PNB fraud case: Mehul Choksi siphoned funds using shell firms, says ED in charge-sheet

The Enforcement Directorate (ED) on Thursday filed a charge-sheet against Gitanjali Group’s Mehul Choksi before the special Prevention of Money Laundering Act (PMLA) court in connection with the Punjab National Bank (PNB) fraud case.

The charge-sheet names, along with Choksi, 13 other entities that include eight individuals and five companies.

According to the charge sheet, three of Choksi’s companies – Gitanjali Gems, Gili India Ltd and Nakshatra – fraudulently issued letters of undertaking (LoUs) worth ₹3011.39 crore and got the credit limit of foreign letters of credit (FLCs) enhanced to ₹3086.24 crore. The total proceeds of the crime in this case amount to ₹6097.63 crore.

LOUs serve as bank guarantees that allow clients to raise credit from foreign branches of other Indian banks, and FLCs serve as guarantees to thrid parties or vendors that money will be paid for the good supply.

The charge sheet claims that the funds obtained were siphoned to overseas suppliers 4C’s Diamonds distributors and Shanyang Gong SI Limited in Hong Kong; Asian Diamonds, Jewellery FZE and Gitanjali Ventures DMCC in UAE; and Abbeycrest (Thailand) limited in Thailand.

Upon the receipt of the FLC application, the bank paid enhanced funds to overseas firms – 4 C’s diamond distributors and Crown Aim Limited, both located in Hong Kong. The charge sheet has made the claim that both these firms are actually controlled by Choksi.

There are several other dummy companies controlled by Choksi in Dubai and in Hong Kong which were used for siphoning the funds, it added. Some of these include Taipingyang Trading and Trans Exim Limited in Hong Kong, Burj diamond and jewellery, Asian Diamonds jewellery FZE, Eternity jewels FZE, Al Arba Jewels,FZE.

“These companies had directors and partners, who were merely dummy employees. The ultimate decision rested with Choksi. Most of these companies had no genuine business and were only paper companies used for rotation of funds,” read the ED statement.

The ED has alleged that the proceeds of the crime were then remitted back to Gitanjali Group Companies under the guise of export-import transactions. The remittance received was then further circulated among group companies in India, in order to settle earlier liabilities of FLCs and LOUs at PNB. According to the ED probe, although the goods being exported to India were of abysmally low quality, the value had been highly inflated and had been set by Choksi.