Author: Priyanshu Pareek
College: JECRC UNIVERSITY, JAIPUR
Abstract
India’s banking system has witnessed frauds of staggering scale, but none structurally more revealing than the ABG Shipyard case a Rs. 22,842 crore deception that was not merely a corporate crime but an institutional autopsy of how twenty-eight banks, one forensic auditor, the Reserve Bank of India, the Central Bureau of Investigation, and the Enforcement Directorate could collectively fail to prevent, detect, or prosecute financial fraud for nearly a decade. ABG Shipyard Limited, once India’s largest private-sector shipbuilder, methodically siphoned bank loans through a labyrinth of over 100 related companies, offshore subsidiaries, and fictitious transactions between 2012 and 2017 while its account formally became a non-performing asset in November 2013, the CBI FIR arrived only in February 2022. That nine-year gap is not an administrative delay it is a structural indictment. This article examines the legal framework governing bank fraud in India, the cascading institutional failures that the ABG Shipyard case exposes, and argues that without a mandatory unified monitoring framework for consortium lending and time-bound prosecution under the Prevention of Money Laundering Act, India’s banking system remains structurally vulnerable to the same fraud, perpetrated by different names, at the next available opportunity.
To the Point
ABG Shipyard Limited was incorporated in 1985 in Surat, Gujarat, by Rishi Kamlesh Agarwal. Over three decades it grew into India’s pre-eminent private shipbuilder constructing 165 vessels including specialised bulk cement carriers, self-discharging ships, and newsprint carriers from its two yards at Surat and Dahej. Its Dahej facility could build vessels up to 1,20,000 dead weight tonnage among the largest private-sector maritime infrastructure in the country. It had international clients, government contracts, and the unqualified confidence of India’s entire banking establishment.
Between 2005 and 2012, ABG Shipyard raised loans from a consortium of 28 banks and financial institutions, with ICICI Bank as the lead lender. The total borrowing eventually reached Rs. 22,842 crore. The global shipping industry crisis of 2008 hit the company, contracts were cancelled, inventory piled up, and working capital dried out. The account was declared a Non-Performing Asset on 30 November 2013. So far, an unremarkable story of industrial distress. What follows is not. Between 2012 and 2017 including the years after the NPA declaration the company’s promoters allegedly diverted borrowed funds through a web of over 100 related companies, transferred money to overseas subsidiaries, inflated capital expenditure through bogus invoices, and round-tripped funds back to India disguised as foreign investments. Ernst and Young conducted a forensic audit in January 2019 covering the period April 2012 to July 2017. The audit confirmed what the banks should have detected years earlier. The CBI complaint was filed in November 2019. The FIR was registered in February 2022. Rishi Agarwal was arrested in September 2022 nine years after the NPA declaration and five years after the alleged fraud period ended.
Use of Legal Jargon
The legal framework governing the ABG Shipyard fraud operates across four intersecting statutes. First, the Prevention of Money Laundering Act, 2002 (PMLA) the Enforcement Directorate’s primary instrument defines ‘proceeds of crime’ under Section 2(1)(u) to mean any property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence. Cheating under Section 420 of the IPC (now Section 318 of the Bharatiya Nyaya Sanhita, 2023), criminal breach of trust under Section 406 IPC, and criminal conspiracy under Section 120-B IPC all invoked in the ABG FIR are scheduled offences under the PMLA. This allows the ED to attach, freeze, and confiscate assets wherever located, including overseas subsidiaries, under Sections 5, 8, and 17 of the PMLA.
Second, the Prevention of Corruption Act, 1988 (PC Act) invoked in the CBI’s FIR against ABG Shipyard’s directors extends to private individuals who cause loss to public sector banks. Section 13(1)(d) of the PC Act criminalises obtaining valuable things by abusing one’s position. Since SBI and other public sector banks form part of the consortium, their officials who failed to detect or report the fraud may also face liability under the PC Act a dimension of the case that remains underexplored in public discourse.
