Nirav Modi, Mehul Choksi PNB scandal: Glossed over, auditors flagged loan default, forex violations

PNB fraud: Nirav Modi case: Government probing whether ‘sundry debtors’ route was used to mask financial position of flagship firm Gitanjali Gems.

Written by Sushant Singh , Sunny Verma | New Delhi | Updated: February 21, 2018 9:35 am
PNB fraud, PNB scam, Punjab National Bank, Nirav Modi, Nirav Modi scam, BJP, Congress, indian express news PNB scandal: For the year ending March 2017, Gitanjali Gems had a turnover of Rs 10,464.76 crore and sundry debtors of Rs 8,567.01 crore.

Gitanjali Gems Ltd, the company at the centre of an alleged loan fraud executed in collusion with staffers of Punjab National Bank, did not adhere to rules pertaining to the Foreign Exchange Management Act (FEMA) and also defaulted on timely repayments of loans taken from Life Insurance Corporation of India, ICICI Bank and IDBI Bank, according to the Secretarial Audit Report and Independent Audit Report conducted on the company’s accounts for 2016-17.

According to the government’s latest assessment of the PNB loan scandal, the investigating agencies are also probing “the genuineness of sundry debtor” — an indication that Gitanjali Gems is suspected to have been using this ploy to route funds to related parties.

For the year ending March 2017, Gitanjali Gems had a turnover of Rs 10,464.76 crore and sundry debtors of Rs 8,567.01 crore. The government is learnt to be probing the ‘sundry debtors’ route that is likely to have been used to mask the financial position of the company, sources aware of the development said.

READ | Nirav Modi denies involvement in PNB fraud, says beleaguered jeweller’s lawyer

During the financial year 2011-12, Gitanjali Gems raised external commercial borrowings (ECBs) worth $107.19 million from the IDBI Bank (Dubai) and ICICI Bank (Dubai), following which the RBI approved the company’s proposal to restructure these loans in November 2014 — it was allowed to repay the principal in 10 structured half-yearly instalments beginning September 30, 2015, and the last instalment due on March 31, 2020.

Sources said terms and conditions of restructuring of ECB loans will also be looked into and investigated. Further lending in the form of ECB post 2014 also needs to be examined in light of the recent loan defaults, the sources said.

The financial accounts of three other companies — Diamonds R Us, Solar Exports, Stellar Diamonds — named in the CBI FIR for causing wrongful loss of Rs 280.70 crore to the Punjab National Bank during 2017, also indicate that these companies reported very low profits, even as they took significant loans. Diamonds R USs for instance, recorded profits of Rs 4.90 crore while it took “unsecured loans” of Rs 2,197.70 crore during assessment year 2017-18 (financial year 2016-17), sources said.

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Stellar Diamonds made a profit of Rs 7.26 crore but took loans of Rs 1,713.90 crore during assessment year 2017-18. The company had a turnover of Rs 2654.90 crore and trade receivables of Rs 2665.10 crore. Similarly, Solar Exports too reported profits of Rs 2.07 crore but raised loans of Rs 981.23 crore during assessment year 2016-17, the latest year for which data was available. Solar Exports too, while reporting a turnover of Rs 1237.85 crore, had trade receivables (or debtors) of Rs 2691.54 crore.

Sources said investigation authorities are probing why these companies reported very high “trade receivables” or debtors — with the amounts involved higher than even their turnover. This indicates that the goods could have been “over invoiced” by these companies or sold to a related party to raise higher amount of loans through Letters of Undertaking from Punjab National Bank, potentially indicating ‘dummy sales’.

pnb fraud, pnb scam, nirav modi, enforcement directorate PNB fraud: An Enforcement Directorate team conducting search at a jewellery shop in Thane. (Express File Photo: Deepak Joshi)

Sources also pointed out that diamond merchant Nirav Modi owned very limited stakes in these three companies. More than 97 per cent of the shareholding were held by two individual shareholders in each of these three companies. Each of these two majority partners in the three companies had annual income ranging between Rs 2.26 lakh to Rs 3.15 lakh per in the assessment year 2016-17. Government agencies are looking into how these majority shareholders with limited income controlled these companies, and what undue benefits could have accrued through such a corporate structure, sources said.

EXPLAINED | Punjab National Bank fraud: How the system was gamed

pnb fraud, pnb scam, enforcement directorate, nirav modi

As for the flagship company Gitanjali Gems, headed by Mehul Choksi, auditors point out non-adherence to FEMA rules and untimely repayments of domestic and overseas loans.

According to the Secretarial Audit Report attached to the annual report of Gitanjali Gems for 2016-17, company secretaries Manish Ghia & Associates observed that Gitanjali Gems did not submit its annual performance report in respect of two of its overseas wholly-owned subsidiaries to the Reserve Bank of India within the stipulated time limit of December 31, 2016, as required under FEMA.

