RESERVE BANK OF tNDtA / eTKffq ntE6 **

ENFORCEMENT DEPARTMENT / r+frf, Ee{Ta

CENTRAL oFFICE I &fiq mrqiilq

BEFORE THE COMMITTEE OF EXECUTIVE DIRECTORS. RESERVE BANK OF !NDIA

IN THE MATTER OF

Non-compliance with directions by Shriram Gity Union Finance Limited observed

with respect to its financial position as on March 9,1,2018

The Reserve Bank, in exercise of the powers conferred under Section 58G(1)(b) of
the Reserve Bank of lndia Act, 1934, passes the following

ORDER
Backqround
The statutory inspection of Shriram City Union Finance Limited (the company) with
reference to its financial position as on March 31,2018 was conducted from October 15,
2018 to November 14,2018 and the lnspection Report prepared thereto revealed, lnfer
a/r,a, non-compliance with directions issued by the Reserve Bank of lndia (RBl) contained
in "Non-Banking Financial Company - Systemically lmportant Non-Deposit taking
Company and Deposit taking Company (Reserve Bank) Directions, 2016" and "Monitoring
of Frauds in NBFCs (Reserve Bank) Directions, 2016".

2. Based on the above, a Show Cause Notice (SCN) having Ref. No.
EFD.CO.SCN/505/02.14.11912019-20 dated February 13, 2020 was issued to the
company, calling upon it to show cause, in writing, by March 5, 2020, as to why penalty
should not be imposed on it in terms of section 58G (1)(b) read with section 58B(5)(aa) of
the Reserve Bank of lndia Act, 1934 (the Act) for non-compliance with, and for
contravention of, the aforesaid directions issued by RBl.

3. The company submitted its reply to the SCN vide its letter Ref. No. Lr No. RBI / Show
Cause Notice I 2019-20 dated March 2, 2020. An opportunity of hearing was also
accorded to the company on its request. The representatives of the company (Annex l)
made oral submissions during the personal hearing held through Video Conference on
July 9, 2020 before the Committee of Executive Directors (the Committee) comprising the
undersigned.

4. All records pertaining to the matter placed before the Committee, including the
company's written submissions vide its letter dated March 2,2020 in reply to the SCN (as
detailed in Annex ll), its oral submissions made during the personal hearing and additional
documents submitted vide emails dated July 13, 2020 and August 28, 2020 were duly
considered by the Committee and evaluation of facts and regulations, findings arising
therefrom and conclusions of the Committee thereon, charge-wise, are as follows:

4.1. Charge - Non-adherence to directions on verification of the ownership of gold

4.1.1 Observation in the lnspection Report

On analysis of gold loan accounts, the inspection revealed that "fhe evidence of
ownership (except for a declaration from the borrower) was not available on record as
required in terms of para 26(2)(a) of Master Directions". lt was also highlighted that "14
borrowers had morc than 1000 live gold loan accounts, while 1008 borrowers had more
than 1 00 live accounts".

4.1.2 Submissions by the Gompany

4.1.2.1 The company has submitted that "rn terms of the Master Directions the Company
is required to have a Boad Approved Policy to determine the ownership of Gold and in
terms of the policy as approved by the Board, the company is required to obtain a
declaration from the pledgor that the gold being pledged is owned by him and we had
lt also submitted that for loans
accordingly taken such declaration from the pledgor''.
against jewellery above 20 grams, the Manager has "a personal discussrbn with the
borrower and after satisfying himself as to the genuineness of the borrower, ascertains the
acquisition of gold and obtains a self-declaration as to the ownership of the gold from the
customer together with the KYC. Where the exposure exceeds Rs 5 lacs either
individually or cumulatively, the Branch Manager ensures that a PAN card is obtained and
a field investigation is done af hrs residence to fufther ensure that the borrower is genuine
and is the owner of the gold. The Branch Manager, during fhe discussrbns a/so ascedains
as to how the gold has been acquired and obtains a declaration of ownershrp". On

obtaining the documents mentioned herein above, the company appraises "the iewellery
being pledged and sanction the loan on meritf'. The company also submitted that the
borrowers mentioned in the Annexure to the SCN, have been transacting with it for the
past few years and the accounts were performing.

