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Bank losses in Parekh case may go up to Rs 8.43 billion

Onkar Singh

Leading Bombay stockbroker Ketan Parekh, who was arrested by the Central Bureau of Investigation on Friday, will be produced before the designated CBI court, where the agency will ask for his remand.

The arrest was made on the basis of a letter written by the chief vigilance office of Bank of India, who complained that Parekh, along with two associates -- Kirti N Parekh and Kartik Kumar Parekh -- had allegedly defrauded the bank of Rs 137 crore (Rs 1.37 billion) by encashing fake pay orders issued by the Madhavpura Mercantile Cooperative Bank Limited (Mandvi Branch, south Bombay).

"This complaint was received by the CBI yesterday and today a regular case was registered by the agency for investigation. The matter is being investigated under the supervision of P C Sharma, special director, CBI. Mr Davas, joint director, led the teams that conducted raids at 11 places in Bombay. Initial scrutiny of the documents reveals that one bank could have been defrauded of Rs 843 crore (Rs 8.43 billion). There are other banks from where the brokers have encashed pay orders. Though we have not made any other arrest, further arrests are not ruled out," Bureau spokesman S M Khan said.

The CBI did not rule out the complicity of some Madhavpura Bank and BoI officials in the case. Parekh and his associates have been charged with defrauding the bank, cheating and forgery. Some Madhavpura Bank officials, who issued the pay orders to the brokers, could also be booked under the Prevention of Corruption Act besides being charged with complicity in the offence.

The Bureau said the Madhavpura Bank issued six pay orders worth Rs 62 crore (Rs 620 million) to various companies floated by Ketan Parekh and his associates on March 8, 2001. The pay orders were issued in the names of Panther Investrade Limited (Rs 10 crore) and Class Credit Limited (Rs 20 crore; pay orders number 064413 and 064414 worth Rs 10 crore each). Another pay order worth Rs 12 crore was issued to Class Credit Limited. Two pay orders worth Rs 10 crore each were issued to Panther FinCap and Management Services Limited.

On March 9, 2001, the bank issued seven more pay orders to the same companies totalling Rs 75 crore. Three pay orders -- worth Rs 12 crore, Rs 10 crore and Rs 10 crore, respectively -- were issued to Panther FinCap and Management Services Limited. Three pay orders worth Rs 33 crore were issued to Classic Credit Limited; one pay order worth Rs 10 crore was issued to Panther Investrade.

While the pay orders issued on March 8 were sent for clearance to the Bank of India's Service branch at Ballard Estate, south Bombay, the next day, the pay orders issued on March 9 were sent for clearance on March 12 (March 10 and 11 being bank holidays).

'The first lot of six pay orders purchased on March 8 was returned from the Reserve Bank of India to the Bank of India's service branch on March 20 along with a computer-generated statement dated 15.3.2001,' a statement issued by the Bureau said. 'The reason quoted for returning the pay orders was cited as the inability of the Madhavpura Mercantile Co-operative Bank to meet the clearing liability. The same reason was given for the return of the other pay orders later on.'

During scrutiny of Ketan Parekh's accounts at Bank of India's Stock Exchange branch, the CBI said it was revealed that Rs 435 crore (Rs 4.35 billion) had been drawn from the account of Panther Investrade Limited in favour of Nakshatra Software Private Limited during the period March 3, 2001 to date.

Similarly, Rs 396 crore were drawn from the Class Credit Limited account in favour of Chitrakoot Computers Private Limited between January and March this year. Rs 364 crore were drawn from Panther Fincap Management Services in favour of Goldfish Computers Private Limited, the CBI statement said.

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