioned to VHHL by an SBI-led consortium for the company’s oil and gas assets in Mozambique, Brazil and Indonesia as well as the refinancing of existing facilities.

Up to $1,103 million, or Rs 8,383 crore, of the SBLC facility was refinanced. This included an outstanding of $400 million, or Rs 3,040 crore, to Standard Chartered Bank (SCB), London.
Ten months later, Videocon Industries Ltd (VIL) told banks that the SCB loan had grown to $530 million, or Rs 4,028 crore. The company asked the banks to pay off the loan and take over the oil and gas assets, CBI said. Banks, according to the CBI, did not question how the loan amount increased but paid the $530 million. They also did not take charge of the oil and gas assets.

Ideally after the SCB payment, the banks should have taken over the gas and oil assets of VIL and the loan account of SCB closed. But that didn’t happen. In other words, banks gave money without a collateral guarantee.

That is not all. Videocon continued to draw a loan from SCB even though VHHL was required to close the account after the loan was paid, CBI has observed. It is not clear how much additional amount Dhoot’s company borrowed from SCB.

Neither did Videocon inform the lenders about its continuing use of the SCB facility and nor did they ask any questions, CBI said. Though the SBI-led consortium didn’t take charge of the Mozambique assets, they did take over Indonesia and Brazil assets in November 2013.

Later, ONGC Videsh Limited and Oil India Limited acquired Dhoot’s 10 percent stake in the Rovuma assets in Mozambique for $2.5 billion in January 2014.

According to CBI investigators, ONGC needed a no-objection certificate from the lending banks before making payments for the Mozambique assets. VIL asked the consortium to pay off SCB London from the sale proceeds even though the loan had been paid off earlier, according to the CBI.

The consortium agreed to clear SCB’s dues, subject to a cap of $650 million, but ended up paying $704.45 million, from the sale proceeds in connivance with bank officers, the CBI has said.

What did VIL do? It spent only a part of the money availed from banks on oil assets abroad, according to CBI investigators. The rest of the funds was diverted, they said.

Dhoot and the lenders were acting in unison, according to the CBI investigation.

The ICICI-Videocon case

Besides the Mozambique deal, Dhoot also happens to be a key figure in a case involving ICICI Bank, Chanda Kochhar and Videocon. This case is also under the gaze of CBI.

In 2008, Dhoot floated an equal joint venture NuPower Renewables with Deepak Kochhar, the husband of Chanda Kochhar. He lent Rs 64 crore to the firm and later transferred the entire stake to Deepak Kochhar, according to the CBI.

In 2012, ICICI Bank loaned Rs 3,250 crore to the Videocon group companies as part of a Rs 40,000-crore consortium loan deal. The CBI says the two deals are connected.

The conflict of interest was brought to the notice of authorities by Arvind Gupta, a Delhi-based shareholder activist.

In 2016, Gupta wrote to the Prime Minister’s Office, the Reserve Bank of India and other authorities pointing to suspicious financial transactions between ICICI Bank, the Kochhars and Dhoot.

The letter sought an investigation into illicit banking and commercial transactions involving Dhoot and the Kochhars, accusing them of wrongful personal gains.

As the investigation began, Kochhar was sent on leave in June 2018 and resigned four months later following an internal probe by the bank.

ICICI Bank, Dhoot and Kochhar’s firm have all denied wrongdoing.

But there are several red flags in both cases that deserve a closer look. Take a look:

The Mozambique case

1. a) How did a consortium of banks led by SBI give a loan to a Videocon Group company to pay off an earlier debt without verifying and creating a charge against the loan? This question figures prominently in the CBI FIR.

1. b) The banks should have got the lien with SCB vacated when the loan was repaid but they didn’t. Dhoot allowed VHHL to continue availing the facility from SCB, London. The decision to not create a charge on Mozambique assets, thereby causing wrongful gain to Videocon and wrongful loss to Indian PSU banks, smacked of dishonest intent, according to CBI.

A bank’s top executives, especially those involved in credit decisions, have to disclose if their families have business dealings with a borrower group. This was not followed in the ICICI-Videocon deal.

It is alleged that the loan given by ICICI Bank, which was then led by Chanda Kochhar, to the Videocon group was a quid pro quo for her husband’s dealings with the business house.

Videocon’s loan dealings with banks expose how easily banks could flout norms when approached by a powerful industrialist and raises more questions on the efficacy of safeguards banks and regulators follow to avert corruption in high value loan deals.

(With inputs from PTI)