Winsome diamonds: From blaming Jordan to principles of natural justice

One of the biggest challenges for the NDA government is to clean up the pile of bad loans. At last count, over 10% of outstanding loans or over Rs 3 lakh crore have either turned bad or had to be restructured.

Written by Khushboo Narayan | Updated: December 17, 2015 9:39 am
Head office of Winsome Diamonds at Opera House in Mumbai. (Express Photo by: Vasant Prabhu) Head office of Winsome Diamonds at Opera House in Mumbai. (Express Photo by: Vasant Prabhu)

The Rs 6,800 crore non-performing account of Winsome Diamonds and Jewellery Ltd is turning out to be a saga of accusation, counter accusations and clarifications. On May 30, Winsome Diamonds in a letter to Standard Chartered Bank accused the bank of “making back-room attempts” to block the plan of the firm to repay its lenders and “permanently destroy” the firm and its shareholders. While Winsome Diamonds owes Rs 4,680 crore to a consortium of banks headed by Standard Chartered Bank, its associate firm Forever Precious Diamonds and Jewellery owes another Rs 2,121.82 crore to a set of banks led by PNB.

The noose tightened over Winsome Diamonds after Reserve Bank of India Governor Raghuram Rajan wrote to the Prime Minister’s office (PMO) in April seeking “concerted” action against the top 10 bank loan defaulters. Once a top diamond firm in the country, Winsome Diamonds promoted by Jatin Mehta, is now facing the heat from the Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI). The ED is planning to attach properties worth Rs 250 crore of the company under the Prevention of Money Laundering Act or PMLA.

The troubles of Winsome Diamonds and Forever Precious began in January 2013, when 13 of its UAE-based distributors controlled by a Jordanian national Haytham Ali Salman Abu Obidah, failed to pay Rs 4,760 crore to the company, according to the 2012-13 annual report of Winsome Diamonds. Obidah, owner of Italian Gold FZE, the main distributor of Winsome Diamonds in the UAE, introduced the Indian firm to several distributors in 2012. All of these firms were directly or indirectly connected to Obidah.

One of the audits conducted by the banks has alleged that Mehta, who was responsible for bringing the customer on board, dealt with the distributors without due diligence, according to a person familiar with the findings of the report. There were two audits on the company — a forensic audit by Ernst & Young (EY) and an investigative audit by Kroll Advisory Solutions.This is also reflected in the 2012-13 annual report of Winsome Diamonds, where the board of directors of the company claimed that Mehta was in charge of choosing distributors.”The promoter-guarantor (Mehta) is wrongfully attempting to distance himself from the KYC/ due diligence / trade references / selection of customers who have been defaulting, which, however, were always his decisions and prerogatives,” said the annual report of Winsome. The audit has found that some of these defaulting firms were registered in quick succession in 2012. “While the company and the banks did engage Dun & Bradstreet to do a formal check on the distributors, the report was very basic in nature,” said a person connected with the audit. Winsome, however, has denied the allegations and said that it had conducted “necessary due diligence on its customers”. The audit has also found that 80 per cent of gold exports by Winsome went to six companies with common ownership in UAE. These companies, controlled by Obidah, did not have any known storage facilities, according to the audit findings which hint at a possible diversion of funds by Winsome. An official spokesperson of Winsome Diamonds said that the firm and its subsidiaries have not diverted funds. “Both Winsome and Forever are casualties of defaults of non-payment by its customer,” said the official spokesperson in an email response to The Indian Express. “Over the last decade or so, Winsome has made sales and received approximately $1.91 billion from the UAE customers. The banks have also tremendously benefited in terms of commissions, facility charges, etc from these large sales….. During 2012 itself, Winsome and Forever received an amount of about $345 million from new customers. The banks never doubted the payment capacity and capability of these customers or that they would default in payments to the company for the exports. All of this is a part of contemporaneous record available with the banks,” said the spokesperson.

Winsome has claimed that it did send the goods to the defaulting firms. The company said that Obidah and his associate companies suffered losses of about $1 billion in derivatives and commodity trading and were unable to pay their dues.On June 29, Winsome Diamonds submitted a summary reports of the accounting experts appointed by Sharjah Federal Court, UAE, with the BSE. This report is part of Winsome’s suit against the 13 entities in the Sharjah Federal court.According to these reports, these 13 companies have submitted proof of goods received by them from Winsome and accepted their dues to the Indian company. Interestingly, the entire case of the banks against Winsome hinges on the two audit reports. But Winsome has claimed that the investigative report by Kroll, which has been used by the banks to declare it a ‘wilful defaulter’ and scuttle its CDR (corporate debt restructuring) process, was never shared with the company.In its May 30 letter to Standard Chartered Bank , Winsome has alleged that Kroll did not interact with company executives while preparing the report. Winsome has also alleged the Kroll report was not shared with the company by the banks despite repeated requests asking for the report. “All principles of natural justice and the requirements of law are flouted to have a predetermined decision to declare the company wilful defaulters whether justified or not,” the letter said. Winsome also said that it has been classified as a wilful defaulter contrary to the RBI guidelines. “The master circular on wilful default issued by the RBI does not apply to the company in the present situation as there is no siphoning of funds whatsoever. The banks also did not provide any reason or justification for rejecting the clarifications provided by the directors of the company to the notices issued by the banks before declaring us as a wilful defaulter,” said the company spokesperson.

An official spokesperson of Standard Chartered Bank declined to comment on the issue. The Indian Express sent detailed mails to all the banks that have an exposure to Winsome, seeking a comment but none responded. Punjab National Bank, the lead banker of the consortium has also filed cases with the CBI against Winsome Diamond for recovery of Rs 900 crore and Forever Precious Jewellery and Diamonds Ltd which has defaulted Rs 747 crore. Even as the PNB led consortium got a court nod in February to auction the mortgaged properties of Winsome Diamonds in Mumbai, the company claims that it is making genuine efforts to recover $1 billion from its 13 overseas customers such as Al Alam Jewellery FZE, Al Mufied Jewellery FZE, Al Lulu Jewellery FZE, Al Jumanah Jewellery FZE among others and has obtained favorable reports from court appointed experts in UAE “pertaining to the bonafides” of Winsome Diamonds.

According to the company, the Sharjah Federal Court has passed orders against 11 parties out of 13 overseas defaulting customers. Winsome has also claimed to have written to Rajan and the PMO justifying the reasons for loan default on May 13.