Fly on the wall : The 10-day silence in Rs 11400 crores Scam ?

by Harish Gupta, National Editor, Lokmat Group

The 10-day silence in Rs 11400 crores LoU Scam ?

It is no secret that the diamond business of Mama-Bhanja (Nirav Modi and Mehul Choksi) came crashing on January 16 this year when an executive of Nirav Modi went to the Brandy branch of the PNB to clear the LoU. The cat was out of the bag as the handling deputy manager alerted his seniors of something fishy. All hell broke within hours and the top management got in touch with Nirav Modi who was holidaying in New York. His top executives in India including CFO Ambani kept telling the PNB that monies are being arranged. The shaken PNB management kept negotiated fo full ten days and tried hard to persuade Choksi and Modi to to arrange for collateral and matching securities. Finally, the Managing Director Sunil Mehta told the Banking Secretary in the Finance Ministry who conveyed to Finance secretary Hasmukh Adhia who in turn conveyed the biggest scam under the NDA to the Finance Minister. It transpires that Adhia informed the PMO and Jaitley too briefed the PM on the issue separately. Finally, the PNB decided to lodge a formal CBI complaint on January 28 of cheating relating to Rs 280 crores. The CBI started looking into the matter and three days later, it registered the case on January 31. The second complaint amounting to Rs 11400 crores was reported on February 13.

Value of Nirav Modi properties is Just Rs 800 Cr

The Enforcement Directorate bragged within two days of raids on Nirav Modi's establishments across the country that value of seized assets including flats and properties is Rs 5700 crores. However, the valuers and assessors of properties, jewellery and diamonds are still struggling to assess the actual value of seized assets. An informed source in the ED said the total value of immovable assets of Nirav Modi is around RS 800 crores only. The ED is yet to get hold of the actual ownership documents of all the properties if they had not already mortgaged to banks or otherwise. The ED's legal department is still struggling to discover if the properties are free from any collateral for picking up loans. What surprised industry veterans is that speed with which ED assessed the value of diamonds which is an extremely tedious process. In fact, the whole scam of Nirav Modi was to import rough diamonds and export them or sell them in Indian market at a very high price after cutting and polishing them due to his designing skills and high brand value. So far, the ED had conducted searches at over 200 premises of Modi as well as Gitanjali Gems and seized diamonds, gold and precious stones worth Rs 5700 crores based on the “tag value” or the “book Value” of the diamonds and jewelery. The book value cannot be true estimate of the goods recovered. The tag value is highly inflated. In fact, when the banks sanction loans against imported stock of rough diamonds to jewelers, there is no way to assess the true value because most valuers have no knowledge themselves or they look the other way. This is used for over-invoicing and under invoicing. The Income Tax department had also attached and froze 103 bank accounts and 40 properties of the Modi group of firms, but the value of this attachment has not been given by the IT so far.

Having declared the true value of stocks and properties as Rs 5700 crores, the ED is now in a tight spot. It transpires that the value of diamonds, gold & jewelery is in the range of Rs 1400-1500 crores. One of the reasons for this is that Nirav Modi used to import cheap quality rough diamonds and divert them after value additional in the domestic market at a very high price rather than exporting them.

Nirav Modi’s Hyderabad SEZ scam

The ED  detected that Nirav Modi's Hyderabad-based SEZ was overvalued in the books of Punjab National Bank (PNB)  huge variation in actual inventory and their book value. The difference was as huge as Rs 3,500 crore. The SEZ on an area of 250 acres was sanctioned by the UPA government and inaugurated by then Chief Minister Y.S. Rajasekhara Reddy in 2005 and then it was named as Rajiv Gems Park. In 2014, the name was changed to Gitanjali Gems Park which houses all the five firms owned by Nirav Modi and his associates.  The raids at five gems and jewellery units located at a hardware park at Raviryala village in Maheswaram mandal of Ranga Reddy district, about 30 km from the city. The actual value of 100 odd boxes and containers at the Gitanjali Gems Park, was Rs 300 crore, but the book value in the group’s computers is mentioned around Rs 3,800 crore. This SEZ is the biggest processing unit of the Nirav group’s gems and jewellery. The group used to import raw and uncut stones from Hong Kong and other places and processed them at Surat, Pune and other places in Gujarat and exported them to UAE, EU and other destinations. Shockingly, the there were only 400 employees at the SEZ as against the 1,850 shown in the records. The EPF was deposited in the names of 1850 employees. Perhaps to jack up job data and siphon money as well.

