BIGGEST BANKING FRAUD IN INDIAN HISTORY CASES TUDY

INDIAN BIGGEST BANKING FRAUD ADITYA BIRLA GROUP SHIPYARD CASE STUDY ANALYSIS

1. BIGGEST BANKING FRAUD IN INDIAN HISTORY
PRESENTED BY:-
SACHIN PRATAP SINGH
MRIDUL KUMAR
ABG SHIIPYARD FRAUD CASE

2. ABOUT ABG SHIPYARD
ABG SHIPYARD : TIMELINE OF THE EVENTS
HOW DID THE FRAUD COME TO LIGHT?
MEMBER INVOLVED IN THE CASE
ABG SHIPYARD : BANKS INVOLVED IN THE CASE
WHY IS IT CONSIDERED AS INDIA’S BIGGEST BANK FRAUD?
TYPES OF FRAUD
PREVENTION STARTEGIES TO MITIGATE FRAUD
FACTS & FIGURES
CONCLUSION
ABG SHIIPYARD FRAUD CASE
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AGENDA

3. ABOUT ABG SHIPYARD
Types–Public Company
ABG Shipyard LTD
Industry –Ship Building
Founded in 1985
Headquarters –SURAT, INDIA
Service Ship –Ship Design, Ship
Building, Ship Repair.
Number of Employees-250
Division -2
Rishi Agarwal Chairman & MD
ABG SHIPYARD
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4. ABG Shipyard Ltd is a part of the ABG Group of companies with diversified business interests. Established in 1985, it is
headquartered inMumbai.It has shipbuilding operations inSuratandDahejin Gujarat. Following its acquisition
ofWestern India Shipyard Limited in October 2010, it operates a ship repair unit inGoawhich is the largest ship
maintenance facility in India.
ABG became one of the largest private ship building companies in India with a capacity to manufacture vessels up to 20
tonnesin weight. In January 2019, a forensic audit by E&Y revealed that ABG had defrauded a 28-member consortium of
bankers to the tune of Rs 22000 crores.Following this in November 2019, State bank of India petitioned CBI to conduct
an investigation. CBI asked the bank to investigate at their level to check for involvement of bank insiders which was
ruled out subsequently. Post this in September 2020 SBI filed a fresh complaint seeking investigation in to the role of
public servants and other persons in the fraud.In February 2022, a look out circular was issued against the ABG former
Chairman Rishi Agarwal and others in the case.
ABG SHIPYARD FRAUD CASE
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ABOUT ABG SHIPYARD

5. ABG SHIPYARD: TIMELINE & EVENTS
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March2005-2010:Despitewarningindicatorsfromthe2008globalfinancialcrisis,bankscontinueto
generouslylendtoABGShipyardsisimpactedbytheglobalfinancialcrisis,whichwassparkedbytheU.S.
housingbubbleandthedemiseofLehmanBrothers.Becauseofthecompany'scurrentlackofworkingcapital,
theoperatingcyclehas"significantlylengthened,compoundingtheliquidityandfinancialdifficulties."
March2014:Underthecorporatedebtrestructuring,orCDR,programme,SBImakesanefforttorestructure
loanstoABGShipyard.ABGShipyards'inabilitytopayinterestandinstallmentsbytheduedatepreventsthe
restructuringfromsucceeding.
July2016:BackdatingtoNovember30,2013,theABGaccounthasbeendeemedanon-performingasset
(NPA).Jan2019:ABGShipyardisthesubjectofaforensicauditbyErnstandYoungLLP.Itdiscoversfraud
evidencefromApril2012toJuly2017.Theauditrevealsthatfraudwascommitted"bytheft,criminalbreach
oftrust,anddiversionoffunds,withthepurposeofobtainingillegalgainattheexpenseofthebank'sfunds."
ABG SHIIPYARD FRAUD CASE

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July2016:BackdatingtoNovember30,2013,theABGaccounthasbeendeemedanon-performingasset
(NPA).
Jan2019:ABGShipyardisthesubjectofaforensicauditbyErnstandYoungLLP.Itdiscoversfraudevidence
fromApril2012toJuly2017.Theauditrevealsthatfraudwascommitted"bytheft,criminalbreachoftrust,
anddiversionoffunds,withthepurposeofobtainingillegalgainattheexpenseofthebank'sfunds.“
From28banks,ABGShipyardmostlyobtainedthreebasicformsofloans.Afterbeingmisdirectedthrough98
sisterconcerncompanies,thefundsobtainedthroughtheseloanswereprimarilyusedtobuildpersonalassets.
November2019:SBI&othersbanksfilesacomplainttoCBI
12March2020:CBICollectalldata,documentswithproofwiththehelpofothersbanks
ABG SHIIPYARD FRAUD CASE

