Long before allegations of fraud levelled by banks against Nirav Modi and Mehul Choksi made headlines in the media in India and the world, another diamantaire from Gujarat, Jatin Mehta, and his group of companies had caused a major loss to Indian and international banks and became the one of the largest wilful defaulters of loans, together with Kingfisher Airlines headed by Vijay Mallya – all four of them are currently outside India. Unlike the cases of Nirav Modi, Mehul Choksi and Vijay Mallya, a question arises as to whether the government of India and its agencies are acting in a discriminatory manner so far as Jatin Mehta is concerned. Is there any weight to the Congress party’s allegations that the preferential treatment given to him is on account of his links with the Adani family?
Gurugram/London/Bengaluru: Recent developments at a London court in a case involving fugitive diamantaire Jatin Mehta raise the question of whether the Indian government has eased up on its efforts to repatriate and prosecute the man declared by multiple Indian banks as a “wilful defaulter.” The Congress party has alleged that links between Mehta and the family of Adani group Chairman, Gautam Adani, may be responsible for Mehta receiving preferential treatment compared with other high-profile fugitive Indian billionaires.
Diamond trader Jatin Mehta and his family – wife and two sons – are involved in a heavy-duty legal battle in the England and Wales High Court in London. The case pertains to Standard Chartered Bank and two liquidators from Grant Thornton (a global accountancy firm) who have managed to get a Worldwide Freezing Order (WFO) against the Mehtas. The family that defaulted on loans to Indian banks, including Standard Chartered, have been cornered miles away on the shores of the United Kingdom (UK).
It is ironic that the Mehtas, who perhaps thought that they were safely ensconced in the UK, having faced multiple investigations by agencies in India, have been caught in this legal imbroglio by virtue of the fact that they had established companies registered in the UK. Standard Chartered Bank and the two liquidators alleging that the companies were used to launder fraud proceeds by the Mehtas after which they were dissolved, have made these companies claimants in the case citing “loss and damage” suffered by them.
Considering the scale of the case and the speed at which it has moved over just under a year since it reached the court in London, it could still be a few years before the legal dispute reaches a final conclusion. Before the contending parties decide on the exact terms of the trial there are still multiple side issues that needs settling. Earlier this month, there was one such issue on which the court gave its ruling.
On March 8, 2023 Judge Edwin Johnson turned down the plea of the Mehtas that the claimants be given 70% of the legal cost for the December 2022 hearing pertaining to the jurisdiction challenge – the Mehtas had pleaded that India was an available forum; and also the most appropriate forum for the case.
As the court ultimately ruled that the UK, and not India, was the most appropriate forum for the case, Judge Johnson ruled that the Mehtas should pay all (and not 70%) of the claimants cost on the jurisdiction issue. Arguably, a bigger jolt to the Mehtas had come earlier in February 2023.
On February 14, 2023, it was reported that diamond trader Jatin Mehta had failed to halt efforts by banks to recover through courts in the UK over $1 billion that had been allegedly defrauded by him. Mehta has denied any wrongdoing, claiming he is as much a victim as the banks. Reporting for Bloomberg, Upmanyu Trivedi wrote that a court in the UK rejected Mehta’s request to halt legal proceedings initiated by liquidation firm Grant Thornton that is backed by Standard Chartered plc and its local Indian unit, as he had failed to demonstrate that “India is clearly or distinctly the more appropriate forum than England for the trial of this case,” Judge Johnson said in his ruling.
The Bloomberg report added: “Mehta, whose $932 million in assets were frozen last year by a UK court, is among the most high-profile cases of alleged fraud in India’s diamond industry, which cuts or polishes about 90% of the world’s supply of diamonds. A series of fraud scandals in the past decade contributed to an $8 billion hole in India’s banking system. Mehta and his two firms Winsome Diamonds and Jewellery Ltd. and Forever Precious Diamonds & Jewellery Ltd. are alleged to have deliberately defaulted on loans in 2013, laundered the money and hid it in shell companies across the globe, leaving 15 Indian banks unpaid, according to court documents.”