Third, the Insolvency and Bankruptcy Code, 2016 (IBC) under which the Corporate Insolvency Resolution Process (CIRP) was initiated against ABG Shipyard. Section 29A of the IBC bars wilful defaulters and those convicted of certain offences from submitting resolution plans, preventing fraudulent promoters from regaining control of their looted assets through the insolvency process. The interaction between PMLA attachment and IBC proceedings specifically, whether ED-attached assets are available to the Resolution Professional for distribution to creditors remains an unresolved judicial question, directly relevant to recovery prospects in the ABG case.
Fourth, the RBI’s Master Circular on Wilful Defaulters (2015), consolidated into Master Directions in July 2024, defines wilful default as occurring when a borrower with the capacity to repay deliberately does not, or diverts funds from their sanctioned purpose. Once declared a wilful defaulter, a borrower faces denial of future bank finance, bar from capital markets through SEBI reporting, and directorial disqualification. The nine-year gap between ABG Shipyard’s NPA declaration and its CBI FIR raises a pointed question: why did the wilful defaulter framework not trigger faster action?
The Proof
The Ernst and Young forensic audit of January 2019 documented four distinct modes of fund diversion. The company made investments in overseas subsidiaries directly from loan proceeds a use entirely outside the sanctioned purpose of the borrowing. It purchased assets in the names of affiliated companies, creating an asset base that was legally disconnected from the borrowing entity and therefore beyond the reach of consortium lenders. It transferred funds to related parties through a network of over 100 companies, many incorporated in Singapore and other offshore jurisdictions, making transaction tracing operationally complex. And it inflated capital expenditures through bogus invoices and over-invoicing of equipment purchases, raising more loan capital than operations required and diverting the excess.
The bank-wise exposure at the time of the CBI complaint was stark: ICICI Bank, the consortium leader, held exposure of Rs. 7,089 crore; IDBI Bank Rs. 3,639 crore; SBI Rs. 2,925 crore; Exim Bank Rs. 1,327 crore; Bank of Baroda Rs. 1,614 crore; Punjab National Bank Rs. 1,244 crore; Indian Overseas Bank Rs. 1,244 crore; and Bank of India Rs. 719 crore, with the remaining balance spread across twenty more institutions. Twenty-eight separate lending institutions each with independent credit appraisal teams, internal audit functions, and RBI-supervised inspection regimes simultaneously failed to detect what a forensic audit eventually confirmed in a matter of months.
The most damaging proof of systemic failure is chronological. The account was declared an NPA in November 2013. The RBI conducted its Asset Quality Review in 2014. The account was classified as fraud in January 2019 six years after the NPA declaration. The first complaint was lodged in November 2019. Consent from all 28 consortium banks to file was obtained only between June and August 2020 a further eight-month delay caused by the absence of any mandatory unified complaint mechanism for consortium lenders. The CBI FIR was registered in February 2022. The primary accused was arrested in September 2022. By that point, the alleged fraud period of April 2012 to July 2017 was five years in the past, assets had been moved across jurisdictions, and recovery prospects had been structurally compromised by time.
Case Laws
State Bank of India v. Rajendra Kumar Baranwal Consortium Lending & Lead Bank Responsibility
This case established the principle that in a consortium lending arrangement, the lead bank bears primary responsibility for monitoring the borrower’s account and initiating fraud reporting. In the ABG Shipyard case, ICICI Bank was the consortium leader yet the formal complaint to CBI was filed by SBI, not ICICI. The Centre for Financial Accountability has noted this institutional anomaly as a critical governance failure: the lead bank shifted its reporting responsibility to a public sector bank, and the resulting jurisdictional confusion contributed to the multi-year delay in FIR registration. The legal question of whether lead banks in consortium arrangements bear a statutory duty of care toward co-lenders remains incompletely resolved in Indian banking law.
Directorate of Enforcement v. Axis Bank Ltd. PMLA Attachment and IBC Conflict
The intersection of PMLA asset attachment and IBC resolution proceedings is the most legally contested aspect of large-scale banking fraud cases in India. The ED attaches assets as ‘proceeds of crime’ under Section 5 PMLA; the Resolution Professional under the IBC seeks to include those same assets in the resolution estate for distribution to creditors. The Supreme Court, in a series of cases culminating in Enforcement Directorate v. Padmanabhan Kishore (2022), has not definitively resolved the priority question leaving recovery prospects in PMLA-attached cases including ABG Shipyard dependent on case-by-case judicial negotiation rather than a clear statutory framework.