4.1.2.2 During the personal hearing, the company submitted that it was preparing a Field
lnvestigation Report, based on the discussions with the borrower. On being asked by the
Committee to submit a few Field lnvestigation Reports, the company requested for some
time to submit additional documents in support of its contention.

Page 2 of 10
 @
4.1.2.3 The company, vide its email dated July 13, 2020, submitted copies of 14

documents in Tamil, dated between March 2015 to March 2020 stating those to be Field
lnvestigation Reports. Subsequently, vide its email dated August 28, 2020, the company
submitted the dates of sanction of loans (during the assessment year 2017-18) to the 14
aforementioned customers and copies of 14 more Field lnvestigation Reports in Tamil,
dated between March 2017 and April2017.

4.1.3 Evaluation of Regulation and facts

4.1.3.1 \Nith a view to regulate the financial system to the advantage of the country and to
prevent the affairs of any Systemically lmportant Non-Deposit taking Non-Banking
Financial Company (NBFC-ND-Sl) and Deposit taking Non-Banking Financial Company
(NBFC-D) from being conducted in a manner detrimental to the interest of investors and
depositors or in any manner prejudicial to the interest of such NBFCS, RBl, through
paragraph 26 (2) (a) of the Non-Banking Financial Company - Systemically lmportant
Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions,
2016 (vide Master Direction No. DNBR. PD. 008 / 03. 10. 11912016-17 dated September
1, 2016), mandated thal "Where the gold jewellery pledged by a bonower at any one time
or cumulatively on loan outstanding is more than 20 grams, NBFCs shall keep a record of
the verification of the ownership of the jewellery. The ownership verification need not
necessarily be through original receipts for the jewellery pledged but a suitable document
shatt be prepared to explain how the ownership of the jewellery has been determined,
pafticularly in each and every case where the gold jewellery pledged by a bonower at any
one time or cumulatively on loan outstanding is more than 20 grams."

4.1.3.2 An examination of the 14 documents submitted by the company vide its email
dated July 13, 2Q2O revealed the following:

(i) Eight documents were not on the letter head or having the seal of the company;

(ii) Nine documents were bearing dates which were after the reference date of the
inspection (that is, March 31, 2018);

(iii) None of the documents contained details about the application form (either
number or date), in respect of which the Field lnvestigation Report was prepared
by the officials of the comPanY; and

Page 3 of 1O
 (iv) Though there were references to ownership of jewellery, the documents
contained more information relating to the purpose of the loans, the activities of the
borrowers and their capacity to repay / their past performances with the company.

4.1.3.3 An examination of the sanction details and the additional 14 documents submitted
by the company vide its email dated August 28,2020 revealed the following:

(i) The company had sanctioned multiple loans to each of the 14 customers during
the assessment year 2017-18, involving pledged gold varying from 351.29 grams
to 4273.28 grams in each of the separate sanctions to these customers.

(ii) Though the loans were sanctioned on various dates throughout the year, only
one Field lnvestigation Report for each customer was provided and those were
dated between March 29,2017 and April 26,2017. The report also does not
indicate the exact loan to which the report pertains to.

(iii) Seven documents were not on the letter head or having the seal of the
company.

(iv) The Field lnvestigation Reports submitted by the company appear to be more
in the nature of assessment of credit worthiness, rather than determining the
ownership of jewellery.

