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Explained: How ABG Shipyard Defrauded 28 Banks Out of Rs 22,842 Crore

The CBI issued look-out circulars (LoC) against the accused in order to prevent them leaving the country.

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ABG Shipyard, India’s largest private ship building company is in the news, not for the news of a new project but for perpetrating the country’s biggest banking scam in history.

On 7 February, the Gujarat-based firm and its directors were booked by the Central Bureau of Investigations for fraudulent loan defaults to the tune of Rs 22,842 crore. This trumps the scam perpetrated by Nirav Modi and his uncle Mehul Choksi in 2017 who cheated Punjab National Bank of Rs 13,400 crore.

According to the CBI, ABC Shipyard’s former chairman and managing director Rishi Kamlesh and others have booked for duping a consortium of 28 banks, which include the SBI, ICICI Bank, Bank of Baroda, Central Bank of India and others.

And on 15 February, the CBI issued look-out circulars (LoC) against the accused in order to prevent them leaving the country and create another Nirav Modi-Mehul Choksi situation of extradition.

Explained: How ABG Shipyard Defrauded 28 Banks Out of Rs 22,842 Crore

  1. 1. How big a player is ABG Shipyard?

    The company was incorporated on 15 March 1985 and has since been one of the big players in India’s shipbuilding and repair business. Their shipyards are located in Dahej and Surat in Gujarat.

    According to India Today, the company is known for creating newsprint carriers, self-discharging and loading bulk cement carriers, floating cranes, interceptor boats, dynamic positioning diving support vessels, pusher tugs and flotilla for leading companies in India and abroad.

    According to Times of India, the firm has constructed over 165 vessels in the last 16 years. It has gained accreditation and approval from international classification companies like Lloyds, American Bureau of Shipping, Bureau Veritas, IRS, DNV.

    Expand
  2. 2. A Web of Transactions

    The company reportedly took a big hit from the financial crash of 2007-08 and by 2012, its coffers were drained. The crash led to company taking massive loans from several banks.

    However, it diverted this cash to its overseas subsidiaries and even transferred money to several offshore parties. This alleged fraud, according to a probe conducted by E&Y in January 2019, took place between April 2012 and July 2017.

    According to the FIR, lodged by SBI in November 2019 which is available on the CBI website, the company owes a total of Rs 22,842 crore. Out of this amount, it owes ICICI (which was leading the consortium) Rs 7,089 crore, SBI Rs 2,925 crore, IDBI Bank Rs 3,639 crore, Bank of Baroda Rs 1,614 crore, Punjab National Bank Rs 1,244 crore, Exim Bank Rs 1,327, Indian Overseas Bank Rs 1,244 crore, and Bank of India Rs 719 crore.

    The FIR states that ABG Shipyard has indulged in four specific instances of fraud through “diversion of funds, misappropriation, and criminal breach of trust, with an objective to gain unlawfully at the cost of the bank’s funds.”

    At the crux of the scam is a web of transactions made by the shipping firm. The money loaned by ABG Shipyard, according to the FIR, was used to repay loans and pay for expenses of ABG Group of Companies and for letters of credit. This money was used to purchase properties being linked from funds provided by ABG Shipyard.

    “After review of annual reports of ABG SL for financial year 2014-15 and ledgers it appears that ABG SL had paid accommodation deposits worth Rs 83 crores in total to companies like Aries Management Services, GC Properties, Gold Croft Properties, before review period (in 2007-08). And these parties were potentially related to ABG SL and its promoters,” reads the FIR.

    Expand
  3. 3. The Delay in Flagging the Fraud

    The first complain by the the consortium of banks, led by SBI, was filed in November 2019, eight months after the fraud was uncovered by the E&Y probe.

    In a statement on 13 February, SBI said that ABG Shipyard has been banking with the firm since 2001 and that the “due to poor performance, the account became a NPA (non-performing asset) on 30 November 2013” and that “several efforts were made to revive the company operations.”

    The statement further reads that an attempt the restructure the account was made in March 2014 but given the company dwindling finances, the business could not be revised. “As the restructuring failed, account classified as NPA in July 2016 with back dated effect from 30/11/2013.

    Though ICICI Bank was the lead lender in the consortium of banks ABG Shipyard did business with, SBI was case as the one to lodge the complaint since it is the largest PSB lender. The first complain was field with CBI in November 2019.

    However, according to a Times of India report, this complain by returned by the CBI, who sought an internal investigation by the bank. The investigation concluded a year later and SBI filed a second complain on December 2020.

    Now, since December 2020, the SBI, according to the newspaper report, has been doing its own analysis to the extent of the fraud and formally acted on the complaint on 7 February, 2022.

