Rotomac Pens fraud: How Vikram Kothari conned 7 banks; FIR details revealed

Rotomac allegedly cheated banks to the tune of Rs 36.95 billion; this comes just Nirav Modi PNB fraud worth Rs 114 billion

Rotomac pen promoter Vikram Kothari faced heat of central agencies after the Central Bureau of Investigation (CBI) as well as the Enforcement Directorate (ED) registered separate cases against him and his company for allegedly swindling of billions from seven banks from 2008.

Rotomac Global Private Limited cheated a consortium of banks to the tune of Rs 36.95 billion (Rs 3,695 crore), including interest by siphoning off loans sanctioned to the company for procurement of wheat and other goods for export.

The CBI registered a case after receiving a complaint from Bank of Baroda against Kanpur-based Rotomac Global Private Limited, its director Vikram Kothari, his wife Sadhana Kothari, and son Rahul Kothari and unidentified bank officials.

Initially, the alleged scam was estimated to be of Rs 8 billion (Rs 800 crore) but after the CBI started to probe into the accounts of the company, 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 were taken.

The CBI alleged that the accused had cheated a consortium of seven bank by siphoning off bank loans to the tune Rs 29.19 billion (Rs 2,919 crore).

The total outstanding amount along with interest and liabilities for the company were pegged at Rs 36.95 billion (Rs 3,695 crore), the CBI alleged.

Immediately after registering the case, the CBI carried out searches at three locations in Kanpur which included Kothari's residence and office premises.

While making clear that no arrests have taken place in the case so far, CBI spokesperson Abhishek Dayal said Kothari, his wife and son were being examined by the CBI.

According to the CBI officials, the company allegedly used two modus operandi for siphoning off the loans secured from consortium of banks from 2008 onwards.

Loan utilised for purposes, other than executing export orders

The CBI alleged that the credit sanctioned for a particular export order was diverted to a different offshore company and later the money was remitted back into the Kanpur-based company without executing an export order.

No export was undertaken, though, according to officials of the CBI who referred to details given in the Bank of Baroda complaint.

CBI Spokesperson Abhishek Dayal quoting Bank of Baroda complaint said: "Rotomac cheated the consortium of banks by siphoning off bank loans."

Interestingly, the official said Rotomac was working for interest rate differential in local and foreign currency. "Number of front and fictitious companies were formed to carry out illegal activities by Rotomac which submitted forged documents to obtain the money from the banks," Dayal said.

The official said the credit disbursed and sanctioned to the company was utilised for the purposes other than executing export orders.

"For example, credit sanctioned for export order received from Singapore for the supply of wheat was diverted to a Singapore-based firm Bargadia Brothers Pvt Ltd but the money was later remitted back to Rotomac," he said.

"In other cases, the money disbursed by the bank for procurement of goods and some other export materials was not utilised for this purpose and no export order was executed by the Rotomac."

The official said "this misappropriation of funds" violated the FEMA (Foreign Exchange Management Act) guideline.

Bank of Baroda also alleged in its complaint that "most of the transactions of Rotomac are with a limited number of buyers, sister companies and sellers and no genuine business transactions were carried out, according to other CBI official who did not want to be named.

In other cases, money disbursed by the banks for procurement of goods for export was not utilised and no export order was executed ever. This is a misappropriation of the fund, criminal breach of trust and violation of FEMA guidelines, the officials said.

It is alleged that the company was working for interest rate differential in local and foreign currency and even fake documents were submitted to induce banks to advance money, the CBI alleged.

The agency registered the case under the Prevention of Money Laundering Act (PMLA), after studying the CBI FIR that was registered on Sunday.

The ED, the officials said, would probe if the funds obtained through the alleged fraud were laundered and if the proceeds of the crime were subsequently used by the accused to create illegal assets and black money.

The First Information Report (FIR) copy says the following:

- Five entities have been named in the FIR

- Principal loan amount stands at Rs 29.19 billion (Rs 2919 crore)

- Seven banks acted as the consortium. These include:

Bank of India – Rs 7.55 billion (Rs 754.77 crore)

Bank of Baroda – Rs 4.57 billion (Rs 456.63 crore)

Indian Overseas Bank – Rs 7.71 billion (Rs 771.07 crore)

Union Bank of India – Rs 4.59 billion (Rs 458.95 crore)

Allahabad Bank – Rs 3.31 billion (Rs 330.68 crore)

Bank of Maharashtra – Rs 489 million (Rs 49.82 crore)

Oriental Bank of Commerce – Rs 974 million (Rs 97.47 crore)

Allegation: By siphoning of banks loan through Rotomac

1. Credit sanctioned and disbursed to the company was utilised for purposes other than executing export orders.

2. Credit sanctioned for export order received from Singapore for supply of wheat was diverted to another company Ms Bargadia Brothers Pvt Ltd Singapore. Later, it was routed to Ms Rotomac. In other cases, money disbursed for procurement of goods for export wasn't utilised for this purposes and no export order was executed by this company. Misappropriation of funds, breach of trust, violation of Federal Emergency Management Agency (FEMA). Most of the transactions of the company are limited with the buyers, sellers.

3. The cos was working interest rate differential in local and foreign currencies.

4. No genuine business transaction were being carried out.

5. Number of front companies were used for these transactions.

6. Company submitted false and forged documents.

This is the second major financial scam to break out after the sensational Rs 114 billion (Rs 11,400 crore) fraud allegedly committed by billionaire jewellery designer Nirav Modi and his uncle Mehul Choksi, who is a promoter of Gitanjali group of companies. Both fled the country before the Punjab National Bank realised the depth of the alleged crime.