As early as October 2015, a Dubai-based firm of the Gitanjali Group alerted Vipul Chitalia, vice-president of the group who has since been arrested, on the possibility of penal action if caught by customs authorities in India or Dubai for exporting “low quality” coloured gems at highly inflated value to Dubai.
The probe agencies investigating the firms of Mehul Choksi, promoter of Gitanjali Group, have found that the Dubai subsidiary, in an email sent to Chitalia and a few other top officials of Gitanjali Group on October 6, 2015, said the consignment of coloured gems received by them were of such “low quality” that the “stones release colour and the bag inside which stones are kept turns red”.
The email said that if customs officials in Dubai or India conducted a surprise check on the export parcels, Gitanjali Group could face heavy penalties. “We apprehend that in a surprise check, if customs in Dubai/ India open the parcel, the company will be heavily penalised,” said the email, which was seen by The Indian Express.
The Gitanjali Group sells jewellery under popular brands like Nakshatra, Gilli, Asmi and D’damas among others.
Choksi and his nephew Nirav Modi are wanted by multiple investigating agencies after state-owned Punjab National Bank (PNB) complained against their companies, saying it had been cheated of Rs 13,600 crore through fraudulent issue of letters of undertaking (LoUs) and foreign letters of credit (FLCs). Both left India in January, a few weeks before the scam came to light. Choksi is known to be residing in the US.
Sources said Choksi allegedly used to fix the rate of goods exported by the group without any economic rationale and rotated the same consignments several times through firms controlled by him to inflate the turnover of Gitanjali Group, to avail higher bank credit and siphon funds.
The Enforcement Directorate (ED) has found that the fair value of the diamonds, gems and jewellery seized by it from Choksi’s showrooms and factories in Mumbai and Hyderabad is just over one-fourth of their total book value. The agency is now planning to ask the customs authorities to probe the alleged over-valuation of exports by Gitanjali Group since 2015.
The ED, on Tuesday, also filed its prosecution complaint (chargesheet) against Choksi and his firms in a special court. The agency has found that Choksi “took undue advantage” of RBI guidelines pertaining to third party payment system for export, and used overseas firms controlled by him under tripartite arrangements to “defraud” banks.
Under the RBI norms, banks are allowed to receive payments for export of goods from a third party. A third party refers to an entity other than the buyer or the seller.
The agency said Choksi did this to “avoid detection” of sales and purchases with the firms that were also the beneficiaries of LoUs and FLCs funds issued by PNB and “bring back the funds directly into Gitanjali Group of companies in India”.
The agency has unearthed the trail of about Rs 4,143 crore of LoU funds diverted by Choksi to his overseas firm and “dummy companies” in eight countries, through Hong Kong and UAE, and is ascertaining the trail of another Rs 499 crore. In the case of Choksi, the ED has alleged that “the modus operandi of issuance of LoUs and FLCs through fraud was done with criminal intent of illegally enjoying the credit facility without providing proper collateral and with nominal interest payable and rotating the money for their own end use” by circumventing the banking norms. Choksi’s firms owe Rs 6,097 crore to PNB.
The ED has found that dummy firms were formed in Hong Kong and UAE to “facilitate layering and for laundering the fund obtained by PNB and to camouflage the real intention and beneficiaries of the funds”. The ED complaint has named Choksi, Chitalia, Gokulnath Shetty, former deputy manager of PNB, and Nehal Modi, brother of Nirav Modi, as the key accused among others.
The agency has also said that Choksi indirectly used the fraudulently availed funds from LoUs and FLCs to invest in his companies in India through individuals and companies. “In one case, he (Mehul Choksi) transferred the funds from Eternity Jewels FZE, a shell company of Mr Mehul Choksi, to Mr Rakesh Gajera in the guise of a loan. These funds were later used to purchase the equity of Gitanjali Gems Ltd,” the ED said.