CASE STUDY ON: CRB

Presented By:
Rohit Kulkarni
Sachin Agrawal
Sameer Kulkarni
Rohit Chawandke
Sanket Kulkarni
What does the case study cover?

 The scams in the Indian Financial Sector and the modus

operandi of the CRB group of companies.
 The role of the regulatory authorities in the CRB scam.
The Case Is

 Detailed insight into the frauds committed by the CRB group

of companies.
 Examines how the CRB group was able to defraud the
investors and the regulatory authorities with ease.
 Also explored the role of RBI and SBI .
 “Every single drop of my blood is for the depositors”.
-Chain Roop Bhansali in 1997

 Schemes and Achievements:

 CRB consultants-New Delhi 1985.
 CRB Capital Markets (a public ltd co.)-1992
 The company offered various schemes like merchant banking , leasing and hire purchase ,
bill discounting and corporate funds management , fixed deposit and resources mobilization ,
mutual funds and asset management , international finance and forex operations.
 CRB caps was also very active in stock-broking having a card both on the BSE and the NSE.
Success Story:

 The company raised over Rs.176 crore from the public by January 1995.
 A+ rating given by CARE and upfront cash incentives of 7-10% attracted
investors in hordes to Bhansali’s schemes.
 CRB Corporation Ltd raised another Rs.84 crore through three public
issues between May 1993 and December 1995.
 CRB share custodial services raised another Rs.100 crore in January 1995.
 In August 1994 , Bhansali launched CRB mutual funds (CRBMF) which
raised Rs.230 crore from the market through Arihant Mangal Growth
Scheme.
Continue..........
 Rs.180 Crore was raised from investors through FD’s.
 Bhansali’s empire soon flourished with the total income increasing from
Rs.1.2 crore in 1991 to Rs.103 crore in 1995.
 Media analysts pointed out that the group’s global outlook and timely
foreign collaborations were responsible for it’s success.
 CRB’s joint ventures with Daewoo Securities and Keystone Group met
with reasonable success.
 In mid 1990s , Bhansali came out with the book extolling his virtues and
achievements titled “Dr. C R Bhansali-Making the Difference”.
The Man and the Mess!!!!!!!!!!
 Suspicions arose when CRB Caps’ net worth grew from Rs.2 crore in
1992 to Es.430 crore in 1996
 It was in mid 1996 that reports regarding frauds being committed by the
RBI group began appearing in the media.
 An FIR was filed against CRB as per section 120B read with section 420
of the Indian Penal Code and section 13(2) read with section 13(1)D of the
corruption Act.
Actions Against Bhansali

 Bhansali Was Charged With Fraud, Cheating , And Siphoning

Off Of Funds From SBI.
 He was arrested as soon as he landed in Delhi.
The Modus Operandi:

 Dummy Companies.
 Rigging Share prices through own money.
 CRB Share Custodian invested Rs.15 Crore into CRB capital markets,
which in turn invested Rs.17 crore in CRB Mutual Funds. The latter held
24 lakh shares of CRB Corporation which again had a Rs.16 crore
investment in CRB capital markets.
 As a result CRB caps reported that the market value of its investments rose
from Rs.76 crore to Rs.109 crore in 1995-96.
Continue....

 CRB corporation’s income more than doubled between 1994-

1996.
 The Financial Wizardry was made possible with the help of
Bhansali’s trusted firms of auditors, D P Bhaiya & co and,
Jain & Swaika-both old friends from Calcutta.
Defrauding the SBI:

 In May’96 current account opened in SBI ‘s Mumbai branch

 Only current account facility granted
 No overdraft allowed
 Dividend warrants treated as demand drafts
 For about nine months all went well
SBI ‘s findings:

 However in March’97 SBI discovered the fraud

 Bhansali was investigated immediately
 SBI accused Bhansali of printing 1800 fake dividend warrants
 Bhansali used fake accounts in Chennai, Calcutta and
Rajasthan to withdraw these dividends
 CRB Caps had an outstanding liability on 50 crores
Bhansali’s Justification:

 Overdrawn money was used to repay principal to the fixed

deposit holders
 Bhansali claimed he had no fraudulent intentions
 Lawyer insisted that the account was an ordinary one and not
of the escrow or ‘pre-deposit’ type
 Action’s taken by SBI:

 SBI officials met with Bhansali in April 1997

 SBI demanded immediate repayment of the over drafted amount: Immediate payment
of Rs.10 crore and submit post-dated cheques to cover CRB’s outstanding liability of Rs. 47

crore

 All property to be submitted as collateral security

The Systemic Rot

 Lack of communication between the banks, RBI and the

government officials:-Bhansali’s advantage
 Blame game between RBI and SEBI
 RBI claimed that it had no power to examine the asset quality
 In Dec’94 SEBI conducted a routine investigation
 Chitale Report presented in Jan’95
 9 months ban on CRBMF
Continued….

 Oct’96 TFCI lodged complaint against CRB Caps

 In Nov’96 first interim show-cause notice issued by RBI
 2 months inspection took place
 In Feb’97 final show-cause notice issued
 April’97 ban on CRB on collection of further funds
 RBI took 6 weeks to issue winding-up notice.
 The Aftermath:

 In oct’98, the SEBI appointed an administrator for CRB’s Arihant

scheme finalized a scheme for payment to the unit holders.
 Far reaching impacts on the economy
 Declining investor confidence in banks
 Poor performance of NBFC’s
 Making investors more aware
 Creation of smart investors
Actions taken by SEBI:

 Over 120 merchant bankers were issued show-cause notices

 Over half a dozen mutual funds were prevented from floating
mutual fund schemes
 Morgan Stanley Mutual Fund was slapped a fine of Rs.1lakh
for various irregularities
Actions taken by SBI:

 June 11,1997 SBI suspends 3 officials in Mumbai Branch

 R.L.Walker-Chief Manager(Mumbai Branch)
 V.N.Patil-Scale II officers
 M.M.Narang-Scale II officers
 Raids at the officers residence
CRB Capital Markets-Key Financials:
THANK YOU….