The Story Of ABGs Sinking Shipyard: From Sailing In High Seas To Landing Itself Under Debt Of Rs 23,000 Crore

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The Story Of ABG's Sinking Shipyard: From Sailing In High Seas To Landing Itself Under Debt Of Rs 23,000 Crore

The State Bank of India (SBI) filed a complaint in the Central Bureau of Investigation (CBI) against the shipbuilding firm for causing losses worth Rs 22,842 crores from a consortium of 28 banks.

In its good days, ABG Shipyard Limited once had its order book worth Rs 16,600 crores; Gujarat-based Shipyard company is under investigation for having committed India's biggest fraud. The State Bank of India (SBI) filed a complaint in the Central Bureau of Investigation (CBI) against the shipbuilding firm for causing losses worth Rs 22,842 crores from a consortium of 28 banks. The revelation caused considerable criticism for the Narendra Modi government from the Opposition, who accused them of aiding the 'loot'.

The initial statements from the CBI mentioned that the Gujarat-based Shipyard took loans from several banks in the country and diverted them to overseas subsidiaries to buy their assets. Therefore, the money was transferred to affiliated parties. The company turned into a non-performing asset in 2013 when it incurred a loss of Rs 199 crores, and it is also accused of violating the terms of Corporate Debt Restructuring (CDR). Under the CDR mechanism, the lending banks either reduce the interest on the loans of the distressed borrower or increase the time of the repayment. SBI mentioned in the press release that the fraud mainly attributed to diversion of funds, misappropriation and criminal breach of trust.

Nonetheless, the company did its part to keep regulations off its books. It undertook a debt restructuring exercise in 2013-14. It cited the cancellation of ships and vessel orders, reduced lending from banks, a high borrowing cost, low-capacity utilisation of the Dahej shipyard in Surat, and the expiry of the Centre's shipbuilding subsidy scheme in 2007. In an independent auditor's report from 2015-16, some creditors have scanty mentions of legal proceedings and a showcase notice from the Directorate of Revenue Intelligence in Mumbai that had allegations of fraud from the employees of ABG Shipyard.

The History of ABG Shipyard

ABG Shipyard was registered as Magdalla Shipyard Pvt Ltd in March 1985 with the Registrar of Companies in Ahmedabad. The company's name was changed to ABG Shipyard Pvt Ltd in May 1995 and ABG Shipyard Ltd in June 1995. In the 1990s, the company sold its first ship, and by 2013, the company had built over 165 ships; 80 per cent of those were international orders. The company received its first order from the government in 2000 to build two interceptor boats of the Indian Coast Guard. Finally, in 2011, ABG Shipyard received the license to build defence ships, including submarines.

After repeated complaints of frauds, the central investigation agency booked ABG Shipyard's former chairperson and managing director, Rishi Kamlesh Agarwal, former executive director Santhanam Muthaswamy, and directors Ashwini Kumar, Sushil Kumar Agarwal, and Ravi Vimal Nevatia, The Print reported. After this, the CBI carried out searches in 13 locations that included Surat, Bharuch, Mumbai, and Pune, leading to the recovery of incriminating documents.

How Much Money Does Each Bank Lend?

When the recent investigations and allegations came to light, several questions were asked: how could such a colossal fraud go undetected for so long, and why did the CBI register the FIR so late, amongst many others. However, the first time the scam came to light was in 2019 in a forensic audit conducted by Ernst and Young LLP from 2012 to 2017. Out of the total Rs 22,842 crores that the company owes, it is under debt of Rs 7,089 crores to ICICI, Rs 2,925 crores to SBI, Rs 3,639 crores to IDBI, Rs 1,614 crore to Bank of Baroda, Rs 1,244 crore to Punjab National Bank and Indian Overseas Bank individually, Rs 1,317 crore to Exim Bank and 719 crores to Bank of India amongst other loans.

The CBI said that even though the company took all these loans between 2005 to 2010, the fraud was detected only after the forensic audit. The SBI had alleged that the accused party had diverted the funds by appropriating them to related parties between 2011 and 2017. CBI said that after borrowing money from the banks, the company used it to repay loans and pay for other companies' expenses and the letters of credit.

What Are The Political Parties Saying?

After the fraud came under public ire, the Congress' National Spokesperson Randeep Surjewala asked, "Why did it take five years after the liquidation proceeding of ABG Shipyard to lodge even an FIR for duping 28 banks of Rs 22,842 crore?". Finance Minister Nirmala Sitharaman responded to the Opposition, saying that there was no delay in determining the fraud since the entire procedure usually takes up to 52 to 56 months. Moreover, the finance minister attacked the UPA government, stating that they were in power when sanctioned.

Finance Minister was quoted saying, "I am sitting in RBI premises, so I don't want to talk too much of politics, but I am sorry the kind of noise coming the biggest' ghotala' in Prime Minister Narendra Modi's time. Not at all. This was a loan given well before 2013, and it had even become an NPA by 2013. So people dig holes into which they fall".

The entire crux of what is pegged as India's most significant financial fraud is the web of transactions that ABG Shipyard Limited carefully weaved. Moreover, such frauds leave one wondering how humongous financial scams go unnoticed until it is too late to make amends. In the last decade, this is yet another entry into financial frauds that could leave a lasting impact on the country's already struggling economy. Moreover, the timing of the scam coming into the light is highly subjective since five states in the country are looking forward to assembly elections. The company seems to have taken the money, and the political parties are playing the famous blame game again.

Also Read: Looking Back At K Chandrashekhar Rao's 'Fast-Unto-Death' In His Fight For Telangana

Contributors Suggest Correction
Writer : Ratika Rana
Editor : Ankita Singh
Creatives : Ratika Rana

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