Currently the second-biggest bank fraud to have been ever investigated by the CBI, the ABG Shipyard Bank Fraud Scam case made consistent headlines earlier this year.
In this case, Team YLCC aims at explaining the ABG Shipyard Case in detail. Read on!
ABOUT THE COMPANY
ABG Shipyard Pvt. Ltd., previously Magdalla Shipyard Pvt. Ltd., was formed in 1985 in Surat. The shipyard was involved in the manufacture and repair of ships. Ever since it delivered its first ship in 1990, the ship builders have manufactured and delivered over 165 ships. Out of these 165, some were even made for international markets.
Magdalla Shipyard Pvt Ltd changed its name to ABG Shipyard Pvt Ltd in May 1995 and went public in June 1995. The company was successful in bagging an order from the Indian Government to make two interceptor boats for the Indian Coast Guard in 2000. By 2011, the company acquired the licence to build defence ships and even submarines.
The company flourished during 2010-11 during which time it recorded its highest turnover of INR 114 Cr.
HISTORY OF THE CASE
The case came to light after a complaint was filed to the Central Bureau of Investigation by the State Bank of India on November 8, 2019. The CBI, on March 12, 2020, sought some clarifications on the complaint from the SBI. Following this, a fresh complaint was once again filed by the SBI in the August of 2020. In its complaint, the SBI said ABG Shipyard Limited (ABGSL) is the flagship company of the ABG Group, which is engaged in the business of ship building and ship repair.
After examining this complaint for over a year and a half, the Bureau finally acted on the complaint, filing a First Information Report (FIR) on February 7.
HOW IT HAPPENED
Remember how the company was clocking record turnovers in 2010-11?
This peak was quickly followed by massive downfall for the company. The financial crash of 2007-08 which affected economies worldwide also caused multiple entities to withdraw their orders worth crores of rupees from ABG. As a result of this, the company’s profit for the year 2012-13 fell to INR 107 Cr. The subsequent years were worse- ABG suffered staggering losses of INR 199 Cr., INR 897 Cr., and INR 3704 Cr.
Due to this unprecedented crash, ABG Shipyard now began to borrow significant amounts from multiple banks to sustain itself in the business- this was also the official reason for taking on paper.
Among others, ABG Shipyard owes Rs. 7,089 crore to ICICI Bank, Rs. 2,925 crore to SBI, Rs. 3,639 crore to IDBI Bank, Rs. 1,614 crore to Bank of Baroda, Rs. 1,244 crore to Punjab National Bank, Rs. 1,327 crore to Exim Bank, Rs. 1,244 crore to Indian Overseas Bank and Rs. 719 crore to Bank of Baroda, among others.
According to official reports, these funds were allegedly used to pay the loans and expenses of ABG Group of Companies and diverted to subsidiaries like ABG Singapore and other offshore parties instead of using them to help uplift the shipbuilding business. In addition to this, around INR 83 Cr. Was also paid to companies like Aries Management Services, GC Properties, and Gold Croft Properties, which were possibly related parties to ABG SL.
Needless to say, with the loan amount misused, ABG Shipyard’s performance did not witness an improvement in the slightest- in 2013, the State Bank of India declared ABG’s account as Non-Performing Asset (NPA) and also found the company in breach of its Master Restructure Agreement. The MRA is a document issued to a company under the debt restructuring policy of NCLT that allows financially ill to have their borrowings restructured at lower interest rates or reduced principal amount. ABG SL’s subsidiary ABG Singapore was supposed to release its investment in units of Standard Chartered Trust. This investment was worth ₹236 crore and was meant to provide the ship makers with liquid funds. However, instead of releasing the investment, ABG allegedly decided to invest ₹322 crore more into ABG Singapore instead and these funds were eventually diverted to tax havens. This, and several other similar activities brought the total amount for which fraud was committed to INR 22,842 Cr.
Once ABG Shipyard was declared as an NPA, the bank initiated an internal inquiry in which it was found that the company was cheating the consortium of Banks by diverting funds to different entities. Following this development, in keeping with a policy implemented since 2014 of red-flagging suspect accounts, commissioning forensic audits by empanelled forensic auditors, and making CMDs liable, a forensic audit was initiated based on the lenders’ decision in the Joint Lenders Meeting on 10 April 2018. The shock forensic audit was conducted on the company by Ernst & Young in 2019 for the period between April 2012 to July 2017. The audit found that ABG had committed four counts of fraud which included diversion of funds, misappropriation and criminal breach of trust.
WHAT IS THE CURRENT SITUATION?
- A Look-Out Circular is currently (LoC) is currently in effect against the accused of the case which includes Rishi Kumar Agarwal, Santhanam Muthaswamy, Ashwani Kumar, Sushil Agarwal and Ravi Vimal Nevetia.
- The National Company Law Tribunal ordered the liquidation of the company in 2019. After an auction of the company’s assets found the bidders, the NCLT allowed the private sale of the same.
- The assets attached for the liquidation process include 5 ships, 92,000 sq m residential land in Bharuch and Gaviar, 4.14 lakh sq m industrial land near Magdalla port, and 27 acres of agricultural land in Diamond Harbour, Kolkata.
YLCC would like to thank the Content Team for their valuable insights in this article.
