Investors allege Muthoot mis-sold them Srei bonds

A clutch of retail investors has alleged that employees of Kerala-based Muthoot Group mis-sold them non-convertible debentures (NCDs) of Srei Equipment Finance Ltd, passing them off as bonds from a sister company. Srei Equipment is now under insolvency resolution, and the investors’ funds are stuck.

About 49 people, several of them retirees who have transacted with Muthoot for a decade, have come forward so far, some of them approaching local police. Mint spoke to four such investors and a lawyer they have appointed to pursue their case legally. They said the 49 people together invested 10.2 crore in Srei Equipment bonds over 2017 and 2018.

Muthoot’s employees claimed that Srei was a sister concern of Muthoot and effectively part of the Muthoot group while selling the NCDs, the investors said. They said they found out their money was in a Kolkata-based company only after the principal and interest were not paid after maturity, some as late as the end of end-2022, a year after Srei was admitted to insolvency.

Susan Mathew, an investor from New Delhi, said she first took a gold loan from Muthoot in 2009 and has been a customer ever since. In 2018, Mathew said she received a call from an employee telling her about an investment opportunity with high returns. “My husband and I together invested 34.7 lakh under the impression that we are investing in Muthoot,” said Mathew, a 59-year-old retiree. When the amount was not credited to her bank account after the bonds matured, Mathew contacted Muthoot and was informed that her money was in Srei NCDs.

Mathew said she tried to meet top company executives in December 2022 but was told to wait a few months. Investors said they later found out about Srei’s insolvency and have decided to gather as many affected people as possible to file a writ petition in the Kerala High Court.

“Neither promoters nor directors of Muthoot Finance or any of the companies within the Muthoot Group has a financial interest in Srei Equipment Finance Ltd. Muthoot Securities Ltd acted as one of the brokers in the public issue of NCDs made by Srei Equipment Finance Ltd,” K.R. Bijimon, executive director and chief operating officer, Muthoot Finance, said in an emailed statement.

Bijimon said Muthoot Securities, under an arrangement, utilized the branch network of Muthoot Finance to collect the application forms and cheques from investors who invested in the NCDs of Srei Equipment Finance. “The repayment of interest/principal of Srei NCD will be decided by the committee of creditors (CoC) headed by the Reserve Bank of India (RBI) administrator,” he said.

Meanwhile, investors said they feel disappointed with how Muthoot has treated them after years of association. Molly Mohan, another investor, said she invested 5 lakh each in the name of her two sons and is awaiting repayment.

“My funds were in a private bank, and a branch manager from Muthoot told me about an investment opportunity. I had no idea my money was being invested in Srei as the cheques were issued in favour of Muthoot Securities,” said Mohan.

To be sure, it is not uncommon for brokers to get cheques in their name to make investments on behalf of clients. In fact, Muthoot’s Bijimon said that in case of purchase from the secondary market, investors may issue cheques in the name of broker Muthoot Securities.

There is also the case of K.L. Thomas, a retired engineer in Kerala, who invested 6 lakh in 2018 and was issued a certificate saying the investment was made in Srei Equipment Finance. Thomas said he became suspicious, and when he enquired, he was told that Srei was a related company.

Experts said that to effectively combat misselling in India, a comprehensive strategy is essential.

“With regards to the retail investors who cumulatively invested 10 crore in Srei Equipment Finance’s NCDs, it is yet to be determined whether their allegations are substantiated,” said Sonam Chandwani, managing partner at law firm KS Legal & Associates.

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