The biggest scam of 2020

This week the CBI booked a Hyderabad based company, Transstroy India and its directors for an alleged bank fraud totalling ₹7,926 crore. For context, the Nirav Modi scam involved ₹7,700 crores. So yeah, we need to talk about this story because this is likely going to turn into another bad loan.

Sigh!

Who is Transstroy ?

Transstroy is a company from Hyderabad. It was incorporated in 2001 and it had interests in the infrastructure sector. And considering one of the directors happened to be a former MP from Andhra Pradesh, they had no problems accessing loans and government contracts. But there were many allegations surrounding the company right off the bat. In fact, when Transstroy bagged the ill-fated Polavaram irrigation project in Andhra Pradesh, many cried foul over the decision. It was alleged that Transstroy and its Russian joint venture partner had submitted fake documents, claiming they had built dams and irrigation projects in Kazakhstan, Russia and China. But after the government stated that it had sent a team of engineers to verify these assertions, they eventually greenlit the decision — Although it was later revealed that Transstroy officials had accompanied the team on the visit to Russia.

So, make of that what you will.

Anyway, the point is — there was definitely something going on at Transstroy and eventually a forensic audit blew the lid off the whole scheme.

According to the report, the accused borrowed around ₹9,000 crores from multiple banks over the years and then floated several “non-existing companies” in a bid to execute an elaborate plan to divert funds. As per one report in the Newsmeter, the accused apparently named maids, sweepers and drivers as directors of these absolutely fictitious companies.

And look you can’t just use these directors to siphon funds. If you’re serious about this gig, you have to start cooking the books. And if another CBI report from 2019 is to be believed, they did exactly that. The company apparently made total purchases worth about ₹2,500 crores between 2016 and 2017. But here’s the thing. These were what the receipts showed. To be absolutely certain that they actually made these purchases, you have to verify them independently. However, when investigators from Ernst and Young demanded the company to furnish more details about these purchases, they weren’t provided with any. In fact, according to EY's estimates, the company only made purchases worth ₹270 crores. The rest — Well, that was most likely made up.

In another egregious case, the company apparently purchased multiple machines with identical engine serial numbers from two different vendors. Now bear in mind, you can’t really buy two machines with the same engine number. It’s highly unlikely. And while the company in its reply claimed that this was merely an oversight, it’s hard to believe this statement. Especially when you consider these other discrepancies.

As one report notes —

In connection with one of the documents related to Polavaram irrigation project, the CBI expressed shock on learning that Transstroy, who is the contractor, had stored stock worth Rs. 1,753 crores at the irrigation site. “It is not clear as to how such huge stock can be stored at project premises,” the CBI said.

And that’s right. It is not at all clear how this could be possible.

Imagine storing stock worth ₹1,753 crores in just one place. A tipper truck costs ₹30 lakhs. You’d have to have gold studded tipper trucks, all lined up at the same time to have so much material in one project site. Speaking of gold, Transstroy also paid out ₹5 crores for gold and silver articles. And while the company states that this was merely a donation to Goddess Padmavathi, the banks allege that this was a clear cut case of misappropriating funds. As they succinctly noted — “Donating the gold to the temples is not the purpose for which the money is lent by the Consortium of Banks”

But wait, we are not done yet. In another case, the company is alleged to have purchased and supplied steel using “Autorickshaws.” In another instance, CBI investigators found the company had delivered several metric tons of material using two-wheelers. And while we could go on and on about these discrepancies, it really doesn’t do much, except drive home the point that this is probably another case where public funds were diverted for private gains.

What an unfortunate state of affairs, eh?

Anyway, if you know anyone who's interested in scams or accounting shenanigans, maybe you should share this story with them. (WhatsApp and Twitter)

Until then...