4.1.4 Findings

While, the RBI directions required that a suitable document shall be prepared by the
company to explain how the ownership of the jewellery has been determined, particularly
in each and every case where the gold jewellery pledged by a borrower at any one time or
cumulatively on loan outstanding was more than 20 grams, the inspection report pointed
out that the company had merely relied on a declaration from the borrowers for
determining the ownership of gold instead of preparing a suitable document to explain
how the ownership of jewellery had been determined in such cases. While, the SCN listed
thousands of loan accounts pertaining to 14 customer lDs as instances of such cases,
copies of Field lnvestigation Reports submitted by the company, in its defence, revealthat
none of those contained the details of the loan application filed by the borrower for
identifying the transaction and most of those did not bear either the letter head or seal of
the company. Though multiple loans involving more than 20 grams of gold were
sanctioned to the borrowers during the year, from the documents submitted by the
company, it appears that the company had conducted Field lnvestigations only once or,
Page 4 of 10
twice during the period under review. The Field lnvestigation Reports submitted by the
company were mostly for assessing the credit worthiness of the borrowers, rather than
determining the ownership of gold. Out of 14 customers, six could have been pawn
brokers as they were involved in the business of lending against gold.

4.1.5 Conclusion

Based on the aforementioned findings, the Committee concludes that to the extent the
company failed to prepare a suitable document to explain how the ownership of the gold
jewellery was being determined, particularly in each and every case where the gold
jewellery pledged by a borrower at any one time or cumulatively on loan outstanding was
more than 20 grams, it had contravened the directions of RBI contained in paragraph 26
(2) (a) of Non-Banking Financial Company - Systemically lmportant Non-Deposit taking
Company and Deposit taking Company (Reserve Bank) Directions, 2016 and such an act
of the company warrants imposition of monetary penalty.

4.2. Charge - Non-remittance of premium directly to insurance company

4.2.1 Observation in the lnspection Report

The lnspection revealed that "the company collected insurance premium in its own

account and remitted the same to insurance company on a fortnightly basis".

4.2.2 Submissions by the Company

The company submitted that in the loan application form, the borrower has the option to
either opt for insurance cover or decline the insurance.'lMhere the customer opts to avail
insurance, he authoises fhe company to deduct the premium from the loan amount and
remit the same to the insurance company'. The option to avail insurance was to cover the
risk and was purely optional for the borrower. The premium was "deducted and remifted to
the insurance company directly to cover the risk as opted for by the bonower. ln the event
of any unforeseen incident, the customer or his legal heirs would be able to claim
insurance to bring down the liabilitf'. The company submitted that it was not collecting
insurance premium from the customer and routing it through its account. The company
further submitted that "Ihe insurance premium is being deducted from the loan amount at
the request of the customer and the same is reflected temporarily in the books as
"insurance premium payabte". The premium is not collected from the customer separately

and is only a deduction from the loan amount and remifted to the insurance company
directll/'.

Page S of 10
Further, the company also submitted that "fhe insurance policy being offered to the
cusfomers is a "Group Policy'"'. ln the Master Policy, the master policy holder remits the
premium on deduction of the same from the members. The company was the Master
Policy holder and the obligation to remit the premium vested with the Master Policy holder
(i.e. the company). Hence, "the applicable premium is being deducted from the loan
amount as authorized by the customer and remitted to the lnsurance Companf'.

4.2.3 Evaluation of Regulations

\Mth a view to regulate the financial system to the advantage of the country and to prevent
the affairs of any Systemically lmportant Non-Deposit taking Non-Banking Financial

Company (NBFC-ND-Sl) and Deposit taking Non-Banking Financial Company (NBFC-D)

from being conducted in a manner detrimental to the interest of investors and depositors
or in any manner preludicial to the interest of such NBFCs, RBl, through paragraph 1 (iv)
of Annex XIV of the Non-Banking Financial Company - Systemically lmportant Non-
Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016
(Master Direction No. DNBR. PD. 008 / 03. 10. 119 12016-17 dated September 1, 2016),
mandated that "Ihe prcmium shall be paid by the insured directly to the insurance
company without routing through the NBFC."

4.2.4 Findings

While, the RBI directions requiring insurance premium to "be paid by the insured directly
to the insurance company without routing through the NBFC' were applicable to cases
where NBFCs undertook insurance agency business, the inspection report observed that
the company was not remitting the premium collected from the borrowers directly to the
insurance company but routing the same through its insurance payable account and
remitting it on a fortnightly basis. The company denied the charge by submitting that the
insurance policy offered to the borrowers was a group policy and it being the Master
Policy Holder, the obligation to remit the premium rested with the company.

