After the Vijay Mallya-Kingfisher and the Nirav Modi-PNB scam, Winsome Group promoter Jatin Mehta, is considered to be one of the largest defaulters in India’s history. A Gujarat-based diamond merchant and owner of Winsome Diamonds owes more than Rs 6,500 crores to a consortium of banks – with the biggest hit being the Delhi-based Punjab National Bank with a loss of more than Rs 1,700 crore

Running in parallel to the Nirav-Modi Case, Jatin Mehta too was a high profile diamond merchant who fled the country after the credits went sour, while the state-run banks bore the brunt of massive losses.

Both residents of Palanpur and diamond merchants from Gujarat, Modi and Mehta had walked the same path of precarious funding to reach their ultimate destination as defaulters.

Mehta, at present, is a citizen of St Kitts and Nevis in the Caribbean Islands and India does not have an extradition treaty with the island nation.

Belonging to some of India’s wealthiest and influential business families – Modi’s brother (Neeshal) is married to the niece (Isheta) of Reliance’s Mukesh Ambani, and on the other hand, Mehat is a close relative of the Adani family – his son Suraj is married to Krupa, Gautam Adani’s niece.

When the Nirav Modi scam has given revisit to the history of banking scams in India – from Vijay Mallya to the Harshad Mehta, we need to give a bit more attention to the case of yet another diamond merchant, Jatin Mehta, who had gone unnoticed.

What Was The Case

In the early years of the decade of the 2000s, Jatin Mehta was a known face in the banking world who took buyer’s credit to purchase gold and turned it around into diamond-studded jewellery which was exported to 13 clients in Dubai. Being a reliable creditor, his firms – Winsome, Su-Raj & Forever Diamonds – enjoyed high credit and their limits kept getting extended.

Indian banks too, without any hint of a doubt, issued standby letters of credit, similar to guarantees, in favour of international bullion banks such as Standard bank – South Africa, Standard Chartered – London, and Scotia bank, which supplied gold to Mehta’s Winsome Group. The letter of credit was essentially an understanding between Indian banks and the international bullion banks that if the Winsome Group failed to pay the loans, the Indian lenders would pay for the gold purchase. Mehta used seven companies including Winsome Diamonds and Jewelry Limited, a listed firm, to raise Rs 4687 crore. Banks collectively gave Rs 4366 crore to Winsome Diamonds and Jewellery, Rs 1932 crore to Forever Precious Jewellery and Diamond and Rs 283 crore to Su-Raj Diamonds as buyer’s credit. The Standard Chartered Bank-led consortium had provided these loans in tranches from 2009 to 2012, which were by an overseas order that the companies had got from UAE companies.

Unfortunately for the banks of India, the worst came true. In November 2012, Mehta said he could not pay back, saying that the group’s customers in the Gulf region – UAE Jewellers were hit by derivatives and commodities trading losses of $1 billion, thus were unable to pay him. Subsequently, before the development of loans, Mehta, who is believed to have obtained citizenship of ST Kitts and Nevis, resigned from his firms and left the country in 2016.

The Probe

Formerly in 2013 and 2014, there were whispers and allegations of criminal conspiracy and no matter how many FIRs were filed by the Central Bureau of Investigation (CBI) late in 2017, based on a complaint from three banks, there were no overseas investigations, no arrests and not even the filing of a charge sheet.

By early 2014, bankers took the case to the CBI, who along with Mumbai police raided Winsome’s directors and offices. For three years, the agency investigated the case without making any arrests. Of the banks which took the hit, Punjab National Bank suffered the most significant loss – more than Rs 1,700 crore – while other banks exposed to the scam included Central Bank of India (Rs 699.54 crore) and IDBI (Rs 388 crore).

In 2015, Winsome Group firms filed cases in the Sharjah Federal Court, arguing that its companies have suffered $1 billion business loss as the 13 UAE-based jewellery firms which acted as its distributors had defaulted in payments. The Sharjah court announced the verdict in favour of Winsome Diamonds and Forever Precious Jewellery and ordered the accused buyers to pay up $27 billion.

“All transactions are examined by the experts. Court had ordered the UAE companies to pay back the dues with 5 percent interest,” the company said, quoting the translated judgment copy. It also rejected the allegations that the money was laundered through fictitious firms.

