The ABG Shipyard Fraud - Explained | MBA Interviews Current Affairs

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.

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How Much Money Does ABG Shipyard Owe To Banks?

Bank	Amount (In INR Crores)
ICICI Bank	7,089
SBI	2,925
IDBI Bank	3,639
Bank of Baroda	1,614
Punjab National Bank	1,244
Exim Bank	1,327
Indian Overseas Bank	1,244
Bank of India	719

Apart from the above, ABGSL also owes small amounts to other banks.

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Why Is This Scam India’s Biggest Bank Fraud?

The previous frauds by diamond trader Nirav Modi and his uncle Mehul Choksi accounted for over INR 14,000 crore, whereas the fraud by Vijay Mallya accounted for INR 9,900 crore.

What Is The Scam?

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 the 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.

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 reviewing annual reports of ABG SL for the 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.

ABGSL, which turned into a non-performing asset (NPA) in 2013, also violated the terms of Corporate Debt Restructuring (CDR). CDR is a mechanism in which the lender banks either reduce the interest rates on the loans of the distressed borrower company or increase the tenure of the repayment.

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The Delay in Flagging the Fraud

The first complaint by 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 “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 to restructure the account was made in March 2014 but given the company's dwindling finances, the business could not be revised. “As the restructuring failed, the account was 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 the one to lodge the complaint since it is the largest PSB lender. The first complaint was filed with CBI in November 2019.

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

The ABG Shipyard Fraud - Explained

Actions Taken So Far

Recently, CBI booked ABG Shipyard Ltd, its chairman and MD Rishi Kamlesh Agarwal and several others for the alleged bank fraud.

Apart from Agarwal, CBI has named former executive director Santhanam Muthaswamy, former directors Ashwini Kumar, Sushil Kumar Agarwal and Ravi Vimal Nevetia as well as another company ABG International Pvt Ltd. The accused have been charged for offences of alleged criminal conspiracy, cheating, criminal breach of trust and abuse of official position under the various sections of IPC and the Prevention of Corruption Act.

CBI also raided the locations, including office premises and residences of the directors in Surat, Bharuch, Mumbai and Pune, on February 12-13, which led to the recovery of incriminating documents, according to the probe agency’s statement.