The Economic Offences Wing (EOW) of the Mumbai Police is set to examine allegations of “closed-loop funding” and collusive loan assignments involving YES Bank and Suraksha Asset Reconstruction Private Limited, following a detailed complaint filed by a former promoter of Housing Development and Infrastructure Limited (HDIL).
The complaint, submitted by Rakesh Kumar Wadhawan, suspended director of HDIL, seeks a criminal investigation into a series of loan sanctions, restructurings and subsequent assignments undertaken between FY17 and FY19. It is alleged that funds were transferred to Suraksha ARC through transactions that lacked transparent price discovery and independent valuation.
At the centre of the complaint is the allegation that the 15% margin money paid by Suraksha ARC for acquiring stressed assets was funded through group entities that were contemporaneously financed by YES Bank. The representation describes this as a “closed-loop funding and round-tripping arrangement,” arguing that the ARC did not infuse genuine third-party capital and that funds effectively originated from the lender itself.
According to the complaint, YES Bank’s own Special Audit reportedly flagged the absence of auction or competitive bidding prior to sale of stressed assets, along with missing valuation reports. It further alleges that even SMA-2 classified accounts were sold to the ARC without mandated recovery efforts, raising concerns of balance-sheet window dressing and evergreening of stressed exposures.
One transaction highlighted involves a ₹150-crore term loan extended to Sapphire Land Development Private Limited (SLDPL). The complaint claims that while the credit appraisal memorandum reflected a sanction of ₹100 crore, ₹150 crore was disbursed. The loan was allegedly assigned within ten months during the moratorium period despite not being classified as a non-performing asset.
The assignment of dues amounting to ₹154.53 crore for ₹150 crore has been termed a “colourable device” in the complaint. It alleges lack of independent valuation, absence of market-based price discovery and post-facto board approvals. The representation also contends that YES Bank retained substantial economic interest in the assets through security receipts aggregating to ₹127.50 crore, undermining the “true sale” nature of the transaction.
The complaint further claims violations of the SARFAESI framework and RBI master circulars governing bank finance to NBFCs and securitisation of assets. It argues that such assignments enabled Suraksha ARC to assert inflated claims and secure disproportionate voting rights in insolvency proceedings linked to HDIL, potentially distorting the corporate insolvency resolution process.
The EOW has been requested to take cognisance of alleged offences including criminal conspiracy, cheating, breach of trust, falsification of records and diversion of funds. It has also been urged to direct production of audit reports, transaction trails and internal approvals for scrutiny.
EOW is likely to initiate the probe and a case is likely to be registered if the allegations are found true. Queries sent to YES Bank and Suraksha ARC seeking their response to the allegations remained unanswered at the time of publication.
The case, if pursued, could reignite debate over governance standards in asset reconstruction transactions and the robustness of regulatory oversight in India’s stressed asset resolution framework. Market participants will be closely watching whether the EOW probe leads to a wider examination of ARC funding structures and loan sale practices in the banking sector.