CHENNAI: The Enforcement Directorate’s investigation of PC Financial Services Ltd (PCFS), a Gurugram-based fintech company giving online loans at usurious rates of interest to crores of Indians, has found that they had illegally transferred Rs 429 crore through bogus transactions to its foreign sister concerns, ultimately benefitting its Chinese owners.
An October 7 order by the adjudicating authorities in Chennai slapped PCFS with a fine of Rs 2,146.48 crore for these violations under Section 4, 10(6) and 42(1) of the Foreign Exchange Management Act (FEMA). Properties worth Rs 252.36 crore of the company in India already seized were ordered for confiscation.
The underlying intent of PCFS was to ingest hard-earned money of susceptible Indian borrowers and transposition the revenue to overseas masterminds, ED sources said.
Incorporated in 1995, PCFS had obtained a NBFC license in 2002 and was later taken over by a Chinese national through some sister concerns. While it had Indian directors and officials, they were dummies as all decisions were taken from outside India by Chinese beneficial owners, ED sources added.
The company used to give unsecured personal micro loans (Rs 1500 - Rs 60,000) to Indians through the mobile app ‘Cashbean’ after charging a huge processing fee. The repayment had to be done in 15-120 days. Official data show that the app had been downloaded five crore times and Rs 10,339 crore had been sanctioned from January 2019 to March 2021 with the company recovering Rs 11,227 crore, and earning a processing fee of Rs 1,171 crore.
The Reserve Bank of India (RBI) found that the company was charging usurious rates of interest and cancelled its licence. They were also using RBI and CBI logos to recover loans from borrowers, which is a gross violation.
During its probe, ED found that PCFS had remitted Rs 429.29 crore out of the illegally earned revenue as payment to vendors, which were foreign sister concerns of its parent company Opera group, by projecting it as ‘fees’ paid for technical, management, advertising, and marketing services. These payments were bogus and violations under FEMA, ED sources said, adding that PCFS was making parallel payments to domestic vendors for the same services.
The invoices were generated with bogus claims to indirectly transport the fruits of profits of business to beneficial owners in China through PCFS related companies overseas, ED sources said.
For instance, Rs 272 crore was paid to an Opera subsidiary Hongkong Fintango as licence fee for the Cashbean app. However, PCFS had been using the app for eight months free of cost prior to Hongkong Fintango even being incorporated. ED questioned why the app was first given free and later an exorbitant licence fee charged. The app earlier was earlier licenced from Mobimagic, which was also a related Opera firm, leading ED to conclude that Cashbean was an in-house app.
PCFS had employed a similar modus operandi to make other payments to Opera’s overseas sister concerns – Rs 110 crore was sent for technical services while Rs 86.51 crore for domestic expenditure under the same head. For management services, Rs 8.5 crore was paid to Tenspot Hongkong, a firm related to Opera, but the agreement was with the latter. These foreign payments were made under the pretext of non-existent incoming foreign software services, ED sources said.
ED found the dealings between PFCS and other Opera Group companies murky as they were incognito. PCFS too was being completely controlled by overseas Chinese owners, with local officers being used as dummies just to ratify their decisions.