🏛 India's Biggest Bank Fraud Ever!
CBI has unearthed India's biggest bank fraud ever, worth a whopping Rs. 22,842 crores!
Nirav Modi, Mehul Choksi, Vijay Mallya.
These people have become household names for orchestrating massive bank frauds and vanishing into thin air.
And now a few more names have been added to this list: Rishi Kamlesh Agarwal, Santhanam Muthaswamy, Ashwini Kumar, Sushil Kumar Agarwal, and Ravi Vimal Nevetia.
Together these people have orchestrated the biggest bank fraud ever, worth Rs. 22,842 crores!
But what's the story behind this fraud? ReadOn!
ABG Shipyard's Backstory
Rishi Kamlesh Agarwal and the others we have mentioned are all directors of ABG Shipyard Ltd., which is owned by the ABG Group.
And it's not some random company, it was one of India's leading private shipbuilders, with multiple national as well as international contracts.
In fact, its performance was so good that 28 banks, including SBI, were ready to give loans to the company.
But from 2011 onwards a slowdown in the global economy, thanks to the after-effects of the Great Recession, put the company in a bad position.
The demand for ships was going down as international trade decreased. Things went from bad to worse when the company also failed to get any national defence contracts in 2015.
Ultimately, it decided to undergo corporate debt restructuring in 2014 as it could not pay off its loans in time. This means that the company convinced its creditors to take loans at a later date, but with a higher interest.
Sadly, this strategy also didn't work out. So, in 2016, the company now desperate to escape bankruptcy, offered creditors a 51% stake if they forgave loans worth Rs. 16,397 crores.
But no one was interested in the failing shipping business. So, its account was declared a non-performing asset. And the company ultimately began liquidation proceedings in 2019, which was set to fetch around Rs. 1,480 crores.
So far this seems like a regular old sad story. But there's a twist in the tale.
Fishy Business
After a forensic audit of ABG Shipyard's financials came out in 2019, it was discovered that the company was not just in trouble because of the global economy.
Its promoters and managing directors had been running a massive fraud scheme. The loans that they took from the bank to scale the business actually lined their own pockets. This money was used to give loans to related parties, to buy properties and whatnot. Basically, they were using public money for their private gains, just like many other billionaire fraudsters before them.
As soon as this news came out, SBI filed a complaint against the company for not making loan payments worth Rs. 22,842 crores to it and 27 other banks.
But it has taken the CBI over 2 years to investigate and act on the complaint.
It has finally booked Rishi Kamlesh Agarwal and the others for their fraud scheme.
2 years is a long time. And this isn’t a one-off case. Bank frauds are constantly on the rise, increasing from 3,499 in April-September FY21 to 4,071 in April-September FY22. And do you know who ultimately loses because of this?
People like you and me. The taxpayers’ money is ultimately used to make good of this loss.
Something needs to be done and something needs to be done fast.
SEBI has proposed new rules regarding related-party transactions (here's our in-depth article about related-party transactions) to try and stop such frauds. The rules, taking effect from April 1, state that companies will have to get approval from shareholders for related party transactions above Rs. 1,000 crores or 10% of its annual turnover, whichever is lower. This rule could help reduce the amount of money that these fraudsters can siphon from the main company or at least slow them down.
But will this be enough to stop the clever scammers? Or do we need newer and stricter rules?
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Great read