The report added that Mehta had earlier alleged that Standard Chartered and Grant Thornton got the asset freeze order unfairly, and that he is as much a victim as the banks. The court’s ruling that the UK is an appropriate forum for the case does not stop a future hearing on Mehta’s request to quash the case for other reasons, his lawyer Stephen Ross said, adding “The Defendants have existing applications for strike out which have yet to be determined.”
Grant Thornton and Standard Chartered did not have any immediate comment when contacted by Bloomberg after the ruling.
The Background
In 2013, it came to light that Jatin Mehta, the owner of Winsome Diamonds and Jewellery Limited (henceforth Winsome Diamonds), along with its subsidiary Forever Precious Jewellery and Diamonds Limited (henceforth Forever Precious Jewellery) had caused a loss of more than Rs 6,800 crore to various banks.
Even though the consortium of banks had declared Mehta a wilful defaulter, this was not of much help to the banks to recover their money, as he had by then already fled India and had taken citizenship of St Kitts & Nevis in the Caribbean Islands in 2014. Since then, the Central Bureau of Investigation (CBI), the Enforcement Directorate (ED) in the Union Ministry of Finance and other agencies of the government of India have lodged a number of first information reports (FIRs), made arrests and attached the properties of Mehta. However, these actions have not helped the banks concerned recover their dues.
Winsome Diamonds was incorporated in 1985 as a public limited company in Mumbai under the name of Su-Raj Diamonds (India) Limited. It was engaged in the manufacture and exports of cut and polished diamonds and plain and studded gold jewellery, and also engaged in importing and local sales of bullion. In 1992, the company floated SU-ley Diamond Dealers Private Limited, which in 1993 became its wholly-owned subsidiary.
In 2002, the company’s board of directors approved the incorporation of a 100% subsidiary company in the United Arab Emirates (UAE). In April 2003, Winsome Diamonds acquired Koradiam NV in Antwerp, Belgium, to expand its presence in international markets. In order to expand its business in the domestic market, in March 2005, the company bought a 49% stake in Forever Precious Jewellery.
In 2001, the name of the company was changed from Su-Raj Diamonds (India) Limited to Su-Raj Diamonds and Jewellery Limited and subsequently in 2012, the company’s name was again changed to Winsome Diamonds and Jewellery Limited. The last time the company reported its revenues, when it was operational, was for the 18-month period ending September 30, 2013. The company’s revenues were shown as Rs 7,131 crore in its annual report for 2013-14. The company had factories in Bangalore, Cochin, Surat, Goa and Chennai.
Winsome Group’s Dues to Banks
According to an article published in The Mint on June 1, 2016, the Winsome Diamonds group owed more than Rs 6,800 crore to a consortium of banks, including Rs 4,680 crore owed by Winsome Diamonds and Rs 2,122 crore owed by Forever Precious Diamonds.
The amounts listed above in the table are primary or principal amounts and do not include accruing interest on loans.
On the website of the credit information company, TransUnion CIBIL, 12 of the 14 banks listed above had declared Winsome Diamonds as a wilful defaulter. The exceptions were Standard Chartered Bank and Axis Bank.
Vijaya Bank and the State Bank of Mauritius have showed on TransUnion CIBIL that Winsome Diamonds have defaulted on payment of loans of Rs 77 crore and Rs 28 crore, respectively, but have not categorised these as “wilful” default.
How Winsome Diamonds and Forever Precious Jewellery Defaulted on Loans
Winsome Diamonds and Forever Precious Jewellery used to import gold and diamonds, process these and convert them to jewellery before exporting. The company was exporting its products to 13 companies in the UAE that were controlled by Jordanian national, Haytham Salman Ali Abu Obaidah.
Indian banks such as Punjab National Bank, Canara Bank, Central Bank of India, Union Bank of India and Vijaya Bank had given Standby Letters of Credit (SBLCs) worth over Rs 4,000 crore to the Winsome group. The SBLCs had been given in favour of international “bullion” banks like Standard Chartered Bank, London, Standard Bank of South Africa and Scotiabank, which facilitated credit for supplies of gold to Winsome Diamonds and Forever Precious Jewellery.
