• FIC Hansraj

ABG Shipyard: A Sinking Ship

This article is an excerpt from the Feb 2022 edition of the Finance Gazette Volume IV. Click to read the whole edition


India is a country that has a rich history of frauds. In this cut-throat competition of scams, we have witnessed a new champion, ABG Shipyard.


Based in Surat, the company was once regarded as a powerhouse in the shipbuilding industry, with an order book of Rs. 16,600 crore. It has set the bars high with the successful construction of 165 vessels over a span of 16 years. The Indian shipbuilding industry is not the only place where the company has reached new heights. Defrauding a consortium of 28 banks, causing losses to the tune of Rs. 22,892 crore, ABG Shipyard’s controversy surpassed Nirav Modi’s Punjab National Bank Fraud, being touted as the ‘Biggest fraud in India’s banking history.’


ABG Shipyard Fic Hansraj Finance Gazette

Before we dive deeper into how the ship sank, let's trace back the journey of ABG Shipyard Ltd.

Promoted by Mr Rishi Agarwal, ABG Shipyard Ltd. is the flagship company of the ABG group. Prior to the controversy, it was thriving as a major player in the shipbuilding and repair industry. Incorporated as Magdalla Shipyard Pvt. Ltd. in March 1985, it was renamed ABG Shipyard Ltd in June 1995.

Over the past 16 years, the company built over 165 vessels, 80% of which were for international customers. This includes specialised vessels such as floating cranes, newsprint carriers, interceptor boats, self-discharging and loading bulk cement carriers, and dynamic positioning diving support vessels. All international classification societies have given the ships class approval.

The company’s journey is rife with achievements and milestones. It was awarded a contract to build pollution-control vessels for the Indian Coast Guard in 2004. In June 2011, it was awarded a ₹ 9.7 billion deal by the Government of India to build warships and other vessels for the Indian Navy. It is one of the three private shipyards in India selected by the Indian Navy to construct naval vessels and has built 23 vessels for the Indian defence sector.

But soon after, things went downhill for the firm. The company has been accused of cheating a pool of 28 banks, including the State Bank of India, ICICI Bank, and many such renowned financial institutions of the country. The entire conspiracy was carried out within a span of 5 years, involving several web transactions which were made on the part of ABG Shipyard Limited with a motive to gain profit out of the banks’ funds.

So, what was the iceberg which everyone overlooked? What led to the Titanic’s eventual sinking?


The company was already having a rough sail before the 2008 global crisis. The crisis headed by the U.S. housing bubble hit ABG Shipyard Limited’s financial position terribly. As per the CBI report, the crisis resulted in a “significant increase in the operating cycle, thereby aggravating the liquidity and financial problem.”

Despite the company’s financial position, banks continued to extend loans to the company between 2005 and 2012. The company took humongous loans and further diverted them in the acquisition and purchase of assets, fund transfers to overseas subsidiaries and related parties. The company was accused of this 6-year long fraud involving disbursements of bank funds for the company’s ulterior motives.

After 2012, there were several steps taken by various banks and the government of India. On 30th November 2013, the account of ABG Shipyard Limited was declared to be a Non-Performing Asset (NPA). This meant that the company was in no position to meet the stated loan obligations due to its poor financial position.

Further, the State Bank of India decided to use the path of Corporate Debt Restructuring to restructure the loans extended to the company. The restructuring failed due to the declining graph of the shipping industry. As stated in the FIR, the shipping industry was amidst a “downturn, one of the worst ever seen, the operations of the company could not revive”. After the failure of restructuring, the account of ABG Shipyard Limited was officially declared as a Non-Performing Asset (NPA), “with a back-dating to 30th November 2013”.

The fraud was finally unravelled in the year 2019, after a long delay in the investigation. In a forensic audit conducted by ‘Ernst and Young LLP’, the company found strong evidence of the well-planned and concealed fraud.

According to the audit, the fraud was carried out through “diversion of funds, misappropriation, and criminal breach of trust, with an objective to gain unlawfully at the cost of the bank’s funds.”

The State Bank of India filed an FIR in November 2019 regarding the fraud. This was followed by a more comprehensive official complaint being filed in August 2020. According to the filed complaint, the company dispersed Rs. 1,415 Crore through several group companies with an aim to settle its own dues. The money was also used to invest in its overseas subsidiary, namely, ABG Singapore. Rs 83 Crore was used for fund transfer to various companies. This money was also used in the acquisitions of assets and properties which was not reflected in the company’s fixed assets. This manipulation of their accounts was one of the key factors which led to the carrying out of the fraud.

