DNA MONEY EXCLUSIVE: BOI recovers entire money from Ketan Parekh in pay order scam

Bank of India's (BOI) 18-year-old-year old legal struggle against the scam-tainted Ketan Parekh has finally paid off. The government-owned bank has managed to recover the entire money in the Rs 137 crore pay-order scam involving Parekh's group of companies and Ahmedabad-based Madhavpura Mercantile Cooperative Bank Ltd (MMCB).

The scam first came to light in 2001 when the First Information Report (FIR) was filed by BOI with the Central Bureau of Investigation (CBI). Coming close on the heels of the securities scam in 1991, it rattled the banking circles as the modus operandi mimicked Harshad Mehta's deft gaming of the banking channels.

In an order dated May 11, 2018, the Debt Recovery Tribunal (DRT) allowed BOI to take charge of the fixed deposits of three companies -- Ketan Parekh-Classic Credit Ltd, Panther Fin Cap & Management Services, Panther Invest Trade.

The court has asked the liquidator to allow the bank to take charge of Rs 138.94 crore that was held in MMCB. The bank is claiming dues worth Rs 1,800 crore from Ketan Parekh firms which is on a principal amount of Rs 130 crore with an interest rate of 18.50% accrued over the years. The court has also ordered 6% interest payments on the principal over this period.

"Though the amount is small, it is an example of how banks are using every tool available to get back every penny," said an official who is monitoring the developments from the court. In January 2013, RBI cancelled the license of MMCB after it failed to recover dues of Rs 1,100 crore.

In late 1990s, Ketan Parekh obtained pay orders from MMCB without providing sufficient securities. The pay-orders were later discounted with BOI in Mumbai, and the proceeds were used to drive up shares that he wanted to manipulate.

BOI then initiated recovery proceedings against Parekh in DRT in 2001 and obtained the order of arrest and detention in civil prison. However, Parekh challenged the order in the DRT, debt recovery appellate tribunal as well as in the Bombay High Court.

In July 2017, Supreme Court (SC) directed Panther Fincap and Management Services, owned by former stockbroker Parekh, to deposit Rs 50 crore by September 11 or else face detention in civil prison. This was the same case involving the pay order that BOI was fighting.

Parekh and his group companies used to produce pay orders issued by the Mandvi branch of MMCB and Fort branches of Standard chartered, erstwhile Global Trust Bank, and UTI Bank favouring group accounts. The stock exchange branch of BOI remitted money into the current accounts of Parekh's group companies discounting the pay orders. The suit against Parekh began when MMCB did not honour pay orders worth Rs 137 crore.

Parekh was accused of indulging in circular trading and was convicted for stock manipulation in 2008. In 2009, the capital market watchdog banned 26 entities after its investigations found that several companies and brokers were trading on Parekh's behalf. In March 2014, a special CBI court convicted Parekh for cheating and sentenced him to two years of rigorous imprisonment. Currently, Parekh is out on bail.

AFTER 18 YEARS

• BOI claims Rs 1,800 crore dues on a principal amount of Rs 130 crore with an interest rate of 18.50% accrued over the years
   
• The court has also ordered 6% interest payments on the principal over this period
   
• Ketan Parekh was accused of indulging in circular trading and was convicted for stock manipulation in 2008