Cox and Kings, Forensic Audit (PwC) uncovers siphoning of crores, fudging of records and bogus sales

Cox and Kings, promoted and controlled by Ajay Ajit Peter Kerkar and his family, was sent to bankruptcy court in October 2019, after it defaulted on payments. While the promoter group owns 12.20 per cent shares in the company, the public owns the remaining 87.80 per cent.

The travel and tour company owes Rs 5,500 crore to banks and financial institutions and was one of the top borrowers of Yes Bank Ltd when co-founder Rana Kapoor was heading it.

Yes Bank has an exposure of more than Rs 2,267 crore to Cox & Kings Group. Last month, Ajay Ajit Peter Kerkar was summoned for questioning by the Enforcement Directorate (ED) in connection with the money laundering case against Kapoor.

The forensic audit has alleged that most of the related party transactions (SA-550) of Cox & Kings were executed without “proper approvals” from its board and without any loan agreement.

Transactions worth Rs 21,000 crore over four years (2015-2019) done mainly to siphon off funds; falsifying records; a Rs 1,100-crore loan from a “brother to a brother” that violated basic fiduciary norms; sales worth Rs 9,000 crore to over 160 customers who are bogus or do not exist, inflated bank balances and a string of defaults — these are among a slew of alleged irregularities highlighted in the forensic audit of bankrupt travel firm Cox and Kings.

The investigation has found that Cox and Kings gave Rs 1,100 crore to Alok Industries, a stressed firm that went bankrupt in 2017, even as the travel firm did not have any business relationship with the company.

Significantly, when the loan was given, the Chief Financial Officer of Alok Industries was Sunil Khandelwal, who is also brother of Cox & Kings CFO Anil Khandelwal.

Apart from this, in financial year 2019 alone, Cox & Kings loaned Rs 589 crore to at least 11 related parties “without executing loan agreements”.

“Prima facie it appears that these loans have been granted to related parties without obtaining the requisite approvals/documentation, which raises a suspicion that these transactions have been done with the intent of siphoning off funds,” said the investigation report.

The audit report on Cox & Kings has alleged that the company indulged in “falsification” of its financial statements between 2014 and 2019 by “overstating its sales figures and understating its debt”. It has also highlighted several “fictitious” transactions of the firms.

Insight on the fraud :

Redkite Capital, set up in 2010, is owned by four firms controlled by Anil Khandelwal, Chief Financial Officer (CFO) of Cox and Kings; his father, Om Prakash Khandelwal; Naresh Jain, the internal auditor of Cox and Kings; and the Jain and Khandelwal family. 

Redkite, records show, used the Rs 150 crore raised from Ezeego to acquire a controlling stake of 32.81 per cent in a government-promoted financial institution, Tourism Finance Corporation of India (TFCI), between February and March 2019 after the approval from the Reserve Bank of India (RBI).

Probe records show that Ezeego did not disclose its first investment of Rs 80 crore in Redkite Capital in January 2018, in its audited balance sheets of that financial year.

Significantly, TFCI is also one of the lenders of Cox and Kings.

The bankrupt travel firm owes about Rs 100 crore to TFCI, according to data obtained from the Registrar of Companies (RoC).

This loan was given to Cox and Kings before Redkite Capital became the majority shareholder of TFCI. 

The audit reports and bank accounts were allegedly forged.