Hyderabad: The Enforcement Directorate filed a protest petition in the LB Nagar court against the closure of the 370 crore global depository receipt (GDR) fraud case involving Farmax India Limited.
Telangana CID‘s economic offences wing (EOW) had filed a closure report in Oct 2024, citing insufficient evidence as the reason for the case’s closure. The ED asserted that there was enough evidence, including property attachments and a prosecution complaint already filed.
In its protest petition, the ED highlighted that the closure of the case, despite the initiation of Prevention of Money Laundering Act proceedings and the filing of the prosecution complaint, affects its case. The Hyderabad police commissioner also wrote to the director general of police, seeking a re-examination of the case. The case was initially registered with Dundigal police.
The ED alleged that Farmax India, a company involved in manufacturing FMCG products, used the services of Sanjay Aggarwal and other accused to raise GDRs worth $71 million through fraudulent means. These GDRs were issued in two transactions on June 29, 2010, and Aug 14, 2010.
The company allegedly manipulated the market by falsely announcing subscriptions to inflate its share price. The GDRs, purchased without actual fund transfers, were reportedly converted into equity shares, which were then dumped in the domestic market, deceiving investors. The share price rose from 24 to 36 during this period.
The ED’s investigation revealed that Morthala Srinivasa Reddy, a complainant-turned-accused in the case, allegedly colluded with Arun Panchariya to pledge the GDR proceeds as loan security before the issuance of the GDRs, misleading investors. The ED alleged, “Srinivasa Reddy colluded with Panchariya, Jalaj Batra, and Aggarwal to siphon off 370 crore from the scheme and cheat investors.”
The total amount involved included the proceeds of the crime in the case at 319 crore plus 51 crore from the sale of shares to new investors in India. This amount of 370 crore, which was supposed to be received by Farmax India in its Indian accounts, was allegedly transferred to its subsidiary, Farmax International FZE. The funds were allegedly layered through various bank accounts before being deposited into Vintage FZE, which was the sole subscriber to the GDRs issued by Farmax India. Vintage FZE reporetedly subscribed to the GDRs using a loan from EURAM Bank.
The ED also said the Securities and Exchange Board of India investigated the GDR issuance and found several individuals guilty, imposing penalties and banning them from the securities market. The ED, in a letter to the ACP, EOW (dated Feb 3, 2025), sought a re-examination of the case.
The letter urged the authorities to reopen the investigation and take appropriate action, as the ED had already filed a prosecution complaint against the accused for money laundering, and the court had taken cognisance of the same.
