CBI books Frost International and its directors in Rs 3,592-crore fraud

The action has been taken on the complaint of Kanpur Zonal office of Bank of India, which alleged that the directors had worked in the guise of undertaking merchanting trade without genuine business

The CBI carried out searches at 13 locations on Tuesday including the premises of 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, which alleged that the directors had worked in the guise of undertaking merchanting trade without genuine business, they said.

The CBI started search operation on Tuesday 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 its directors, the agency has booked 11 more entities which include three Kanpur-based companies -- RK Builders, Globiz Exim Pvt Ltd, Nirman Pvt Ltd -- represented through their directors.

These companies were corporate guarantors for Frost International, officials 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, adding the company and its directors, guarantors and unidentified others submitted forged documents, diverted and siphoned off the bank's funds.

The action of the company and its directors cheated the banks to the tune of over Rs 3,592.48 crore, they added.

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, in its complaint which is now part of the FIR, 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 the consortium 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.

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

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

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

"Clearly, there was a mismatch of cash flows 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 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, the bank said.

The audit showed that purchase and sales transactions amounting to Rs 9822 crore and Rs 9,889 crore respectively were among parties known to each other, it said.