4.2.5 Conclusion

Based on the aforementioned findings, the Committee concludes that as the company
was the Master Policy Holder and it remitted premium after deducting from the loan
amount, the charge that the company had contravened the provisions of paragraph 1(iv)
of Annex XIV of the Non-Banking Financial Company - Systemically lmportant Non-
Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016,
does not hold good and is not enforced.

Page 6 of 10
4.3. Charge - Delay in reporting of frauds

4.3.1 Observation in the lnspection Report

The lnspection observed that the company had not reported six fraud cases to RBI tillthe
completion of inspection, though detected between January 2017 and October 2017.

4.3.2 Submissions by the Company

4.3.2.1 The company submitted that "ln the normal course of busrness during the years
2011-13 we had extended loans to ceftain individuals and on account of delinquency, we
had proceeded with arbitration. Award was passed by the leamed arbitrator by following
the due process of law, pursuant to which we had proceeded with execution proceedings.
Duing the pendency of the execution proceedings, one of the person to each of the loan
agreement approached RBI with a complaint that he had not guaranteed the respective
loan transaction. The complaint was referred to us by CEPC, Chennai and we had
conducted an inquiry. All these six transactions took place in a pafticular location and
employees of Port Trust, Chennai were arraigned as guarantors. We had conducted an
inquiry and on merits, immediately dropped proceedings and those complainanfs had a/so
provided us with a letter of satisfaction of the complaint."

The company further submitted that "fhe loan transaction to fhe sx bonowers and other
guarantors were genuine and it was a case of six persons being anaigned as additional
guarantors, which were found to be inconect. As the loan transactions were genuine, we
did not classtfy the transacfions as fraud and hence did not deem it fit to be repofted. The
fact there was an irregularity in respect of one guarantee in each of the six loan
transactions was conveyed to DNBS - RBl, Chennai and the proceedings againsf such
persons were withdrawn. The complainants had also provided us with lefter of satisfaction
of resolution of their complaint."

During the annual inspection in the subsequent year, the company was "advised to
categorize fhese as 'Fraud' and also repoft the same to RBl, pursuant to which we had
classified and repofted."

4.3.2.2 During the personal hearing, the company informed that it was waiting for FlRs to
be lodged in these cases, before reporting the same as frauds to RBl.

4.3.3 Evaluation of Regulations and facts

4.3.3.1 Keeping in view the public interest and being satisfied that for the purpose of
enabling the Bank to regulate the credit system to the advantage of the country, RBl,
Page 7 of 10
through paragraph 1 of Chapter lll of Monitoring of Frauds in NBFCs (Reserve Bank)
Directions, 2016 (Master Direction No. DNBS. PPD. 01 / 66.15.001 / 2016-17 dated
September 29, 2016) clarified that "/n order to have uniformity in reporting, frauds have
been classified as under mainly based on the provisions of the lndian Penal Code: (a)
Misappropriation and criminal breach of trust (b) Fraudulent encashment through forged
instruments, manipulation of books of account or through fictitious accounts and
conversion of propefty (c) lJnauthorised credit facilities extended for reward or for illegal
gratification. (d) Negligence and cash shortages (e) Cheating and forgery ff) lrregularities
in foreign exchange transactions (g) Any other type of fraud not coming under the specific
heads as above". Further, through paragraph 1(v) of Chapter lV of the same Master
Directions, RBI mandated that "Where the amount involved in fraud rs less than t 1 crore,

reportsin the format given in FMR - 1 shall be senf to the Regional Office of the
Depaftment of Non-Banking Supervision of the Bank under whose iuisdiction the
Registered Office of the applicable NBFC falls, within three weeks (21 days) from the date
of detection of the fraud'.

4.3.3.2 The company was informed vide RBI's letter dated May 16, 2019 that it had not
reported the fraud cases to RBI till that date.

4.3.3.3 Subsequently, the company reported the frauds to RBI on July 19,2019.

4.3.3.4 The company in its reply dated March 2, 2020 to the SCN has referred to its
correspondence with RBl, Chennai Office regarding irregularities in respect of six
guarantees in six loan transactions.

