ABG Shipyard case: Did 2 independent directors know about the 'wrongdoings'?

Days after the corporate debt restructuring (CDR) of ABG Shipyard Ltd failed in the mid-2016 period, the two independent directors --Ravi Nevatia and Rajani Podar--of ABG Shipyard decided to step down with identical resignation letters, absolving themselves completely of any responsibility for wrongdoings.

 

A question, therefore, arises: did they have a hunch that the Central Bureau of Investigation (CBI) is going to knock on their door one day?

 

Nevatia's name already figures in the list of directors booked by the CBI. The other names include the company's former CMD, Rishi Agarwal, former executive director, S Muthaswamy, and directors Ashwini Kumar and Sushil Agarwal. The CBI had registered a case against ABG Shipyard this month for defrauding over two dozen banks to the tune of Rs 22,800 crore.

 

Nevatia, who was appointed as an independent director in August 2015, left immediately after the CDR failed. He was director for the full two years when the debt restructuring was being implemented by the banks. When he resigned in June 2017, he said that "there was no participation in any activity of the company by him during his tenure except for attending board meetings."

 

He further wrote that "the decisions and all the activities were handled by the directors holding the post and the management of the company."

 

Another independent director, Rajani Podar, wrote an exactly similar note while resigning. He wrote, "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."

 

Surprisingly, Podar was an independent director for a brief period of six months.

 

This begs another question. During this entire time, did no other independent director raise any alarm?

 

ABG Shipyard loan turned NPA for banks in November 2013. A majority of the bank funds were disbursed between 2005 and 2012 by a consortium of 28 banks led by ICICI Bank, IDBI Bank and SBI. The banks, however, accommodated company's request for a debt restructuring. But by July 2016, the CDR also failed and the banks had to classify the loan as NPA under the RBI rules with a backdated 2013.

 

The ship biuilding company was part of the "dirty dozen" ( 12 big NPAs which included Essar , Jaypee, etc.) identified by the RBI for bankruptcy proceedings some five years ago. It was referred to IBC in August 2017 by the lead bank, ICICI Bank. 

 

Around this time,  the banks also decided to conduct a forensic audit. The forensic audit done by EY India covered  the period from 2012 to 2017.  Post the report , many banks in the consortium declared the account of ABG Shipyard as fraud between April 2019 to March 2020.

 

While the bank loan is close to Rs 22,800 crore, the admitted claims under IBC are to the tune of Rs 27,400 crore. Currently, the company is facing liquidation proceedings under the IBC.

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