CRB group faces closure, faces massive legal action

The CRB group, reeling under a financial crisis after depositors withdrew money following RBI action against it, now faces closure

The Reserve Bank of India is considering moving the courts with a winding-up petition against the group after the management failed on Tuesday to produce a status report on its deposits and assets within the stipulated 72 hours. All group offices have been closed for the past four days.

On April 7, the Reserve Bank of India stopped CRB from raising fresh deposits because the company had not maintained reserve requirements and withdrew an earlier clearance given to set up a private sector bank. When the cheques began bouncing, the depositors demanded cash payments which the company gave a few depositors.

As the pressure grew, the CRB shut down its offices, and chairman C R Bhansali could not be located, even by the regulatory authorities.

The worst affected were those who placed fixed deposits, which were not insured because the company is a non-bank finance company. Depositors may have a long legal battle ahead before they lay their hands on their money.

The company's liabilities are placed at around Rs 6 billion as against assets and recoverables of Rs 2.3 billion. The group used to manage a mutual fund, a custodial service and a broking firm.

The RBI had asked CRB to explain how it plans to return the deposits worth Rs 1.39 billion as on March 31, 1996. Last Friday, it threatened drastic action against CRB Capital Markets if cannot refund its dues by Tuesday.

The CRB group -- which reportedly had tremendous clout in political and banking circles -- came under scrutiny for the first time last September when it approached the RBI for registration of the group under the NBFC. The RBI, not satisfied with some responses given, launched a detailed inspection of CRB offices through November and December.

By February the RBI had enough information of irregularities in the balance sheets and operations to give a one month show-cause notice. When the group failed to give a suitable reply, the RBI placed the ban on acceptance of deposits from the public.

Though depositors demand that the court initiate the liquidation process, the RBI can only opt for litigation because the group's broking and mutual fund operations are regulated by the Securities and Exchange Board of India. So far, the SEBI officials have taken no action against the CRB which has allegedly defrauded several banks, like the State Bank of India and the Bank of Baroda and also many companies.

While the State Bank lodged a complaint with the Central Bureau of Investigation for recovering Rs 600 million against which it has the company's Jaipur holdings as collateral, the Bank of Baroda has moved the Bombay high court for appointment of a receiver to collect its dues worth Rs 40 million.

The court receiver has attached the CRB assets to meet the liabilities due to the bank.

Depositors were recently informed by the CRB that said the CRB group vice-president A K Katiar told them he could give them no guarantee their money would be returned.

Meanwhile, CRB Share Custodian Services Ltd informed the Bombay stock exchange last Thursday that it had discontinued services as the registrar and share transfer agent for CRB Capital Markets and CRB Corporation Ltd.