The company also did not file its annual return on foreign liabilities and assets as well as Form ECB-2 monthly return with the RBI on time.

pnb fraud, pnb scam, enforcement directorate, nirav modi Enforcement Directorate sleuths at one of Nirav Modi’s showroom in New Delhi. (Express File Photo: Tashi Tobgyal)

Apart from these red flags, the company’s independent auditors Ford Rhodes Parks and Co LLP also observed that Gitanjali Gems did not make timely repayments on loans taken from LIC and other lenders.

“Note No. 45 A (a) relating to 12% Non-Convertible Debenture issued to LIC where the company has not paid overdue principal and interest aggregating to Rs 348.94 Lakhs,” the auditors noted in their report. These non-convertible debentures were secured by first charge over immovable properties in Hyderabad belonging to Gitanjali Gems subsidiary Hyderabad Gems SEZ Limited.

The company has to repay a total of Rs 32.56 crore worth of principal amount on debentures in three years till 2019-20 to the LIC, for which the company could not create required resources. “Further, the company has not created liquid assets of Rs 148 Lakhs as required under Rule 18 (7) (c) of the company’s (Share capital & Debenture) Rule 2014 in respect of debentures instalments maturing during the following year,” the independent auditors noted.

pnb fraud, pnb scam, enforcement directorate, nirav modi The Punjab National Bank (PNB) branch where fraudulent transactions were detected. (Express Photo: Ganesh Shirsekar)

Gitanjali Gems is also required to repay $43.45 million (or Rs 281.74 crore) worth of ECBs in the current year. For 2016-17, the auditors noted that the company had principal and interest overdue of $9.72 million (or Rs 63.05 crore) towards ECBs raised from ICICI Bank. In respect of IDBI ECBs as on March 31, 2017, principal overdue is $0.73 million (or Rs 4.74 crore).

Queries sent to the Reserve Bank of India and LIC for comments did not elicit any response.

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  1. Sunder Sunder
    Feb 21, 2018 at 12:12 pm
    Most likely scenario of PNB scam: As everyone knows jewellery trade is almost all cash transaction. Demonetisation was a kick in the groin for Nirav and Mehul as cash dried up and s plummeted. Recall how Supreme Liar Jaitley unceremoniously removed PAN requirement for jewellery purchase ofoverRs 50000 just before Gujarat elections. That was too little for these sharks. So Mehulbhai and Niravbhai they went crying to 56” Chowkidar. “Narendra Bhai, what have you done? You have splintered us in the groin.” Chowkidar was ready. “Meulbhai, Nirav bhai, I have already thought how to help. Here are the keys to PNB strong room. I have already informed the Chowkidar there. Nobody will stop you, or come after you. It’s all yours to take and make up for your losses from demonetisation. “ Now we know.
    1. S
      Feb 21, 2018 at 12:03 pm
      Arun Jaitley has started investigation against Abhishek Manu Singhavi's wife and asked Nirav Modi to give more names of congress people involved.
      1. Mast Malang
        Feb 21, 2018 at 11:21 am
        Now slowly it emerges that bank management is only (may be) responsible for this scam because RBI already raises (2016) concerns regarding SWIFT system and now coming news that auditors also red flaged regarding Nirav Modi account. Now caged parrot CBI will not introgate management because management not done this alone but taken instruction from government. And here CBI is working as a guard dog.
        1. T
          Feb 21, 2018 at 11:14 am
          IE is being trolled by Congi Looter trolls. Please note. Is there any precedent of such scams being unearthed or NPAs being highlighted during Congi rule, you jackasses
          1. Mast Malang
            Feb 21, 2018 at 1:15 pm
            You jackass, till this corruption came to light you bhakts shouting from the roof top that Congress is the only corrupt party. There is no difference between BJP and Congress as far as corruption is concerned. What you will say now, you id_iot?
          2. Feku Lies
            Feb 21, 2018 at 10:31 am
            As long as blind and deaf Bhakts support this Govt, As long as tax payers do not question and force the Govt to make pay for the loot of their money - BJP (biggest financial scams and looters in the history of India), Congress (who introduced scams and allowed people to loot India) and other regional parties like NCP, TDP, YSRCP, JD etc will keep looting our Tax payers money. Hope one day educated tax payers wake-up and start a cleanup movement so that a clean patriotic national leader rule this country and keep these political leaders and corrupt corporate bosses behind bars.
            1. S
              Superior Sunni Arab Muslim
              Feb 21, 2018 at 10:51 am
              As long as fascist naazi Hitler's Christians slave or the rapist Church and Terrorist Muslims control the media in India athey will spread hate bigotry false and lies want to blame BJP for cleaning up the mess created by 65 years of Congie rule. Who do you think gave loands to Mallaya and Nirav Modi and when>?
              1. A
                Feb 21, 2018 at 1:36 pm
                Who are you going to support with you eyes open (I presume they are)? If you have a modicum of common sense you will realize that we were being set up for just this the moment the banks were nationalized in 1969. This is a white collar crime which this government has to deal with strongly but there is no proof of any complicity of this government in what happened. It is a systemic failure at lower levels. There was ample proof that the previous government had it's hands in the till and a lot of fraudulent and reckless lending by PSBs to diffe groups was done on their goading. But I guess you guys have no use for facts or logic.
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