Ex-STC CMD, 6 Officials Face Charges as CBI Targets Alleged ₹75 Crore Trade Finance Fraud

Ex-STC CMD, 6 Officials Face Charges as CBI Targets Alleged ₹75 Crore Trade Finance Fraud​

The Central Bureau of Investigation (CBI) has registered a First Information Report (FIR) in a major case involving alleged financial irregularities at the State Trading Corporation (STC). The investigation targets the former Chairman Managing Director (CMD) and six other senior officials, along with KS Oils Ltd (KSOL), over suspected fraud related to trade finance amounting to ₹75 crore.

The CBI has concluded its preliminary enquiry after more than a year and filed the FIR on Friday. The allegations pertain to trade finance extended by STC to KSOL for mustard oil purchases between 2010 and 2014. This high-profile action signals serious regulatory scrutiny into past corporate practices regarding commodity financing.

Allegations Detail Shell Companies and Misuse of Credit Lines​

According to the FIR, the CBI alleges that trade finance was extended by STC to KSOL without performing adequate due diligence. Key aspects of the alleged fraud include issuing Letters of Credit (LC) beyond the stipulated approved limit. Furthermore, shell companies and front corporations were utilized as suppliers of mustard oil in this scheme.

The investigation found significant lapses in the financial process. The CBI stated that a false storage quality certification was issued by parties associated with the transaction. This failure allowed proceeds from the Letters of Credit to be illicitly routed back to KSOL.

Roles and Responsibilities Exposed in Trade Finance Arrangement​

The trade finance facility for mustard oil had been sought by KSOL Chairman Ramesh Chand Garg and Director Davesh Agarwal. The FIR outlined a specific business arrangement structure involving several parties. STC was tasked with providing the trade finance via usance Letters of Credit (LC) to the nominated suppliers.

Collateral Management Agency, Star Agri Warehouse and Collateral Management Ltd., was appointed as the oversight body. This agency was responsible for the storage, quality certification, monitoring, and receipt of the mustard oil stock on behalf of STC. The CBI determined that numerous irregularities occurred during both the sanctioning and execution stages of this trade finance proposal.

Senior Officials Implicated in Facilitating Fraudulent Gains​

The inquiry conducted by the CBI uncovered that two supplier companies involved were merely shell entities. These companies, named Chambal Valley Agro Products Pvt. Ltd. and Gwalior Commodities Pvt. Ltd., were allegedly managed and controlled by Ramesh Chand Garg and Davesh Agarwal of KSOL. The FIR stated that these firms were dishonestly used to obtain LC proceeds from STC.

The CBI further alleged that Davesh Agarwal facilitated the diversion of the LC proceeds to KSOL. He is accused of appointing directors and signatories in these shell companies, subsequently collecting signed blank cheques and documents. This action enabled the substantial funds to be routed back to KSOL.

Scrutiny Falls on STC Leadership for Regulatory Lapses​

The investigation did not only focus on the accused entities. The CBI also flagged multiple irregularities committed by senior officials of STC at the time. N K Mathur, who served as CMD of STC and headed the approval committee, is among those under scrutiny. His role was central to approving the ₹75 crore trade finance in favour of KSOL.

The FIR alleges that despite his position, the complete details regarding STC's existing exposure towards KSOL were not placed before the Committee of Management (COM). Furthermore, Mathur allegedly met Ramesh Chand Garg repeatedly and permitted extensions for stock liquidation beyond the due date instead of ensuring timely recovery from KSOL.

Scale of Investigation Involving Multiple Entities​

The CBI has listed seven former senior officials of STC along with their colleagues. The accused entities include KSOL, the two supplier companies, and associated corporate bodies. This comprehensive filing by the agency signifies a deep-dive into corporate governance failures. The FIR holds these parties accountable for the wrongful loss incurred by STC and the corresponding wrongful gain achieved by the named accused persons and organizations.