Sources in the CBI say 293 more LoUs that were issued in past two years are being investigated.
New Delhi: Union Law Minister Ravi Shankar Prasad claimed Friday that a majority of the “loans” sanctioned to businessman Nirav Modi was during Congress rule between 2011 and 2014. However, the FIR lodged by the CBI on 31 January refers to just eight Letters of Undertaking (LoUs), all of which were issued after 2017, during the NDA’s regime.
Sources in the CBI also said that a further 293 LoUs were issued to Nirav and his companies in the last two years. So far, there is no LoU older than that has been revealed during investigations.
A Letter of Undertaking, or LoU, is not a loan. It is a guarantee given by a bank branch in India to an overseas bank that it will meet the liability if the firm borrowing from it (the foreign bank) defaults. Diamond firms use LoUs for securing cheap, low interest “buyer’s credit” in dollars overseas, mostly to purchase rough diamonds. Banks are always supposed to cover their LoUs against collaterals, which wasn’t allegedly done in this case.
The CBI suspects there could be more LoUs, but that could take time to establish since the bank employees accused in the case — Gokulnath Shetty (a deputy manager, now retired) and Manoj Hanumant Kharat (a single window operator) — did not keep an official record of the LoUs issued. Despite several audits, including internal and concurrent ones, the fraud was not detected by bank officials.
The BJP-led NDA government fielded senior Cabinet ministers Friday to say that the scam started in 2011, when Congress-led UPA was in power. But as details show, all the LoUs in question are from the past two years. Sources said the government, including the Prime Minister’s Office, was alerted about the ongoing fraud several times. However, no action was taken.
In the first instance, a complaint was given on 7 May 2015 to the Ministry of Corporate Affairs by one Vaibhav Khuraniya & R.M. Green Solution Private Limited. A copy was also sent to the Prime Minister’s Office, Enforcement Directorate, and Serious Fraud Investigation Office, but no action was taken.
Another person named Digvijaysing Jadeja filed an FIR in the Ahmedabad Economic Offences Wing in Gujarat against Mehul Choksi and others for defrauding him. Jadeja also filed an affidavit on 20 July 2016 pointing out that Choksi – who is Nirav’s maternal uncle – and others owed Rs 9,872 crore to banks, and were likely to escape from India. But no case was registered.
In a third instance, a Bengaluru-based entrepreneur Hari Prasad had written to the Prime Minister’s Office (PMO), bringing to its notice financial discrepancies that could lead to a huge scam involving Choksi, and listed details of all balance and audit sheets.
The letter, dated 29 July 2016, bore the subject line: “Complaint lodged at PMO and CIC against Gitanjali Gems Ltd and its MD Mehul C. Choksi”.
It stated: “We wish to bring to the government’s notice, a major financial scam, similar to that of Vijay Mallya, Subrata Roy of Sahara group or Ramalingaraju of Satyam group… This scam and fraud done by the person based in Mumbai involving loss of Rs 1,000 crore of Indian public money.”
The complainant also enclosed copies of complaints by franchisee victims against Choksi and various firms linked to him. It accused Gitanjali Gems and Choksi of siphoning off thousands of crores through subsidiary companies floated in India, and fictitious companies abroad.
However, no action was taken.
Details of the LOUs in the FIR (9 February 2017 to 14 February 2017)
Punjab National Bank (PNB), in its complaint, directly accused Nirav, wife Ami, brother Nishal, and Choksi of conniving with the two bank official to commit the fraud.
The bank says it scrutinised records of SWIFT (Society for Worldwide Interbank Financial Telecommunications) — a messaging network that financial institutions use to securely transmit information and instructions through a system of codes.
The bank says it found that Shetty and Kharat, on 9 February 2017, issued two LOUs on behalf of Diamond R US for $4,415,791.96 and Solar Exports for $4,335,391.38 (Nirav Modi is a partner in both firms). The due date of payments for both LOUs was 25 January 2018, favouring Allahabad Bank, Hong Kong.
The next day, the accused duo issued three LOUs on behalf of Diamond R US, Solar Exports, and Stellar Diamond for $5,942,017.70, $5,843,161.93 and $6,093,321.10 respectively, due on 25 January 2018, favouring Allahabad Bank, Hong Kong.
Then, on 14 February 2017, Shetty and Kharat once again issued three LOUs – on behalf of Diamond R US for $5,856,885.00, Solar Exports for $5,862,251.03, and Stellar Diamonds for $5,877,064.00, all having due dates on 25 January 2018, favouring Axis Bank, Hong Kong.
These eight LOUs reported by the PNB add up to $44,225,812.20 (approx. Rs 280.70 crore).
The bank official who filed the complaint stated: “We are making an in-depth enquiry (sic) of records of SWIFT messages to find out outstanding LOUs which are otherwise not available in the FINACLE system as these were issued without their details being entered in the CBS.”
The bank also suspects that buyers’ credit based on fake LOUs might have also been paid through NOSTRO, this official stated.
Case against Gitanjali group
The CBI has registered another case against the Gitanjali group of companies, of which Choksi is MD. Three firms – Gitanjali Gems, Gili India and Nakshtra Brand Ltd, have been accused of swindling PNB to the tune of Rs 4,886.72 crore.
This case allegedly involves 143 LoUs and 224 foreign letters of credit.
What next
Interpol’s help has been sought to seek Nirav and the others. Diffusion notices — requests for cooperation — have been issued against the three members of the Modi family and Choksi.
Raids and searches are now being conducted at 20 locations across five states.