WORKSHOP ON

PROFESSIONAL ETHICS

March 21,2020

ROTOMAC SCAM

Group 7
Disha Jain PGFB2015
Ayushi Gupta PGFB2010
Tanya Nigam PGFB2051
Rahul Kakkar PGFB2036
Aditi Verma PGFB2003
Rohan Shah Jagati PGFB2039
 AKNOWLEDGEMENT

We would like to express our special thanks of gratitude to our Subject Faculty
Prof. Dr. Ashok Advani for their able guidance and constant support make this
project report on “Rotomac Scam” as a part of course on Workshop on
Professional Ethics.

It was great pleasure to undertake and complete this project report which has
been prepared with utmost care and deep routed interest.

Thank You

Group 6

PGDM General B (2020-22)

Jaipuria Institute of Management, Noida

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 INTRODUCTION

“Rotomac global private limited” was incorporated in 1992. The company had
broadened its business into different sections, including domestic and
international exchanging of food grains, substantial modern gear, different
electronic things, polymers, diamonds and adornments, coal and iron metal. It
was renamed as “Rotomac Global private Limited” in 2008.

“Vikram Kothari” is the chairman and “Managing Director” of “Rotomac”

Global Private Limited” which is a “Kanpur” based company. “Rotomac”
Owner and promoter “Vikram Kothari” took loans from public sectors banks
between 2008 and 2013 by getting “foreign letters of credit” for creating
payments to his buyers and suppliers abroad. “Rotomac” Global Pvt Ltd.”
approached “7 banks” including “Bank of Baroda” taking credit from 15 crores
to 200 crores from 2008 to 2013, mostly for the “imports and exports”. It
amounted to “Rs 2919 Crores” and therefore the Interest Liabilities were “Rs
776 Cr” making it a complete of “Rs 3695 Crores”. “Vikram Kothari” was
declared as a “wilful defaulter” by “Bank of Baroda” in February 2017. Credit
was sanctioned and therefore the loan disbursed to “Kothari” for importing
wheat from a corporation in Singapore, but the quantity wasn't utilized for the
aim. Instead, it had been diverted to a different company and therefore the
money was later remitted to “Rotomac”. No export order was ever executed.
This round-tripping of cash amounts to “misappropriation of funds”, “criminal
breach of trust”, and violation of “FEMA” guidelines. the corporate was
depending on the exchange rate. the corporate was working for ‘interest rate
differential’ in local and foreign currency. actually, no genuine business
transaction was administered.

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The “Central Bureau of Investigation” Wednesday started questioning of
“Rotomac” owner “Vikram Kothari” at its headquarters in reference to alleged
loan default of “Rs3,695 crores”. The ED had slapped criminal charges under
the “Prevention of cash Laundering Act (PMLA)” against the corporate and its
promoters on 18 February, supported a “CBI” FIR filed on an equivalent day.

WHAT WENT WRONG?

 The company didn’t produce full documents and also presented forged
documents to avail the loan amount.
 Many fictitious companies were created for conducting frauds.
 Normal business operations and transactions were not carried out by the
company with the funds generated through loans.
 Almost every transaction was related to the buyers, sellers and
subsidiaries of the company.
 Credit taken for wheat was diverted to Bagadia bros. Singapore which
was rerouted to the company.

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 ETHICAL ISSUES
The ethical conduct of many corporate business is mandated and regulated by as
specific code of conduct. The ethical violation practices can involve activities
like embezzlement of funds, breach of trust, violating honesty and integrity,
conflicts of interest and lapsing the intellectual property rights.

The above case that comprises of scam of “Rotomac” India Pt. Ltd involved
many ethical violations such as:

1. “Misappropriation of Funds” – This activity involves diverting the

funds going to other sources to own bank account. A person who is
managing and controlling some possessions uses it inappropriately for
self-benefit is the one who embezzles with the funds. Similar is the case
with “Rotomac” scam in which CEO “Vikram Kothari” took loan from
seven banks was claiming it to use funds for conducting its import/ export
business actually diverted the loan amount to a fake company that
ultimately led to his own company “Rotomac” India Pt. Ltd. As per the
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 “CBI” guidelines it was stated that the company was involved in interest
rate differences at local, and international level but actually no such
transactions were carried out.

