ABG Shipyard Limited, one of the India’s largest private sector shipyard firm, has been booked by the Central Bureau of Investigation (CBI) for defrauding 28 banks to the tune of Rs 22,842 crore.
Along with the firm, which is into ship building and repair, its Directors Rishi Agarwal, Santhanam Muthuswamy and Ashwini Kumar have also been named as accused in the case.
It is one of the biggest bank fraud (bigger than Punjab National Bank scam involving Nirav Modi and Mehul Choksi) cases which the CBI will be investigating.
According to the FIR filed on complaint of State Bank of India (SBI), the forensic audit report revealed that from April 2012 to July 2017, the accused colluded with each other and committed illegal activities including diversion of funds, misappropriation, and criminal breach of trust and for purposes other than for the purpose for which the funds are released by the bank.
The group is promoted by Rishi Agarwal, who has been major player in the Indian ship building industry. ABG Shipyard Limited (ABGSL), shipyards has capacity to build vessels up to 18,000 dead weight tonnage (DWT) at Surat Shipyard and 1,20,000 dead weight tonnage (DWT) at Dahej Shipyard.
ABGSL has constructed over 165 vessels (including 46 for export market) in the last 16 years including specialised vessels like 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.
ABGSL also had reportedly bagged contracts from Indian Navy to built ships in 2011, however, the contract was later terminated as the firm was financially struggling.
The FIR also mentions, “Global crisis has impacted the shipping industry due to fall in commodity demand & prices and subsequent fall in cargo demand. The cancellation of contracts for few ships/vessels resulted in piling up of inventory. This has resulted in paucity of working capital and caused significant increase in the operating cycle, thereby aggravating the liquidity problem & financial problem. There was no demand of commercial vessels as the industry was going through downturn even in 2015. Further, there was no fresh defense orders release in 2015. The company was finding it very difficult to achieve milestones as envisaged in CDR. Thus, company was unable to service the interest and instalments on due date.”
The company has been referred to NCLT (National Company Law Tribunal) of Ahmedabad bench which had allowed the official liquidator for ABG Shipyard to carry out a private sale of the assets.
ABG shipyard owes Rs 2,925 crore to SBI, Rs 7,089 crore to ICICI Bank, Rs 3,634 crore to IDBI Bank, Rs 1,614 crore to Bank of Baroda, Rs 1,244 to PNB and Rs 1,228 crore to Indian Overseas Bank.
The CBI, sources told India Today, is also conducting searches at the premises linked to the accused.
ABG Shipyard was incorporated on 15 March 1985, has been banking arrangements since 2001. Financed under Consortium arrangement over a two dozen lenders. The leader in Consortium was ICICI Bank. Due to poor performance, the account became NPA on 30/11/2013. Several efforts were made to revive the company operations but could not succeed.
The account was restructured under the CDR mechanism in March 2014 by all lenders. However, as the shipping industry was going through a downturn, one of the worst ever seen, the operations of the company could not revive.
As the restructuring failed, the account was classified as NPA in July 2016 with backdated effect from 30th Nov. 2013. E&Y was appointed as Forensic Auditor by lenders during April 2018 and they submitted their report on January 19. E&Y report was placed before the Fraud Identification Committee of 18 Lenders in 2019. Fraud is mainly attributed to diversion of funds, misappropriation, and criminal breach of trust.
Although, ICICI Bank was the lead lender in the consortium and IDBI was the second lead, it was preferred that SBI being the largest PSB lender, lodges the complaint with CBI. The first complaint was filed with CBI in Nov 2019. There was a continuous engagement between CBI and Banks and further information was getting exchanged.
The circumstances of the fraud, as well as CBI requirements, were further deliberated in the various meetings of Joint Lenders and a fresh and comprehensive second complaint was filed in Dec. 2020. The account is presently undergoing liquidation under an NCLT driven process.
A fraud is declared basis the Forensic Audit report findings that are discussed thoroughly in joint lenders meetings. Typically when fraud is declared, an initial complaint is preferred with CBI, and based on their enquiries further information is gathered. In a few cases, when substantial additional information is gathered, a second compliant incorporating full and complete details is filed which forms the basis for the FIR. At no point in time, there was any effort to delay the process. The lender’s forum diligently follows through with CBI in all such cases.
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