The income-tax department, which is looking into the books of CCD, and the Central Bureau of Investigation (CBI) are probing the leads from the whistle-blower account of Rishi Gupta, former chief compliance officer and chief financial officer of New Silk Route Advisors, an investment advisor registered with the US Securities and Exchange Commission (SEC).
Gupta alleged that NSR had earned a profit of $4.8 million in 2011 when a $14.35 million investment in foreign currency convertible bonds of Sical Logistics Ltd returned proceeds of $19.1 million (referred to as ‘Sical transaction’), but “no such gain was ever booked to the NSR Funds”.
“Instead, he reported that $4 million had been wired to an unknown company called Welland Investments (on behalf of Siddhartha) and that he had been ordered to cease his inquiries into that money transfer,” said a plaint filed on his behalf before the SEC.
ET has reviewed a copy of the filing.
“…In 2016, defendant, Parag Saxena (principal and controlling owner of NSR Partners) admitted to Gupta that the NSR Funds’ entire investment in the Sical Transaction had been in some unclear way for Siddhartha’s benefit, and that ‘explained’ why the bulk of the profit had been sent in 2011 as Siddhartha demanded,” the filing said. “CCD was acquiring Sical Logistics around the time of Sical transaction, and Saxena was a member of the Café Coffee Day board of directors. The Sical transaction returned a 35% profit in only seven months, so large that Gupta suspected insider knowledge in making the trades,” it said.
Sical Logistics is now a subsidiary of Coffee Day Enterprises Ltd (CDEL).
“The issue under investigation is whether this was roundtripping of funds,” an official privy to the development told ET, pointing out that NSR had invested $75 million in CCD in 2010. “Also, Gupta and Saxena were directors of Arduino Holdings Ltd, Cyprus, which had invested in CCDs of CDEL. This was later transferred to a Mauritius-based entity,” the person said.
Also, an investigation report by a retired CBI official submitted to the management of CDEL in July this year had mentioned that there was an incremental outstanding of Rs 2,693 crore that needed to be addressed, the official said. “Whether there is a connection between the two needs to be investigated thoroughly,” the person said.
The CDEL board had in August last year appointed Ashok Kumar Malhotra, a retired officer of CBI, to probe into the circumstances leading to the statements made in the last letter of VG Siddhartha on July 27, 2019, and to scrutinise the company’s books.
Emails sent to Saxena and CDEL remained unanswered as of press time Thursday.
CBI had earlier this week booked Karnataka Congress leader DK Shivakumar in an alleged disproportionate case. In 2017, I-T officials had allegedly stumbled upon certain transactions by Siddhartha while conducting searches on Shivakumar.
Gupta, in his plaint, alleged that the NSR management never came out clean on the funds and hence he decided to report the matter to SEC.
It alleged that Siddhartha personally urged Saxena to order Gupta to transfer $4 million as per Siddhartha’s instructions, but Gupta refused to budge. “After several attempts to route the payment through a tax-advantaged entity, the money was ultimately paid to an unknown entity called Welland Investments,” the filing claimed.
Gupta suspected that the payment ran afoul of anti-money laundering statutes and the Foreign Corrupt Practices Act (FCPA), it said.
“That concern was heightened by Saxena’s occasional statements to Gupta that he ‘didn’t want to know’ about where that money went, because ‘the answer is bad’,” the application said. “Gupta never received satisfactory explanations, and had no recourse but to report the facts as he knew them to the SEC in order to protect himself from being complicit in what he believed were securities law violations.”