2. Criminal Breach of Trust – This ethical violation and offence involves

when a person is held responsible for a particular property and has
dominance over it, exploits and transforms for his personal motive and
dishonestly utilizes it as per IPC Section 405. In the “Rotomac” scam,
Kothari was entrusted with the amount withdrawn from seven banks for
the purpose of conducting business but he dishonestly converted that
amount for maximising his own wealth by diverting the route of foreign
flow of money to the “Rotomac” company. This activity depicted Breach
of trust that the banks entrusted on the latter. They were accused of
swindling with group of seven prominent banks of the country.

3. Violation of Foreign Exchange Management Act- Under “FEMA” the

main objective is to facilitate international transactions and movements of
goods and services to properly maintained the country’s foreign exchange
markets. As per allegations filed by banks and central bureau of
investigation the “Rotomac” Scam clearly involved in violation of
Foreign Exchange Management Act as misappropriately utilised the loan
amount taken for conducting import export operations for his own
company. He assertedly created many fake businesses by showing false
documents to easily gather loans from seven banks worth 2919 crores.

4. Wilful Default – It is a situation when a person agrees to pay an amount

but fails to do when they are ordered to do so. It involves an individual
who refuses to pay the outstanding amount even he or she is financially
sound to repay it. In the “Rotomac” Scam, “Vikram Kothari” can be

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 tagged as a wilful defaulter as he refused to pay an outstanding loan
amount of 3600 crores to seven banks despite of the ability to pay. So, it
is also a violation of an ethical conduct.

VIABLE SOLUTIONS

Viable solution means a possible solution that might solve a problem. Here in
this case, this scam could be avoided if a proper decision making was done but
failure to achieve so resulted in a major problem. A set of possible alternatives
that could help in mitigating the above scam are as such:

1. Improvement in Bank management – There was no proper authentication

provided by the banks while giving the loans as they fell prey to the false
documents provided by “Vikram Kothari” to extract loans from them. Also, the
employees in good position and auditors were not at all questioned regarding
the loan procedures. Caught employees at the bottom level with no powers to
sanction the loan were questioned. If they can't hit or detect the main problem or
cause of the scam then how can they manage the proper functioning of Public
sector banks.

2. No Political interference- There should be no political interference in such

matters as big businessman like “Vikram Kothari”, in order to generate more
revenue streams and maximize the wealth mould the policies as per their
benefit. All the banks public and private banks should operate according to the
rules and regulations formed by the central bank of the country. This will

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improve the banking system and prevent such kind of frauds and embezzlement
of the funds.

3. Slow proceedings(judgment/action) and investigation- as evident from the

case of “Rotomac” scam, it took so long to diagnose the money laundering
being done by the “Rotomac” group by the bank of Baroda. If proper
governance was there, issue could be resolved much earlier. The investigations
and the raids conducted by the “CBI” took more than the desired time. Proper
enquiry and immediate actions should be taken. Also, government, “Reserve
Bank of India” and the law bodies of India should have ensured that quick and
effective measures be taken. All this would help them gain faith among the
public.

4. Strengthening corporate governance- Management practices should be

applied upon; proper lawful compliance could be there and ethical practices
should be taken care off. All this could have helped in effective management
and share of wealth and responsibility among all the stakeholders. All this could
have been done by infusing or filling with greater professionalism, exhibiting
transparency and by defining the PSB’s accountability routinely so that they
ensure proper document verification and will not be lending such a huge amount
to corporates without any pressure.

VALUES & TRADE - OFFS

Value and trade – offs define how much must be gained in the achievement of
one objective to compensate for a lesser achievement on a different objective.

