Sudden devolvement of letters of credit (L/Cs) raised suspicions of fraud at Arihant Coal Sales, which India's Central Bureau of Investigation (CBI) has charged along with its senior management for allegedly cheating the Bank of Baroda (BoB) of the equivalent of US$14.7 million.

The coal wholesaler previously utilised credit facilities from the State Bank of India but in 2010 successfully approached BoB for a cash credit limit of around US$4 million, a standby line of credit of US$700,000 and L/Cs worth US$5.9 million. These facilities were subsequently increased twice.

Suspicious transactions

The facilities operated routinely until August 2017 when, over a period of six months, eight L/Cs amounting to the equivalent of US$11.8 million were devolved, eventually leading to Arihant's facilities being classified as non-performing assets.

The sudden devolvement of the L/Cs raised suspicions that prompted BoB to initiate a fraud investigation and conduct a forensic audit of the coal wholesaler's accounts. They allegedly revealed that funds were diverted and siphoned off, financial data submitted to the bank was manipulated, and several irregularities were found in foreign exchange transactions.

Proceeds banked elsewhere

Investigators say they discovered that the sale proceeds of the goods procured through the L/Cs were channelled through various accounts opened by the company with other banks.

The funds were subsequently siphoned off, and once due dates of payment were reached, the L/Cs were devolved due to the company's accounts holding insufficient funds.

The CBI alleges the company maintained current accounts with several other banks without BoB's permission.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.