Mumbai shipyard faces allegations of US$3 bln bank fraud
India’s Central Bureau of Investigation (CBI) has launched a probe into incidences of fraud that were allegedly committed by a local private shipbuilder between 2005 and 2012.
In a recent press release, the CBI said the fraud is primarily on account of huge transfers by Mumbai-based ABG Shipyard to its related parties and subsequently making adjustment entries.
It is also alleged that huge investments were made in the shipyard’s overseas subsidiary by diverting bank loans and funds were diverted to purchase huge assets in the name of its related parties.
Between April 2019 and March 2020, several banks declared the account as fraud based on a forensic audit conducted in 2018.
The State Bank of India (SBI) submitted a complaint on August 25, 2020 after the CBI had raised queries in the complaint made in 2019. The SBI complaint was intended to look into the matter of aforesaid bank fraud made by ABG Shipyard and its directors.
In the instant case, there are 28 banks involved in consortium with huge amounts of disbursement. There were different nature of bank loans including CC loan, term loan, letter of credit, bank guarantee, etc., that were given as advance by the banks.
The CBI said ABG Shipyard has been in business with SBI since 2001. As per SBI, the account of ABG Shipyard turned non-performing assets (NPA) on November 30, 2013.
As per Bank Complaint, the NPA is to the tune of approximately INR228.42 billion (US$3.04 billion) 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 a corporate debt restructuring (CDR) mechanism on March 27, 2014. However, the CBI said the operations of the company could not be revived.
A local firm was selected to conduct a stock audit of the shipyard. The firm said it observed “various faults” on the part of the accused company.
Subsequently, the account of ABG Shipyard was declared NPA on July 30, 2016 with effect from November 30, 2013.
In keeping with a policy implemented since 2014 in relation to 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 a joint lenders meeting dated April 10, 2018. Ernst and Young was appointed as forensic auditor.
As per the usual practice, the forensic audits cover a period starting approximately three to four years prior to the date of declaration of NPA, which, in this case, was 2016. The forensic audit of ABG Shipyard therefore covers the period from 2012 to 2017.
After analysis of basic facts of the case, scrutiny, discreet verification, and the issues mentioned in the complaint and verification of the addresses of the accused persons, a first information report (FIR) was registered on February 7, 2022.
In continuation of the investigation, searches at 13 locations were conducted on Saturday, February 12.
The CBI said 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 and are now being scrutinised. Bank account details of the accused as well as related parties were also obtained during these searches.
Subsequently, look out circulars (LOCs) against the accused have already been opened by CBI. Earlier, SBI had also opened LOCs against the main accused in 2019.
The CBI said further correspondences are being made with the consortium banks to provide details including documents with regard to sanction of the loan and its disbursal.