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Both effective decisions making in multiple objective situations and informative
evaluations of multiple objective judgements include significance trade – offs
that effectively articulate a decision maker’s principle.
 Values like honesty are being violated as he took loan for Import Of Wheat
From Singapore but he used for something else. As before sanctioning the
loans the terms and conditions were signed off by both parties but he used
for his profit and advantage
 Vikram Kothari’s relationship with banks with respect to any future bank
help will be barricaded. Due to misappropriation of funds i.e. violated under
FEMA (Foreign Exchange Management Act).
 Pass out graduate/people, willing to get job at “Rotomac” will change their
mind and the trust will be lost. Since in the end the employees at low level
with no powers where questioned.
 From the sources, the outstanding amount in the books of accounts of
different banks is ₹2,919.39 crore, according to the petition.

 The “Directorate of Enforcement” had attached “assets” worth “177” crore

of “Rotomac” and its directors after preliminary investigation.

EFFECT ON STAKEHOLDERS

Ethically there should not be any kind of discrimination and special treatment
provided to anyone, the company should convey to all the stakeholders up to
their best interest. Every person involved with the company is regarded as the
stakeholder of the company.

The “CBI” has filed its charge sheet against “Rotomac Global Private Limited”.
and its promoters in connection with the Rs 456.63-crore alleged loan default
towards “Bank of Baroda”. It was also added that additional charge sheets could
also be filed.

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the “CBI” has also charged its Chairman and Managing Director “Vikram
Kothari”, his son and director “Rahul Kothari”, who were kept in the judicial
custody charged with “conspiracy”, “cheating” and “prevention of corruption
act” as they diverted the amount withdrawn as loans for international business
to his own company.

The scam tested government credibility- it may have queered the pitch for any
compromise without political consequences. Highly influential “Vikram
Kothari” may also have fled India, probably, led to his immediate arrest at
Kanpur. So far, the government’s only public reaction has been to try and pin
the blame on the Congress. Efforts of trying to shift blame only weakens the
government’s position.

Investors had also been vastly affected by this scam. Many banks were
impacted by this scam involved “Bank of Baroda”, “Allahabad bank”, “Union
Bank of India”, etc. they even declared the managing director of the company
and the company itself a wilful defaulter as they were not willing to pay back
the default loan amount even after having sufficient resources to pay it. Through
this case banks had learnt to be more cautious while verifying papers before
giving any amount to a business.

With this case, general public also gave their attention on the proceedings of the
case, people will lose their faith in the company and those who wanted to work
with the company will surely change their mind.

SUGGESTIONS

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Basically, companies indulging into unethical activities while doing the
business often gets into problem while as they face their reduced standard of
business, misconducts, and trust issues among the employees of that company.

 Transparency among employees – Trust issues often arise while there is a

conflict among workers, which leads to secretive nature of the administration
as well as workers. This hidden attitude and double standards of the people
of company often leads to imbalance in the working culture.
 Implement Internal controls – The controlling system is very vital for the
people working internally and externally in the business. If there is balanced
control and programs are conducted safely it basically helps in ensuring the
company’s asset as well as integrity of its accounting records
 Proper Authentication – False documents should not be entertained by the
banks. This proper authentication should be made mandatory because it help
the financial institutions in verifying the documents as well as official
papers.

CONCLUSION
Ethics are vital part of conducting a business. A business should always follow
ethical measures to conduct its operations. As witnessed from the case of
“Rotomac” scam, false measures to maximize the wealth by laundering and
diverting the falsely withdrawn money to company’s own bank account lead to
forming of negative image in the minds of the stakeholders. A good reputation
enjoyed by a company got tarnished by this famous scam. There are many ways
to earn profits for the business following ethics properly is very crucial.

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 REFERENCES
1. https://www.thehindu.com/news/national/fresh-”CBI”-case-
against-”Rotomac”-group-firm-and-others-for-80675-cr-bank-
fraud/article32726282.ece
2. https://www.business-standard.com/article/finance/”Rotomac”-pens-
fraud-how-vikram-kothari-conned-7-banks-fir-details-revealed-
118022000300_1.html
3. https://www.moneycontrol.com/news/business/”Rotomac”-bank-
fraud-the-story-of-how-vikram-kothari-turned-into-a-loan-defaulter-
2512229.html
4. https://www.hindustantimes.com/india-news/cbi-files-case-against-
rotomac-for-cheating-bank-of-india-of-rs-806-crore/story-
dsmP9Bw5HlnzeXqZNGyKVK.html

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