(Bullion banks disburse loans against holdings of gold in the form of metal and also provide working capital finance for sales of gold in domestic markets, exports and to jewellery makers.)
In November 2012, Winsome Diamonds informed banks that 13 UAE-based companies had been unable to make their payments due to heavy losses in derivative trading, which, in turn, led the bullion banks to invoke the SBLCs, forcing Indian banks to pay on behalf of Winsome Diamonds thereby causing losses to the banks.
In its annual report for 2012-13, Winsome Diamonds stated that it had been dealing with Obaidah and his 13 UAE-based companies for more than five years. The company stated that its exports were concentrated to the UAE since May 2012 after its business in the US and Europe dried up due to negative reports about the group in a publication from Israel called Diamond Intelligence Brief (and other trade journals). The annual report mentions that Winsome Diamonds had Fund Based (Export Packing Credit and Post Shipment Credit) and Non-Fund Based (Standby Letters of Credit or SBLCs and Bank Guarantees) credit limits of Rs 375 crore and Rs 3,470 crore respectively, with an in-principle approval for 20% ad-hoc limits to take care of peak requirements and currency fluctuations. These were arranged by a consortium of 14 banks. In March 2013, the company availed additional Fund Based and non-Fund Based limits of Rs 45 crore and Rs 490 crore, respectively.
The company claimed it could not arrange for payments to banks in March 2013 owing to the delay in receipt of inward remittances from overseas customers against export bills. The bullion banks invoked all SBLCs in April 2013. A total of Rs 3,580.68 crore of aggregate outstanding SBLCs were invoked, which was eventually paid by the consortium of banks. The total amount due from 13 companies in UAE was approximately $875 million (equivalent to about Rs 4,760 crore). The company was not backed by any tangible security/incoming LCs and hence the company could hardly recover its dues. Some efforts were taken by the company to meet Obaidah in Dubai to salvage the situation.
The company’s whole-time director (operations) met Obaidah on March 21, 2013 that was followed by a visit on April 18 that year by an official of the Standard Chartered Bank, the lead bank of the consortium comprising Punjab National Bank, Central Bank of India, Canara Bank, Standard Chartered Bank and Union Bank of India. Jatin Mehta and his executives visited Dubai and met Obaidah on May 23, to explore possibilities of repayment but this visit was apparently not fruitful and the banks were unable to recover their dues.
Action by the CBI
Jatin Mehta’s departure from India and his decision to become a citizen of St Kitts was perceived by India’s law enforcing agencies as evidence of mala fide intentions to dupe banks. It is important to note that the Indian government does not have an extradition treaty with St. Kitts, which makes Jatin Mehta out of reach for the country’s government agencies.
The CBI had started investigating the case of Winsome Diamonds in early 2014 when Punjab National Bank (PNB) had filed the first FIR (first information report) against Winsome Diamonds. In April 2016, the Indian Express reported that the CBI had questioned several board members of the PNB over a period of two months regarding the loans extended to the Winsome group in order to ascertain whether adequate due diligence was carried out before extending the loans and whether the bank officials were aware of the deteriorating health of the company. Even the nominee of the Reserve Bank of India (RBI) on the board of PNB was questioned by CBI to figure out if the bank officials were negligent in their responsibilities.
In April 2017, the CBI registered six separate cases against the Winsome group based on complaints from the IDBI Bank, Vijaya Bank and Central Bank of India alleging that these banks had been defrauded of Rs 1,530 crore. However, no arrests were made at that time. Between April and June 2019, the CBI filed four more FIRs against the Winsome group based on the complaints from four more banks, the Bank of India, Bank of Maharashtra, Union Bank of India and Export Import Bank of India.
The CBI FIR dated May 15, 2019, based on a complaint by the Union Bank of India, mentions the findings of an audit report by Kroll Advisory Solutions that contains several significant revelations. The stock statement of Winsome Diamonds on March 31, 2013 stated that the value of the company’s stock of diamonds was Rs 153.46 crore, while its audited balance sheet for 2011-12 stated a value of Rs 45.16 crore, suggesting an inflation of the value of stocks, the Kroll report alleged.
