23-06-2012, 01:12 PM
CHAIN ROOP BHANSALI SCAM
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CHAIN ROOP BHANSALI
He was born in a jute traders house in Calcutta. He obtained degree in commerce and completed Charted Accountancy in 1980.
In the same year he started a financial consultancy firm, named ‘CRB Consultancy’.
Through his personal contacts CRB Consultancy soon managed to secure the business of providing issue management services to a few well-known companies in Calcutta.
Cont…
He was a studious person. Over the years he acquired other degrees including ACS, Ph.D, MIIA(US) and a diploma in Journalism.
Though he made a lot of money, he found it difficult to find recognition in Calcutta.
He then moved to New Delhi to join one of the country’s leading registrars of companies.
However when he was caught shot charging the registrars client, he had to leave.
CRB Caps
Bhansali then established ‘CRB Consultants’ a private limited company in 1985.
In 1992 the name of the company was changed to CRB Capital Markets(CRB Caps) and it was converted into a public limited company.
The company offered various services including merchant banking, leasing and hire purchase, bill discounting & corporate funds management, fixed deposit and resources mobilization, mutual funds and asset management, international finance & forex operations.
SUCCESS STORY
By January 1995 the company raised over Rs.176 crores from the public.
Another CRB company, CRB Corporation Ltd., raised another Rs.84 crores through three public issues between May 1993 and December 1995.
In August 1994, he launched CRB Mutual Funds (CRBMF) which raised Rs.230 crores from the market through its Arihant Mangal Growth scheme.
Another Rs.180 crores was raised from investors through fixed deposits.
CRB Share Custodial Service raised another Rs.100 crores in January 1995.
Cont…
The A+ rating given by CARE and upfront cash incentives of 7-10% attracted investors in hordes to Bhansali’s schemes.
Bhansali’s connections with religious leaders and political parties also helped in attracting investros.
Media analysts pointed out that the group’s global outlook and timely foreign collaborations were responsible for its success.
Going Down…
Suspicions arose when CRB Cap’s net worth grew from Rs.2 crores in 1992 to Es.430 crores in 1996.
It was in mid 1996, that reports regarding the fraud being committed by the CRB 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.
Cont….
Bhansali was Charged with Fraud, Cheating , and Siphoning Off of funds from SBI.
MODUS OPERANDI
Dummy Companies
Rigging share prices through own money
Defrauding the SBI
Dummy Companies
Bhansali was reported to have specialized in setting up dummy investment companies.
He used to sell these dummy companies to buyers.
He had established good contacts in the Registrar of Companies and the Controller of Capital issues office.
Having had a company listed on the stock exchange, Bhansali then sold it for a profit to businessmen who needed dummy public limited companies in a hurry.
Riging share price through own money:
Bhansali used his own money to rig share prices in order to raise more money form the markets in 2 ways.
He bought his own stock through private finance companies owned by him.
He used his other public companies to buy into each other as cross holdings…..
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 of cheques.
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.
Cont…
Claiming 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 9 months the setup worked very well.
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 SYSTEMIC ROT
The lack of clear communication channels between the banks, RBI and the government.
Frequent clashes occurred between RBI and SEBI – both of them trying to prove how the other was responsible for not acting early enough.
THE AFTERMATH
The Bhansali scam resulted in a loss of over Rs.1,200 crores (Rs. 12 billion).
SBI was one of the banks to be hit by his huge defaults.
Many investors lost their faith in the financial markets.
In October 1998, the SEBI appointed an administrator for CRB’s Arihant scheme that finalized a scheme for payment to the unit-holders.
Under the scheme, the investors were prematurely paid Rs.4.95%, which was its NAV as of 31st March 1998.
“Every single drop of my blood is for the depositors” -Chain Roop Bhansali