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April2022:EDconductsraidsat26premisesunderthePreventionofMoneyLaunderingActinMumbai,
PuneandSurat.ThesepremisesbelongedtoABGShipyard,itssistercompaniesanditsexecutives.
21 September2022:CBI arrests ABG Shipyardpromoter Rishi Agarwal.
22 September2022:ED attachesABG Shipyard's assetsover Rs 2,747 crore which includes shipyards at
Surat and Dahejin Gujarat and Maharashtra, agricultural lands, commercial and residential premises,and bank
deposits.
February2022:CBIregistersacase,booksABGShipyardandABGInternationalPrivateLtd.
15February,2022:SanthanamMuthuswamy,AshwiniKumar,andpromoterRishiAgarwalarethetargetsof
lookoutnotificationsfromtheCBI&EDalsofilesamoneylaunderingcasefordefraudingbanksandCBI
questionsABGchiefRishiAgarwal
ABG SHIIPYARD FRAUD CASE

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Political Entry

9. HOW DID THE FRAUD COME TO LIGHT?
ABG SHIPYARD-FRAUD CASE
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The allegedfraudcame to light during a forensic audit of the loan account’s transactions from April 2012 to July 2017.
According to the complaint lodged by the bank, the account was declared a fraud in June 2019. The account had become non-
performing asset in July 2016 with effect from November 30, 2013.
Based on a complaint from the State Bank of India, the Enforcement Directorate filed a money-laundering investigation against
Gujarat-based ABG Shipyard, which has been described as being implicated in "India's biggest bank scam in history." The company's
chairman, Rishi Kamlesh Agarwal,has been questioned by the CBI for defaulting on loans of Rs 22,842 crore that ABG Shipyard
obtained from 28 banks.
According to the CBI, a forensic audit conducted by Ernst & Young in 2019 indicated thatfunds were diverted to other linked firms
with loans reportedly being utilisedfor investments through offshore subsidiaries. According to the examining agency, these loans
were not utilisedfor the intended purpose, thereby breaking the agreements.

10. MEMBER INVOLVED IN THE CASE
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In the ABG Shipyard fraud case, the following individuals
and entities were named as accused in the charge sheet filed
by the CBI
Rishi Agarwal: Former ABG group chairman.
Five Individuals: Including a Mumbai-based private
company chairman & promoter, then chief financial officer,
then vice president (accounts), then assistant vice president
(accounts), and another person handling the group's
offshore entities.
Three Singapore-based Firms: Among the 19 companies
named in the charge

11. BANKS AFFECTED BY ABG SHIPYARD LOAN FRAUD
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5 YEARS, 28 BANKS, TOTAL DEBT & FRAUD RS 22,842 CRORE
Losses to Banks: The fraud, amounting to Rs 22,842 crore, defrauded 28 banks, including major
institutions like ICICI, IDBI Bank, and SBI. This massive loss strained the banking sector and eroded
trust in lending practices
Source :-BusinessToday.in

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WHY IS IT CONSIDERED AS INDIA’S BIGGEST BANK FRAUD?
The ABG Shipyard fraud case is considered India's biggest bank fraud due to several key factors that set it apart
in terms of scale, impact, and complexity:
•Magnitude of the Fraud: The fraud at ABG Shipyard involved a staggering amount of Rs 22,842 crore,
making it one of the largest financial scams in India's history. This massive sum defrauded a consortium of 28
banks, including major institutions like SBI, ICICI Bank, and IDBI Bank
•Extensive Fund Diversion: The forensic audit conducted by Ernst & Young revealed that between April 2012
and June 2017, loans given to ABG Shipyard were siphoned off and utilized to buy assets for related parties.
The company also channeled some of these funds into its overseas subsidiaries, indicating a complex web of
transactions aimed at diverting borrowed money for unofficial purposes

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•Involvement of Major Banks: Banks like SBI and ICICI Bank, considered "too big to fail," had significant
exposures to ABG Shipyard amounting to billions of rupees. ICICI Bank alone had an exposure of Rs 7,089
crore, highlighting the substantial impact on major financial institutions
•Impact on Lenders: The fraud not only resulted in financial losses for the banks but also eroded trust in
lending practices and raised concerns about the efficacy of oversight mechanisms within the banking sector.
The exposure of prominent banks to such fraudulent activities underscored the need for stricter regulations and
enhanced vigilance
•Legal Ramifications:The Central Bureau of Investigation (CBI) filed an FIR against ABG Shipyard's
directors and promoters for alleged offenses including criminal conspiracy, cheating, criminal breach of trust,
and abuse of official position under the Indian Penal Code (IPC) and the Prevention of Corruption Act. This
legal action highlighted the severity of the fraud and the need for accountability
WHY IS IT CONSIDERED AS INDIA’S BIGGEST BANK FRAUD?

