INTRODUCTION

The Indian banking sector already plagued with massive NPA problems among others; was
just seeing the hope of light post the RBI’s bank recapitalisation plans. But all of a sudden 2
bank fraud cases have highlighted that situations may be far from good.

After the ₹11,000 bank fraud case accused billionaire diamond merchant Nirav Modi case,
another one has been reported. This time, the promoter of Rotomac Pen has been alleged
in a ₹800 crore bank fraud case.

The CBI registered an FIR against Vikram Kothari, the promoter of Rotomac Pens. The basis
for the same was a Bank of Baroda complaint stating that the company had allegedly not
repaid interest and principal on the loan amount for over a year.

The agency shall be engaging itself in search operations, including the residence of the
accused Mr Vikram Kothari. However, no arrests have been made yet. But the wife and the
son of the promoter have been questioned by the CBI.

BACKGROUND

Rotomac Pen maker Rotomac Global Pvt Ltd, a Kanpur based company, was declared as a
‘wilful defaulter’ last year. This was in the background that promoter Vikram Kothari had
borrowed ₹800 crore from 5 public sector banks.

The 5 banks involved in the case are Allahabad Bank, Bank of Baroda, Union Bank of India,
Indian Overseas Bank and Bank of India. Mr Kothari took a loan of ₹485 crore and ₹352
crore form Mumbai-based Union Bank of India and Kolkata-based Allahabad Bank
respectively.
Consortium partner Bank of Baroda had declared the company as a wilful defaulter. The
pretext of the declaration was that Rotomac Global Pvt Ltd had defaulted on both the
interest and principal repayment over last year.

However, Chief Justice D B Bhosle and Justice Yashwant Verma comprised division bench
had said that the company “offered assets worth more than Rs 300 crore to the bank since
the date of default”. On this basis, the bench passed the company’s petition that they had
been wrongly declared a ‘wilful defaulter’.

It is said that the consortium of 5 banks had on promised on their rules/ procedures to
sanction loan to promoter Vikram Kothari.

He is currently out of the country and it was alleged that he fled the country. Mr Kothari has
claimed that the allegations are baseless when he said “I am a resident of Kanpur and I will
stay in the city. However, I do have to travel to foreign countries for business purposes.”

How the 3700 crore Con was penned

Rotomac Owner and promoter Vikram Kothari took public sectors banks for a ride between
2008 and 2013 by getting foreign letters of credit for making payments to his buyers and
suppliers abroad who operated from virtual offices in Dubai, Hong kong and Sharjah.

Rotomac Global Pvt Ltd was engaged in manufacturing pens and approached 7 banks
including Bank of Baroda (BoB) taking credit from 15 crore to 200 crore from 2008 to 2013,
mostly for the imports and exports.

Bank of Baroda alone was cheated with 456 crore by Kothari.

These were the estimated amount of loan that Vikram Kothari took from above mentioned
seven banks.

It amounted to Rs 2919 Cr and the Interest Liabilities were 776 Cr making it a total of 3695
Crore.

According to sources, Bank of India is the consortium leader, which sanctioned Rs 754.77
crore. Bank of Baroda gave Rs 456.63 crore, Indian Overseas Bank loaned Rs 771.07 crore,
Union Bank of India sanctioned Rs 458.95 crore, Allahabad Bank gave Rs 330.68 crore, Bank
of Maharashtra gave Rs 49.82 crore and Oriental Bank of Commerce sanctioned Rs
97.47crore.

Vikram Kothari was declared as a ‘willful defaulter’ by Bank of Baroda in February 2017. He
had contested the tag in Allahabad High Court and received an order in its favour but failed
to pay the loans. According to reports, Allahabad Bank, Bank of India, Bank of Baroda, Indian
Overseas Bank and Union Bank of India allegedly compromised their rules to sanction loans
to Rotomac.

“Rotomac bank fraud loan wasn’t for Vikram Kothari’s pen business but for ‘importing’
wheat”

February 19, 2018

According to sources, the credit was sanctioned and the loan disbursed to Kothari for
importing wheat from a company in Singapore, but the amount was not utilised for the
purpose. Instead, it was diverted to another company and the money was later remitted to
Rotomac.

“Money was sought from the banks for importing wheat from a Singapore-based company,
Bargadia Brothers. But when it was sanctioned, the money was not utilised to buy wheat.
The money first went to Bargadia brothers and then came back to Rotomac. No export
order was ever executed. This round-tripping of money amounts to misappropriation of
funds, criminal breach of trust, and violation of FEMA guidelines.”

He added: “Most of the transactions of this company are with limited number of buyers,
sellers, sister companies, and subsidiaries of this company.”

According to sources, the company was betting on the foreign exchange rate. “The company
was working for ‘interest rate differential’ in local and foreign currency. In reality, no
genuine business transaction was carried out.,”

In a statement, Kothari said, “First of all, it is not a scam. I am not going anywhere. I am an
Indian citizen and am very much in my hometown. Though banks have declared my
company as a non-performing asset (NPA), I am not a defaulter. The matter is still sub judice
with the National Company Law Tribunal (NCLT). I am regularly in touch with the banks and
am constantly cooperating with them. I availed the loans and will repay them soon.”

