The CRB Scam



Themes: Corporate scams / Controversies
Period : 1993 - 1997
Organization : CRB Group / SEBI
Pub Date : 2002
Countries : India
Industry : Financial Services

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Case Code : FINC008
Case Length : 09 Pages
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The CRB Scam | Case Study

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The Man and the Mess

Born in a jute trader's house in Calcutta, Bhansali was a studious person. After obtaining a degree in commerce, Bhansali completed Chartered Accountancy in 1980. In the same year, he started a financial consultancy firm, CRB Consultancy. Through Bhansali's personal contacts, CRB Consultancy soon managed to secure the business of providing issue management services to a few well-known companies in Calcutta. Over the years, Bhansali acquired other degrees as well including ACS, Ph.D., MIIA (US) and a diploma in Journalism.

Though he made a lot of money, Bhansali found it difficult to find recognition in Calcutta. He then moved to New Delhi to join one of the country's leading registrars of companies. However when Bhansali was caught short-charging the registrar's clients, he had to leave.

Bhansali then established 'CRB Consultants,' a private limited company in New Delhi in 1985. In 1992, the name of the company was changed to CRB Capital Markets (CRB Caps) and it was converted into a public limited company.

The company offered various services including 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. The company raised over Rs 176 crore from the public by January 1995. The A+ rating given by CARE and upfront cash incentives of 7-10% attracted investors in hordes to Bhansali's schemes. Bhansali's connections with religious leaders and political parties also helped in attracting investors.

Another CRB company, CRB Corporation Ltd., (originally set up as a granite manufacturing company, its activities veered into finance later), raised another Rs 84 crore through three public issues between May 1993 and December 1995. CRB Share Custodial Services raised another Rs 100 crore in January 1995. In August 1994, Bhansali launched CRB Mutual Funds (CRBMF) which raised Rs 230 crore from the market through its Arihant Mangal Growth Scheme. Another Rs 180 crore was raised from investors through fixed deposits.

Bhansali's empire soon flourished with the total income increasing from Rs 1.2 crore in 1991 to Rs 103 crore in 1995. Leasing and hire purchase, one of the group's thrust areas, shot up from a paltry Rs 2 lakh in 1991 to Rs 16 crore in September 1994.

Media analysts pointed out that the group's global outlook and timely foreign collaborations were responsible for its success. CRBs joint ventures with Daewoo Securities and Keystone Group met with reasonable success. Sid Khanna, managing partner, Andersen Consulting, who had been advising CRB on group strategy opined that Bhansali had an educated and pragmatic view of globalization. In the mid 1990s, Bhansali had even published a booklet on himself, extolling his virtues and achievements titled 'Dr C.R. Bhansali - Making The Difference.'

Even at this juncture, media reports claimed that CRB had used many not-so-savvy methods to achieve its ends. Questions were raised when CRB Caps' net worth went up from Rs 2 crore in 1992 to Rs 430 crore in 1996. Given the company's small scale of operations, this phenomenal growth was eyed with suspicion. In mid 1996, reports regarding the frauds being committed by the CRB group began appearing in the media. The mass gathering in front of RBI in May 1997 was the first major manifestation of the 'hate-wave' against CRB.

The drama took a new turn whem the CBI made arrangements to bring Bhansali back to India after informal negotiations with him and Hong Kong government. An FIR was filed against CRB as per Section 120 B, read with Section 420 of the Indian Penal Code (IPC) and Section 13(2) read with Section 13(1)D of the Prevention of Corruption Act (PCA). Bhansali was charged with fraud, cheating and siphoning off of funds from SBI.

Bhansali was arrested as soon as he landed in Delhi. Bhansali's advocate however maintained that his client had surrendered himself to CBI officials 'as soon as he came to know that he was embroiled in an alleged case of fraud by the company, which was being investigated by the CBI. He also claimed that Bhansali 'did not flee the country' but was on a business trip to Hong Kong and had informed his whereabouts to a friend in Delhi, who later informed the CBI. Bhansali however maintained that he was falsely implicated and said that investigations should be properly done so that he did not become the scapegoat.2

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2] After spending six months in jail, Bhansali was granted bail in December 1997 - to be arrested again in February 1998 for yet another scam involving Bank of Baroda.