Before PNB fraud: Nirav Modi, Choksi left 18 businessmen, 24 firms bankrupt

Eighteen businessmen and 24 firms who had taken the franchise of Modi and Choksi's jewellery brand ended up filing criminal complaints of financial bankruptcy

 The Punjab National Bank (PNB) and other public sector lenders aren't the only entities that got hit by Nirav Modi and Mehul Choksi, in a Rs 114 billion fraud that was unearthed at PNB recently. Over two dozen firms and 18 businessmen who had taken franchise of Nirav Modi and Mehul Choksi's jewellery brand between 2013 and 2017 also reportedly found themselves at the receiving end of frauds committed by the duo -- with the cases involving amounts upto Rs 200 million (Rs 20 crore). | Today's Paper

Eighteen businessmen and 24 companies who had taken the franchise of Modi and Choksi's jewellery brand between 2013 and 2017 ended up filing criminal complaints of financial bankruptcy caused by breach and fraud committed by the duo, the Times of India reported. The concerned businessmen and firms, the report added, had set up franchise showrooms of Choksi-owned Gitanjali Jewellery and Gili across several cities and regions: Delhi, Agra, Meerut, Bengaluru, Mysuru, Karnal, and parts of Gujarat and Rajasthan.

Based on records accessed by it, the national daily reported that the first information reports (FIRs) filed in all the aforementioned cases dealt with criminal conspiracy, fraud, and violation of agreement by Choksi's firms.

According to the records, even after taking security deposits between Rs 30 million (Rs 3 crore) and Rs 200 million (Rs 20 crore) from the franchisees, Choksi's firms violated agreements and committed fraud in sending stocks of diamond and precious gems to the former.

How did Choksi's firms cheat these businessmen?
According to the report, under the three-year contract signed between Choksi's firms and the franchisees, a fixed minimum guarantee commission at 12 per cent per annum on the security deposit, apart from the rental for the jewellery showroom, was mandated to be paid by Choksi.

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However, the franchisees soon found violations: That Gitanjali would not replenish the stock, send items that were priced much lower than the market rates, or not pay the agreed upon rental.

Who all got caught up in the fraud?
Vaibhav Khurania, a Delhi-based businessman who had opened a retail store in Rajouri Garden, had to shut shop after Gitanjali allegedly failed to send him stocks worth Rs 30 million (Rs 3 crore) after having taken the payment, the national daily reported. The report quoted one particular FIR as saying: "In fact, they sent those items of which the market price was much less, but the showroom price was 3-4 times more of the actual price." | Readmore...

PNB names Nirav Modi and Gitanjali Gems in the mega Rs 114-bn fraud

Core banking system bypassed to issue unauthorised and fraudulent guarantees

In what may turn out to be one of the biggest scams in the country’s corporate history, Delhi-based Punjab National Bank (PNB) said on Wednesday it had been defrauded of about Rs 114 billion by jeweller Nirav Modi, his maternal uncle Mehul Chinubhai Choksi, and other relatives through a clutch of companies they own.

The country’s second-largest public sector bank (PSB) said two of its employees were involved in the scam, where the bank’s core banking system was bypassed to raise payment notes to overseas branches of other Indian banks, including Allahabad Bank, Axis Bank, and Union Bank of India, using the international financial communication system, SWIFT.

ALSO READ: PNB fraud: Sebi likely to probe disclosure lapses by banks, jewellery firms
Three jewellers Gitanjali Gems and its subsidiaries Gili and Nakshatra are also under the scanner of investigation agencies.

Executives in other banks said they were insulated against the fraud, as the payment request was raised by PNB (irrespective of who raised that in the bank), and therefore, the payment would have to be met by the Delhi-based bank.

PNB had overdues slated to be paid on January 25 and subsequently on February 5, which were in default, said Usha Ananthasubramanian, chief executive officer (CEO), Allahabad Bank.
“We do have exposure to PNB, but it is on the bank, and not on the client. The exposure is roughly in the range of Rs 20-22 billion,” Ananthasubramanian said.

However, PNB in a letter to banks, indicated clearly that it was in no mood to pay back and alleged connivance of employees at the foreign branches of other Indian banks.
In a letter to the chiefs of several banks, a general manager of PNB said the letters of undertakings (LoUs) are were opened in favour of branches of Indian banks for import of pearls for a period of one year, for which the Reserve Bank of India (RBI) guidelines stipulate a total time period of 90 days from the date of shipment.

“This stipulation was overlooked by overseas branches of Indian banks that are also required to follow the RBI guidelines. There is clear criminal connivance of group companies of Nirav Modi and Gitanjali Gems with our branch official and also, apparently, with officials of overseas branches of Indian banks,” the letter said. “None of the overseas branches of India based banks has shared with us any document/information made available to them by these Indian companies at the time of availing buyers’ credit from them,” it added. The banking system is heading towards a protracted legal battle as other banks will start suing PNB over non-payment of dues and refusal to honour commitments. Besides, other banks also have separate exposure to companies owned by Modi, who has shot a mail to the lenders, assuring them that he will return all dues and that his brand, Firestone Diamond, valued at Rs 105 billion, was up for sale. | Readmore