4.3.3.5 ln its letter dated September 01,2018 addressed to RBl, Chennai Office, the
company had informed about the internal enquiry undertaken by it in respect of six
fraudulent guarantee transactions, which had observed the difference in signatures, the
involvement of its employees in the matter and withdrawal of recovery proceedings
against the persons who were fraudulently shown as guarantors.

4.3.4 Findings

While RBI directions required the company to classify the accounts as frauds in case of
cheating and forgery, it was observed in the inspection report that the company had not
reported six instances as frauds although its internal enquiry conducted to this effect,
observed difference in signatures and involvement of its employees. Consequently, the
recovery proceedings against the persons who were fraudulently shown as guarantors
were withdrawn. While RBI directions required the company to report the frauds (less than
{1 crore) within three weeks from the date of detection of the same, the company rePorted
Page I of 10
the frauds in the accounts to RBI on July 19, 2019, i.e. with a delay, after RBI's letter
dated May 16, 2019 advising it to do so, despite detecting the same between January
2017 and October 2017, claiming that initially it did not report the frauds as the loan
transactions were genuine and later, that it was waiting for FlRs to be lodged, even
though the company admittedly was aware of the frauds, including the involvement of its
employees, as seen from its letter dated September 1,2018 to RBl, Chennai Office.

4.3.5 Gonclusion

Based on the aforementioned findings, the Committee concludes that though the loan
transactions were stated to be genuine, the guarantees were not. From the submissions
made by the company in its letter dated September 1,2018 to the Bank, it is clear that the
company was aware of the fabrication of documents, which should have been considered
as a case of cheating and forgery, requiring reporting of the same to the Reserve Bank of
lndia and therefore, to the extent the company had detected the frauds between January
2017 and October 2017 and had failed to report the same within the prescribed time
period, it had failed to comply with the timeline prescribed in the RBI directions contained
in paragraph 1(v) of Chapter lV of Monitoring of Frauds in NBFCs (Reserve Bank)
Directions, 20'16 and such omission by the company warrants imposition of monetary
penalty.

Order

5. The failure to comply with any direction or order given by the RBI under the provisions
of Chapter lll B of the Reserve Bank of lndia Act, 1934 (the Act) is an offence, punishable
under clause (aa) of sub-section (5) of section 58B of the Act. ln terms of clause (b) of
sub-section (1) of section 58G of the Act, where the contravention or default of the nature
referred to in clause (aa) of sub-section (5) of section 588 is committed by a non-banking
financial company, RBI may impose on such company a penalty of five lakh rupees or
twice the amount involved in such contravention or default, where the amount is
quantifiable, whichever is more; and where such contravention or default is a continuing
one, further penalty which may extend to twenty-five thousand rupees for every day, after
the first, during which the contravention or default continues.

6. ln view of the failure of the company to comply with the directions issued by RBI to the
extent concluded in paragraphs 4.1.5 and 4.3.5 hereinbefore, it is decided to impose a
penalty of t 5 lakh (Rupees Five Lakh only) on the company.

Page 9 of 10
 7. Accordingly,
ffi
in exercise of the powers confened under clause (b) of sub-section (1) of
section 58G read with clause (aa) of sub-section (5) of section 58B of the Act, an
aggregate penalty of { 5 lakh (Rupees Five Lakh only) is hereby imposed on Shriram
City Union Finance Limited.

8. The company is directed to pay the said penalty of ? 5 lakh (Rupees Five Lakh only)
within thirty (30) days from the date of receipt of this Order.

9. A copy of this order be served on the MD & CEO of the company for due compliance.
The imposition of penalty is without prejudice to such other action as the RBI may
consider necessary.

