New Delhi: Gold, diamond jewellery, a web of shell companies and round tripping — the Winsome Diamonds case involving diamond merchant Jatin Mehta, who allegedly defrauded a consortium of banks to the tune of Rs 7,000 crore, first came into the limelight in 2014, is back in the news.
This time, however, the story has shifted to the UK, with a London court issuing a “worldwide freezing order” in May against the fugitive and his family.
The investigation against the Mehtas and their companies — Gujarat-based Winsome Diamonds and Forever Precious — that defaulted on loan payments, started in India in 2014 with the Central Bureau of Investigation (CBI) and Enforcement Directorate (ED) registering cases against the companies, their directors and public servants.
But before any action could be taken against Mehta, he left India in 2016 with his family. The absconding businessman is believed to have gone to St Kitts & Nevis, a Caribbean island country that does not have an extradition treaty with India.
While the cases against the Mehtas are ongoing in India along with an insolvency proceeding, the high court in London has issued a worldwide freezing order against him, his wife Sonia, and two sons Vishal and Suraj.
Speaking to ThePrint, Mehta’s lawyer Swadeep Singh Hora said that the decision to issue the order was passed after an “ex-parte hearing” at which the Mehtas were not represented.
A freezing order is a ‘prohibitory injunction’ ordered by a court, obtained by one party against the other to restrain the respondent from disposing of their own assets. These assets include land, property, bank accounts and even cryptocurrency. Moreover, this order can extend to a respondent’s assets anywhere in the world.
This is done for the purpose that if the applicant wins the litigation, it can take over the assets of the other party.
The application seeking this order was filed by the claimants, led by liquidators of a number of English companies appointed by the Standard Chartered Bank.
“The application has been moved for the discharge of [the worldwide freezing] order and it will be argued in October. This order was passed at a hearing at which the lawyers representing the Mehtas were not present in the court, as is the way with this form of ex-parte order. Now, in October, both sides will be heard,” said Hora.
The hearing has been fixed for 5, 6, 7 October 2022, Hora told ThePrint.
The Mehtas are also challenging the jurisdiction of the English court to hear the claims. “The Claimants have assumed that the English court will take jurisdiction since the defendants are present in the jurisdiction,” said Hora, adding that the Mehtas object to this on various counts.
‘A fugitive economic offender’
According to investigators, Jatin Mehta, a businessman from Surat who has been in the jewellery-making business for years, took buyer’s credit from banks to purchase gold and then turned it around into diamond jewellery, which he then exported to 13 clients in Dubai.
Indian banks issued Standby Letters of Credit (SBLCs) in favour of international bullion banks like the Standard Chartered London and Standard Chartered South Africa, to supply gold to Winsome Group companies, assuring that branches back in India would pay the dues if Winsome fails to pay.
In 2012, Winsome declared it would be unable to pay the loans because it was running into losses. The company said that the group’s customers in the Gulf region — UAE Jewellers — were hit and could not pay him.
In 2014, the CBI registered a case against Mehta.
Subsequently, before any action could be taken by the banks on the alleged default, Mehta resigned from his firms and left the country in 2016.
When the companies did not honour the SBLCs, Indian Banks were forced to make payments to foreign banks, causing an alleged loss of Rs 1,530 crore.
While the first complaint was filed by Punjab National Bank (PNB), another complaint was filed by Canara Bank. On April 5, 2017, the CBI registered six separate cases against Winsome Diamonds and Jewellery Ltd, and Forever Precious Jewellery and Diamonds Ltd, for allegedly cheating government banks.
According to CBI officers, Mehtas, through his companies, allegedly took a loan of Rs 6,800 crore from a consortium of banks led by the Standard Chartered Bank, with PNB loaning the highest amount of Rs 1,800 crore.
In the Central Bank of India case, it was alleged that the bank suffered losses of Rs 699.54 crore from Winsome and Rs 255.24 crore from Forever. Moreover, other banks in the consortium, like IDBI and Vijaya Bank, suffered losses of Rs 133.12 crore and Rs 55.68 crore, respectively, on the account of Winsome and Forever.
CBI has also alleged that Winsome diverted at least $750 million to six entities in Hong Kong, Bahamas and UAE, directly or indirectly controlled by Jatin Mehta, through a web of “dummy companies”, sources have told ThePrint.
The ED, too, registered two cases in this regard in June 2020 and filed a chargesheet in one of the cases. Also, the CBI filed a chargesheet against 21 accused including Mehta and public servants in the Central Bank case in June 2018, while no chargesheet has yet been filed in the case registered on the complaint of PNB.
In June 2019, The ED had also approached the National Company Law Tribunal (NCLT) to stop liquidation of Winsome Diamonds and Jewellery Ltd, till it completes its investigation against the diamond firm under the Prevention of Money Laundering Act, 2002 (PMLA).
The ED wanted the liquidation to be halted as it is in the midst of establishing the money trail that led to the alleged loan fraud.
Last year, Mehta was also declared as a “fugitive economic offender” by the Enforcement Directorate (ED).
‘The English court was not given the full story’
To recover their loan, the banks also approached the Debt Recovery Tribunal. Following this, the liquidation process began and the affected banks filed for claims.
Despite this liquidation process in India, Standard Chartered Bank initiated similar proceedings before the court in London. Their argument being that Standard Chartered India is a branch of Standard chartered London and thus the loss is caused to the London branch, said Mehtas’ lawyer.
Standard Chartered Bank also applied to restore a number of dissolved English companies of the Mehtas, allegedly used to launder proceeds of crime. The bank asked for the restoration of the said companies, so that they could install liquidators over those companies and make recoveries from them.
Explaining the case, Hora said the Mehtas object to the English court taking jurisdiction “for a number of reasons, including that Standard Chartered Bank is trying to re-run matters in England which it has already run in India and in circumstances where there are parallel insolvency proceedings ongoing in India.”
He added, “This is not a point that was fairly presented at the ex-parte hearing at which the worldwide freezing order was granted, notwithstanding that the English claimants making ex-parte applications are required to give full and frank disclosures of material matters. The Mehtas will argue that in a number of respects. The English court was not given the full story and the order made should be discharged.”
(Edited by Zinnia Ray Chaudhuri)