A Cultural Shift at AICC under Rahul Gandhi

We had already reported in these columns that Congress President Rahul Gandhi will not have a Political Secretary like his mother had for 20 long years. It had also been reported that he will hold Public Darbars at the AICC to meet with the common man and interact with Congress workers. It now transpires that Rahul Gandhi is undertaking a big shift in party's policy. His latest Mantra is to buy peace in his own party first and tell party leaders in states to close ranks. Before stepping up his campaign to talk to like-minded parties, he wants that Congress should regain its lost glory. Gone are the days when he was not available and had virtually become incommunicado. He never responded to SMSes, didn't care for the waiting guests and canceled appointments at will. Now he is playing on the front foot and inviting all those who left the party. He has been telling all PCC chiefs that its their responsibility to keep flocks together and spending hours and hours with leaders of each state. The way Shiela Dixit and Ajay Maken buried the hatchet and Arvind Singh Lovely returned to the party fold in Delhi is an indication of this cultural shift. He is also giving free hand to the Chief Ministers with a clear message that they will have to keep the flocks together. The target is May 2019. He told Karnataka CM Sidhharamaiah to do whatever he likes. But he shouldn't ignore other leaders. His focus is Maharashtra, Rajasthan, Madhya Pradesh, Chhattisgarh, Haryana, Himachal, Punjab and even Bihar where the Congress can stage a big come back in 2019 to take on Modi.

Caution, Chowkidar is asleep

by Harish Gupta, National Editor, Lokmat Group

CAUTION, CHOWKIDAR IS ASLEEP

So, with the Nirav Modi (NiMo) and Mehul Choksi scam hitting Rs 11,400, and still counting, the country seems to have doggedly refused to stray from its path of letting the financial systems open 24X7 for plunder. It might have begun with the Nagarwala case in the high noon of the early Indira Gandhi era. It could have evolved into the Harshad Mehta (early 1990’s) and Ketan Parekh (early 2000’s) saga, in which the two worthies in effect looted banks to fuel stock prices to dizzy heights. And, with the financial system being the platform on which the corporate system rests, the systemic destruction was in public view in 2009, with the brazen fiddling by B. Ramalinga Raju and associates of profit and loss figures of the erstwhile Satyam Computers, in cahoots with PriceWater house Coopers, the world famous auditors.

In fact that was a major reason why voters thought they’d had enough of it, gave an almighty shove to the Congress-led government,and welcomed a regime led by one who proudly promised : na khaunga na khane dunga(“neither will I steal nor will let others steal”) and will be your Chowkidar (Guard) for 24X7.

However, the two diamond traders’ recent escapades, in obvious collusion with a gaggle of officials of Punjab National Bank and their unknown patrons, has turned Prime Minister Narendra Modi’s much-quoted pre-2014 assurance into a bizarre mockery. And the dimension of the theft too is poised to leapfrog over time, as more claims accumulate with PNB due to the fraudulent Letters of Undertaking (LoU) issued to banks abroad in favour of the ‘diamond duo’. Till last year, the duo could easily float below radar as they had a key ‘friend’, Gokul nath Shetty, PNB's Deputy Manager, who had enabled them to “roll over” the credits after the termination of the statutory 90-day period. The trick of the trade lay in circulating the LoU over SWIFT, the secure telecom network that connects banks the world over, without informing the bank’s own Core Banking Solutions (CBS). It is like your partner withdrawing cash from a joint account without informing you.

Or something even more serious! Because the rogue partner can cheat you only to the extent of your own net worth. But a PSU bank is owned by none other than the President of India. No government so far has agreed to bring its stake down to below 50 per cent. So it remains a ‘sovereign risk’ which, if left unchecked, has the potential to recoil on the exchequer. 

