Analysing The ABG Shipyard Fraud Case

Author- Mahendra Pratap Bharti , BALLB 3rd year Student, Gautam Buddha University, Greater Noida

Abstract

The first thing that comes to mind whenever we hear the words like Fraud or Scam is that someone’s hard-earned money has illegally been snatched away by some people who assume themselves sharper than anybody else. Scams or frauds can happen in many ways, but let’s suppose you are a daily wage earner and somehow you are managing your daily needs. You still try to save some of those earnings for your family’s future needs. The first institution that a normal man prefers for saving his money is a bank. Suppose you have been continuously saving your earnings by depositing them into a bank for a few years, and one day you hear the news on the radio or television or read it in the newspaper that the bank where you have deposited your hard-earned money has been scammed by some rich businessmen whom your bank gave a huge amount of money as a loan, but they flew away without paying it back. Your bank has collapsed now, all your saved money has been stolen from the institution that a common person trusts most. Whenever a scam or fraud happens, it is the poor who surfers most, either directly or indirectly. One of such frauds came to light in 2022, when news came out that the CBI (Central Bureau of Investigation) had registered a case against Mr. Rishi Agarwal on February 07, 2022 for doing a scam worth 22,842 crore rupees by cheating a huge number of banks in India. Mr. Rishi Agarwal is chairman and managing director of the ABG Shipyard Company, which took heavy loans from a total of 28 banks in the name of expanding its business. This paper will highlight the history of the ABG Shipyard Company, and its director will also present the events that led to this fraud. The paper will examine the reasons for these types of frauds and present a way forward.

Key words: ABG Shipyard, scam, fraud.

Introduction

On February 7, 2022, the Central Bureau of Investigation (CBI) registered a case against Mr Rishi Agarwal, who is chairman and managing director of ABG Shipyard Company, along with another managing director, Santhan Muthuswamy, and three other directors, namely Ashwini Kumar, Sushil Kumar Agarwal, and Ravi Viman Nevetia. The CBI has registered a case of criminal conspiracy, fraud, and criminal breach of trust against them for doing a scam worth Rs 22,842 crores from a consortium of banks that included a total of 28 banks in India. They are all accused of wrongfully using the amount they took from the banks as a loan for the business purposes of the ABG Shipyard Company. Before we move into the depths of what happened that caused this scam, let us first get some information about Mr. Rishi Agarwal and the ABG Shipyard Company.

Who is Rishi Agarwal, and what is the ABG Shipyard Company?

Mr. Rishi Agarwal is chairman and managing director of the ABG Shipyard Company. He was born in 1966 in Kodrama, Jharkhand, but since childhood, he has always wanted to move to Mumbai. He did his graduation from Purdue University, America. Rishi always wanted to start a business in ship manufacturing and maintenance. He bought Magdala Shipyard from RS Nakara for Rs 8 lakh and later renamed the company ABG Shipyard Company.

ABG Shipyard Company was incorporated in 1985. Since then, the company has indulged in the work of ship manufacturing and maintenance. Company has its registered office in Ahmedabad, Gujarat, and its corporate office in Mumbai. It has shipyards at Dahej and Surat in Gujarat. Since its incorporation, the company has built around 165 ships and has sold them to multiple nations of Europe, the Middle East, and East Asia. Indian Navy and Indian Coast Guards are also customers of the company. Within 15 years of its incorporation, the company became the biggest shipbuilding company in India.

Background of the Scam

Since its incorporation, the company has had good business and gained a good reputation in the market. The company emerged as the biggest shipbuilding company in India and even gained accreditation and approval from some of the international classification companies like the American Bureau of Shipping, Lloyds, Bureau Veritas, DNV, etc. The company has subsidiaries in several countries for its business.

When everything was going well for the company, then the company got heavily affected by the financial crash during 2007–08, and by the end of 2012, the company’s coffers had vanished. The company lost all its capital and was declared an NPA (non-performing asset) by the banks in 2013. Later, attempts were made to revive the company, but they were of no use. The company started taking huge loans in the name of reviving its business from different banks of the country.

Another thing to note here is that a CAG report was presented in the Gujarat Legislative Assembly on July 25, 2014, stating that the Gujarat government has given 2 lakh, 68 thousand square metres of land to ABG Shipyard Company on lease for thirty years. The company had to pay advance rent for the same, but another CAG report, which was present in May 2013, revealed that the company had not paid rent dues worth Rs. 1 crore, 13 lakhs. Now the doubt arises: when the company was a non-performing asset (NPA) and it was not even paying rent dues from some year, the banks still funded the company with heavy loans. What was the reason behind that. This raises questions for the banks about the procedures they follow for granting loans to these big companies.

A forensic audit was carried out in 2019 by Ernst & Young, and it revealed that the company took heavy loans from banks as much as possible and shifted all the funds to its subsidiaries outside the country. The loans that were taken to revive the company were smoothly shifted outside the country.