    Expand
  4. 4. The CBI Probe So Far

    The CBI probe revealed that latest 98 companies were floated by ABG Shipyard to divert funds, which were later used to create personal assets for the companies.

    However, here is the twist and the kicker: the CBI probe states that the critical period in which the fraud took place was between 2005-2012, going against what the E&Y probe found in 2019.

    “As per SBI’s complaint, the NPA is to the tune of ₹22,842 crore (approx.) and the majority of the disbursement happened between 2005 and 2012 by a consortium of 28 banks led by ICICI Bank and including SBI. The account was restructured under CDR (corporate debt restructuring) mechanism on March 27, 2014. However, the operations of the company could not be revived,” CBI spokesperson RC Joshi said in a statement.

    CBI has also carried out searches at 13 locations in the premises of accused including private directors in Surat, Bharuch, Mumbai and Pune.

    "Several incriminating documents, such as books of accounts of the accused borrower company, purchase/sales details, minutes of meetings of Board, share registers, various contract files, etc were recovered which are being scrutinised. Also, bank account details of the accused as well as related parties have been obtained," the agency said.

    The agency on 15 February has issued lookout circulars against the shipping firms former chairman and managing director Rishi Kamlesh Agarwal along with the then executive director Santhanam Muthaswamy, directors Ashwini Kumar, Sushil Kumar Agarwal and Ravi Vimal Nevetia.

    Expand
  5. 5. What the Centre Has Said About the Scam

    As the news of the FIR and lookout notices surfaced, the Congress party and Opposition mounted an attack on the BJP-led Centre, raising issues with the timeline of the events.

    In a press conference, Congress’ National Spokesperson Randeep Surjewala asked, “Why did it take five years after the liquidation proceeding of ABG Shipyard to lodge even an FIR for duping 28 banks of Rs 22,842 crore?"

    In response, Union FInance Minister Nirmala Sitharaman stated that there has been no delay in determining the fraud and that it usually takes “52-56 months”. The FM also attacked the 2014 Congress-led UPA regime, stating that the loans were given when they were in power.

    "I am sitting in RBI premises, so I don't want to talk too much of politics, but I am sorry the kind of noise coming the biggest 'ghotala' in Prime Minister Narendra Modi's time. Not at all. This was a loan given well prior to 2013 and it had even become an NPA by 2013. So people dig holes into which they themselves fall," the finance minister said in a statement.

    "They made the noise, not realizing that it was all then (UPA regime) and we have taken lesser time to detect it take action...So action is happening here like the way it happened for every other major bank defaults," Sitharaman said.

    (At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)

    Expand

However, the twist in the story is that the fraud was first flagged in January 2019 by an independent probe launched by SBI and conducted by Ernest and Young. According to that probe, the fraud was committed between 2012-2017. But the complaint to CBI was only registered by SBI in November 2019, with the CBI filing a formal complaint on 7 February 2022.

Apart from a storm and fury from the Opposition over the delay in the case, the case has raised the following questions: How did the fraud go undetected for so long? How exactly did the scam take place and most pertinently, why was there a delay in registering an FIR?

Here is everything you need to about the ABG Shipyard scam:

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How big a player is ABG Shipyard?

The company was incorporated on 15 March 1985 and has since been one of the big players in India’s shipbuilding and repair business. Their shipyards are located in Dahej and Surat in Gujarat.

According to India Today, the company is known for creating newsprint carriers, self-discharging and loading bulk cement carriers, floating cranes, interceptor boats, dynamic positioning diving support vessels, pusher tugs and flotilla for leading companies in India and abroad.

According to Times of India, the firm has constructed over 165 vessels in the last 16 years. It has gained accreditation and approval from international classification companies like Lloyds, American Bureau of Shipping, Bureau Veritas, IRS, DNV.

0

A Web of Transactions

The company reportedly took a big hit from the financial crash of 2007-08 and by 2012, its coffers were drained. The crash led to company taking massive loans from several banks.

However, it diverted this cash to its overseas subsidiaries and even transferred money to several offshore parties. This alleged fraud, according to a probe conducted by E&Y in January 2019, took place between April 2012 and July 2017.

According to the FIR, lodged by SBI in November 2019 which is available on the CBI website, the company owes a total of Rs 22,842 crore. Out of this amount, it owes ICICI (which was leading the consortium) Rs 7,089 crore, SBI Rs 2,925 crore, IDBI Bank Rs 3,639 crore, Bank of Baroda Rs 1,614 crore, Punjab National Bank Rs 1,244 crore, Exim Bank Rs 1,327, Indian Overseas Bank Rs 1,244 crore, and Bank of India Rs 719 crore.