The question is: why did a government wedded to the promise of “na khane dunga” look the other way when NiMo’s companies were splurging on unexplained and undeclared bank credit for over seven years? How did Shetty continue in the forex department of PNB despite a Central Vigilance Commission rule that the incumbent in sensitive post should be transferred after three years? Why Shetty's three transfer orders were canceled? What were the bank’s army of external auditors doing? And where were RBI’s team of hundreds of inspectors who have the powers to inspect any branch, anytime and any account ? Why was the Modi administration so oblivious of  daylight robbery in its own banks?

Well, it can be attributed to the typical Indian lethargy to fight corruption. But there is yet another explanation why Nirav Modi's shenanigans went unnoticed under the NDA for almost four years. How will the ‘bigger Modi’ assuage his critics who point at his group photo with the ‘little M’ at the WEF conclave in Davos, taken days after the CBI had filed an FIR against the businessman? Besides, Nirav Modi is the brother of Nishal, who is son-in-law of the Salgaokar family of Goa, closely related to the Ambanis, the country’s richest clan. The CFO of Nirav’s holding company being grilled by CBI is nephew of the late Dhirubhai Ambani, the Reliance founder.

In the past, the likes of Harshad Mehta and Ketan Parekh defrauded the  nationalised banks and played havoc in the share market because of systemic inadequacies. Some of these flaws were indeed fixed, which is why the capital market today is fully screen-based, with adequate disclosure norms in place. The corruption-prone badla system was replaced by a mature derivatives market. But the banking sector remained largely untouched, except that Raghuram Rajan, as RBI Governor, initiated the diagnostic steps. These showed how deep the rot had gone. The bad loans of public sector banks were 4.4 per cent in March 2014 against 2.09 per cent in 2008-09. After the change in government, as Rajan was forcing the banks to own up their losses and today the figure of NPA is over 14%. Rajan didn't have a cordial relationship with the Modi government is too well known. He went, and even the disclosures stopped. Choking under bad loans, the PSU banks began putting squeeze on total advances last year, for the first time in two decades. The banking sector’s bad loans, together with loans being rolled over and under restructuring, have hit a dizzying Rs 10 lakh crore, which is 3X the country’s tax revenues. If one looks at only PNB, its NPA has shot up three times between 2014 and 2016, from Rs 18,800 crore to Rs 55,818 crore. And roll overs are tubmling out of the closet of one bank after the other.

It is clear that somewhere someone is involved and guilty of connivance, ignorance or humungous lapse. Narendra Modi handles all appointments, transfers, postings in government & banks. He reads every complaint and mail sent to him and responds as well. His Man Ki Baat is a testimony to his actions. He gave a dressing down to the jewelers at a huge conference in 2015 and imposed taxes on them which no PM could dare in the past. But did he measure up to the job of chowkidar (sentry) when it came to guarding banks' coffers ? Pollsters say his ratings remain high. But as another election draws near, the chinks in Modi's armory are clearly showing.

(The author is National Editor, Lokmat group)

Nirav Modi offers Rs 50 crores a month repayment plan

by Harish Gupta, National Editor, Lokmat Group

A deafening silence; Is something cooking ?

Nirav Modi offers Rs 50 crores a month repayment plan 

Harish Gupta

New Delhi, Feb 18

The Modi government seems to have decided not to directly comment on the Rs 11400 crores PNB’s LoU scam. In a tactical move, the government decided to distance itself from the most embarrassing mega scam of  its regime and allow the banks and investigation agencies to deal with it.

Highly placed sources in the finance ministry disclosed here today that the PNB and all those connected with the banking industry are burning mid-night oil over the latest offer made by wanted diamond king Nirav Modi to the government. It transpires that Modi has made a latest offer to the PNB, Income Tax and ED that he is willing to repay every legitimate penny due towards him . In separate emails received by the PNB and IT and ED, Modi has said he will pay Rs 50 crores a month provided he is allowed to continue his business activities as usual. He had done no crime as made out to be and followed normal banking practices.

