ABG Shipyard Bank Scam


ABG Shipyard, a Surat-based shipbuilding company owned via Rishi Kamlesh Agarwal, become once considered to be a powerhouse within the shipbuilding enterprise. However, the company is now in the news for all the wrong reasons after the Enforcement Directorate (ED) booked it for all allegedly cheating a consortium of 28 banks of over Rs 22,842 crore.

The action comes days after the Central Bureau of Investigation (CBI) registered a first Information Report (FIR) in the country’s biggest alleged bank loan fraud case to date. 

The CBI said ABG Shipyard’s former chairman and managing chairman director (MD) Rishi Kamlesh Agarwal and other officials have been booked for allegedly duping a consortium of 28 banks which include the kingdom financial institution of India (SBI), ICICI bank, bank of Baroda, crucial bank of India, and others. 

About ABG Shipyard

The company was incorporated on March 15, 1985 as Magdalla Shipyard Pvt Ltd, and has been engaged in shipbuilding and ships repair business since then. It has its registered office in Ahmedabad at the same time as ship yards are placed in Surat and Dahej. The group’s MD and chairman is Rishi Agarwal.

ABG Shipyards has constructed more than 165 vessels in last 16 years. The report claimed that the group has also constructed specialised vessels such as floating cranes, self- discharging and loading bulk cement, interceptor boats, newsprint carries, etc.  

A Change in fortune 

In 2007-08, the company suffered a financial crash. From 2012 it started suffering huge losses. With the aid of March 2016, ABG Shipyard’s internet loss had elevated to Rs 3,704 crore even as sales had declined to Rs 37 crore.

This compelled ABG Shipyard to take big loans from numerous banks, including the SBI.However, the organization as per reports transferred this money to offshore parties and remote places subsidiaries. This reportedly took place from 2012 to 2017.

 CBI Register a Case 

The SBI had first registered a case against the ABG Shipyard on November 8, 2019, following which CBI sought some clarification on March 12, 2020. In August 2020, the SBI filed a fresh complaint. After nearly one and a half years, the CBI filed an FIR after “scrutinizing” the complaint,

As per the information on CBI website, ABG Shipyard allegedly cheated the 28 banks for Rs 22,842 crore. Out of this amount, the company owns ICICI Bank Rs 7,089 crore, SBI 2,925 crore, IDBI Bank Rs 3,639 crore, Bank of Baroda Rs 1,614 crore, PNB Rs 1,244 crore, Exim Bank Rs 1,327, Indian overseas Bank Rs 1,244 crore and Bank of India Rs 719 crore.

In its statement, the CBI said funds (Banks Loans) were used by the company and its promoters for purpose other than for which they were released by banks. The mortgage account turned into declared a non-acting in July 2016 and fraud in 2019.

In between April 2019 to March 2020, various Banks of the consortium declared of M/s ABG Shipyard as fraud. The fraud is on the whole resulting from massive transfer via M/s ABG Shipyard Ltd to its relate events and subsequently making adjustment entries.’ It said.

 It also alleged that huge investment were made in its overseas subsidiary by diverting the bank loans and fund to purchase huge assets in the name of its related. During the perusal of data and initials investigation, its miles visible that the vital length become 2005-2012 it added.

What was the SBI Complaint? 

The SBI in its complaints said the ABG Shipyard is the flagship company of the ABG Group which engaged in the business of shipbuilding and ship repair. It said there was no demand for commercial vessels as the industry was going through a downturn even in 2015 which was further aggravated due to lack of defence orders, making it difficult for the company to maintain a re- payment schedule.

“Worldwide catastrophe has impacted the transport business enterprise due to fall in commodity call for and next fall in cargo call for. The cancelation of contract for few ships and vessels resulted in piling up for inventory. This has resulted in paucity of working capital and caused significant increase in the operation cycle, thereby aggravating the liquidity problem and financial problem.

A Forensic audit blew the cover 

The alleged fraud came to light during a forensic audit that Ernst and Young LLP (also known as EY) conducted in January 2019, for a period between April 2012 and July 2017. The audit found that the fraud had taken place during this period, according to the FIR.

The finding of audit report, showed that fraud was conducted through “diversion of funds, misappropriation, and criminal breach of trust, with an objective to gain unlawfully at the cost of the bank’s funds,” the SBI said in its complaint.

According to FIR ABG owes a total of Rs 22,842 crore. Out of this amount, it owes ICICI (which was leading the consortium) Rs 7,089 crore, SBI Rs 2,925 crore, IDBI Bank Rs 3,639 crore, Bank of Baroda Rs 1,614 crore, Punjab National Bank Rs 1,244 crore, Exim Bank 1,327, Indian Overseas Bank Rs 1,244 crore, and Bank of India Rs 719 crore, among others.

