22K Crores ABG Shipyard Fraud

23 October 2022

Introduction-

ABG Shipyard Scam is one of the biggest scams in banking history wherein traditional techniques are used adding advanced elements.

ABG History

ABG Shipyard, being the main company of ABG group started in 1985 was dealing in manufacturing and repairs of Ships. Company had 2 shipyards in Gujarat. The company till date has manufactured more than 150 ships which helped the business grow rapidly. The company had good order booked in domestic as well as international markets.

Brief on SCAM:

Due to financial crises across the globe in 2008, the order book of the company reduced drastically which resulted in heavy investment in inventory and in turn blocking of cashflow for running the business. The Company thus resorted to banks for loans and started borrowing heavily to manage the operations.

Banks on the other hand had taken business assets as security and in some of the cases they relied on personal guarantee of owners/ promoters for lending. ICICI Bank being the biggest lender having more than 6000 crores exposure followed by IDBI bank, SBI and others.

The company did not use these funds for the operations of the business instead started routing the funds to related parties and their own group companies disclosing the same as loans / deposits.

The company used “Round-Tipping” technique wherein it was difficult to trace each and every transaction of cash outflow. Majority of these transactions are still not been traced by the banks.

From 2013 onwards, the company started defaulting in payments to banks. After repeated defaults all bank consortium decided to initiate Forensic Audit wherein, they appointed Firm “Ernest & Young”.

The firm highlighted major lapses in usage of funds and during investigation understood that a major fraud has happened post which bank lead by consortium and CBI filed an FIR against the Promoters.

Interesting Fact is the company never had total asset exceeding 1000 crores and had generated negative operating cashflows for almost every alternate year.

The investigations are still going on and the case will be concluded post that.

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