It transpires that the PNB management had termed the offer of Nirav Modi as “Vague” when its MD & CEO Sunil Mehta held his press conference three days ago. However, in the latest submission sent through email, Nirav Modi has offered Rs 50 crores a month to settle all his dues.

The PNB and other banks are busy fixing the financial liabilities of the Nirav Modi group companies and busy segregating the liabilities of Mehul Choksi of Gitanjali group companies. Roughly, Nirav’s liabilities are of Rs 5000 crores only if penalties, interest, etc are not included. But it is for the  PNB management to first vet the offer of Nirav Modi on merit and convey to the concerned authorities. The government says it has no role to play in what is happening between Modi and PNB. Even the Income Tax and ED are doing their work as per law and Modi will have to deal with them directly.

Yet, the government wants the resolution of the Nirav Modi issue if its within the realm of possibility. But the Rs 50 crore a month repayment offer is unlikely to be accepted as its too meager an amount.

Its largely because of this very reason that the government is moving with caution and has not declared Nirav Modi a fugitive and suspended his passport for a month. He has been issued with a show cause notice and no arrest warrants have been issued against him either.  

The deafening silence of top two functionaries of the government indicates that something is cooking and forces are at work to get at Nirav Modi back through intermediaries.

The Prime Minister addressed two functions today;  inaugurated new BJP headquarters in the morning and Magnetic Maharashtra Summit in the evening. But he did not even remotely touch upon the Rs 11400 crores PNB scam. Union Finance Minister Arun Jaitley also chose to stay away from any public glare and maintained a studied silence on the issue. Though five Union Ministers including Defence Minister Nirmala Sitharaman, Law Minister Ravi Shankar Prasad and HRD Minister Prakash Javadekar were fielded by the party to rebut Opposition charges. But the silence of PM and Jaitly is an indication that the government is keeping itself at arms length from the scam.

500 get Income Tax notice for buying jewellery in Cash

by Harish Gupta, National Editor, Lokmat Group

Nirav Modi fall out

500 get Income Tax notice for buying jewellery in Cash

Abhishek Manu Singhvi denies charges

IT took no action after January 2017 raids on Modi stores

Harish Gupta

New Delhi, Feb 20

The Income-Tax's Investigation unit at Jhandewalan has issued over 500 notices to top echelon of Delhi, Mumbai and other cities who made huge cash payments to Nirav Modi establishments to buy gold & diamond jewellery.

The first tranche of IT notices was issued to the Who's Who of the society as they purchased designer's jewellery from the Nirav Modi up-market stores by making cash payments. Interestingly, all these purchases were made by them during the pre-Demonetization era i.e. before November 16, 2016. The computer generated entries with bills and receipts were recovered in country-wide raids by the Income-tax department last year only.

Interestingly, the Income-tax department had compiled these huge bunch of documents after it conducted raids on the Nirav Modi stores in January 2017. The IT had conducted raids on other jewellers also as the government felt that bullion traders and jewellers are a major source of generating black money.

In fact, the Income Tax notice to the wife and sons of senior Congress MP and top lawyer Abhishek Manu Sanghvi in connection with the cash transactions was based on documents recovered during January 2017 raids.

The official sources said here today that the notices were not part of any political design or vendetta. Rather, the IT woke up after the CBI and Enforcement Directorate conducted raids on the premises of Nirav Modi and Mehul Choksi. The IT department took no visible action against Nirav Modi after the January 2017 raids,. Rather he flourished more and more. It was only after the PNB lodged a CBI FIR and ED raided, the IT department also woke up. It provisionally attached 29 properties and 105 bank accounts of the diamond merchant, his family and firms as part of its tax evasion probe, on February 17. The department also slapped the new anti-black money act against him for allegedly holding illegal assets abroad. In fact, the the 500 IT notices sent to biggies are based on the findings of January 2017 report.

