Is First International Group, a company that has offered to buy Electrosteel Steels Ltd from a group of banks, a front for Dharmesh Doshi, a shadowy figure from the second big stock exchange scandal to roil Indian markets?

Indeed, experts have already red-flagged this as one of the factors that banks have to watch out for when they acquire control of companies that are unable to repay their loans.

The story begins earlier this year when a consortium of lenders to Electrosteel Steels set out to identify a buyer for the 50% equity they received in the company in return for Rs.2,500 crore in unpaid debt through a conversion under the strategic debt restructuring scheme.

An unlikely candidate emerged as a possible buyer.

Its name was First International Group Plc. (which quaintly abbreviates as FIG). The only other contender was Tata Steel Ltd. Since FIG was offering Electrosteel creditors a better deal, they were leaning towards a sale to it.

FIG approached SBI Capital Markets, which was working on behalf of lenders, with an expression of interest in Electrosteel Steels, said a banker familiar with the negotiations who spoke on condition of anonymity

As news of the likely deal spread, the question on everyone’s mind was—what is FIG? A glance at the company’s website shows that it is a London-based entity which deals in securities.

Next question—why is a securities company interested in buying an Indian steel company?

To this the bankers had no answer.

Bankers asked the local arm of audit firm Deloitte India to conduct forensic due diligence exercise on the company. The deal is currently in cold storage pending the results of this audit.

Meanwhile, documents accessed by Mint suggest close links between FIG and Doshi, an associate of stock broker Ketan Parekh, who was banned from the Indian markets in 2001. They also show that FIG had extensive dealings with both Doshi and his company, Jermyn Capital Partners, which, in turn, had some dealings with Electrosteel.

Doshi, along with Ketan Parekh, was one of the key accused in the stock market scam of 2001 and had been barred from the Indian markets for life. That was the second major scam to roil Indian markets; the first took place in the early 1990s and was masterminded by Harshad Mehta, Parekh’s mentor.

The Securities and Exchange Board of India (Sebi) found links between Jermyn Capital Llc., London-based Jermyn Capital Partners Plc. and Doshi. In a 13 January 2006 order, Sebi noted that “Jermyn Capital Partners Plc was formerly known as Triumph Securities UK Plc which was a 100% subsidiary of Triumph International Finance (India) Ltd (TIFIL) through its Mauritius based subsidiary International Holdings (Triumph) Ltd”.

“SEBI had earlier conducted investigations in the wake of the ‘Stock Market Scam of 2001’ and initiated various punitive actions against TIFIL and its directors including Mr. Ketan V. Parekh, Mr. Kartik K. Parekh, Mr. Dharmesh Doshi, Mr. Jatin R. Sarvaiya and Mr. A.R Kapadia. While Mr. Ketan Parekh and three other Directors of TIFIL were arrested in May 2002, Mr. Dharmesh Doshi evaded arrest and is still absconding,” said the 13 January 2006 order.

While Jermyn Capital Partners Plc. was barred from the Indian Securities market, it continued to remain active in the UK. In 2010, the company changed its names to Orbit Investment Securities Services Plc. It continues to function under that name.

Arundhati Bhattacharya, chairperson of State Bank of India, which heads the consortium of lenders to Electrosteel Steels, did not respond to an e-mail seeking comment.

Bankers must exercise due caution while working with potential buyers of stressed assets, said an expert.

“In its most recent guidelines on SDR, the regulator has stated very clearly that banks are required to do additional due diligence on the new buyers and establish that they are not related or are associates of the current promoter group. The onus of finding out all possible details about the buyer remains with the banks. They must consider any red flags which are raised in respect of a potential buyer and should be cautious in who they are dealing with,” said Dinkar V., partner, transaction advisory services, at global consulting firm EY.

Dinkar, who also heads the restructuring and stressed asset turnaround unit of EY, was not commenting on the Electrosteel case in particular.