Exclusive: ED probes largest investor in Future Generali

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Kishore Biyani led Future Generali India Insurance’s deal with Shendra Advisory Services has come under the scanner of the Enforcement Directorate (ED).

Shendra Advisory Services (earlier called Shendra Infrastructure Development), which is the largest investor in Future Generali India, had approached Reserve Bank of India (RBI) earlier this year for compounding amount (settlement through penalties) for the lapses it made in declaring its foreign funding sources.

While Shendra has been an investor in the general insurance company for almost 11 years, it was said to be in violation of the Foreign Exchange Management Act (FEMA). Till 2015, the foreign direct investment in the insurance sector was capped at 26 percent. It has now been increased to 49 percent.

According to documents reviewed by Moneycontrol, Shendra holds 49 percent in Future Generali India Insurance.  The company, documents show, had got funds from overseas investors in 2012, thus allegedly violating the FDI cap.

While Generali Participations Netherlands (earlier called Participatie Maatschappij Graafschap Holland holds 25.51 percent, the rest is held by Future Retail.


The transaction

Documents filed with the Ministry of Corporate Affairs by Shendra shows that the company, incorporated on November 11, 2005, had changed its name from Shendra Infrastructure Development to Shendra Advisory Services.

Public disclosures of Future Generali India Insurance show that Shendra had in the December and March quarter of FY13 bought 9,31,00,000 shares in Future Generali India Insurance. The financial details of the transactions are not known. This, could have been an alleged violation of the FEMA provisions, according to sources.

A year ago, at the end of FY12, Shendra had purchased additional 2,20,50,000 shares compared to a year ago. Details of the source of funds and size of the deal have not been disclosed.

In a parallel transaction, Shendra Advisory Services had in March 2012,  issued shares (of Shendra) to Participatie Maatschappij Graafschap Holland​ (now renamed Generali Participations) in two transactions in 2012. This was a when Shendra was the largest shareholder in Future Generali and the Holland company was the foreign JV partner in the non-life venture.

MCA documents showed that a premium of Rs 2,490 per share was paid during the transaction with the Netherlands-based entity. The share value was Rs 10 per share.

The main objective of FEMA is to facilitate external trade and payments. It also looks to promote the orderly development and maintenance of foreign exchange market in India.

A source told Moneycontrol “Future Generali India Insurance single largest investor, Shendra Advisory Services, did not disclose properly at the time of investment as to what was the source and quantum of funding from the foreign shareholder. For settling this issue, they have approached the Reserve Bank of India (RBI)”.

Responding to a query from Moneycontrol, the Future Generali spokesperson said, “Long back, the Shendra Advisory Services (the Company) had received a communication from ED seeking certain information/documents to which the Company responded with the desired information. Since then the Company has not received any further communication.”

RBI did not respond to a query sent by Moneycontrol.

An email sent to the contact information details available in a public forum for Shendra Advisory Services did not elicit any response.

However, in the same deal, the Enforcement Directorate has started preliminary inquiry against this deal in FEMA violation. Shendra Infrastructure development received foreign funding and then they invested in Future Generali.

In cases of FEMA violation, RBI usually refers the matter to the ED.

A source in the department told Moneycontrol, “There is suspicion that a foreign company who invested in Shendra might be close associate company of Future group”.

The Enforcement Directorate may look into this matter in FEMA violation. And if the violation becomes true, the agency can put a penalty of upto 300 percent of total investment, on the company.

As per the public disclosures of Future Generali India Insurance, the earliest mention of Shendra comes in the year ended March 2008. However, the company mentioned then is Shendra Infrastructure Development. The company is mentioned as a joint venture promoter as per the public documents filed with the insurance regulator.

However, from March 2010 (till present) the name of the company has been mentioned as Shendra Advisory Services. It is also tagged as a joint venture promoter.

As of March 31, 2019, Shendra Advisory Services held 39,67,03,705 shares of the 60,32,53,705 shares held by Indian promoters in Future Generali India Insurance. The rest of the Indian promoter stake is held by Future Retail. Collectively, Future Retail and Shendra hold 74.49 percent stake in the entity.

The insurance company is a profit-making entity. Future Generali India Insurance (FGII) posted a net profit to Rs 118 crore for FY19, showing a 50 percent jump over the previous year.

Not much information is available on Shendra Advisory Services. However, public records show that it was incorporated in 2005. ​

Meanwhile, while the foreign JV partner in Future Generali India Insurance had expressed intent to hike its stake in the non-life insurer to 49 percent, public disclosures show that it still holds 25.51 percent at the end of FY19.