ROTOMAC BANK SCAM

BY= SUMIT 20MBA035

9 B
 INTRODUCTION

• In 1973, the famous Indian brand, Pan Parag was established

by Mansukhbhai Kothari.
• His two sons Deepak and Vikram Kothari, separated and split
business in 1999.
• Deepak Kothari got the business of Pan Parag and Vikram
Kothari got Rotomac Pens Pvt Ltd.
• After the rechristening into Rotomac Global Pvt Ltd, V.
Kothari got into real estate,entertainment wholesale of food
and fragrances.
• Rotomac fraud is related to the wholesale food business of
Rotomac.
 ROTOMAC FRAUD CASE

• Since 2008. V. Kothari took loans from consortium of

seven PSU banks on basis of letter of credit
• He said he needed loans to pay suppliers abroad
• Rotomac gave the incomplete, photocopies and
forged papers for import-export to banks saying
theoriginal copies are with his clients
• Later, banks found out he was running import-export
business through shell companies
• He misused packing credit facility for export of wheat
for round tripping of funds
ROTOMAC FRAUD CASE
 WHAT IS THE SCAM

• Rotomac Global Pvt Ltd, engaged in intermediary trade and

manufacturing pens.
• Rotomac routinely approached seven banks, including Bank of Baroda's
(BoB's) international business branch at The Mall, Kanpur, seeking credit
ranging from Rs 15 crore to Rs 200 crore from 2008 to 2013, for exports
and imports.
• BoB alone was cheated of Rs 456 crore by Vikram Kothari(Director).
• Instead of using the money to pay buyers/suppliers, the money was round
tripped to accounts of Rotomac and its sister companies.
• BoB gave packing credit of around Rs 34 crore for an export order
received from Starcom Resources PTE Singapore for supply of 15,700
tonnes of wheat. This money was remitted to the account of one Bargadia
Brothers Pvt Ltd.
 CONTINUATION

• Kothari indulged in trade for which incomplete documents were

produced, or the company submitted photocopies of bills of loading and
other documents of transactions on the pretext that original papers were
sent to the importer.
• Bob representatives Hong Kong branch of visited the address given by
Rotomac for Gulf Distribution Ltd and found that the latter maintained a
virtual office and physical office was not present.
• The bank alleged that Kothari and Rotomac violated Foreign Exchange
Management Act rules and worked for interest rate differential in local
and foreign currency in the guise of trade without having any genuine
business transactions.
• BoB also alleged that Rotomac was routing sale transactions from one
company and purchase transactions from another.
 HOW ROTOMAC WAS CAUGHT
• IT department conducted several raids in 2014 for tax evasion of Rs 106 crore leading to
detection of alleged income.
• Bank of India declared V. Kothari a NPA in 2016 and provided 100% provisioning for it.
• Bank of Baroda declared V. Kothari as wilful defaulter in 2017 and filed complaint with CBI.
• When bank officials visited Rotomac's buyers and suppliers abroad, they found that the
business wasrunning through shell companies.
• CBI filed chargesheet against Rotomac, then AGM of BoB SK Upadhyay, then Senior
Manager of the bank Om Prakash Kapoor and then bank manager Shashi Bishwas, in Feb
2018.
REGULATIONS NOT COMPLIED WITH

• Misuse of packing credit facility for diversion of funds,

criminal breach of trust and violation of FEMA guidelines for
pre-shipment credit.
• Incomplete, forged and photocopy of bills of lading and other
documents.
• Missing packing list, insurance copy, certificate of origin,
inspection certificate and HSN code for goods.
• PMLA, 2002- various sections including 3, 13(2), 5, 9 .
• Prevention of Corruption Act, section 13(2) and 13(1)(d) .
 OUTCOME OF INVESTIGATION

• Banks initiated recovery process through SARFAESI Act, but

later moved to IBC process after its introduction in 2016.
• Case was filed in NCLT Allahabad in 2017.
• The ED attached assets worth Rs 177 crore for money
laundering .
• Vikram and Rahul Kothari are currently under judicial custody.
• IT department attached four immovable properties of the
Rotomac group in Kanpur and Allahabad.
• NCLT ordered liquidation of two companies Rotomac Global
and Exports through RP Anil Goel in Mar 2018.
 NEW REGULATION INTRODUCED

• Amendments to PMLA 2002.

• Amendment in the proceeds of crime to attach property held outside the country and not
confined to the property held in India.
• Uniformity of bail conditions in all offences committed as per sec 45(1) instead of only
those offences which havebeen scheduled for a period of 3 years or more.
• Corporate frauds included under scheduled offences of PMLA to facilitate ease of action
by Registrar of Companies to report cases to the ED.
• To enhance the effectiveness of investigations undertaken by the enforcement
directorate, amendment in the act gives enforcement directorate an additional 90 days to
undertake detailed investigations.
• Sec 66(2) has been incorporated to enhance better effectiveness efficiency and
coordination amongst the investigation agencies to curb black money.
• SARFAESI Act amendment stating the inclusion of provision of 3 months imprisonment
if the borrower does not provide asset details to the lender to get possession of the
mortgaged property in 30 days.