Moreover, ABG Shipyard Limited was also accused of violating the terms of its CDR agreement which stated, “all cash inflows should be routed through the trust and retention account”. After a long tenure of investigation on the part of the SBI, the Central Bureau of Investigation took over the case on 7th February 2022. CBI booked ABG Shipyard and ABG International Private Ltd. under the case.

ABG Shipyard FIC Hansraj finance Gazette

Currently, the ABG Shipyard fraud case is being covered on every news channel and newspaper. CBI has started its investigation and has already pointed out some crucial findings. As of 15th February 2022, a lookout notice against promoter Rishi Agarwal, and ABG executives Santhanam Muthuswamy and Ashwini Kumar has also been issued.

According to the recent CBI report, the company owes a huge amount of Rs 22,842 Crore. The official statement, as of 7th February 2022, states that “the company owes ICICI (which was leading the consortium) Rs 7,089 crore, SBI Rs 2,925 crore, IDBI Bank Rs 3,639 crore, Bank of Baroda Rs 1,614 crore, Punjab National Bank Rs 1,244 crore, Exim Bank Rs 1,327, Indian Overseas Bank Rs 1,244 crore, and Bank of India Rs 719 crore, among others.” This doesn’t even include the punitive interest, which would further increase this amount.


So, who were the passengers who got thrown overboard from the sinking ABG ship?

For such a huge corporation thus, it stands to reason that the eventual fraud and the financial troubles of ABG Shipyard impacted a lot of stakeholders and parties in a variety of ways.

The biggest losers in the scam, without a doubt, were the Banks involved. While according to Swaminathan Janakiraman, the Managing Director of State Bank of India, the banks would be able to recover the money being owed to them, the truth might be a lot different.

On previous occasions like the Nirav Modi scam, the Kingfisher scam and the Videocon scam, more often than not banks have incurred heavy losses and have been unable to recover all the money which was owed to them. Banks were unable to recover around 20% of the money owed in the Videocon Scam and around ₹5000 cr. from the Vijay Mallya scam is yet to be recovered. As for the Nirav Modi scam, banks still haven’t been able to recover a single penny of what was owed to them. Thus, while in theory, it may seem that the banks would get some of their lost money back if history is anything to go by, they may lose a huge chunk of what was owed to them, and the money they do get back would without a doubt take a long time.

This is just the tip of the iceberg. Even though ABG Shipyard was declared an NPA all the way back in 2013, the recent limelight has caused a massive sentimental reaction in the stock market towards these banking shares. Valentines’ day showed no love towards these banking stocks with SBI shares falling by 5.2%, ICICI bank shares by 4.73% and IndusInd bank shares by 4.52%. The fact that yet another humongous fraud has come to the limelight after the Nirav Modi and Mehul Chowksi scandal, and that this case has seen so many delays in being registered with the CBI has created a lot of negative sentiment towards the banking sector in general. And rubbing salt to the wound, not one, not two but 28 banks were defrauded, which has naturally caused a lot of backlashes towards the banking sector.

Aside from the Banks which were hit so hard by this scandal, we must also not forget that ABG shipyard had a massive client base too. The eventual bankruptcy impacted its clients like the Indian Navy who had to cancel the orders for shipping vessels that had been placed with ABG shipyard.

The irony however lies in the fact that it was these very orders from the Indian navy and coast guard which allowed ABG Shipyard to commence their fraud in the first place. Being able to show that they had orders from high profile clients like the Navy, gave ABG a massive amount of goodwill, and on the basis of this, they were able to get loans from most of the banks they approached.

Lastly, the ABG shipyard had tried to siphon money into personal assets and tax havens. This means that they robbed the government of a huge amount of taxes. Not just the government though, the money which could have gone to the general public was lost to ABG.

It’s tough to comprehend the sheer size of the fraud, so let’s actually put the total amount of the fraud into perspective. During the pandemic, the Uttar Pradesh government had spent around twenty thousand crores on family welfare and health which is still around two thousand crores less than the fraud committed. During the same time Assam saw lending of twenty-two thousand crores to 1.78 million micro, small and medium enterprises, and a similar amount was given as loans to weaker sections of the society in all of Northeast. All of these were less than the amount that ABG shipyard defrauded the country off.

This means that the money which was lost could have been used to save lives and serve over 16% of India’s population in the pandemic, or could have served around 4.4 million underprivileged people to start their lives or help start around 2 million new small enterprises.

This goes on to show that the ramifications of the fraud go beyond just a few arrest warrants. From financially hurting some of the nation’s top companies, to negatively impacting the stock indices, these kinds of scandals impact one and all. Most importantly it robs the general public of the opportunity to raise their standards of living.


So, why was the crew unable to forecast the impending storm?... To read the full piece 🔗