How PNB Scam Turned Diamond Merchant Into India’s Top Willful Defaulter | Popgen Tech


Parliament was informed on Tuesday that the top 50 voluntary defaulters collectively owed about Rs 92,570 crore to Indian banks as of March 31, 2022. Fugitive diamantaire Mehul Choksi, who defaulted on loans worth Rs 7,848 crore, on this ignoble list.

Mehul Choksi, who is originally from Gujarat, is infamous for the Punjab National Bank (PNB) scam in which the public sector bank was defrauded of nearly Rs 13,500 crore. He allegedly masterminded the scam with which his nephew Nirav Modi is also accused.

The siphoning of the funds only came to light in 2018, about 8 years after Gitanjali Gems led by Choksi started defrauding PNB. Choksi has since fled the country and is currently an ‘involuntary defaulter’ who is wanted by Indian authorities such as the Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI).

A voluntary defaulter is a borrower who has the ability to make the required repayments to the lender but refuses to do so. So, how exactly did Choksi defraud PNB, India’s second largest government bank, and many other financial institutions?

Choksi’s Cheat Codes

Gitanjali Group, a jewelery retail firm with around 4,000 stores in India, is at the center of the PNB scam. With the complicity of some staff members in the public sector bank, Gitanjali Gems of Choksi initiated a series of transactions in PNB from 2011 onwards which were not recorded in the Core Banking Software (CBS) of the bank.

In addition, around 165 Letters of Undertaking (LoU) were fraudulently issued to Choksi’s companies. LoU is a guarantee issued by a bank that allows the bank’s customer to raise short-term credit from a foreign branch of another Indian bank. The fraud lies in the fact that there were no securities held in places before the LoUs were issued to Choksi’s companies.

Apart from the fraudulent LoUs, hundreds of Foreign Letters of Credit (FLC) were also issued, many of which were extremely overvalued. FLC is another form of short-term credit used for international trade. Even here, Choksi was able to raise money despite not deserving credit for the same.

PNB was not the only victim of Choksi’s non-payment. Gitanjali Gems failed to repay loans it took from Life Insurance Corporation of India (LIC), ICICI Bank and IDBI Bank as well. Choksi’s jewelery business was also found to be in violation of various rules of the Foreign Exchange Management Act (FEMA).

Antigua, As Anticipated

It is very likely that Choksi knew in advance that he would be caught. Before the details of the PNB scam could fully emerge, Choksi and his family fled the country in January 2018. They arrived in Antigua and Barbuda just days before PNB registered a formal complaint with the CBI.

Here, it is notable that Choksi had applied for citizenship in the Caribbean country in May 2017 itself. This shows how the diamond had no intention of repaying the loan and that the escape after the default was a planned move.

The current string of cases registered against Choksi include criminal conspiracy, criminal breach of trust, cheating, dishonesty, corruption, and money laundering. The CBI had managed to get Interpol to issue a Red Notice against Choksi and India has been trying to get him extradited since he became an economic fugitive.

Elusive extraditions?

In the latest development, the CBI registered three more cases against Choksi last week. The charges include fraud, inflation of sales figures and illegal diversion of loan funds. Despite the large number of cases, Choksi remains a non-working economic offender.

He is in the company of other fugitive criminals such as his nephew Nirav Modi and former beer baron Vijay Mallya. Together, the three owe around Rs 22,000 crore to banks in India. There was some relief in the fact that earlier this year, the central government informed the Supreme Court that Rs 18,000 crore was recovered from assets belonging to Mallya, Modi and Choksi. As of now, the attached assets of these three are Rs 19,312.20 crore. Of this, Rs 15,113 crore was returned to public sector banks.

However, economic offenders like Choksi deserve to face the law for the crimes they have committed. As things stand, there is a possibility that some of these crimes can be successfully extradited. For this, India must continue to exert diplomatic pressure on the present refuges of the offender.


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