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TYPES OF FRAUD
The fraud involved :-
Criminal breach of trust.
Misappropriation of funds received from banks.
Diversion of funds for unofficial purposes.
Creating a complex web of transactions to misuse borrowed money
.
Criminal Breach of Trust: The fraud at ABG Shipyard involved a criminal breach of trust where the
company's executives and individuals associated with the firm misused the trust placed in them by financial
institutions. They diverted funds received from banks for unauthorized purposes, violating the trust and
confidence that lenders had in the company's financial integrity
Explanantion:-

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Misappropriation of Funds:One of the key aspects of the fraud was the misappropriation of funds received from
banks. Instead of utilizing the borrowed money for the intended purposes, the perpetrators diverted these funds for
personal gain or unofficial activities. This misappropriation involved using the borrowed funds in ways that were
not disclosed to the lenders, leading to financial losses for the banks involved
Diversion of Funds for Unofficial Purposes: The fraudsters at ABG Shipyard engaged in the diversion of funds
for unofficial purposes. This involved channeling the borrowed money into activities that were not related to the
company's legitimate operations or projects. By diverting funds for unofficial purposes, the perpetrators aimed to
benefit themselves or other entities through deceptive financial transactions
Complex Web of Transactions:The fraudulent activities at ABG Shipyard included creating a complex web of
transactions to misuse the borrowed money. This complexity in financial transactions was designed to obfuscate the
true nature of fund diversion and misappropriation. By creating a convoluted network of transactions, the
perpetrators sought to conceal their fraudulent activities and avoid detection by regulatory authorities and lenders
TYPES OF FRAUD

16. PREVENTION STARTEGIES TO MITIGATE FRAUD
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To mitigate such frauds, institutions need robust monitoring mechanisms to detect red flags early on. In this
case, forensic audits were crucial in uncovering the fraudulent activities. Initiating forensic audits based on
lenders' decisions helped in revealing the extent of fund diversion
Comprehensive Examination:Forensic audits involve a detailed and comprehensive examination of
financial records, transactions, and activities to identify irregularities, discrepancies, and potential fraud
indicators. In the ABG Shipyard case, forensic audits delved deep into the company's financial data to
uncover the extent of fund diversion and misuse of borrowed funds.
Uncovering Red Flags:Forensic audits are designed to detect red flags that may indicate fraudulent
activities, such as unusual transactions, discrepancies in financial statements, unauthorized fund transfers, or
irregular accounting practices. By scrutinizing financial records and conducting in-depth analyses, forensic
auditors can identify suspicious patterns that warrant further investigation.

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Verification of Compliance: Forensic audits verify compliance with laws, regulations, and internal policies
to ensure transparency and integrity in financial operations. In the ABG Shipyard case, forensic audits helped
assess the company's adherence to lending agreements, fund utilization guidelines, and regulatory
requirements, highlighting instances of non-compliance and potential fraud.
Evidence Collection: Forensic audits involve collecting and preserving evidence that can be used in legal
proceedings or investigations. By documenting findings meticulously and maintaining a chain of custody for
evidence, forensic auditors contribute to building a strong case against perpetrators of fraud, aiding in legal
actions and recovery efforts.
PREVENTION STARTEGIES TO MITIGATE FRAUD

18. SOME FACTS & FIGURES
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The value of online financial frauds in India increased significantly from ₹2,296 crore in 2022 to ₹5,574 crore in 2023,
as reported by the Union home ministry to the Parliamentary Standing Committee on Communications and
Information Technology
Financial scams in India have been a recurring concern, impacting individuals and the economy. Ponzi schemes,
investment scams, digital banking and credit card frauds, QR code scams, investment scams, part-time job scams,
courier scams, and malware threats are among the common financial frauds reported in India
The central bank classifies financial frauds into various categories, including misappropriation, criminal breach of
trust, forged instrument encashment, manipulation of accounts, fictitious accounts, unauthorized credit facilities,
negligence, cash shortages, cheating, forgery, irregularities in foreign exchange transactions, and other forms of fraud
not specifically mentioned

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Questions for Discussion
Which government banks were involved in the ABGshipyard fraud case ?
Who are the people involved in the ABG shipyard fraud case?
What was the outcome of the CBIinvestigation in the ABG shipyard fraud case?
What was the amount of money involved in the ABG shipyard fraud case?
What was the role of Indian government in ABG shipyard case?
what measures have been taken by the Indian government to prevent similar fraud cases in the future
what are the specific steps taken by the ministry of home affairs to prevent online financial frauds

20. THANKS
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