CBI raids Frost International over Rs 3,592-cr fraud, largest since Nirav Modi

The CBI carried out searches at 13 locations on Tuesday including the premises of the present and former directors of Mumbai-based Frost International which has been booked by the agency for allegedly cheating a consortium of 14 banks to the tune of over Rs 3,592 crore, officials said.

The action has been taken on the complaint of the Kanpur Zonal office of Bank of India (BOI), which alleged that the directors had worked under the guise of undertaking merchanting trade without genuine business, they said.

This is understood to be the biggest default reported by public sector banks to the CBI after January 2018 when Nirav Modi and Mehul Choksi fled the nation causing a loss of over Rs 13,000 crore to the Punjab National Bank.

The Bank of India in its complaint, which is now part of the CBI FIR, said Frost International's account had started showing signs of stress from January, 2018 and later became a non-performing asset.

The probe agency carried out search operations at 13 locations including the premises of the company, its directors Uday Desai and Sujay Desai and other former and present directors in Mumbai, Delhi and Kanpur, officials said.

Besides the company and directors, the agency has booked 11 more entities which include three Kanpur-based companies—RK Builders, Globiz Exim Pvt Ltd and Nirman Pvt Ltd—represented through their directors.

These companies were corporate guarantors for Frost International, they said.

It is alleged that they had defaulted in meeting payment obligation towards the lending banks of the consortium led by Bank of India, the officials said.

The company and its directors, guarantors and unidentified others submitted forged documents, diverted and siphoned off the bank's funds, they said, adding the action of the company and its directors cheated the banks to the tune of over Rs 3,592.48 crore.

The banks had already secured Look out Circular (LOC) against Uday Desai and 10 others on January 18, 2019. It was preceded by another LOC against Desai and 13 others on the request of Indian Overseas Bank, officials said.

The Bank of India (BOI) in its complaint has said that Frost International was managed by Uday Desai, Sujay Desai, Sunil Verma and Anup Kumar Baldevraj Wadhera since its inception in 1995 and was banking with it since 1996 having businesses in diverse products from agro commodities to bullion.

The company had suppliers and buyers across the globe from China to the USA with its promoters well versed in International trade.

BOI had given it credit facility of Rs 380.65 crore which was increased to Rs 4,061 crore with the formation of a consortium of 14 banks in 2011, it said.

In addition to the credit facilities from 14 banks, Indian Overseas Bank (IOB) also extended credit exposure of Rs 498.51 crore outside consortium arrangement, the complaint said, adding the company had hypothecated stocks and gave properties as collateral for credit facilities.

Indian Overseas Bank and Bank of India were part of the consortium which also included Andhra Bank, United Bank of India, Allahabad Bank, Oriental Bank of Commerce, Punjab National Bank, UCO Bank, Vijaya Bank, Canara Bank, Bank of Baroda, Central Bank of India, Union Bank of India and Syndicate Bank.

The bank said that from January 2018, the account started showing signs of stress when credit letters started devolving with member banks as export proceeds were not realised. The account was ultimately classified as a non-performing asset by the consortium, it said.

"Clearly, there was a mismatch of cash flow resulting in cash crunch which was not understandable by the bankers," it said.

The banks put the company for forensic audit which revealed that there was a potential diversion of funds by way of providing unsecured loans to group concerns.

It showed that there was no actual export of goods, there was a mismatch in ship movement data compared with loading and discharge port which was underlined in 18 merchant trade transaction, it said.

The audit showed that purchase and sales transactions amounting to Rs 9,822 crore and Rs 9,889 crore respectively were among parties known to each other, it said.