/1
{ln-l:Y l"-A---
l------ I\ t frs^^^
lt^*rfi,''[",,
(M. RajLshwar Rao) (Lily Vaiera) ,n",.,f
Executive Director Executive Director Executive Director

Mumbai

2 J SEP 2020

Page 10 of 10
 Annex I

List of representatives of the NBFC in Personal Hearing attended through VC

Sr. No. Name of the NBFC representatives Designation

1. Shri. Y.S. Chakravarty Managing Director
2. Shri. C.R. Dash Company Secretary
3. Shri. R. Chandrashekhar Chief Financial Officer
4. Shri. Arunachalam Senior Vice President

Page 1 of 1
 Annex ll
SCN observations and NBFC's written submission

Sl. No. Observation in SCN NBFC's reply

1. The company failed to prepare a suitable ln terms of the Master Directions the company
document explaining how the ownership is required to have a Board approved policy to
of the jewellery had been determined, determine the ownership of Gold and in terms
even in cases where the gold jewellery of the policy, as approved by the Board, the
pledged by those borrowers, at any one company is required to obtain a declaration
time or cumulatively, on loan outstanding, from the pledgor that the gold being pledged is
were in the range of 5289 grams to owned by him and we had accordingly taken
16546 grams and despite each such such declaration from the pledgor.
borrower having more than 1000 gold
For loans against jewellery above 20 grams,
accounts with the company, relied merely
the Manager will have a personal discussion
on the declarations from those borrowers
with the borrower and after satisfying himself
for determining the ownership.
as to the genuineness of the borrower,
List of a few such instances are provided ascertains the acquisition of gold and obtains
in Annexure. a self-declaration as to the ownership of gold
from the customer together with the KYC.

Where the exposure exceeds Rs 5 lacs either

individually or cumulatively, the Branch
Manager ensures that a PAN card is obtained,
and a field investigation is done at his
residence to further ensure that the borrower
is genuine and is the owner of the gold. The
Branch Manager, during the discussions also
ascertains as to how the gold has been
acquired and obtains a declaration of
ownership.

On obtaining the documents mentioned herein

above, we appraise the jewellery being
pledged and sanction the loans on merits. lt is
further submitted that the borrowers
mentioned in the annexure to your letter under
rfr--
@ n

^ Aitex ll: SCN Observations and NBFC's written

*3 r.t 'i
JlLIMBAI
submissions Page 1 of 6

Y";
w irqI\2/
 S!. No. Observation in SCN NBFC's reply

reference have been transacting with us for

the past few years and the accounts were
performing.

ln view of the above submissions, we

respectfully submit that we have been in full
compliance with the Board policy and the
directives of RBI contemplated under section
26(2)(a) of RBI's Master Directions Ref.no.
DN8R.PD.008.03.10.119t2016-17 dated
September 1, 2016 and hence request you to
drop the proceedings contemplated herein in
the letter referred above.

2 The company did not remit the premium We would like to bring to your kind notice that
collected from the borrowers directly to the Borrower has the option to opt for
the insurance company, but was routing insurance cover and the option is provided in
the same through its insurance premium the loan application form. We enclose herewith
payable account and remitting on a the loan application form (Annexure 1) which
fortnightly basis. has an option for the customer to opt for or
decline the insurance. company Where the
customer opts to avail insurance, he
authorizes the company to deduct the
premium from the loan amount and remit the
same to the insurance company. lt is
reiterated that the option to avail insurance is
to cover the risk and is purely optional for the
borrower.

We further submit the loan agreement

(Annexure 2) and we draw your kind attention
to clause 4 to the loan agreement, wherein the
borrower authorizes us to deduct the
insurance premium as specified in schedule 2
to the loan agreement. The premium as
l-s
)
n.

'I Atraexll:
v'
SCN Observations and NBFC's written submissions Page 2 of 5

f,$t cXr

w -o,{
D.,e"4.',
 Sl. No. Observation in SCN NBFC's reply

specified in the schedule 2 to the loan

agreement is deducted and remitted to the
insurance company directly to cover the risk
as opted for by the borrower. ln the event of
any unforeseen incident, the customer or his
legal heirs would be able to claim insurance to
bring down the liability.

Further, it is respectfully submitted that we are

not collecting the insurance premium from
the customer and routing it through our
account. The insurance premium is being
deducted from the loan amount at the request
of the customer and the same is reflected
temporarily in the books as "insurance
premium payable". The premium is not
collected from the customer separately and is
only a deduction from the loan amount and
remitted to the insurance company directly.

