After almost a year, Indian authorities have turned their glare on Jatin Mehta, a man who has proved to be far more elusive and low profile than Vijay Mallya. The Enforcement Directorate is learnt to have asked Dubai to expedite its response to India’s letters rogatory (LR) relating to Mehta’s Winsome Group — the country’s second-largest wilful defaulter after Mallya’s Kingfisher Airlines.
Winsome Diamonds and Jewellery, a listed company, and group firm Forever owe Rs 6,800 crore to .to 15 banks in India.
India had sent LR to the United Arab Emirates around the middle of last year. The UAE, which is yet to respond to the request, had a few months ago shared some information with India’s Financial Intelligence Unit (FIU), which handles inputs on suspect financial transactions.
“The information received by FIU was more on an informal basis. It was not very significant. We would like Dubai to officially respond to LR. Due to the nature of Winsome transactions and lenders’ allegations, we need Dubai’s cooperation to make any progress. It won’t be easy as Jatin Mehta has taken citizenship of St Kitts, which has no extradition treaty with India,” a person familiar with the development told ET.
Winsome informed stock exchanges in India that courts in the UAE have been moved to recover funds from the 13 Dubai companies led by one Haytham Ali Salman Abu Obidah, a Jordanian national. But lenders led by Standard Chartered Bank and Punjab National BankBSE 0.80 % never bought the Winsome story. PNB has the highest exposure and had filed the first FIR with Central Bureau of Investigation in early 2014. To verify Winsome’s claim, ED and CBI will have to find answers to the following questions:
1. What are the true identities of the 13 clients of Winsome Group?
2. Who are the counter-parties with whom these 13 entities had entered into currency derivative contracts? Did these counter-parties have any links with Mehta and his family members or associates? (Since the derivatives were OTC and were nottraded on exchanges, the names of counterparties remain unknown.)
3. A $1-billion derivative loss would mean a notional bet of around $10 billion. Did these counter-parties have the financial wherewithal to fork out appropriate margins to back the derivative positions? Did anyone give a personal guarantee?
4. $1.2 billion worth jewellery was exported to the 13 entities. Since the derivative loss was $1 billion, why was $200 million not paid to Winsome or Forever?Indian agencies will never get clues to any of these questions without active cooperation of Dubai. But even if the UAE extends a helping hand, banks have dim hopes of salvaging money.
Unlike Mallya, a chunk of whose assets has been attached by Indian agencies, Winsome and Mehta have few assets that banks can take over to recover the unpaid amount. Mehta appears to be beyond the reach of Indian investigators.
Some of the properties belonging to the Mehta family are in the name of Jatin Mehta’s mother while Mehta’s personal guarantee given to banks was based on a financial statement of net worth that was just a fraction of the total bank outstanding. “Jatinbhai has been away from India for some years. He could not come to Mumbai despite an urgent requirement in the family,” said a source.
“It’s already late. Some months ago, the Central Vigilance Commission had enquired about the matter with banks. It has been relatively keen to see that a proper forensic audit be done to have proof of malfeasance that can stand judicial scrutiny here and abroad. But not all banks agree,” said the person.
from economics times
Winsome Diamonds and Jewellery, a listed company, and group firm Forever owe Rs 6,800 crore to .to 15 banks in India.
India had sent LR to the United Arab Emirates around the middle of last year. The UAE, which is yet to respond to the request, had a few months ago shared some information with India’s Financial Intelligence Unit (FIU), which handles inputs on suspect financial transactions.
“The information received by FIU was more on an informal basis. It was not very significant. We would like Dubai to officially respond to LR. Due to the nature of Winsome transactions and lenders’ allegations, we need Dubai’s cooperation to make any progress. It won’t be easy as Jatin Mehta has taken citizenship of St Kitts, which has no extradition treaty with India,” a person familiar with the development told ET.
Agencies such as ED and CBI need help from the UAE to verify Winsome’s explanation for its inability to repay Indian banks. Winsome, which first defaulted in the summer of 2013, said it was unable to repay following $1billion derivative losses suffered by its UAE clients.
The global bullion banks invoked the SBLCs — just as any bank would encash guarantees in the event of a default — when Winsome was unable to pay them back.
Banks extended the facility as per an RBI-approved scheme that was introduced to promote jewellery export. The facility which gave 270 days’ credit to borrowers was discontinued after the Winsome fiasco. Indian banks took the hit because the terms of SBLC said that if Winsome failed to pay the bullion banks, the lenders would step in to pay for the gold import.
Here’s the sequence of transactions: Winsome had imported gold on the back of standby letters of credit (SBLC) given by Indian banks in favour of international bullion banks which supplied the gold. Winsome and Forever used the gold to make jewellery that was exported to 13 clients in Dubai. The arrangement was that Winsome and Forever would pay back the banks once they received payments from Dubai buyers — who, according to Winsome, could never pay up due to losses suffered in over-thecounter derivative bets.
The global bullion banks invoked the SBLCs — just as any bank would encash guarantees in the event of a default — when Winsome was unable to pay them back.
Banks extended the facility as per an RBI-approved scheme that was introduced to promote jewellery export. The facility which gave 270 days’ credit to borrowers was discontinued after the Winsome fiasco. Indian banks took the hit because the terms of SBLC said that if Winsome failed to pay the bullion banks, the lenders would step in to pay for the gold import.
Winsome informed stock exchanges in India that courts in the UAE have been moved to recover funds from the 13 Dubai companies led by one Haytham Ali Salman Abu Obidah, a Jordanian national. But lenders led by Standard Chartered Bank and Punjab National BankBSE 0.80 % never bought the Winsome story. PNB has the highest exposure and had filed the first FIR with Central Bureau of Investigation in early 2014. To verify Winsome’s claim, ED and CBI will have to find answers to the following questions:
1. What are the true identities of the 13 clients of Winsome Group?
2. Who are the counter-parties with whom these 13 entities had entered into currency derivative contracts? Did these counter-parties have any links with Mehta and his family members or associates? (Since the derivatives were OTC and were nottraded on exchanges, the names of counterparties remain unknown.)
3. A $1-billion derivative loss would mean a notional bet of around $10 billion. Did these counter-parties have the financial wherewithal to fork out appropriate margins to back the derivative positions? Did anyone give a personal guarantee?
4. $1.2 billion worth jewellery was exported to the 13 entities. Since the derivative loss was $1 billion, why was $200 million not paid to Winsome or Forever?Indian agencies will never get clues to any of these questions without active cooperation of Dubai. But even if the UAE extends a helping hand, banks have dim hopes of salvaging money.
Unlike Mallya, a chunk of whose assets has been attached by Indian agencies, Winsome and Mehta have few assets that banks can take over to recover the unpaid amount. Mehta appears to be beyond the reach of Indian investigators.
Some of the properties belonging to the Mehta family are in the name of Jatin Mehta’s mother while Mehta’s personal guarantee given to banks was based on a financial statement of net worth that was just a fraction of the total bank outstanding. “Jatinbhai has been away from India for some years. He could not come to Mumbai despite an urgent requirement in the family,” said a source.
“It’s already late. Some months ago, the Central Vigilance Commission had enquired about the matter with banks. It has been relatively keen to see that a proper forensic audit be done to have proof of malfeasance that can stand judicial scrutiny here and abroad. But not all banks agree,” said the person.
from economics times
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