CBI begins questioning Vikram Kothari

The Central Bureau of Investigation (CBI) Wednesday started questioning of Rotomac owner
Vikram Kothari at its headquarters in connection with alleged loan default of Rs3,695 crore.

Earlier, Kothari was being questioned in Kanpur where his company and residence is
located. He was called in New Delhi by the agency which started his questioning at its
headquarters. Kothari, his wife Sadhana, and son Rahul, all directors in Rotomac Global Pvt.
Ltd, have allegedly diverted the bank loans towards purposes other than they were meant
for.

The CBI registered a case on 18 February after receiving the complaint. Initially, the alleged
scam was estimated to be of Rs800 crore but after the CBI started probe into the accounts
of the Rotomac Global Private Limited,it was found that the company had allegedly taken
loans from Bank of India, Bank of Maharashtra, Indian Overseas Bank, Union Bank of India,
Allahabad bank and Oriental Bank of Commerce.

The Enforcement Directorate (ED) had notified all the land, sea and airports in the country
to prevent the exit of the promoter of Rotomac pens, Vikram Kothari, and his family
members from India, in connection with its money laundering probe.

The agency also conducted searches at multiple locations in Uttar Pradesh, including in
Unnao and Kanpur, to gather evidence in the case. The ED had slapped criminal charges
under the Prevention of Money Laundering Act (PMLA) against the company and its
promoters on 18 February, based on a CBI FIR filed on the same day.

The income tax department had also attached 14 bank accounts of the pen manufacturer as
part of its tax evasion probe against the company.
EVALUATION OF THE CASE

What is the issue?

 Kanpur-based Rotomac Global has orchestrated a scam of a Rs. 3,695 crore by

means of wilful loan default to multiple banks.
 Getting exposed barely days after the massive Punjab National Bank (PNB) scam, this
has added to the woes that stares India’s banking system.

How has the case proceeded?

 Based on a complaint filed by the Bank of Baroda (BoB), CBI has registered a case
against 3 directors of Rotomac, and others (including some bank staff).
 The allegations are that of cheating a consortium of seven Public Sector Banks (PSBs)
by siphoning off loans disbursed to the company.
 Rotomac Global had availed credit from multiple PSBs at different instances, from as
early as 2008 on various pretexts.
 The borrowed money was used for a range of seemingly unrelated transactions
including the import of gems and jewellery and the export of wheat.
 While it seems clear that a “Ponzi style scam” was in operation, the surprise is that it
took such a long time for this to surface as a criminal complaint.

How does this scam fare in comparison with the PNB scam?

 Similarities - There are similarities in the breakdown of internal control mechanisms

and in the supervisory failure at the banks in both the cases.
 Lower level bank officials being complicit in the fraud are indeed reprehensive, but
there also seems to have been a supervisory level lapse (or collaboration).
 In both cases higher level involvement is implicit as risk detection and taking
remedial action was clearly delayed or not done at all.
  Difference - In the PNB case, reporting systems were bypassed (literally off the
record), and even the subsequent 3-tier audit failed to detect this.
 In contrast, BoB was completely aware of Rotomac’s default and took unreasonably
long to take action.
 Notably, Rotomac was listed as BoB’s top defaulter almost a year ago and its account
has been classified as ‘Non Performing’ since 2015.
 Here, the fact that even RBI (which overseeing bank books regularly) hasn’t taken
timely corrective action is concerning.

PROPOSED SOLUTION

 The need for strengthening corporate governance by infusing greater

professionalism, transparency and accountability in PSBs has been routinely
reiterated.
 It is time the Centre (as the major shareholder), takes serious steps to translate
these above mentioned intentions into action.
 Any improvement in the functioning of the PSBs cannot be undertaken without
empowering bank managements.
 Securing their independence from political interference and enforcing strict
accountability for lapses are also very important.
 To restore the depositor’s faith in the banking system, the government, the RBI and
the judiciary must ensure that prompt and salutary action is taken.
 The fact that, “the economic cost of letting this rot continue unabated could prove
catastrophic”, needs to be recognized.
REFFERENCES

1. http://www.ijrssh.com/images/short_pdf/1477044215_Naman_Sehgal_14.pdf

2. https://www.longdom.org/articles/coal-is-gold-the-coalgate-scam.pdf

3. http://www.pbr.co.in/2017/2017_month/Jan/22.pdf.

4. https://faculty.iima.ac.in/~jrvarma/papers/vik18-1.pdf.

5. https://acadpubl.eu/hub/2018-119-12/articles/6/1387.pdf

6. https://timesofindia.indiatimes.com/business/india-business/how-a-rs-3700-crore-con-
was-penned/articleshow/62990080.cms