The report further claimed that the buyers of Winsome Diamonds in the UAE, including Italian Gold FZC, did not have any storage facilities in Sharjah Airport International Free Zone or anywhere else in the UAE, as the company’s offices were 80 sq ft in size and did not have any security facilities, indicating that the company’s contention that it was dealing in diamonds worth more than $700 million was incorrect and a ploy to siphon off money from the banks.
Even the representatives of the banks who went to Dubai in May 2013 confirmed that they had not come across any storage facilities in Sharjah Airport International Free Zone.
Except Al Alam Jewellery FZC, the retailers and wholesalers were not aware about the other companies or about Obadiah, the promoter of these companies. Nine out of the 12 companies, with the exception of Al Mufied Jewellery FZC, Italia Gold FZC and Al Alam Jewellery FZC, were incorporated in 2012 – five of them were incorporated on a single day, June 25, 2012. Obadiah was a 100% shareholder in 10 companies, a 90% shareholder in other two companies and a director in all 12 companies.
Al Alam Jewellery FZC, registered in 2010, had a sole shareholder, Herald International Ltd., registered in the Bahamas. Sonia Mehta, wife of Jatin Mehta, served as a director in this company between July 5, 2004 and December 18, 2008. Rajan Parikh and Dilip Thakkar were the original subscribers of shares in Su-raj Diamonds (which was later renamed to Winsome Diamonds) and Herald International Ltd. Al Alam Jewellery FZC was thus a “related” entity of Winsome Diamonds and not an independent distributor.
The Kroll Advisory Solutions report further alleged that the dues of Winsome Diamonds from the UAE-based companies had not been substantiated by exports and appeared to be fraudulent “paper” transactions. Moreover, fake invoices were allegedly raised to obtain loans that were used in other businesses, such as real estate, including in two Winsome group companies, Saumya Constructions Pvt. Ltd. and Shrishti Infrastructure Development Corporation Ltd.
A former employee of Winsome Diamonds, who was involved in handling the company’s exports, had claimed that jewellery was given to distributors only after payments were made.
An FIR by the CBI dated April 23, 2019 based on a complaint by the Bank of India added that a forensic audit done by Ernst & Young LLP (E&Y) and Kroll found that till the time the representatives of banks visited Dubai in April-May 2013, the banks were not intimated that Obaidah held powers of attorney on behalf of 13 companies in the UAE. If the banks had known that there was only one buyer of the client, then they may not have extended SBLCs to Winsome Diamonds, it was claimed.
It was further alleged that Jatin Mehta had used the funds raised from banks for investments in real estate and other businesses in the name of an entity called Gemesis in Singapore. While Mehta blamed foreign buyer companies for not remitting funds, his company had not signed any agreement between the banks in the consortium banks and the foreign companies to ensure payments. This indicated attempts at fraud and smuggling, it was alleged.
During the forensic audit it also came to light that Al Noora FZE, wholly owned by Obaidah, was both a supplier as well as buyer to/from Winsome Diamonds. Another FIR by the CBI dated May 6, 2019, based on a complaint by the Bank of Maharashtra, provides the following names and addresses of the 13 companies that were the buyers of Winsome Diamonds and were operating in the Free Trade Zone of the UAE.
In April 2018, the CBI arrested Hasmukh Shah, a former director of Forever Precious Jewellery. He was an authorised signatory for Forever Precious Jewellery and was reportedly closely associated with Jatin Mehta. The CBI was hopeful that Shah would reveal illegal dealings between bank officials and the Winsome group. The bureau’s investigations reportedly revealed that PNB had collateral worth only Rs 250 crore against loans of around Rs 1,600 crore that had been advanced.
Earlier, in March that year, the CBI summoned R Ravichandran, former director (operations) of Winsome Diamonds for investigation. In August 2018, the bureau filed a charge-sheet against two former chairmen of Canara Bank, AC Mahajan and SR Raman, in connection with the default of a loan worth Rs 146 crore by Winsome Diamonds.
