India’s Biggest Bank Fraud: Auditor Failed to Uncover Fund Diversion in ABG Shipyard’s Rs. 23000 Crore Fraud

The Auditor of ABG Shipyard, which is being investigated by the Central Bureau of Investigation (CBI) for a Rs 23,000 Crore bank default, paid a minor settlement fee to the Securities and Exchange Board of India (Sebi) in 2019.

The regulator had launched an investigation into the ABG Shipyard fund diversion and had requested the auditor to explain why it had failed to discover the fund diversion in a timely manner.

Auditor MN Ahmed, a partner at Nisar & Kumar, a chartered accounting company, stated in his settlement application that he is no longer an Indian citizen and has resigned from the profession.

The job of an auditor is critical in the CBI’s fund diversion investigation into ABG Shipyard’s bank default.

In January 2018, the market regulator barred Price Waterhouse from auditing for two years as a result of the Satyam fraud. In September 2019, the Securities and Appellate Tribunal (SAT) overturned the Sebi order.

Sebi had issued notifications to Ahmed in the ABG Shipyard case regarding fund diversion around Rs 101 crore from ABG Shipyard to Second Land Developers between 2008 and 2014. (later known as ABG Resources). The promoter benefited unduly as a result of this.

ABG had secured purchase bills from a few businesses without actually moving products, according to the probe. There were also misstatements in the accounts/profits and disclosures. According to Sebi, Nisar & Kumar served as ABG’s statutory auditor from 2008 to 2016.

Both the audit reports and the corporate governance certificate were signed by the auditor.

During 2009-2013, the same audit firm also served as the statutory auditor for Second Land Developers. And Ahmed and a woman named Rachna Agarwal signed the audit reports for the financial years 2009-10 and 2011-2013, respectively.

Sebi discovered that the firm had issued unaltered audit reports to its stakeholders, concealing ABG’s true state of affairs. Ahmed did not present during Sebi inquiries and did not offer any documents or information to the authority.

Ahmed claimed in his settlement application that the alleged default had no market-wide impact and that he received no illicit advantage or benefit as a result of it. Sebi subsequently required Ahmed to pay a Rs 27.5 lakh settlement fee, and the case was closed.

Nisar & Kumar did not respond to an email sent to them.

The auditor highlighted questions about ABG’s interests in subsidiaries and linked parties worth Rs 220 crore, according to the annual report for the financial year ending March 2016.

The report stated that because the audited financial statements of investee companies are not available, it is impossible to determine or quantify whether any provision for investment impairment is required.

The auditor stated that numerous loans, advances, and receivables from associated parties had been outstanding for a long time. “As a result, the loans are interest-free, and there is no deadline for repayment. “We believe that the terms and conditions of such loans are adverse to the company’s interest,” the study stated. According to the annual report for the fiscal year ended March 2016, connected parties owed Rs 1,756 crore in loans and advances. According to the audit, dues from private firms in which ABG directors were directors, members, or partners totaled Rs 165 crore.

The corporation had attributed its financial woes to the stoppage of activities at Dahej yard and operations in Surat that were below capacity. As a result, the company’s losses accumulated over time. The company’s net worth was completely degraded, and it suffered significant losses.