ED seizes over Rs 8 crore after searches against Chennai-based power firm in FEMA case

The Enforcement Directorate (ED) Wednesday said it has seized more than Rs 8 crore in cash after it searched the premises of a Chennai-based power generation company for alleged violation of FDI rules and foreign exchange law.

The two-day long searches under the Foreign Exchange Management Act (FEMA) were launched on November 11 at the premises of the OPG Group “controlled” by one Arvind Gupta.

The OPG Group had received Foreign Direct Investments (FDI) to the tune of Rs 1,148 crore from Seychelles-based companies set up by family members of Gupta for use in the power sector, as per ED.

“However, investigations show that the funds were misused and multiple violations of FEMA provisions have come to light including mis-declaration to RBI,” it said in a statement.

The agency said it found that a “significant” portion of the said FDI funds intended for investments in the power sector, subject to certain conditions under the FDI policy, were “illegally” routed into the stock market, including investments in mutual funds, and was also invested in land and real estate.

Such investment and routing of funds is strictly prohibited under FDI guidelines and funds brought in as foreign direct investment must be used within the specified sector, it said.

A substantial amount, as per the agency, was “converted into cash” with the assistance of vendor companies, which have facilitated the issuance of “fake” invoices, enabling the group to withdraw funds in the form of physical currency.

It said hand-written notes related to generation and utilisation of the cash were recovered during the searches.

“The management of OPG Group had set up several overseas joint ventures and companies in Dubai, Isle of Man, Seychelles, Singapore, and Hong Kong, through which a significant portion of the diverted funds was allegedly parked abroad.

“These foreign entities are under investigation to determine the full extent of the financial flows and whether these funds were used for money laundering or other illicit activities,” ED said.

The agency said a cash amount of Rs 8.38 crore was seized from the office premises of the company and from the residences of its directors during the raids.

The agency is also investigating “potential” violations of anti-money laundering law too in this case.