It is further submitted that the insurance policy

being offered to the customers is a "Group
Policy". ln the Master Policy, the Master
Policy Holder does remit the premium on
deduction of the same from the member. lt is
therefore, respectfully submitted that the
Company is the Master Policy holder and that
in case of a Master Policy, the obligation to
remit the premium vests with the Master Policy
Holder (i.e.) the Company. Hence the
applicable premium is being deducted from the
loan amount as authorized by the customer
and remitted to the lnsurance Company. lt is
therefore submitted that we are in compliance
with the provisions of Sec 1(iv) of Annexure

6 llx;#.'
lIU
q)
' Anne?Jl: SCN Observations and NBFC's written submissions Page 3 of 6

l6
li ffi"1"
/*..g1,.
\ Uir4,\f.4
 Sl. No. Observation in SCN NBFC's reply

XVI of RBI's Master Directions Ref no.

DN8R.PD.008.03.10.11912016-17 dated
September 1, 2016 and hence request your
good office to drop the proceedings in this
regard.
3 The company failed to report frauds ln the normal course of business during the
within three weeks of their detection, years 2011-13, we had extended loans to
when despite having detected six frauds certain individuals and on account of
during January 2017 to October 2017, delinquency we proceeded with arbitration.
the company reported the same to RBI Award was passed by the learned arbitrator by
only on July 19, 2019, i.e. with inordinate following the due process of law; pursuant to
delay. which we had proceeded with execution
proceedings.
The details of frauds are provided in the
Annexure. During the pendency of the execution
proceedings, one of the person to each of the
loan agreement approached RBI with a
complaint that he had not guaranteed the
respective loan transaction. The complaint
was referred to us by CEPC, Chennai and we
had conducted an inquiry. All these six
transactions took place in a particular location
and the employees of Port Trust, Chennai
were arraigned as guarantors. We had
conducted an inquiry and on merits,
immediately dropped proceedings and those
complainants had also provided us with a
letter of satisfaction of the complaint.

It is respectfully submitted that the loan

transaction to the six borrowers and other
guarantors were genuine and that it was a
case of six persons being arraigned as
additional guarantors, which was found to be
incorrect. As the loan transactions were
t-i\\.
Aifi'dilir SCN observations and NBFC's written submissions Page 4 of 5
ry k2.
*
t
 Sl. No. Observation in SCN NBFC's reply

genuine, we did not classify the traniactions

as fraud and hence did not deem it fit to be
reported. The fact there was an irregularity in
respect of one guarantee in each of the six
loan transactions was conveyed to DNBS,
RBl, Chennai and the proceedings against
such persons were withdrawn. The
complainants had also provided us with a
letter of satisfaction of resolution of their
complaint.

It is also submitted that a special audit of the

files were conducted by DNBS Chennai on
each of the transactions and an explanation
was sought. We had provided our response to
each of the complaints. We would like to bring
it to your kind notice the fact that information
has not been withheld by the company. As the
loan extended was genuine and that the
proceedings against others were also genuine,
we had not classified the same as "Fraud".

It is during the annual inspection in the

subsequent year, that questions were raised
on reporting these cases as'Fraud'. We had
suggested that the loan transactions were I

genuine and hence we had not classified as

'fraud'. We were advised to categorize these
as 'Fraud' and also report the same to RBl,
pursuant to which we had classified and
reported. lt is respectfully submitted that the
loan transaction per se is genuine and hence
we had not classified as'Fraud' and pursuant
to the advisory from the inspection team, we
had classified as 'Fraud' and reported. With
SK Or,

fftS^
,t
6i
. Anl {l: SCN Observations and NBFC's written submissions Page 5 of 6

vz /r*..'
 w@

Sl. No. Observation in SCN NBFC's reply

respect to reporting, it is submitted that there

were no lapses on our part as the loan
transaction was genuine and hence the
proceedings contemplated may please be
dropped.

x ll: SCN Observations and NBFC's written submissions