EOW Registers Case Against Edelweiss for Rs 750 Crore Fraud
• Big Money Fraud? Edelweiss Faces EOW Probe
Unmesh Gujarathi
Sprouts News Exclusive
Mumbai’s Economic Offences Wing (EOW) has registered a case against financial services giant Edelweiss and its 15 associate companies for allegedly conspiring to defraud investors of Rs 750 crore. The case was filed by Ecstasy Realty Pvt Ltd at Amboli police station last month, based on allegations of collusion, misappropriation of funds, and financial misconduct. Following the complaint, the EOW has taken over the investigation.
• Fraud Allegations in Raisakaran Project
According to the FIR, the alleged fraud took place between March 26, 2018, and June 26, 2022, primarily linked to the Raisakaran project in Andheri (West). Ecstasy Realty had secured a Rs 1,350 crore loan from Edelweiss Group, but only Rs 600 crore was reportedly disbursed. The remaining Rs 750 crore was allegedly misappropriated through “evergreening,” a practice where loans are renewed repeatedly to conceal defaults.
The complaint further alleges that mortgaged flats were sold below market value. Properties worth Rs 12-13 crore were allegedly sold for Rs 7-9 crore. Specific flats, such as Parthenon project’s Flat No. 602 and 702, were reportedly sold below the recalculated rate.
Additionally, during an 18-month moratorium period, Edelweiss allegedly increased the interest rate from 15% to 16.25% without Ecstasy Realty’s consent. This resulted in Rs 61.68 crore being siphoned off through related group companies, the complaint states.
• Edelweiss Denies Allegations
In a detailed statement, Edelweiss refuted the allegations, claiming the dispute is a civil matter, and Ecstasy Realty has already filed a commercial suit.
With the EOW taking charge of the probe, this high-stakes financial dispute is set to unfold further.
Edelweiss Group, has faced significant regulatory scrutiny due to its involvement in practices aimed at concealing the true state of distressed assets.
Also Read: US SEC Summons Adani Over $265M Bribery Allegations.
• Evergreening of Loans and Regulatory Actions
In May 2024, the Reserve Bank of India (RBI) imposed business restrictions on two Edelweiss Group entities: ECL Finance Ltd. (ECL) and Edelweiss Asset Reconstruction Company Ltd. (EARCL). The RBI’s supervisory examinations revealed that these entities, in collaboration with connected Alternative Investment Funds (AIFs), engaged in structured transactions to “evergreen” stressed exposures. Evergreening refers to the practice of providing new loans to distressed borrowers to enable them to repay existing loans, thereby masking the actual level of non-performing assets.
Specifically, the RBI directed ECL to cease undertaking any structured transactions related to its wholesale exposures, except for the repayment or closure of accounts in the normal course of business. Similarly, EARCL was instructed to stop acquiring financial assets, including security receipts (SRs), and to refrain from reorganizing existing SRs into senior and subordinate tranches. The central bank also noted incorrect valuation of SRs in both ECL and EARCL.
Additional violations by ECL included submitting incorrect details of eligible book debts to lenders for computing drawing power, non-compliance with loan-to-value norms for lending against shares, inaccurate reporting to the Central Repository for Information on Large Credits (CRILC), and failure to adhere to Know Your Customer (KYC) guidelines. EARCL was found to have not presented the RBI’s supervisory letter to its board, failed to comply with regulations pertaining to loan settlements, and improperly shared non-public client information with group entities.
• Lifting of Restrictions
After engaging with the RBI and implementing remedial measures to address these concerns, the restrictions on both ECL and EARCL were lifted in December 2024. The RBI expressed satisfaction with the corrective actions taken by the companies and their commitment to adhere to regulatory guidelines.
These events underscore the importance of regulatory compliance and ethical practices within financial institutions to maintain the stability and integrity of the financial system.