The FIR states that ABG Shipyard has indulged in four specific instances of fraud through “diversion of funds, misappropriation, and criminal breach of trust, with an objective to gain unlawfully at the cost of the bank’s funds.”

At the crux of the scam is a web of transactions made by the shipping firm. The money loaned by ABG Shipyard, according to the FIR, was used to repay loans and pay for expenses of ABG Group of Companies and for letters of credit. This money was used to purchase properties being linked from funds provided by ABG Shipyard.

“After review of annual reports of ABG SL for financial year 2014-15 and ledgers it appears that ABG SL had paid accommodation deposits worth Rs 83 crores in total to companies like Aries Management Services, GC Properties, Gold Croft Properties, before review period (in 2007-08). And these parties were potentially related to ABG SL and its promoters,” reads the FIR.

ADVERTISEMENTREMOVE AD

The Delay in Flagging the Fraud

The first complain by the the consortium of banks, led by SBI, was filed in November 2019, eight months after the fraud was uncovered by the E&Y probe.

In a statement on 13 February, SBI said that ABG Shipyard has been banking with the firm since 2001 and that the “due to poor performance, the account became a NPA (non-performing asset) on 30 November 2013” and that “several efforts were made to revive the company operations.”

The statement further reads that an attempt the restructure the account was made in March 2014 but given the company dwindling finances, the business could not be revised. “As the restructuring failed, account classified as NPA in July 2016 with back dated effect from 30/11/2013.

Though ICICI Bank was the lead lender in the consortium of banks ABG Shipyard did business with, SBI was case as the one to lodge the complaint since it is the largest PSB lender. The first complain was field with CBI in November 2019.

However, according to a Times of India report, this complain by returned by the CBI, who sought an internal investigation by the bank. The investigation concluded a year later and SBI filed a second complain on December 2020.

Now, since December 2020, the SBI, according to the newspaper report, has been doing its own analysis to the extent of the fraud and formally acted on the complaint on 7 February, 2022.

ADVERTISEMENTREMOVE AD

The CBI Probe So Far

The CBI probe revealed that latest 98 companies were floated by ABG Shipyard to divert funds, which were later used to create personal assets for the companies.

However, here is the twist and the kicker: the CBI probe states that the critical period in which the fraud took place was between 2005-2012, going against what the E&Y probe found in 2019.

“As per SBI’s complaint, the NPA is to the tune of ₹22,842 crore (approx.) and the majority of the disbursement happened between 2005 and 2012 by a consortium of 28 banks led by ICICI Bank and including SBI. The account was restructured under CDR (corporate debt restructuring) mechanism on March 27, 2014. However, the operations of the company could not be revived,” CBI spokesperson RC Joshi said in a statement.

CBI has also carried out searches at 13 locations in the premises of accused including private directors in Surat, Bharuch, Mumbai and Pune.

"Several incriminating documents, such as books of accounts of the accused borrower company, purchase/sales details, minutes of meetings of Board, share registers, various contract files, etc were recovered which are being scrutinised. Also, bank account details of the accused as well as related parties have been obtained," the agency said.

The agency on 15 February has issued lookout circulars against the shipping firms former chairman and managing director Rishi Kamlesh Agarwal along with the then executive director Santhanam Muthaswamy, directors Ashwini Kumar, Sushil Kumar Agarwal and Ravi Vimal Nevetia.

ADVERTISEMENTREMOVE AD

What the Centre Has Said About the Scam

As the news of the FIR and lookout notices surfaced, the Congress party and Opposition mounted an attack on the BJP-led Centre, raising issues with the timeline of the events.

In a press conference, Congress’ National Spokesperson Randeep Surjewala asked, “Why did it take five years after the liquidation proceeding of ABG Shipyard to lodge even an FIR for duping 28 banks of Rs 22,842 crore?"

In response, Union FInance Minister Nirmala Sitharaman stated that there has been no delay in determining the fraud and that it usually takes “52-56 months”. The FM also attacked the 2014 Congress-led UPA regime, stating that the loans were given when they were in power.

"I am sitting in RBI premises, so I don't want to talk too much of politics, but I am sorry the kind of noise coming the biggest 'ghotala' in Prime Minister Narendra Modi's time. Not at all. This was a loan given well prior to 2013 and it had even become an NPA by 2013. So people dig holes into which they themselves fall," the finance minister said in a statement.

"They made the noise, not realizing that it was all then (UPA regime) and we have taken lesser time to detect it take action...So action is happening here like the way it happened for every other major bank defaults," Sitharaman said.

(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)

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