The CBI also named a former director of Canara Bank, Archana Bhargava, in the charge-sheet that also included the names of 21 individuals and entities, including those of Jatin Mehta, his wife Sonia Mehta and 15 officials of banks. After the charge-sheet was filed, Raman stepped down from a Reserve Bank of India-appointed committee on bank frauds and divergence of loans that would not be repaid.
In June 2019, it was reported that the money trail related to transactions involving the Winsome group was leading to Macau, an autonomous territory near China, which is supposedly a preferred destination for money launderers. The CBI was also reportedly planning to initiate Letters Rogatory (LRs) seeking information from government authorities in Macau. LRs are inter-authority requests for information from other countries on entities which are under investigation.
The CBI also moved a special court in Mumbai to issue LRs to the governments of the UAE, Singapore, United Kingdom and British Virgin Islands (BVI) requesting further information. The CBI had attempted to connect the dots to establish that Jatin Mehta and Jordanian national Haytham Salman Ali Abu Obaidah had connived to siphon money from Indian banks.
Enter the SFIO
In June 2016, the Serious Fraud Investigation Office (SFIO) in the Ministry of Corporate Affairs was assigned by the government to investigate the activities of Winsome Diamonds. The SFIO directed the company and all its directors to share financial records and bank statements for eight years. The directors were asked to disclose personal bank account details and that of their family members.
In February 2017, SFIO summoned for questioning former chairman of the Unit Trust of India (UTI) and the Industrial Development Bank of India (IDBI) GP Gupta and six former independent directors of Winsome Diamonds: Madan Khurjekar (an academic), Sarad Bhagwat (a chartered accountant), Dilip Tikle (an income tax consultant), Urvashi Saxena (a former commissioner of income tax), Srilekha Parikh and Ratnakar Hegde (a former banker).
In July 2017, it was reported that Harimohan Namdev, a non-executive director of Winsome Diamonds, was asked to respond to various queries from the SFIO. These included questions about the alleged complicity between officials of the Winsome group with the UAE-based firms. He was also asked about what steps the company had taken to hedge the risks related to foreign currency exposure.
Action by the Enforcement Directorate
In May 2016, the Enforcement Directorate (ED) in the Ministry of Finance attached 16 assets of Winsome Diamonds worth over Rs 172 crore under the Prevention of Money Laundering Act (PMLA). These properties were mainly real estate spread across Mumbai, Ahmedabad, Surat, Kolkata and Bengaluru. In June that year, the ED issued LRs to government authorities in the UAE and Jordan seeking details about Obaidah’s involvement with the 13 UAE-based firms which had not paid what was claimed by Winsome Diamonds. In August 2016, it was reported that the ED was seeking to issue a non-bailable warrant against Jatin Mehta by moving the Special Court dealing with PMLA cases.
Two years after the ED’s request, the UAE authorities responded by providing transaction details relating to Winsome Diamonds. It was reported in September 2018 by the now-defunct Business Television India (BTI), that the ED had obtained evidence about Mehta allegedly siphoning off money through a web of shell companies. The ED reportedly claimed the 13 companies based in the UAE were actually shell entities owned by Mehta that were used to transfer jewellery to three UAE companies, Al Alam Jewellery, Al Mified Jewellery and Italian Gold Jewellery. Moreover, it was alleged that Mehta routed money to another UAE company, Dockland Investments, that in turn moved the funds to three other entities, Al Moora, Alma Diamond and PDC, all of which were owned by Jatin Mehta.
Then, the ED requested the National Company Law Tribunal (NCLT) to halt the liquidation of Winsome Diamonds, till its investigations were completed. Winsome Diamonds and its subsidiaries were taken to the NCLT in February 2018 where it turned out that the company had only around Rs 200 crore in its balance sheet which could be liquidated. In June 2020, ED registered two new cases against Winsome Diamonds.
These investigations have apparently not produced any concrete outcomes yet. Is this due to the Modi government “protecting” Mehta due to his links to Gautam Adani’s family?
On April 11, a questionnaire was emailed to Daniel Gore, who works with the law firm Withers LLP in London. This article will be updated as and when a response comes.
(To be continued)