The Income Tax Department's appraisal report of January 2017 raids, had flagged several suspected irregularities on the part of the Nirav Modi group of companies. The report said that the group accepted cash from customers for sale of jewellery and diamonds that were “over and above” the sale consideration as recorded in the account books. Modi was also confronted by the IT department and got no satisfactory explanation. During the check period, the agency found cash receipts of over ₹158 crore had been recorded from customers.

Based on the document seizures during searches, the tax officials also found that a company had received ₹284 crore from two companies based in Cyprus and Mauritius between 2013-14, in the form of share capital and high share premium. The source of funds and “creditworthiness” of the overseas companies were not explained properly.

The subsequent probe revealed that the same company had received ₹271 crore from another Singapore-based firm. The department found a huge difference in stock valuation of the group’s SEZ units in Hyderabad allegedly over ₹1,216 crore, indicating “unaccounted sale” of imported diamonds.

by Harish Gupta, National Editor, Lokmat Group

Nirav Modi plot getting murkier

Retired PNB official Shetty also untraceable

IT raids report against Nirav Modi gathering dust

Opposition considering JPC probe 

Nirav Modi reminds of Ketan Parekh scam

Harish Gupta

New Delhi, Feb 16

Even as two senior ministers, Rajnath Singh and Prakash Javadekar, joined the ranks to attack the UPA government for the Rs 11400 crores scam, the Opposition parties are veering round to the view that a Joint Parliamentary Committee (JPC) be constituted to probe the scam.

The reason for a JPC is that the PNB fraud case comes dangerously close to the 18 years old Ketan Parekh scam during the Vajpayee era. Ketan Parekh was the first conman to use the modus operandi of discounting a pay order deemed to be issued by one bank at another bank to raise money for trading in share market and jacking up prices astronomically. The end result was that when the Madhavpura Mercantile Cooperative Bank (MMCB) of Gujrat couldn't pay the discounted money to Bank of India, the whole scam was busted. The markets crashed and after the huge uproar, the then PM Vajpayee was forced to set up a JPC. Interestingly, Ketan Parekh had worked with securities' scamster Harshad Mehta of the 1990s era who incidentally was also a Gujrati and a shrewed businessman. He started trading in securities and took monies against those government securities to jack up share market.

Now 18 years later, another Gujrati, Nirav Modi, surfaced on the scene and used the same technology of “discounting” Letters of Understanding to con banks. The entire government machinery woke up from the slumber with PNB suspending 20 officials, Ministry of External Affairs suspending Nirav Modi's passport for one month, CBI and ED conducting extensive raids today.

But there is no trace of the key players; Nirav Modi, the king pin and the key PNB official who connived, former PNB Deputy Manager Gokulnath Shetty. Both are untraceable. Gokulnath shetty was posted at the on March 31, 2010 at PNB”s foreign exchange department at Brady House Mumbai. He retired in 2017 and three times his transfer orders were issued during 2013-17 as per the CVC guidelines that all key persons holding sensitive posts be shifted after three years. But each time, these orders were canceled due to “internal reasons”. K R Kamath (2009-2014), Gauri Shankar (Feb.15-Aug 15) and Usha Ananthsubramanian (Aug 15-May 17) who were at the helms of the PNB are also under the scanner of the CBI besides the current MD &CEO Sunil Mehta.

What has come as a shock to the investigators is Nirav Modi continued to thrive even after the massive raids by the Income Tax department on his premises and also of Mehul Chowksi in January 2017- two months after Demonetization. While the DRI and Customs had slapped a separate case against him of duty evasion which he paid, the IT department found Rs 4900 crores unexplained funds in his accounts. The DRI & IT had probed Nirav Modi and Chowksi several times between 2013-17 and each time he came out with flying colours. This was despite IT department finding 10 types of illegal modus operandi adopted by Nirav Modi and clearly stated that “sources and creditworthiness of these fund remained unexplained. The IT report also pointed out that international transactions to the tune of Rs 5100 crores had not reported by Modi. Incidentally, the IT report is based on the probe done by the DRI during 2013-14 which had first detected the custom duty evasion.

However, it is yet to be seen whether the ruling BJP will go in for the JPC probe demand.

Ends