Losing ground

Bank of Maharashtra officials get embroiled in the DSK scam

Del6127468 Fallen stars: D.S. Kulkarni and his son Shirish have been arrested in a cheating case | Getty Images

TIMES HAVE NOT been good for the banking sector, owing to the mounting bad loans and the many cases of fraud. However, when the Pune Police swooped down on top executives of the public-sector Bank of Maharashtra on June 20, it sent shockwaves across the industry. Ravindra Marathe, managing director and chief executive of the bank; Rajendra Gupta, executive director; Nityanand Deshpande, zonal manager; and Sushil Muhnot, former chairman, were arrested by the economic offences wing, which has been investigating a cheating case against real estate developer D.S. Kulkarni.

The police are also investigating the motive of the bank officials in disbursing Rs 50 crore to DSKDL before the consortium of banks reached an agreement.

“The arrested officials misused their position and authority from time to time, and acting illegally and without following rules sanctioned Rs 100 crore loan to D.S. Kulkarni Developers (DSKDL) under a consortium,” said the remand application. The police are also investigating the motive of the bank officials in disbursing Rs 50 crore to DSKDL before the consortium of banks reached an agreement. “There is gross violation of Reserve Bank circulars, their own loan policies and their own circular,” special public prosecutor Pravin Chavan told THE WEEK. He said the bank had done no investigation, and there was no viability report even as around 1,200 cheques given to depositors by DSKDL had bounced, and some 250 employees had left the company.

Bank of Maharashtra, however, said its outstanding exposure to DSKDL was just Rs 94.52 crore, and loans were given as per the bank’s lending rules. Marathe secured bail on June 27. The bank did not respond to a mail sent by this correspondent.

The arrest assumes importance as the investigation into the cheating case against Kulkarni, 69, is underway. One of the biggest names in Pune’s real estate industry, Kulkarni started quite humbly, selling vegetables and delivering newpapers. He used to clean and repair phones in offices and homes in Pune, and later moved on to providing plumbing and electrical services and house maintenance. This was a stepping stone for him to the construction industry.

In 1980, Kulkarni raised around Rs 2,500 crore, borrowing from friends, to develop a project. He delivered it in eight months and made a profit, giving good returns for his lenders. At that time, the most popular investment options for the middle class were deposits in banks and post offices. Kulkarni sensed an opportunity here, and started taking fixed deposits from people, offering them a higher interest rate. The money was used as working capital for projects. Soon DSKDL’s business expanded not just in Pune, but to other cities as well.

Though he diversified into other businesses—DSK Motowheels sells superbikes from Hyosung and Benelli, and there are DSK Digital Technologies, DSK Travel Solutions, DSK school, DSK Entertainment and the DSK Shivajians Football Club—the construction business remains the flagship.

Tough time: Ravindra Marathe, managing director and chief executive of Bank of Maharashtra, who was arrested on June 20, got bail a week later. Tough time: Ravindra Marathe, managing director and chief executive of Bank of Maharashtra, who was arrested on June 20, got bail a week later.

In 2007, DSKDL proposed a 250-acre special economic zone in Fursungi near Pune, in partnership with the Israeli company GTC. However, things started falling apart when the world economy slumped to a recession in 2008. GTC pulled out; the SEZ was converted into a residential project.

The prolonged downswing in the real estate sector hit Kulkarni quite badly. It did not help, either, that he met with an accident in 2016, and rumours were spread about his death. Several investors rushed to withdraw their deposits. This compounded DSK’s problems. The company fell into a cash crunch with few new homes being sold, cancellations of existing bookings and people looking to withdraw their deposits. Its dividend cheques also started bouncing. A case was registered after investors failed to get their money back.

Kulkarni and his wife, Hemanti, who was the chief financial officer of the company, were arrested in February 2018. In a media briefing four months earlier, Kulkarni had blamed the ill-fated SEZ, the slowdown and the rumours about his death for the company’s financial woes.

That, however, is not the entire story. Right to information activist Vijay Kumbhar said the funds DSK raised through deposits were at times used for other purposes. He alleged that land parcels were bought by Kulkarni’s family members and then sold to DSKDL at higher prices for the SEZ project. “The entire land was purchased by DSK group companies and the family members and related persons with conflicting interests, and then sold to DSKDL at a very inflated price, causing great losses to the shareholders,” said Kumbhar. As of December 2017, the promoters held 47.64 per cent in DSKDL. Kumbhar alleged that Hemanti, who is Kulkarni’s second wife, held shares in the company in two names in the past.

Kulkarni had admitted that the land was bought in the name of the family members, but said it was because they were farmers. “The Kulkarni family being farmers, my children, my brother’s daughter, we bought the land in our name. Because, tomorrow if the SEZ doesn’t happen, the farmers could demand the land back. The transactions done were disclosed as interested party transactions to SEBI, our AGMs and our auditors. We sold the land [to DSKDL] for 5-10 per cent higher price,” he said.

As per police documents, DSKDL owes banks, depositors, unsecured lenders and others around Rs 2,043 crore. This includes Rs 711.36 crore loans from banks, Rs 111.35 crore in debentures, Rs 136.77 crore allegedly embezzled through buying and selling of land at Fursungi, and about Rs 1,083.7 crore taken from depositors and unsecured lenders.

Though the police claim that under the pretext of loans and setting up partnership firms, Kulkarni embezzled crores of rupees, he had always maintained that he never cheated anyone, and till November 2016, there had not been any delay in repaying the deposit holders. After the case was registered, Kulkarni tried to raise money through crowdfunding to repay the deposit holders. But, it did not work out.

Many DSK Group executives—including Kulkarni’s brother’s son-in-law Kedar Vanjpe and sister-in-law Anuradha Purandare, and former chief operating officer Dhananjay Pachpor—were arrested last month. Kulkarni’s son Shirish, who is a co-accused, surrendered on June 25, after the Supreme Court rejected his anticipatory bail plea.