The Parliament was informed on Tuesday that the top 50 wilful 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, tops 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 close to Rs 13,500 crore. He allegedly masterminded the scam in which his nephew Nirav Modi is also an accused.
The siphoning of funds only came to light in 2018, about 8 years after the Choksi-led Gitanjali Gems started defrauding PNB. Choksi has fled the country since then and is currently a ‘wilful defaulter’ who is wanted by Indian authorities such as the Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI).
A wilful defaulter is a borrower who has the ability to make the necessary repayments to the lender but refuses to do that. So, how exactly did Choksi defraud PNB, India’s second largest government-owned bank, and many other financial institutions?
Choksi’s Cheat Codes
Gitanjali Group, a retail jewellery firm with around 4,000 stores in India, is at the centre of the PNB scam. With the complicity of some staff members at the public sector bank, Choksi’s Gitanjali Gems initiated a series of transactions at PNB from 2011 onwards that were not recorded in the bank’s Core Banking Software (CBS).
Further, around 165 Letters of Undertaking (LoU) were fraudulently issued to Choksi’s companies. An 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 kept in places before the LoUs were issued to Choksi’s companies.
In addition to the fraudulent LoUs, hundreds of Foreign Letters of Credit (FLC) were also issued, out of which many were extremely overvalued. An FLC is another form of short-term credit used for international trade. Even here, Choksi was able to raise money even though he was not credit worthy for the same.
PNB was not the only victim of Choksi’s payment defaults. Gitanjali Gems defaulted on repayments for loans availed from Life Insurance Corporation of India (LIC), ICICI Bank and IDBI Bank as well. Choksi’s jewellery business was also found to violate several rules of the Foreign Exchange Management Act (FEMA).
Antigua, As Anticipated
It is very likely that Choksi knew beforehand that he would be caught. Before 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 Carribean country in May 2017 itself. This shows how the diamantaire had no intentions of repaying the loans and that fleeing after defaulting was a planned move.
The current slew of cases registered against Choksi include criminal conspiracy, criminal breach of trust, cheating, dishonesty, corruption, and money laundering. The CBI had managed to get the Interpol to issue Red Notice against Choksi and India has been attempting to get him extradited since he became an economic fugitive.
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 an elusive economic offender.
He is in the company of other fugitive offenders such as his nephew Nirav Modi and the former beer baron Vijay Mallya. Together, the three of them owe around Rs 22,000 crore to banks in India. There was some respite in the fact that earlier this year, the central government informed the Supreme Court that Rs 18,000 crore has been recovered from assets that belonged to Mallya, Modi and Choksi. As of now, attached assets of these three stand at Rs 19,312.20 crore. Out of this, Rs 15,113 crore have been restituted to the 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 offenders may be successfully extradited. For that, India has to continue exerting diplomatic pressure on the offenders’ present havens.