India's Central Bureau of Investigation (CBI) has charged Kanpur-based pen manufacturer Rotomac Global and its directors with defrauding Indian Overseas Bank of 750 crore Indian rupees (Rs750 crore), the equivalent of around US$1.1 billion.

The Kanpur-based pen-maker has a total outstanding of Rs2,919 crore against a consortium of seven banks led by Bank of India in one of the biggest fraud cases in Indian banking. The CBI has already registered several claims against the company and its directors.

Devolved L/Cs

Indian Overseas Bank claims that in June 2012 it extended to Rotomac a non-fund-based limit of Rs500 crore.

In its complaint to the CBI, the bank says it issued eleven letters of credit (L/Cs) to meet the company's international trade finance requirements. But the L/Cs were all devolved for a total of Rs744 crore, leaving the bank with no security.

Non-disclosure of liabilities

The bank alleges that Rotomac failed to provide a complete set of documents for the trade it conducted, and all L/Cs were issued in favour of two parties, Farest Distributors and Logistics and RBA Ventures.

The lack of documentation cast doubt on the authenticity of the trade, as well as the vessels and voyages claimed in the bills of lading, prompting the bank to conduct a forensic audit. It revealed non-disclosure of liabilities arising from the L/Cs and manipulation of the company's accounts.

Misappropriated funds

The audit also found that 92 per cent of total sales, amounting to Rs26,143 crore - the equivalent of US$3.2 billion - were made to four parties connected with Rotomac and its directors.

Other banks that extended loans to the company that were allegedly subsequently misappropriated include Bank of Maharashtra, Union Bank of India, Bank of Baroda, Allahabad Bank and Oriental Bank of Commerce.

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