Explained: The bank fraud case that led to Jet Airways founder Naresh Goyal's arrest

Fresh troubles are mounting for Jet Airways, India’s private airline as the Enforcement Directorate late Friday night arrested its founder Naresh Goyal in a money laundering case linked to an alleged bank fraud of Rs 538 crore at the Canara Bank.

He was taken into custody under the Prevention of Money Laundering Act (PMLA) following a long session of questioning at the central agency’s office in Mumbai, reported PTI.

The 74-year-old is expected to be produced before a special PMLA court in Mumbai on Saturday where the ED will seek his custodial remand, the news agency reported citing the officials.

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The case

The money laundering case stems from an FIR of the Central Bureau of Investigation (CBI) registered on 3 May against Jet Airways, Goyal, his wife Anita and some former company executives in connection with the alleged Rs 538-crore fraud case at the Canara Bank.

The CBI FIR was registered on the bank’s complaint which alleged that it sanctioned credit limits and loans to Jet Airways (India) Ltd (JIL) to the tune of Rs 848.86 crore of which Rs 538.62 crore was outstanding.

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Raids and allegations

The CBI had said the account was declared “fraud” on 29 July 2021.

The bank alleged that the forensic audit of Jet Airways (India) Ltd (JIL) showed that it paid “related companies” Rs 1,410.41 crore out of total commission expenses, thus siphoning off funds from JIL.

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The agency claims that the airline spent Rs 1,152.62 crore on professional and consulting costs between 1 April 2011 and 30 June 2019. Key managerial staff members are also allegedly related to these businesses, which have been identified as the source of suspicious transactions totalling Rs 197.57 crore.

According to the probe, Jet Airways paid 420.43 crore of the total 1,152.62 crore in professional and consultancy fees to organisations whose business nature did not correspond to the service descriptions on their invoices.

“As per sample agreement of JIL, it was noted that the expenses of General Selling Agents (GSA) was to be borne by GSA itself and not by JIL. However, it was observed that JIL has paid various expenses amounting to Rs 403.27 crore which is not in tune with the GSA,” the complaint now part of the CBI FIR alleged.

It added personal expenses such as salaries of staff, phone bills and vehicle expenses among others of the Goyal family were paid by JIL.

Among other allegations, it surfaced during the forensic audit that funds were also siphoned off through Jet Lite (India) Ltd (JLL) by way of making advance and investing and subsequently writing off of the same by making provision. JIL diverted the funds for subsidiary JLL in the form of loans and advances and investments extended.

Goyal was taken into custody on Friday following a long session of questioning at the ED’s office in Mumbai. The CBI conducted a raid on Jet Airways’ old offices and the founder’s residence on 5 May in relation to the Canara Bank fraud. The Enforcement Directorate (ED) had carried out eight raids against Goyal and others involved in the case in July.

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Another similar case

In February, another money laundering case against Goyal, linked to alleged cheating and forgery filed by Mumbai-based Akbar Travels, was quashed by the Bombay High Court after the Maharashtra Police filed a closure report stating it found no substance in the complaint and the dispute seemed to be civil in nature.

As this ED case was based on police FIR, and was the predicate offence for filing a money laundering case, it was declared quashed by the high court.

A division bench of justices Revati Mohite Dere and Prithviraj Chavan quashed the ECIR (Enforcement Case Information Report or the ED equivalent of an FIR) registered on February 20, 2020, and all proceedings against Goyals on the ground of “being illegal and contrary” to law.

Insolvency

Goyal founded Jet Airways as a limited liability corporation in April 1992.

During the financial crisis in March 2019, he and his wife stepped down from the Jet Airways Board of Directors. In April same year, a severe cash shortage and growing debt forced the airline to discontinue operations.

In June 2021, following a protracted insolvency procedure, the airline was acquired by a partnership between tycoon Murari Lal Jalan of the UAE and London-based Kalrock Capital.

With inputs from PTI