Facts of the Case 

The ABG Shipyard, corporate debtor ran the Shipbuilding business. Its business involved importing of raw material for ship building purpose and exporting of the finally completed ships to various other countries. Imported raw material for the same stored in custom bonded warehouses in Gujarat and in Maharashtra. The warehouse entries were maintained regularly. The ABG Shipyard was licensed under Export Promotion Capital Good Scheme (“EPCG Scheme”). On 01.08.2017, the “National Company Law Tribunal” Ahmedabad stated the “Corporate Insolvency Resolution Process (CIPR) against the ABG shipyard. NCLT also declared a moratorium in its above order. The appellants demanded the warehoused goods from the respondent issued five notices to the appellant regarding the custom duties and interest on the same due to non fulfilment of the export requirement under EPCG licensing. An order for liquidation was passed against the corporate debtor by NCLT under Section 33(2) of IBC wherein the appellant was appointed as the liquidator. The earlier orders regarding the moratorium were seized.

Thereafter, the respondent issued the attention concerning custom dues on 11.07.2019 to the company debtor. The 2020 order said that respondent should give the goods to appellant without any customs charge and gave the respondent to file a custom charge and gave the respondent the freedom to file its claim. The respondent. Same was challenged by the appellant.

Issued Raised 

  • Whether the provision of IBC prevail over the Custom Duties Act and to what extent.
  • whether the respondent has right to claim the goods and sell them

Analysis of the Legal Provision Involved 

  • Section 72 of the Custom Act 

The custom dues are required to be paid in case of imported goods. In case the goods are warehoused and proper precaution are not taken by the corporate debtor in the prescribed time period, the Central Board of Indirect tax under Section 72 has the power to impose custom duties and interest and then sell the good if required.  

  • Section 14 of the IBC

Section 14 of the IBC says that the period of the moratorium begins on the date of initiation of insolvency proceedings against the company. Throughout the moratorium duration, no different legal movement or lawsuits may be started out in opposition to the corporate Debtor In the present case, the notices were issued underneath the customs Act after the CIRP lawsuits have been initiated. So Section 14 of the IBC applies inside the present case

During the period of the moratorium, “Central Board of indirect taxes and Customs” may account or inspect their custom duties and taxes but the same cannot be claimed as no legal proceedings can initiated during the period of moratorium. Thus, the claim of the respondent is violative of Section 14 of IBC  

  • Section 33(5) of the IBC, 2016 

The above phase of the IBC says that moratium maintains even though the agency is going into liquidation. Therefore, when within the above case, the liquidator turned into appointed, the duration of moratorium continued, thus quickly suspending all different lawsuits against the stated organization.

  • Section 142 A of the Customs Act, 1962

It says that any liability under the Customs Act should be taken firstly subject to some acts particularly mentioned in the section. One of the acts mentioned in the section. One of the acts mentioned in the section include IBC. Therefore, the Customs Act is subject to IBC and IBC would apply in case there conflicts between both.

  • Section 238 of IBC, 2016 

Section 238 of the IBC says that IBC applies irrespective of any law in force in India. Therefore, according to Section 238 of IBC, The Customs Act, 1962 would not apply and the liquidator of the company has all right to ask for goods in the warehouse which were seized under the Customs Act.

Decision of the Court 

The court decided in the favour of liquidator that is appellant in the present case. The court held that the insolvency and Bankruptcy Code applies over the custom Duties Act in the present case. The “Central Board of Indirect Taxes and customs” was wrong in calming that the creditor debtor, that is ABG Shipyard had no right to warehoused goods.

The Court referred to the case of S.V. Kondaskar vs. V.M. Deshpande wherein it was held in respect of Section 446 of the “Companies Act, 1956 with the Income Tax Act, 1961” that the authorities have every right to determine the taxes, dues or any penalty or interests on such dues for that matter but the said determined amount could not be claimed during the period of moratorium. Relying on the above Judgement, the honourable Court allowed the liquidator access to the warehoused goods in the case at hand determining that during the moratorium proceedings under IBC, the Customs Act would not prevail.


The honourable Court held that the IBC prevails over all other laws. All through the moratorium imposed via the IBC, no felony proceedings may be accomplished in opposition to the company the said approach because the same would prevent the multiplicity of suits. Moreover, the said approach will also protect the company from unnecessary halts in the functioning preventing the losses and the company would remain a going concern. The decision would remain a going concern. The decision would help in protecting the interest of the shareholder and investor of the company at the time of liquidation. The Supreme Court’s selection became relevant taking a holistic method rather than focusing on the mere accumulation of custom obligations.

Author: Mudit Vikaram Singh a 3rd year student at Bareilly College, Bareilly.

ABG Shipyard Bank Scam

Leave a Reply

Your email address will not be published. Required fields are marked *