Let’s understand the series of events that took place that highlighted this scam:

In January 2019, a panel discussion was held on the forensic audit report. The banks that had given the loans to ABG Shipyard Company also attended the session, and they all together declared the ABG Shipyard company a fraud.
It was discovered in the panel discussion that ABG Shipyard Company took loans from April 2012 to July 2017 from 28 different banks worth Rs 22,842 crore.
The SBI (State Bank of India), a part of the consortium of banks that gave loans to companies, filed a complaint to the CBI (Central Bureau of Investigation) for the first time on November 8, 2019.
Following that complaint, the CBI sought some clarification on some allegations in the complaint from the SBI dated March 12, 2020. Later on, the SBI again filed a complaint with the CBI, dated August 25, 2020.
On February 7, 2022, the CBI finally registered the case against ABG Shipyard Company and its directors.

This can be noted while looking at dates: when the SBI first filed the complaint and when the CBI registered the case, there was a gap of almost 3 years between them. This time and delay in registration of the complaint gave enough time to flee the country. However, the CBI conducted some search operations after registering the case and raided the offices and residences of the accused, but they were of no use.

Amount that each bank lost

ABG Shipyard Company committed frauds totalling Rs 22,842 crore from 28 different banks. Out of them, ICICI Bank suffered the most, which gave a loan of Rs 7,089 crores to the company. The second position is taken by IDBI Bank, which lost Rs 3,634 crore; the next is SBI, which lost Rs 2,925 crore. The next bank in the series is Bank of Baroda, which suffered a loss of Rs 1 thousand 614 crores; then comes PNB, which lost a whopping amount of Rs 1 thousand 244 crores; and next is Indian Overseas Bank, which lost nearly 1 thousand 288 crores of rupees. The remaining 22 other banks suffered a loss of estimated Rs 5 thousand 108 crores.

This data is horrible since each bank has suffered huge losses, Now think about who will ultimately be affected by this fraud. Let’s understand why this is known as the biggest banking scam in India by looking at some of the other big banking scams in India.

Neerav Modi and Mehul Chowksi, PNB Scam

The Nirav Modi banking scam came to light in 2018. When news circulated that Nirav Modi, along with Mehul Chowksi, did a banking scam involving a whopping amount of Rs 13,570 crore from the Punjab National Bank (PNB), There were allegations that a few bank officials were also involved in the scam. However, the case was registered against both. But till now, there has been no recovery of lost money.

Vijay Mallya banking scam

Another scam came to light in July 2015, when the news circulated that Vijay Mallya, after doing a scam worth Rs 9 thousand crores from 17 different banks, had left the country. Since then, several attempts have been made to arrest Vijay Mallya, but still, there has been no recovery of the lost money.

ABG Shipyard Scam

This scam came to light when the CBI registered the case on February 7, 2022, against Rishi Agarwal and some other directors of the ABG Shipyard Company. The company has been accused of a scam worth 22 thousand 842 crores from 28 different banks in the country. As of now, when I am writing this article in April 2024, there has been no recovery of the lost, and neither the accused have been arrested.

They all left the country after doing the scam, and the government has not been able to locate and arrest them.

An article was published in the Business Today, dated August 25, 2020, which revealed that during the financial year of 2019-20 rose by 159% in comparison with the financial year 2018–19. There was a scam worth Rs 71,534 crore during the financial year of 2019, and it was increased to a whopping amount of Rs 1,71,000 crore during the financial year of 2020.

Another article that got published in Business Today revealed that during the financial year 2021, India faced a total of 229 banking scams per day, of which a huge amount of Rs 1,38,000 crore has been scammed.

Now think, when a country loses this much in the scams, who ultimately gets affected? What are the consequences that these frauds caused? All these questions need to be answered to stop further scams from happening.

Reasons for the Scam

Reputation of the Company

Companies, through their businesses, develop a good reputation in the market, and later on, when they make a slight mistake, people casually ignore them.

The company uses this reputation to influence the banks to advance them huge loans. After getting it, they slowly shift all the money to foreign subsidiaries and eventually leave the country. Till the time people get notice that the scam has happened, those scammers have already left the country.

Political Influence

Another reason for the scams is political influence, the companies usually give huge amounts of donations to the government. And the government will, in return, offer them protection and help them in their need.

You might have heard the Electoral Bonds news recently, in which you can clearly observe that nearly 50% of the total donation, was made to only one party, which is currently in the central government.

These donations to the government help the companies easily get contracts and get their work done with the assistance of the authorities.

Corruption

The last but not least reason for the scams is corruption, whether it is institutional corruption, political corruption, or any other form of corruption. As I mentioned in the PNB banking scam, there were allegations against bank officials who assisted Nirav Modi and Mehul Chowksi in the scam.

Way forward

When we look at the scams, the first thing that we can observe is a failure of performance of duty on the part of any individual. To stop the happening of these banking scams, the banks should be very cautious while granting loans; they should verify all the relevant information as well as check the history of the companies or persons who are seeking loans. As you can observe in the ABG shipyard scam, the CAG report has already revealed that the company was not even paying the rent due on the land that was given to it by the government, and the company was declared as non-performing asset (NPA) by the banks. Still, banks chose to grant heavy loans to the company without carefully observing whether the company would be able to return it in the future or not.

Another thing that we can observe is the delay in registering the case by the CBI, so the next point is that the agencies should be aware and ready, they should quickly respond as soon as they get the information about the scams. The quick response might save the money from getting transferred to out of the country, and the defaulters can easily be arrested.

Lastly, the thing that is the need of the hour is the enactment of strict laws to punish these defaulting companies or the persons who are responsible for causing these scams.

References