The CRB Scam
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Case Code : FINC008
Case Length : 9 Pages
Period : 1993 - 1997
Pub. Date : 2002
Teaching Note : Available
Organization : CRB Group, SEBI
Industry : Financial Services
Countries : India
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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The Modus Operandi
Bhansali was reported to have specialized in setting up dummy investment companies. He used to sell these dummy companies to buyers. He capitalized on the 1985 boom in leasing companies to become cash rich.
He had established good contacts in the Registrar of Companies and the Controller of Capital Issues offices. He registered companies with practically no equity and then stage-managed the dummy company's maiden public issue with a few hundred investors, largely from Calcutta's close knit Marwari Jain community. Having had a company listed on the stock exchange, Bhansali then sold it for a profit to businessmen who needed dummy public limited companies in a hurry. Bhansali used his own money to rig share prices in order to raise more money from the markets in two ways. Firstly, he bought his own stock through private finance companies owned by him. Secondly, he used his other public companies to buy into each other as cross-holdings...
Defrauding the SBI
In May 1996, CRB Caps opened a current account in SBI's main
Mumbai branch, for payment of interest, dividend and redemption cheques. The
payment warrants could be presented at any of the 4,000 SBI branches for
However, Bhansali was granted only a current account facility and did not enjoy any overdraft facility. He was expected to deposit cash upfront into the current account, along with a list of payments that had to be honored. Claming that the logistics of payment were very complex and that it was not possible for every branch to check with the head office before honoring a dividend warrant, the branches gradually began treating these instruments just like a demand draft. For about nine months, the setup worked very well.
However, in March 1997, SBI realized that the account had been overdrawn to the extent of a few crores. Bhansali was called to the SBI office and asked to remit the difference immediately, which he promptly did...
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