ABG Shipyard, once one of India’s largest private shipbuilders, is the subject of a Central Bureau of Investigation (CBI) probe that alleges the company defrauded 28 banks to the tune of over Rs 22,800 crore, making it the country’s largest-ever case of bank fraud.
The CBI has booked ABG Shipyard Ltd’s former chairman and managing director Rishi Kamlesh along with several others including executive director Santhanam Muthaswamy, directors Ashwini Kumar, Sushil Kumar Agarwal and Ravi Vimal Nevetia for alleged criminal conspiracy offences, criminal breach of trust, cheating and abuse of official positions under the Indian Penal Code (IPC) and Prevention of Corruption Act.
“Searches were conducted on Saturday at 13 locations in the premises of accused including private company, directors at Surat, Bharuch, Mumbai, Pune, etc which led to recovery of incriminating documents,” said the CBI in a statement.
How did we get here?
ABG Shipyard Ltd (ABGSL) was incorporated with a registered office in Ahmedabad in 1985. The company is the flagship enterprise of the ABG Group, originally promoted by Rishi Agarwal and had shipyards located at Surat and Dahej in Gujarat.
Since its inception, ABGSL has undertaken several lucrative contracts, constructing specialised vessels like newsprint carriers, self-discharging and loading bulk cement carriers, floating cranes, interceptor boats, dynamic positioning diving support vessels, pusher tugs and flottila for domestic and foreign companies. ABGSL ships had also obtained class approval from international associations like Lloyds, American Bureau of Shipping, Bureau Veritas, IRS and DNV.
Having experienced significant early success, the company ran into hard times from 2012. The Forensic Audit report filed by Ernst & Young LLP noted that in the period between April 2012 and July 2017, “the accused have colluded together and committed illegal activities including diversion of funds, misappropriation and criminal breach of trust and for purposes other than for the purpose for which the funds are released by the Bank.”
Financial statements revealed that ABG Shipyard diverted the loans it had taken from various Indian private and public sector banks to purchase preference shares in ABG Singapore amounting to $43.5 million.
As ABG Shipyard stared at bankruptcy, a loan restructuring exercise was undertaken in 2014, however, according to the complaint filed by State Bank of India, the largest public sector bank that was part of the 28-bank lending consortium, ABG Shipyard still owed Rs 2,925 crore to SBI, Rs 7,089 crore to ICICI Bank, Rs 3,634 crore to IDBI Bank, Rs 1,614 crore to Bank of Baroda, Rs 1,244 crore to PNB and Rs 1,228 crore to IOB.
SBI had first filed a complaint with law enforcement authorities on November 8, 2019, to which the CBI requested further clarification in March 2020. A fresh complaint was filed by the bank in August 2020 and after a year and a half, the CBI acted on the complaint, registering an FIR on February 7 this year.
In its complaint, SBI noted, “Global crisis has impacted the shipping industry due to fall in commodity demand and prices and subsequent fall in cargo demand. The cancellation of contracts for a few ships and vessels resulted in piling up inventory. This has resulted in a paucity of working capital and caused a significant increase in the operating cycle, thereby aggravating the liquidity problem and financial problem.”
The complaint added that the lack of demand for commercial vessels in the industry since 2015, coupled with the absence of new defence orders issued since then, made it increasingly difficult for ABG Shipyard to fulfil its debt obligations.
