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ABG Shipyard Bank Fraud: All You Need to Know

Feb 15, 2022 7:18 AM 4 min read

It is the biggest bank fraud case registered by the Central Bureau of Investigation (CBI) yet.

Last week, the agency lodged an FIR against Surat-based shipbuilding company ABG Shipyard Ltd. for allegedly committing a fraud of ₹22,842cr ($3.03bn).

The firm reportedly used funds “for purposes other than for which they were released by banks”, thereby scamming SBI, ICICI Bank, IDBI Bank, and 25 other banks and financial institutions.

ABG apparently siphoned the money between April 2012 and July 2017. The same was brought to SBI’s notice following a forensic audit by Ernst & Young in 2019. The lender duly alerted CBI, alleging “diversion of funds, misappropriation, and criminal breach of trust with an objective to gain unlawfully at the cost of [the banks’ funds]”.

The accused include ABG’s Chairman and MD Rishi Kamlesh Agarwal, Executive Director Santhanam Muthaswamy, and several other associates.


Fall from Grace

ABG Shipyard, which was incorporated in 1985, was once a big name in the shipbuilding and ship repair business. The flagship firm of the ABG Group, it was one of the largest private shipbuilders in the country, boasting of contracts with the Indian Navy, Coast Guard and the Shipping Corporation of India, among others. 

However, a brutal slowdown in the shipping sector and falling demand for commercial vessels led to piling debts and a swift fall. 

Since 2013 (which was when its accounts began to be tagged as NPAs), all news has been bad news for ABG. It was admitted under the corporate debt restructuring programme (unsuccessfully) and also tried to court investors like Mahindra & Mahindra, SP Group and Liberty House for a stake sale (unsuccessfully). 

Finally in July 2017, ABG admitted before an NCLT bench that it had defaulted on loan repayments. A month earlier, amid the worsening NPA crisis, the RBI had made a surprise announcement: it would personally recommend large stressed accounts for insolvency proceedings under the recently-unveiled Insolvency and Bankruptcy Code (IBC). 

ABG was one of the 12 accounts selected by the Central Bank. At ₹15,500cr ($2.06bn), ABG’s outstanding dues were the bulkiest among the lot. 

Liquidation was ordered in May 2019 - but, again, there were no takers. A year later, the NCLT green-lighted the private sale of the company’s assets, hoping for quicker resolution. 


Murmurs of Misdeeds

Meanwhile, another storm was brewing. Besides poor finance management, ABG was hit by allegations of financial malpractice. Standard Chartered Bank took the company to court on a complaint of criminal conspiracy after it failed to repay ₹200cr ($26.52m) to the lender, alleging that ₹794cr ($105.29m) was siphoned off by ABG to its Group companies (including Western India Shipyard, PFS Shipping India and ABG Resources) even as losses and debt mounted.

In its forensic audit of ABG’s books, E&Y found several red flags that detailed collusion between the Group promoters and directors to illegally divert funds between 2012 and 2017. Investments were reportedly made via a Singapore-based subsidiary and there were payouts running into hundreds of crores to related parties. Properties were also bought from the funds provided by ABG Shipyard.

The audit report was submitted in January 2019 and SBI - which was among the top lenders to ABG, although ICICI leads in exposure - filed its first complaint with CBI that year. A fresh complaint was filed in August 2020. And now, after scrutinising the allegations, the CBI has finally booked ABG under the IPC and the Prevention of Corruption Act.

Searches conducted at 13 locations at Surat, Bharuch, Mumbai, Pune etc., led to the “recovery of incriminating documents”, the CBI said.


Political Fest

Perhaps unsurprisingly, the ABG case has developed a political flavour, with Opposition parties questioning why it took so long to file an FIR in the first place and flagging the promoter’s proximity to the Prime Minister. 

Congress spokesperson Randeep Singh Surjewala alleged that the company was allotted 1.21 lakh square metres of land in Gujarat in 2007 (when Narendra Modi was CM of the State) at half the actual price. Shiv Sena’s Priyanka Chaturvedi tweeted that Rishi Agarwal travelled with Modi to several countries before and now, even as his firm drowns in litigation, he is conveniently a Singaporean citizen.


Growing Pile of Ships

The NPA crisis has thankfully mellowed down from its 2017 and 2018 peaks, the risks of a pandemic-induced spurt notwithstanding. The ABG saga is a remnant of an era that Indian banking would be all too eager to forget. Regulators have every reason to quickly resolve this mess, especially considering the sheer scale of the scam (28 lenders!) and the importance of not reversing the larger trend of falling NPAs.

That said, if the case against Rishi Kamlesh Agarwal and co. becomes a case of fugitive economic offenders, expect a painfully drawn-out resolution process.


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