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How ABG Shipyard’s Promoter Rishi Agarwal Siphoned Off Bank Funds

How ABG Shipyard’s Promoter Rishi Agarwal Siphoned Off Bank Funds

How ABG Shipyard's promoter Rishi Agarwal used a web of group companies and connected entities to siphon off bank funds

How ABG Shipyard's promoter Rishi Agarwal used a web of group companies and connected entities to siphon off bank funds How ABG Shipyard's promoter Rishi Agarwal used a web of group companies and connected entities to siphon off bank funds

With record revenues of Rs 2,432 crore and operational profits of Rs 666 crore, year 2011-12 was the best in ABG Shipyard’s nearly three-decade history. It was also the year when the Gujarat-based shipbuilder handed over a dozen vessels to its Indian and global clients. But 56-year-old Rishi Kamlesh Agarwal, Chairman and Managing Director of the flagship company of the ABG Group, was not elated. Agarwal, who studied finance in Purdue University, was more worried about the headwinds the shipping industry was facing post the global financial crisis. The industry was on the verge of plunging into a down cycle. Agarwal’s woes were compounding day after day with clients calling up to cancel contracts. And that spelt the beginning of the company’s downfall. Reason: rapid growth fuelled by excessive debt taken in anticipation of high global demand for vessels.

Sources in the know reveal that the diversion of funds actually started in those years. This was also corroborated by the forensic advisor Ernst & Young (EY) as well as an insolvency resolution professional in their reports when they scanned the company’s books of accounts between 2012 and 2016. That start has since escalated to allegedly India’s biggest banking fraud of more than Rs 22,800 crore—plus some dues to others—for which Agarwal is now being investigated by the Central Bureau of Investigation (CBI).

The first suspected fund-diversion transaction occurred in 2012 when the company had invested Rs 227 crore in the redeemable preference shares of its Singapore-based subsidiary—ABG Shipyard Singapore Pte (ASSPL). Later, a part of the preference shares was redeemed, but the money never came back to India. A year later, ABG Shipyard transferred Rs 97 crore into the accounts of Nor Crane & Winch Private Ltd (NCWPL), which was listed as a vendor of the company. As per available documents, there was a clear link between the two companies—two directors of the vendor were also employees of ABG Group companies. Similarly, an ex-director of NCWPL was also a director in some of the ABG Group companies. When BT checked the registered office address of these two companies, they were housed in the same building, and on the same floor.

By November 2013, ABG Shipyard started defaulting on some of its loan obligations. And so, within just a year of reporting the company’s best-ever performance, Agarwal was actually knocking on the doors of banks to restructure its then Rs 11,500-crore debt. Agarwal heaved a sigh of relief when the banks led by ICICI Bank agreed to restructure the loans under the corporate debt restructuring (CDR) mechanism in March 2014. The banks’ sacrifice (moratorium, reduction of interest etc.) based on net present value was translating into Rs 985 crore. The banks put in a condition for Agarwal to bring in 30 per cent of their sacrifice, that is, Rs 300 crore, as the promoter’s contribution under the restructuring. Under CDR, the lead bank, ICICI Bank, was the monitoring institution for CDR on behalf of lenders. But Agarwal’s alleged fraudulent activities continued unabated.

For instance, the company extended Rs 64 crore to a loss-making Mahavir Distributor Private Ltd (MDPL), which was listed as a vendor of the company, in April 2014. This vendor was also closely connected with the ABG Group. Documents accessed by BT show that promoter Rajesh Wairkar, who owned 53 per cent stake in MDPL in 2014-15, was also an additional director of ABG Energy Ltd. In fact, the two promoters (the other being Vishal Sakaal) exited the company the very next year. In 2015-16, the company’s shareholding showed three new promoters—Dhananjay Datar, K.G. Toshniwal and Ashok Agarwal—with 33.33 per cent stake each. Datar was actually the CFO of ABG Shipyard, working directly under Rishi Agarwal. In addition, MDPL also operated from the same building—Shree Pant Bhuvan— and also the same second floor where other ABG Group companies such as ABG Capital, ABG Power and others were housed (See The Modus Operandi).

Despite debt restructuring, the company’s losses piled up as its Dahej shipyard was completely shut from June 2015 because of non-payment of contractors’ dues, while the Surat shipyard was partially operational. In 2015-16, the company’s revenues crashed to a low of Rs 37.76 crore, and losses widened to Rs 3,704 crore. By July 2016, the banks declared the loan restructuring as a failed exercise. As a result, ABG Shipyard’s account became an NPA in the books of the banks, backdated to November 2013.

Agarwal was well aware that the banks would soon invoke bankruptcy proceedings against the company under the new Insolvency and Bankruptcy Code (IBC), which was in the works. It was clear that the company would be either sold to a new promoter or liquidated. In August 2017, the company was part of the dirty dozen (12 big NPAs which included Essar, Bhushan, Jaypee and Amtek, among others) identified by the RBI for bankruptcy proceedings. The lead bank, ICICI Bank, filed an application under the IBC with total claims to the tune of Rs 27,400 crore due to banks, the government, employees and operational creditors.

The private sector bank, which invoked the bankruptcy proceedings, noticed certain transactions that were preferential in nature, undervalued in the books, or fraudulently carried out by the company. Between September 2015 and March 2016, the company transferred Rs 199.66 crore to share trading company Banal Investments and Trading Ltd, a part of the ABG Group, which already had outstanding dues of Rs 125.70 crore transferred by ABG Shipyard prior to April 2015. As per available data, the company’s director S. Muthuswamy, who was also a director of ABG Shipyard, resigned from the share trading company in November 2014. Muthuswamy is also charged by the CBI in its fraud investigations. Another director, Datta Rau Pawar of Banal Investments, was also associated with half a dozen companies of the ABG Group.

After nearly two years of the IBC process, there was a lone bidder—UK-based Liberty House—but valuations and other differences cropped up. The banks finally recommended liquidation of the company in April 2019. The liquidator has already made as many as four unsuccessful attempts to realise the liquidation value of around Rs 2,000 crore. According to sources, residential land parcels, bungalows and staff quarters, agricultural land, half-finished vessels, and plant and machinery are available for disposal.

The ABG saga also shows complete governance failure. Auditors and independent directors jumped ship without raising any red flags. Two ABG Shipyard independent directors—Ravi Nevatia and Rajani Podar—quietly walked away in mid-2006 with identical resignation letters, absolving themselves completely of any responsibility for wrongdoings: “I will not be responsible for any decisions taken during my tenure and present and future as I was not involved in any decision making.” Nevatia’s name also figures in the list of directors booked by the CBI. Clearly, the liquidation of ABG Shipyard would not yield more than Rs 2,000 crore. There are, however, dues of over Rs 27,400 crore.

It is now over to the CBI to unearth the fraud, expose the nexus, if any, between bank officials and the company, and also recover money from Agarwal, who has given his personal guarantee for bank loans.



Published on: Mar 04, 2022, 2:31 PM IST
Posted by: Arnav Das Sharma, Mar 04, 2022, 11:51 AM IST