ABG Shipyard: How The Large Bank Fraud Was Executed

According to the first information report filed on Feb. 7, the CBI is looking into allegations of diversion and misappropriation of funds, as well as criminal breach of trust. BloombergQuint has reviewed a copy of the report available on the CBI website.

The FIR was filed on the basis of SBI's November 2019 complaint, followed up with a more detailed complaint in December 2020. The National Company Law Tribunal had ordered liquidation of ABG Shipyard in April 2019 under the Insolvency & Bankruptcy Code.

SBI has claimed that the bank alone faced an estimated loss of Rs 2,468.5 crore and has security cover worth Rs 1,048.5 crore against ABG Shipyard. The facilities are further securitised by irrevocable and personal guarantees, pledges by promoter Rishi Agarwal and corporate guarantee by ABG International.

"At no point in time, there was any effort to delay the process. The lender's forum diligently follows through with CBI in all such cases," SBI said in a statement on Sunday, after allegations of delayed action by the bank.

According to a January 2019 forensic audit report by EY, excerpts of which are attached to the complaint, the company indulged in a number of illegal activities, which were revealed during the audit. The forensic audit by EY looked at transactions between April 2012 and July 2017, conducted by ABG Shipyard, its subsidiaries, vendors and other associated companies.

A review of vendor ledgers from March 2016 showed that One Ocean Shipping Pvt. and ABG Engineering and Construction Ltd. cumulatively transferred Rs 1,415 crore to PFS Shipping (India) Ltd., an ABG group company.

A further review of PFS Shipping's financial statements revealed that the company adjusted receivables to ABG Shipyard worth Rs 1,415 crore against payables from the company worth Rs 1,371.5 crore. The payables were due to novation of 34 shipbuilding contracts between multiple related parties of ABG Shipyard and PFS Shipping.

Prior to this, ABG Shipyard had transferred Rs 1,415 crore to One Ocean Shipping and ABG Engineering and Construction for purchase of goods and services.

The report does not specify whether these were bank funds.

Apart from these transactions, ABG Shipyard also subscribed to preferential shares worth $43.5 million by AGB Singapore, its foreign subsidiary. In FY10 and FY11, ABG Singapore had also received loans from ABG Shipyard, according to the EY report. The forensic report has alleged that payments to the foreign subsidiary may have been potentially diverted.

In another instance, ABG Shipyard paid Rs 83 crore to seven different companies, which were linked to ABG Shipyard and its promoters. According to financial statements of these seven companies, part of these funds were used to buy properties, which were not part of ABG Shipyard's fixed assets.

The company also allegedly breached terms of its corporate debt restructuring.

The audit showed that customer receipts worth Rs 97.9 crore were received by ABG Shipyard in accounts outside the trust and retention account set up by the lenders. These funds constituted more than 54% of the total customer receipts received by ABG Shipyard between April 2014 and July 2017.

"All the above illegal acts committed by the accused constitute cognizable offences under the Indian Penal Code and the same are committed by the accused with specific intention to cause loss to the bank(s) who had sanctioned credit facilities and to gain unlawfully at the cost of bank(s)," SBI said in its complaint.

ABG Shipyard is the flagship company of the ABG Group and is engaged in shipbuilding and ship repair work. The company has been a stressed borrower for many years.

In 2014, the lenders had approved a loan recast under the corporate debt restructuring mechanism. According to SBI's complaint, due to a global crisis in the shipping industry, the company was unable to meet its milestones set under the restructuring scheme in 2015.

In December 2015, lenders had attempted to further restructure ABG Shipyard's debt under the strategic debt restructuring scheme. The scheme allowed lenders to convert their debt exposure into equity and then sell down the company to potential buyers. It also gave them forbearance on asset classification.

Finally, due to the failure in successfully restructuring the company's debt, ABG Shipyard was classified as NPA in July 2016, backdated with effect from November 2013.

In June 2017, it became one of the 12 large corporate accounts shortlisted by the Reserve Bank of India for immediate insolvency proceedings. Sunderesh Bhat, the resolution professional for ABG Shipyard, had filed petitions with the NCLT highlighting preferential transactions, underd transactions and fraudulent or wrongful trading by the company. In an order on April 25, 2019, the NCLT has confirmed the charges, according to the complaint.

The company eventually went into liquidation.