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Indian business barons defaulting bank loans

The Central Bureau of Investigation placed three senior officers with the Brady House branch of the Punjab National Bank under arrest in connection with the Rs 11,500 crore-fraud. The trio, identified as Bechhu Tiwari, chief manager in charge of Forex department; Yashwant Joshi, scale II, manager, Forex department; and Praful Sawant, scale I, officer, Export, were arrested after inquiries indicated their culpability in the case. Tiwari and Joshi were in charge of supervising the work done by Gokulnath Shetty, one of the accused arrested earlier in the case. They had full knowledge of Shetty’s activities, but did not take any action against him. Sawant was responsible for checking the SWIFT messages at the bank on a daily basis and making a report.

The CBI is currently conducting searches at the residences of the three accused in Navi Mumbai, Andheri and Dombivali. Searches are also under way at Nirav Modi group offices in the Peninsula Business Park in Lower Parel. The agency had registered an FIR on January 31 against PNB and Modi Group officials for defrauding the bank to the tune of Rs 280 crore through fraudulent Letters of Undertaking. Earlier this month, a separate FIR was filed against the PNB officials and a firm owned by Mehul Choksi for causing a loss of Rs 4,882 crore in a similar scam.

Mehul Choksi, the Managing Director of ‘Gitanjali Gems’ and also the maternal uncle of Nirav Modi, has come under the radar of various investigating agencies.

Several scams have emerged in the recent past. There must be an investigation if any of the political parties or the religious organisations have got benefited from these frauds and scams. It seems to me that all of these have emerged after the new RBI Governor had taken oath. So an in-depth investigation can possibly reveal any presence of nepotism there too. The new RBI Governor and Mehul Choksi both are close to BJP’s top leaders. Not only that, Choksi is instrumental in fetching funds for the party.

Choksi was one of the four named in the FIR that the bank submitted to the Central Bureau of Investigation.

Mehul Choksi had taken over Gitanjali Gems from his father, Chinubhai Choksi in 1985, after joining the industry 10 years before that. At the time, the company’s turnover was a rough Rs 50 crore, something that Choksi was reportedly keen to build on. In fact, before he took over the reins of the company, he used to attend college during the day and learn the tricks of the trade from his father in the evening hours. While Gitanjali Gems started out with trading in rough and polished diamonds exclusively, Choksi soon realised that even though it had made the company one of the largest exporters of raw diamonds across the world, this wouldn’t be getting him the profits that he desired. Choksi was successful in entering the international market and expanding his business. Soon enough, he turned towards building a product-portfolio, as a result of which brands such as Gili, Nakshatra, Asmi, D’damas, Maya, Diya and Sangini came under his purview.

The report adds that in the multiple retail format, they can now be sold through 4,000 points of sale. In the meantime, Mehul Choksi and Gitanjali jewellers both came in controversy on various occasions over several issues. But this time, he got caught under the scanner, because of Nirav Modi bank scam. Choksi is Modi’s maternal uncle and also a partner to his three companies, which are being scanned by the investigating agencies. The Securities and Exchange Board of India (SEBI) and stock exchanges have been analysing the stock market trade details of his company, ‘Gitanjali Gems’, for various cases that include a brokerage default incident.

The report adds that SEBI is also proving the company for disclosure lapses, including the delay of a company board meeting, for which sufficient reasons were not provided. ‘Gitanjali Gems’ has not been doing very well recently. The report mentions that the company’s shares have dropped a good 42.2 per cent in the past month, and continued to tank with a drop of 20 per cent. This also marks the second consecutive session of decline for the company.

On the other hand, Nirav Modi’s father was also a diamond trader, who had migrated to Antwerp; Modi wanted to learn the trade from his uncle Choksi, and had returned to Mumbai for the same. Santosh Srivastava, who was the managing director for four years and vice-president for two years of Gitanjali Gems, calls himself a whistleblower. It was after working there for six years that he decided to resign, citing the ‘unethical’ manner of working by his boss and founder of the company, Mehul Choksi. He would fudge accounts; the inventory would show less than what was being declared, among other things.

Srivatsava took up the job on the condition that he would be given complete freedom in running the retail division of Gitanjali Gems, while Choksi could have control over the legal, financial and accounting aspects.  He worked as the VP initially and then became the MD of the firm. Gitanjali was doing well then and they were Number Two in the jewellery sector after Tanishq. But greed got the better of Choksi. Though, Nirav, Choksi and others may hit headlines in media, none of them can ever be arrested.

On account of the staggering rise in non-performing assets of banks, loan defaults are being viewed as bordering on crime, and the decisions of banks, particularly from the public sector, to lend to such stressed accounts are being branded as corrupt practice or criminal misconduct. It is not prudent for media and others to judge the conduct of the borrowing companies and banks on the basis of the size of loans and defaults without appreciating certain basic legal principles governing such conduct. At the outset, it needs to be noted that a default to honour commitments to repay borrowed funds amounts to a breach of contract. Any breach of contract to repay debt is not a crime. The only right of the aggrieved party is to approach the civil court to attach and sell securities or other unencumbered properties and recover the defaulted loan.

There are many borrowers who avail finance from banks and commence business activity, but then midway decide to use the borrowed funds or the realization of sale proceeds for purpose not related to their business and commit defaults. In such cases, the intention to use bank loans for purposes other than the business for which they are sanctioned is manifested after the loan has been availed and such conduct does not amount to cheating or any other criminal act.

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Dr. Vaidehi Taman
Dr. Vaidehi is an Investigative Journalist, Editor, Ethical Hacker, Philanthropist, and an Author. She is Editor-in-Chief of Newsmakers Broadcasting and Communications Pvt. Ltd. Since 11 years, which features an English daily tabloid – Afternoon Voice, a Marathi web portal – Mumbai Manoos, monthly magazines like Hackers5, Beyond the news (international) and Maritime Bridges. She is also an EC Council Certified Ethical Hacker, Certified Security Analyst and is also a Licensed Penetration Tester which she caters for her sister-concern Kaizen-India Infosec Solutions Pvt. Ltd.

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