Why CBI is inactive in Rs 770-crore bill discounting scam?

Five months after the Central Bureau of Investigation (CBI) filed a first information report (FIR) against Mumbai-based textile export firm ABC Cotspin Private Ltd, and its promoters Ashish B Jobanputra and his wife, Preeti Jobanputra, in the Rs 770-crore bill discounting scam involving State Bank of India (SBI) and Bank of Baroda (BoB), the agency had done little to nab them.

While the tax authorities and the Maharashtra government recovery department have been taking steps to ring-fence the fraudsters, the CBI seems to be going slow.

Last month, the CBI issued a red-corner notice (RCN). After that, the agency says it has no idea where the fraudsters are hiding. Such notices, equivalent to international arrest warrants, allow investigative agencies to arrest fraudsters from other countries.

A dna investigation reveals that the couple are buying time in Los Angeles. They are readying plans to restart their cotton export business in India with some trusted men, still employed with them in the country. Close business associates of the company told dna: "Next month, they are also inaugurating a multi-store business in the US."

A detailed e-mail to the CBI last week enquiring about the progress of the case and why their properties are not attached did not evince a reply. Ashish Jobanputra also did not respond to an email questionnaire.

Two company directors, Ashiwin Patel and Bhavesh Takker, are in Mumbai but no action has been initiated against them either. Though the duo has vast landed properties in Mumbai and Gujarat, the CBI has not attached any so far.

A CBI spokesperson said, "We are yet to get information from the said department. There are many procedures before arresting anyone."

Interestingly, Ashish continues to enjoy the membership of Cotton Exchange at Cotton Green in Mumbai, where he has three premises that he can possess as long as he is a member. No plans are afoot to strip his membership or to vacate him from the premises.

The Gujarat commercial tax department and the Maharashtra recovery department are the only agencies that have so far initiated the most stringent action against Jobanputras. They have slapped a provisional attachment notice on the sprawling head office of ABC Cotspin on the 13th floor of Regent Chambers at Nariman Point in Mumbai, and prevented the company from vacating or selling the premise.

The promoters have filed a case against the recovery department to lift the provisional attachment in the government tribunal court.

When dna visited the company's Nariman Point office, a few plush swivel chairs were getting bubble-packed and left on the floor. Five employees were roaming around the office. No one divulged their names nor was willing to share any information. One employee said, "The company is not shut. We are in huge losses."

An official from the Maharashtra government recovery cell told dna that they were packing off and trying to shift the office out.

"We wrote a letter to the society not to let them take out any material, except paper, and not to allow any sale or transfer of property. We are now fighting a legal case after the company filed a case against the provisional attachment," said the official.

The Maharashtra recovery department has swung into action on a request from the Gujarat state commercial tax department, which detected a tax fraud of Rs 40 crore. According to tax authorities, ABC Cotspin undertook fake transactions with Sapna Sales and Max Impex and Arya Cotton of Kalupur in Gujarat.

These traders forged bills and helped the company claim fake refunds. About 4-5 premises of the company in CG road, Relief Road, Kalupur and Botad were searched by I-T officials. As many as four laptops and seven hard disks were seized by officials during the search in November last year.

An employee of ABC Cotspin told dna, "The company was forced to shut down after it suffered huge losses."

BoB, which lost over Rs 300 crore in the fraud, is in the process of auctioning Jobanputra's posh apartment at Imperial Towers in Mumbai's tony suburb of Tardeo. Reliance Commercial Finance, a Reliance group company that financed five luxury cars of the couple, has already towed away two of their cars for non-servicing of debt.

A Reliance spokesperson said: "The promoters are negotiating a settlement. Ashish has said he is sitting on huge export losses in China."

A senior BoB official said: "We sent an official to China to see if the company's godowns have stock, and discovered that it was empty. We have suspended three officers, and the CBI probe may be extended to them."

ABC Cotspin fraudulently presented over 400 bills of lading, manufactured internally at different points in 2014-15 to both SBI and BoB. The firm discounted bills aggregating Rs 770 crore without attaching shipping bills as evidence of export.

A bill-discounting transaction occurs when a bank buys the bill before it is due and credits the amount (of course, after deducting certain discounting charge) to the customer's account. Typically, sellers and exporters use this facility to obtain finance from banks. A fraud is perpetrated when a buyer and seller, acting in connivance, win the bank's confidence by carrying out a string of regular transactions where the buyer agrees to honour the payment.

In this case, bogus bills were submitted showing that cotton bales were loaded on to ships to be exported to China and Hong Kong with forged customs department seal, when no exports had taken place. Some bank branches ended up discounting bills against which the underlying trade transactions were non-existent.

Bill of lading is a negotiable instrument issued by the directorate general of shipping. Typically, when a bill of lading is submitted to the bank, it discounts some part of the future receivable and disburses the entire money to the exporter for his working capital needs.