Central Bureau of Investigation v. Rishi Kamlesh Agarwal The Anchor Case
The CBI registered FIR No. RC0032022A0006 on 7 February 2022 against Rishi Kamlesh Agarwal (CMD), Santhanam Muthaswamy (Executive Director), Ashwini Kumar, Sushil Kumar Agarwal, Ravi Vimal Nevetia (Directors), and ABG International Pvt. Ltd., for offences under Sections 120-B, 420, 409 of the IPC and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988. Agarwal was arrested on 21 September 2022 after being found evasive during CBI interrogation. Searches at 13 locations across Surat, Bharuch, Mumbai, and Pune yielded incriminating documents and digital records. The case is currently at the trial stage before the Special CBI Court. The ED has registered a separate PMLA case and attached assets including land, shipyard infrastructure, and foreign holdings.
Vijay Madanlal Choudhary v. Union of India (2022) 9 SCC 1 PMLA Constitutionality
The Supreme Court’s landmark 2022 judgment upheld the constitutional validity of the PMLA’s search, seizure, attachment, and arrest provisions, including the reverse burden of proof under Section 24, which requires the accused to prove that attached property is not proceeds of crime. This judgment directly strengthens the ED’s position in the ABG Shipyard case allowing attachment of overseas subsidiaries and related-party assets on the basis that they derive from the scheduled offences in the CBI FIR, without requiring the ED to first prove the predicate offence independently.
Rohit Arora v. Union Bank of India Wilful Defaulter Due Process
The Bombay High Court held that the process of declaring a wilful defaulter must comply with principles of natural justice the borrower must receive a reasoned show-cause notice specifying the basis of the prima facie finding, and must be given a genuine opportunity to respond before the Review Committee confirms the declaration. This procedural protection designed to prevent banks from arbitrarily weaponising the wilful defaulter classification paradoxically contributed to the slow formal processing of the ABG Shipyard classification, as each procedural step required compliance with natural justice norms across 28 separately-constituted bank processes.
Conclusion
The ABG Shipyard fraud is not India’s largest banking scam because Rishi Agarwal was exceptionally ingenious it is India’s largest banking scam because the institutional architecture around him was exceptionally permissive. Twenty-eight banks lent to the same borrower with no unified monitoring framework, no shared real-time transaction surveillance, and no mandatory consolidated reporting obligation. The RBI conducted inspections, conducted an Asset Quality Review, and watched the account deteriorate from NPA to fraud classification over six years without triggering the prosecutorial machinery. The CBI received the complaint and took three years to file an FIR. By the time Rishi Agarwal was arrested, the alleged fraud was a decade old and the money was in Singapore.
Parliament and the RBI must act on four structural failures that the ABG Shipyard case exposes without ambiguity. First, consortium lending must be governed by a mandatory Unified Lender Agreement requiring real-time sharing of transaction monitoring data across all consortium members, with the lead bank bearing a statutory reporting duty to the RBI within 90 days of any NPA declaration. Second, the PMLA must be amended to impose a mandatory time limit not exceeding 24 months from NPA declaration for fraud classification and complaint filing in cases exceeding Rs. 500 crore. Third, the conflict between PMLA attachment and IBC resolution must be resolved by Parliamentary amendment establishing a clear priority framework creditor recovery under IBC cannot be permanently subordinated to open-ended ED attachment proceedings. Fourth, the Fugitive Economic Offenders Act, 2018 must be proactively invoked against promoters with offshore asset trails before they replicate the Mallya-Choksi exit strategy. A banking system that takes nine years to arrest the architect of a Rs. 22,842 crore fraud is not a system that has failed in one case it is a system that is structurally built to fail in the next.
FAQs
Q1. What made ABG Shipyard’s fraud the largest in Indian banking history?
The sheer scale Rs. 22,842 crore across 28 banks combined with the sophistication of the diversion mechanism (100+ related companies, offshore subsidiaries, round-tripping through Singapore) and the extraordinary duration of institutional inaction (nine years from NPA to arrest) make it structurally distinct from prior banking frauds. Previous large frauds like Nirav Modi (Rs. 13,500 crore) and Vijay Mallya (Rs. 9,000 crore) involved fewer lenders and simpler diversion routes.
