ABG Shipyard scam: All you want to know about India’s biggest bank fraud

Vijay Mallya was big, Nirav Modi and Mehul Choksi were bigger. And now, a new name has joined India’s legion of ‘scamsters’ (‘alleged,’ did we say?)—Rishi Kamlesh Agarwal, the former chairman and managing director of ABG Shipyard Ltd. 

And if news reports are anything to go by Agarwal is the biggest of them all. 

Truth be told, l’affaire ABG Shipyard is not new. The alleged scam was perpetrated between 2012 and 2017, creating India’s biggest non-performing account (NPA) yet. 

At nearly Rs 23,000 crore, the NPA sinkhole named ABG Shipyard dwarfs all the Kingfishers and Nirav Modis of the world. 

In fact, in the five years between 2012 and 2017, ABG, one of India’s biggest shipbuilders, allegedly managed to perpetrate the biggest banking scam, leading the opposition Congress party to heap all manner of accusations on the Narendra Modi government. 

So, what, in a nutshell, was the scam?

Agarwal and his accomplices are accused of cheating a consortium of as many as 28 lenders led by ICICI Bank, to the tune of Rs 22,842 crore. 

The Central Bureau of Investigation (CBI), India’s premier investigating agency, has charged Agarwal and others of syphoning off bank loans. The company allegedly funnelled the money from these loans into overseas subsidiaries, several related parties and bought assets over a six-year period. 

What has the CBI found so far?

The CBI has found that 98 companies were floated and money was funnelled into them. This money, which was availed via three types of loans, was used to buy private assets and also for evergreening of loans. 

But should the Congress really be blaming the Bharatiya Janata Party government of allowing the fraud to be perpetrated?

Perhaps not, since the period under investigation ranges from 2005 to 2012, although it came to light when transactions between 2012 and 2017 were forensically audited. The United Progressive Alliance, led by the Congress was in power from 2004 till 2014, when Modi’s Bharatiya Janata Party won a landslide election victory.

When was ABG Shipyard founded?

ABG Shipyard is the flagship company of the ABG Group, and was founded in 1985. Engaged in the business of shipbuilding and ship repair, the company has shipyards in Surat and Dahej in Gujarat. It has built 165 vessels, 46 of which were for the export market. 

Which banks were most impacted by the scam?

ICICI Bank and IDBI Bank were the most impacted, although the first information report was initially filed by the State Bank of India.

Who are Agarwal’s accomplices?

Along with Agarwal, the CBI has also booked the then executive director Santhanam Muthaswamy, directors Ashwini Kumar, Sushil Kumar Agarwal and Ravi Vimal Nevetia. 

When were the loans declared NPAs?

The loan sanctioned to the company turned NPA in 2013 and a debt-restructuring effort failed to revive it, leading to a second NPA declaration in 2016. But a complaint of fraud by the company was made to the CBI only in 2019. The agency, which received a second complaint in August 2020, has only now registered an FIR.

The CBI sought to explain the delay citing complexity of the case, involvement of multiple banks (28), close to 100 associated companies of ABG being involved, and even withdrawal of consent by various states. It also emphasized that the company has been in business with the SBI since 2001 and majority of the defaulted loan was disbursed between 2005 and 2012.

According to the agency, ABG loan account was restructured under the CDR mechanism on March 27, 2014. However, the operations of the company could not be revived. On September 10 that year, NV Dand & Associates was deputed to conduct a stock audit of the company.

“The Audit Firm submitted its report on 30.04.2016 and observed various faults on the part of the accused company. Subsequently, the account of M/s ABG Shipyard Ltd was declared NPA on 30.07.2016 w.e.f. 30.11.2013,” the CBI said.

Which was the audit firm and what did it say? 

In April 2018, Ernst and Young was hired to conduct a forensic audit of the company’s accounts for the period of 2012 to 2017. The company had already been referred to National Company Law Tribunal, Ahmedabad in August 2017 by ICICI Bank, the lead bank in the consortium, for Corporate Insolvency Resolution Process (CIRP).

Between April 2019 and March 2020, various other banks declared the account of ABG Shipyard as fraud.

According to the CBI, after the SBI made a comprehensive complaint in August 2020, answering all its queries on the 2019 complaint, the agency began verifying the claims made in the complaint.

So, where is the investigation at now?

On February 12, the CBI conducted searches at 13 locations and claimed to have recovered “incriminating documents” such as books of accounts of ABG Shipyard, purchase/sales details, minutes of meetings of the board, share registers and various contract files.

“Also, bank account details of the accused as well as related parties have been obtained. The accused have been located in India,” the CBI said. Look Out Circulars (LOCs) against the accused have also been issued, it added.