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Raj Basantani group to face prosecution for fraud

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The main business of Basantani on paper was export of diamond and local trading of diamond. It was found that peons, drivers and clerks were the directors of the company.

New Delhi , Jan 24

THE law seems to be catching up with Raj Basantani, promoter of SoundCraft Industries Ltd and its auditors.

Armed with the Serious Fraud Investigation Office (SFIO) report, the Ministry of Company Affairs proposes to initiate prosecution against Raj Basantani and his group companies, SoundCraft Industries and Kolar Biotech Ltd.

Sources said that the Ministry proposes to initiate action against the auditors of the company after due consultation with the Institute of Chartered Accountants and SFIO.

Following a Company Law Board order in February 2005, the Ministry had referred the case to SFIO to probe into the affairs of the Basantani entities, including violations under the Companies Act and financial irregularities.

The main business of Basantani on paper was export of diamond and local trading of diamond. It was found that peons, drivers and clerks were the directors of the company. SoundCraft, with a paid-up capital of Rs 48.64 crore as on March 15, 2004, was the main entity, while Kolar was a smaller outfit.

The investigations revealed similar violations by the two entities and prosecutions suggested by the SFIO were same, sources told Business Line.

Besides various violations under the Companies Act, the promoter was found to be indulging in inflating profits, jacking up share prices of his companies by circular trading, and mobilisation of deposits from general investors.

In fact, lakhs of investors and depositors who had invested in the fixed deposits were left in the lurch. Though refusing to comment on the report, the Minister of State for Company Affairs, Mr Prem Chand Gupta, said, "appropriate action would taken against those who have cheated investors, banks and financial institutions."

The SFIO, in its report submitted to the Ministry, has proposed prosecution under the Companies Act and Indian Penal Code. The Ministry proposes to forward the copies of the report to SEBI, the RBI, the Banking and Insurance division of the Finance Ministry, the Central Board of Direct Taxes, the Central Board for Excise Customs, and the Enforcement Directorate.

The SFIO has also recommended winding up of the company and associate shell companies on the grounds of suspension of business activities for more than one year and the company's inability to pay debt.

SEBI after due investigations had restricted purchase or sale of shares of Basantani group companies. The owners were reported to have fled to the US on April 5, 2005, prompting a red corner notice issued by Interpol. The company had reported stock of diamond worth Rs 211 crore in its books in September 2002, but Income-Tax raids confirmed that there was no stock.

The company SoundCraft was found to fraudulently discounting post shipment bills from various banks by pledging artificially over-priced shares and settling these bills through non-banking channels. By misrepresenting the financial position, SoundCraft had collected huge amount of deposits and defaulted in repayment.

The amount was to the tune of Rs 17.82 crore. It had cheated General Insurance Company and New Indian Assurance Company through preferential allotment of equity shares at inflated prices amounting to Rs 13.58 crore. The loss to UTI and financial institutions amounted to Rs 46 crore.

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