In a strange twist to the case, Sharjah Federal Court sent a report to the Indian authorities that said, “Investigations of the books of Al Haytham, a Jordanian national who has been buying gold and diamond jewellery from Winsome and Forever confirm that the defaults were due to a commercial situation for getting overexposed to the credit risk of a few buyers.”

All the defendant companies controlled by Haytham Ali Salman Abu Obidah, rejected the account expert’s report, saying that the experts did not examine the original books.

‘Mehta’s dealings with the UAE court were genuine, no conspiracy or money laundering, however, Al Haytham was bankrupt due to derivative trading and could not pay back his dues”, according to the reports received by the Indian authorities.

In a counter case in mid-2017, 13 Dubai entities challenged the appellate court’s order in the UAE’s Supreme Court.

According to official records in 2016, out of the 13 distributors in the Middle East, 12 are controlled by one Haitham Sulaiman Abu Obaida and on records, Mr. Obaida owns Italian Gols FZE, which has been shown as a part of Winsome Group, according to insurance papers.

Of these distributors, documents show that five of them were incorporated on the same day, June 25, 2012. At least one of the banks has already reported to the CBI that it suspects that one of the distributors was not a third part, but a part of Winsome Group.

The Times of India quoted a CBI officer as saying, “But this judgment (Italian appeals court) will not at all affect our investigations because our laws are different and our probe is completely independent,” the officer said.

Foreign Media Reportage

While the Indian media did not carry out much investigation, a Tel Aviv-based media house examined the issue quite thoroughly.

Chaim Even –Zohar, the erstwhile editor and publisher of the Diamond Industry magazine known as the Diamond Intelligence Briefs (DIB), personally travelled to many countries, investigating the defaulter as well as the clients of the respected case before filing any story. He interrogated Winsome’s former finance director Ramesh Parikh.

In 2016, DIB carried an explosive story about Mehta’s alleged money laundering which was reported on by The Hindu’s Josy Joseph.

“PNB allegedly discovered the scam in 2013. It had discovered round tripping, and white smuggling of goods was being carried out. In essence, simply the underlying invoices were processed in the winsome office in Mumbai, but no shipment of goods was made. At least three of Mehta’s UAE-based suppliers were listed on the block global insurance policy of Su Raj Diamonds (later called Winsome) and then were taken off the block insurance policy shortly before they defaulted on the amount owed to Winsome/Forever. Most of these UAE companies were allegedly one-room fronts that did not have the required staff or facilities to store diamonds and jewellery.”

“The essential news is that all the defaulters that had been in existence before 2012 were insured in the block policy by Winsome Group and then, simultaneously and mysteriously, not renewed at the renewal time. The evidence is with the insurance brokers and underwriters,” Chaim Even-Zohar, told The Hindu.

These revelations allegedly pointed towards the conclusion that the UAE companies were set up with the express purpose of diverting money taken from the banks.

After his investigation reports were published in DIB in June 2016, Winsome Diamonds threatened him with court cases.

In its November 7, 2017, issue, DIB stated that it was misled into doing the story by one of the company’s Directors who pasted the “slighting” epitaph on them. They accused certain ‘vested interests’ into overall fraudulent and corporate rivalry schemes in mind-boggling scenarios.

Later that month, Even-Zohar not only resigned as an editor and publisher of DIB but also sold the holding company to an Asian publishing house.

Talking more about the role of the executive directors in maligning the name of Jatin Mehta, a company spokesperson said, “The statement of Ramesh Parikh and other executive directors are false. They had said that Jatin Mehta did not join the board as he was expecting some problems from April 2011, and more so, before the board meeting which appointed the new full-time directors on May 09 2012. Here, at least, Chaim has brought in the dates which are clear that the directors are lying to absolve themselves of the responsibility. Until May 21, 2012, the first article published by Chaim, nobody knew of such an event. Whether it is true or not is different, but the public noise was made after the first article. Therefore, the statement by the directors that Jatin Mehta was aware of such an event before the board meeting of May 09 2012 is an outright lie. The agenda of a board meeting is distributed seven working days before a board meeting is to be held. Not to say that Jatin Mehta had settled outside India since April 2011 and relinquished the post of MD.”

While it is the job of the investigating agencies to find out who engineered the billion-dollar scam, there is no denying the fact that there was a disintegrated system in place that allowed the official to execute the fraud and stay undetected for so long.