Indian diamond traders say bank fraud suspects Modi, Choksi didn’t follow code
04 Mar 2018

Some diamond merchants in India’s biggest center for trading the precious gemstones say they had stopped dealing with Nirav Modi and his uncle Mehul Choksi – two big-name jewelers accused of massive bank fraud – because they were often slow to pay dues.

The Indian financial sector was stunned when Punjab National Bank (PNBK.NS) said in mid-February it was the victim of a $1.77 billion fraud – a figure that has since risen to nearly $2 billion.

The second-largest state bank blamed Modi and Choksi, accusing them of conspiring with bank employees to obtain fraudulent credit overseas. Both deny any involvement.

Modi, who runs eponymously branded high-end jewelry stores that stretch from New York to Hong Kong, and Choksi, who heads Gitanjali Gems (GTGM.NS) and operates stores under banners including Gili, Nakshatra and Asmi, both belong to the Jain community from the western state of Gujarat.

The Jain and Patel communities dominate the diamond cutting and polishing business centered on the Gujarati city of Surat. Traders there who spoke to Reuters said the two jewelers had acquired a reputation for not following the industry’s unwritten code of business ethics.

“Nirav Modi and Gitanjali’s business model wasn’t convincing to us,” says Seventilal Shah, chairman of Venus Jewel, who said he had stopped dealing with either business some years ago.

“If they take goods on two months credit, and there is one month’s delay it is fine. But if it is regular episodes of delays, then there is something wrong. That was the case with these guys.”

Representatives for both Modi and Choksi did not respond to multiple requests for comment. Indian authorities say both men left the country in early January and their whereabouts are unknown.

In the tight-knit Jain and Patel gem trading fraternities, where many struggle to get bank credit, most business is done informally, with cash lent and goods advanced without collateral or paperwork.

“Mehul didn’t understand the importance of trust,” said one Surat-based diamond exporter, who has been in the business for nearly five decades and asked not to be named.

“Once we sold him polished diamonds and we had to chase him for payment almost every month for six months. Every time he used to give some excuse, then we decided to stop doing business with him altogether.”

Eight traders in Surat, where roughly 80 percent of the world’s diamonds are cut and polished, complained of similar issues in their dealings with both Modi and Choksi.

“That’s why many merchants stopped dealing with Gitanjali or Modi’s company long back,” said Dinesh Navadiya, former president of Surat Diamond Association, who runs a small diamond business in the city.

Gitanjali, in a stock exchange filing, has denied any involvement in the alleged fraud. Choksi, in an open letter to employees on Feb. 23, protested his innocence but advised them to look for other jobs, as his assets had been seized and he was unable to pay their salaries.

In a letter to Punjab National Bank (PNB), which says it discovered the alleged fraud at one of its Mumbai branches, Modi disputed the bank’s allegations, arguing the sums he owes PNB are far smaller than those outlined by the bank. Modi’s lawyer has also denied the allegations.

Reporting by Rajendra Jadhav, Jessica Kuruthukulangara; additional reporting by Nidhi Verma, Rupam Jain. Reuters. 1 March 2018

Click here for the full Reuters story.

Read more:

India to generate over 1 million suspicious transaction reports – researchers

India: Corruption can’t be cleared with one stroke

Confessions of a compliance officer: How I handled dodgy demands

You can claim CPD minutes for reading this article, by signing up to our CPD Wallet

FREE CPD Wallet
No Responses to “Indian diamond traders say bank fraud suspects Modi, Choksi didn’t follow code”

You must be logged in to post a comment.

This site uses Akismet to reduce spam. Learn how your comment data is processed.