Fraudulent letters of credit (L/Cs) may feature in the prosecution of ABG Shipyard and its promoters after India's Central Bureau of Investigation (CBI) accused them of defrauding State Bank of India (SBI) and other members of a 28 bank consortium of 228.42 billion Indian rupees (US$3.03 billion).

The role of L/Cs in the case is yet unclear, but current reports and accusations made years ago by the Directorate of Revenue Intelligence (DRI) suggest they may have played a part in what is being billed as the largest bank fraud case ever revealed in India.

Bank involvement

The CBI says a forensic audit report it received from the banks two years ago had found instances of fraud between April 2012 and July 2017.

The bank consortium was led by ICICI Bank, which the forensic audit suggests was owed 20.89 billion rupees by ABG Shipyard.

It also owed 36.34 billion rupees to IDBI Bank, 29.25 billion rupees to SBI, 16.14 billion rupees to Bank of Baroda, 12.44 billion rupees to Punjab National Bank and 12.28 billion rupees to Indian Overseas Bank .

Allegations

The CBI alleges that the shipbuilding and ship repair company and its promoters colluded together to obtain loans and divert funds for purposes other than those for which the funds were released by the banks.

According to the CBI the diversion of funds represented a "misappropriation and criminal breach of trust with an objective to gain unlawfully" at the cost of the banks. Huge amounts were allegedly transferred to related parties and subsequently adjustment entries were made.

Potential L/C involvement

A source in the CBI reportedly told The Print news channel that fraudulent loans were used to raise L/Cs.

In 2019, a customs tribunal overturned a DRI order that accused ABG Shipyard of making "sham" imports of about US$78 million using fraudulently obtained L/Cs from banks to channel hard currency out of India.

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