Chain Roop Bhansali

Scam (The CRB Scam)

 Indian stock market had witnessed a lot of scams
till now, and out of them, stood another big
scam worth 1200 crores, executed by a middle
class trader and Chartered Accountant Chain
Roop BHansali. This CRB Scam of 1996 is
considered to be the biggest Mutual Fund Scam
India ever witnessed.
About

 Bhansali established ‘CRB Consultants,’ a private limited

company in New Delhi in 1985 and in 1992, the name of the
company was changed to CRB Capital Markets (CRB Caps) and it
was converted into a public limited company.
 He then established CRB Mutual Fund (Mutual Fund) in 1994 and
CRB Share Custodial services in 1995. He also established 133
unlisted companies and subsidiaries, and most of his transactions
were made using these dummy companies which never existed.
Schemes and Achievements:

 CRB consultants-New Delhi 1985.

 CRB Capital Markets (a public ltd co.)-1992.
Schemes

 The company offered various schemes like merchant

banking , leasing and hire purchase , bill discounting
and corporate funds management , fixed deposit and
resources mobilization, mutual funds and asset
management , international finance and forex
operations.
 CRB caps was also very active in stock-broking having a
card both on the BSE and the NSE.
Success Story
 The company raised over Rs.176 crore from the public by January
1995.
 A+ rating given by CARE and upfront cash incentives of 7-10%
attracted investors in hordes to Bhansali’s schemes.
 CRB Corporation Ltd raised another Rs.84 crores through three
public issues between May 1993 and December 1995.
 CRB share custodial services raised another Rs.100 crores in
January 1995.
 In August 1994 , Bhansali launched CRB mutual funds (CRBMF)
which raised Rs.230 crores from the market through Arihant
Mangal Growth Scheme.
 Media analysts pointed out that the group’s global outlook and
timely foreign collaborations were responsible for it’s success.
 CRB’s joint ventures with Daewoo Securities and Keystone Group
met with reasonable success.
 In mid 1990s , Bhansali came out with the book extolling his
virtues and achievements titled “Dr. C R Bhansali-Making the
Difference”.
The Man and the Mess:

 Suspicions arose when CRB cap’s networth grew from Rs.2 crores in 1992 to
Es.430 crores in 1996
 It was in mid 1996 that reports regarding frauds being committed by the RBI
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.
 Bhansali Was Charged With Fraud, Cheating , And Siphoning Off Of Funds
From SBI.
The Modus Operandi
 Dummy Companies.
 Rigging Share prices through own money
 CRB Share Custodian invested Rs.15 Crores in CRB Mutual Funds. The latter
held 24 lakh shares of CRB Corporation which again had a Rs.16 crores
investment in CRB capital markets.
 As a result CRB caps reported that the market value of its investments rose
from Rs.76 crores to Rs.109 crores in 1995-96.
 CRB corporation’s income more than doubled between 1994-1996.
 The Financial Wizardy was made possible with the help of Bhansali’s trusted
firms of auditors D P Bhaiya & co and Jain & Swaika-both old friends from
Calcutta.
Defrauding the SBI

 In May’96 current account opened in SBI ‘s Mumbai

branch
 Only current account facility granted
 No overdraft allowed
 Dividend warrants treated as demand drafts
 For about nine months all went well
SBI’s Findings
 However in March’97 SBI discovered the fraud
 Bhansali was investigated immediately
 SBI accused Bhansali of printing 1800 fake dividend
warrants
 Bhansali used fake accounts in Chennai, Calcutta and
Rajasthan to withdraw these dividends
 CRB Caps had an outstanding liability on 50 crores
Bhansali’s Justification

 Overdrawn money was used to repay principal to the

fixed deposit holders
 Bhansali claimed he had no fraudulent intentions
 Lawyer insisted that the account was an ordinary one
Action’s taken by SBI

 SBI officials met with Bhansali in April 1997

 SBI demanded immediate repayment of the over
drafted amount
 All property to be submitted as collateral security
The Systemic Rot
 Lack of communication between the banks, RBI and the government officials
 Blame game between RBI and SEBI
 RBI claimed that it had no power to examine the asset quality
 In Dec’94 SEBI conducted a routine investigation
 Chitale Report presented in Jan’95
 9 months ban on CRBMF
 Oct’96 TFCI lodged complaint against CRB Caps
 In Nov’96 first interim show-cause notice issued by RBI
 2 months inspection took place
 In Feb’97 final show-cause notice issued
 April’97 ban on CRB on collection of further funds
The Aftermath:
 Far reaching impacts on the economy
 Declining investor confidence in banks
 Poor performance of NBFC’s
 Making investors more aware
 Creation of smart investors
Actions taken by SBI
 Over 120 merchant bankers were issued show-cause notices
 Over half a dozen mutual funds were prevented from floating
mutual fund schemes
 Morgan Stanley Mutual Fund was slapped a fine of Rs.1lakh for
various irregularities
 June 11,1997 SBI suspends 3 officials in Mumbai Branch
 R.L.Walker-Chief Manager(Mumbai Branch)
 V.N.Patil-Scale II officers
 M.M.Narang-Scale II officers
 Raids at the officers residence