The CRB Scam

Details

Themes: Corporate scams / Controversies
Period : 1993 - 1997
Organization : CRB Group / SEBI
Pub Date : 2002
Countries : India
Industry : Financial Services

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Case Code : FINC008
Case Length : 09 Pages
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Defrauding the SBI

In May 1996, CRB Caps opened a current account in SBI's main Mumbai branch, for payment of interest, dividend and redemption cheques. The payment warrants could be presented at any of the 4,000 SBI branches for payment. However, Bhansali was granted only a current account facility and did not enjoy any overdraft facility. He was expected to deposit cash upfront into the current account, along with a list of payments that had to be honored. Claming that the logistics of payment were very complex and that it was not possible for every branch to check with the head office before honoring a dividend warrant, the branches gradually began treating these instruments just like a demand draft.

For about nine months, the setup worked very well. However, in March 1997, SBI realized that the account had been overdrawn to the extent of a few crores. Bhansali was called to the SBI office and asked to remit the difference immediately, which he promptly did. The same situation arose again within the next fortnight. SBI then issued a circular to all its branches asking them to stop honoring any warrants of CRB Capital Markets. SBI also alleged that Bhansali had printed 1,800 fake dividend warrants, which were drawn in favor of friends and relatives and presented at various SBI branches.

Bhansali used benami accounts in Chennai, Calcutta and towns in Rajasthan to encash the interest warrants and fixed deposit repayments. These amounts were then transferred to other accounts like Red Stone Properties Pvt. Ltd., Bahubali Commercial Company Ltd., Chamatkar Investments Pvt. Ltd. - all in Chennai - from where they were withdrawn. Although it was speculated that Bhansali intended to pocket the cash and flee, Bhansali's lawyer claimed that the overdrawn sum went back into CRB Caps to pay interest and repay principal to fixed deposit holders.

Bhansali did admit to overdrawing from his SBI account following liquidity problems at CRB Caps. However, he claimed that he had no fraudulent intentions. His lawyer insisted that the SBI account was an ordinary one and not of the escrow or 'pre-deposit' type. There was no mandatory requirement to deposit money with SBI before issuing out the interest warrants and in the event of any overdraft, it was to be treated as a normal account with overdraft facility, where the overdrawn amount could be repaid with interest.

SBI officials met Bhansali in April 1997 and asked him to immediately deposit Rs 10 crore and submit post-dated cheques to cover CRB's outstanding liability of Rs 47 crore. SBI then attempted to obtain Bhansali's co-operation in a bid to recover the entire amount owed to the bank by April end. In addition, SBI asked Bhansali to register all property owned by him and his companies as collateral in favor of the bank. In the same month, Bhansali's property in Jaipur, Rajasthan was transferred in SBI's name. Bhansali however, did not pay the money SBI had asked for. Further, Bhansali valued his property at over Rs 60 crore, while SBI claimed that the bank's own valuation turned out to be far less. It seemed that SBI had knowingly overlooked CRB Caps' impending bankruptcy in order to recover as much cash as possible before the matter reached the judiciary.

SBI justified this saying that justice in its normal course would have invariably taken an extremely long period. It was only when Bhansali could not pay the first instalment of Rs 10 crore that SBI informed the RBI. Bhansali's lawyers also claimed that the SBI and the RBI aggravated the situation by prohibiting CRB Caps from accepting fresh deposits and then announcing it to the public, which resulted in a panic among depositors.

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