Q2. Why did it take nine years from NPA declaration to arrest?
Three structural failures combined: (1) the absence of a mandatory unified complaint mechanism for consortium lenders each of 28 banks had to independently consent to an FIR, with the last consent arriving only in August 2020; (2) the forensic audit was not commissioned until 2019, six years after the NPA declaration; and (3) the CBI, having received the complaint in November 2019, took a further two years to register the FIR, citing the complexity of transaction tracing across 100+ companies.
Q3. What is the current legal status of the case?
As of 2026, the CBI trial is ongoing before a Special Court. The ED has attached assets under PMLA. Multiple applications regarding the attachment-IBC conflict are pending before various courts. Full recovery of the Rs. 22,842 crore is considered unlikely a significant portion has been transferred to offshore jurisdictions from which mutual legal assistance treaty (MLAT) based recovery is both slow and uncertain.
Q4. What legal reforms does this case demand?
Four are essential: mandatory Unified Lender Agreement for consortium borrowings above Rs. 500 crore; statutory 24-month time limit for fraud classification and FIR filing; Parliamentary resolution of the PMLA-IBC priority conflict; and proactive application of the Fugitive Economic Offenders Act to promoters with offshore asset trails before they leave Indian jurisdiction.
References
- CBI FIR No. RC0032022A0006, registered 7 February 2022 against Rishi Kamlesh Agarwal and others (ABG Shipyard Limited fraud).
- Prevention of Money Laundering Act, 2002 (India), Sections 2(1)(u), 5, 8, 17, 24.
- Prevention of Corruption Act, 1988 (India), Sections 13(1)(d), 13(2).
- Insolvency and Bankruptcy Code, 2016 (India), Sections 7, 29A.
- Bharatiya Nyaya Sanhita, 2023 (India), Sections 318, 316 [replacing IPC Sections 420, 409].
- RBI Master Circular on Wilful Defaulters, RBI/2015-16/100, DBR.No.CID.BC.22/20.16.003/2015-16 (1 July 2015); consolidated into RBI Master Directions on Wilful Defaulters (July 2024).
- Vijay Madanlal Choudhary v. Union of India, (2022) 9 SCC 1 (Supreme Court — upholding PMLA constitutionality and reverse burden of proof).
- Enforcement Directorate v. Padmanabhan Kishore, (2022) SCC PMLA attachment vs. IBC resolution conflict.
- Fugitive Economic Offenders Act, 2018 (India), Sections 2(1)(j), 4, 12.
- Banking Regulation Act, 1949 (India), Section 45.
- Ernst & Young LLP, Forensic Audit Report on ABG Shipyard Limited (January 2019, covering April 2012 to July 2017) basis of SBI complaint and CBI FIR.
- Business Standard, ‘CBI Arrests ABG Founder Rishi Agarwal in Rs 22,842-cr Bank Fraud Case’, 21 September 2022. Available at: https://www.business-standard.com/article/current-affairs/cbi-arrests-abg-founder-rishi-agarwal-in-rs-22-842-cr-bank-fraud-case-122092100976_1.html
- The Print, ‘5 Years, 28 Banks, Rs 23,000 cr Debt How ABG Shipyard Pulled Off India’s Biggest Bank Fraud’, 15 February 2022. Available at: https://theprint.in/theprint-essential/5-years-28-banks-rs-23000-cr-debt-how-abg-shipyard-pulled-off-indias-biggest-bank-fraud/831696/
- Centre for Financial Accountability, ‘ABG Shipyard Scam: Need for Accountability and Overhaul of the System’, 19 February 2022. Available at: https://www.cenfa.org/abg-shipyard-scam-need-for-accountability-and-overhaul-of-the-system/
- Legal Wires, ‘What Happens to a Wilful Defaulter? The Framework Banks Use to Name, Shame, and Restrict’, April 2026. Available at: https://legal-wires.com/india-rbi/what-happens-to-a-wilful-defaulter-the-framework-banks-use-to-name-shame-and-restrict/
- SCC Online Blog, ‘Wilful Defaulter Circular: A Much-Needed Munition or a Growing Conundrum’, 30 May 2022. Available at: https://www.scconline.com/blog/post/2022/05/30/wilful-defaulter-circular/
