Winsome Diamonds was a massive corporate default that burst on the business world sometime in 2013—in the same manner as Gitanjali Gems and Niraav Modi. The three are similar because their companies were huge advertisers and this got them loads of high-profile publicity, until they suddenly vanished, leaving massive defaults on the books of Indian and foreign banks.
Winsome Diamonds and its founder Jatin Mehta, with his wife Sonia and two sons Vipul and Suraj, vanished from India and have never returned, leaving behind a loan default documented at Rs6,800 crore, but could be more.
Before I explain the half-hearted manner in which Indian investigation agencies have been following up on the case, here is the startling news. On 22 November 2022, justice Edwin Johnson, of the England and Wales High Court (Chancery Division), said: “I am satisfied that there is a good arguable case that the Alleged Fraud, by which I mean a major international fraud, took place.” Indeed, he said, based on evidence, there was ‘strong’ evidence of a ‘major international fraud’. (Read: Para 265 in https://www.bailii.org/ew/cases/ EWHC/Ch/2022/2960.html#para402)
The order relates to a case filed by Standard Chartered Bank UK with Standard Chartered Bank India (together referred to as SCB) alleging a US$1bn (billion) dollar fraud that took place around 2013. Money advanced to the Winsome group was allegedly “misappropriated, laundered and concealed through multiple layers of corporate entities, with the vast majority of the proceeds said to have ended up in entities owned and/or controlled by the Mehta family in different parts of the world including the UAE,” says the order.
Winsome Fraud Background
Around 2008, several Indian banks, led by SCB, provided bullion/gold to Winsome Diamonds and Jewellery Ltd (Winsome) and a sister concern called Forever Precious on a 270-day credit facility. In 2009, the banks also created a joint working capital consortium to lend more money to the group. By 2013, both companies began to default on their obligations. That year, Central Bank of India’s audit report mentioned that Jatin Mehta and family had relocated abroad and he was not returning lenders’ calls. The media reports had said that the group had removed hard-disks from computers feigning a tax raid, to wipe out evidence of their laundering transactions.
It is only then that the huge scam burst into the public domain and the Reserve Bank of India (RBI) and investigation agencies slowly swung into action, after a reference from the central vigilance commission (CVC) in 2014. The first few cases pertaining to a part of the Winsome group scam were registered only in 2017 by the central bureau of investigation (CBI) and, in just four years (2021), it filed a closure report without making any headway. We will get to this later.
Assets Freeze
In May 2022, a UK court had acted on SCB’s petition and issued a ‘World Freezing Order’ (WFO) to secure assets of the value of £743,176,152.77 (or US$932,466,942.36) belonging to the Mehta family and also impounded their passports. The November order is in response to a petition to have the WFO lifted. Explaining ‘near total default’ in repayment of a billion dollars, it was argued on behalf of the Mehtas that their UAE distributor had sold jewellery to his customers and then lost the money owed to the Winsome group in commodity transactions. This explanation ‘takes some swallowing’ said the court, finding it “extraordinary that a loss on this scale could occur in this way.” The UAE distributor, Haytham Salman Ali Abu Obidah, is described as a ‘close associate’ of Jatin Mehta and listed as the fifth defendant but did not participate in the proceedings, since he could not be located!
A very detailed 403-page order, which rejected the Mehta’s plea to discharge the WFO and release their passports, opens up an extraordinary story of manipulation that has found very little mention or action in India.
But for the SCB filing in UK, it seems clear that the Mehtas would have quietly buried investigation and recovery proceedings in India and, perhaps, continued to operate from abroad like the Sandesara family of Sterling Biotech.
This article cannot go into the hundreds of pages of specific detail in the UK order about how money was laundered through layers of entities, such as Al Noora (the biggest recipient), Marengo, Oriental Expressions and scores of others, many of which were liquidated after the transactions. The order also notes multiple reports commissioned by the lenders, especially SCB, to trace the flow of funds and a deal that was struck with Grant Thornton over litigation and expenses. These will be subject matter of litigation on the WFO of the UK court that will begin later this month. What is relevant to us is what the order reveals about the lack of action by Indian regulators and investigators.
For instance, the UK court notes that, although the enforcement directorate (ED) had sought confiscation of the Mehtas’ properties on 19 July 2019, its ‘outcome’ is ‘unknown’ and there is “no evidence of any judgment or order made on the application.”
I had then documented how there was little effort or cohesive action by the regulators and investigation agencies to go after Jatin Mehta, despite a Rs6,800 crore fraud (Read: Why Are the Diamond Scamsters Getting Away?), in sharp contrast to how Vijay Mallya is being pursued, despite his willingness to payback all he owes with interest. On the contrary, CBI’s closure report of 2021 and the failure to get an Interpol alert were used by Jatin Mehta and family as arguments in their favour; but these were brushed aside by the court.
The Absconding Mehtas
While Indian lenders and investigators were hunting for the Mehta family, he was comfortably residing in the UK and had registered Diamond Distribution Co (UK) Ltd in 2016 with a Bell Street (London) address. He also had active social media accounts and, until 2016, was blogging (https://jatinmehta-uk.blogspot.com/2016/_) about receiving some payment from a UAE court. The UK order reveals that the Winsome group did win some cases in UAE but they did not go into issues that have been raised in the SCB case.
The Mehtas also relinquished Indian citizenship and become citizens of St Kitts and Nevis. The court order reveals how their new address was “found by an unsolicited email sent by a journalist, which provided the names of a number of UK registered companies said to be connected to the Mehta family” (paragraph 225). Were Indian agencies really unaware of this development? The CBI actions would give us a clue.
CBI Closure
Right until 2020, Indian investigators were putting out unsourced reports (https://economictimes.indiatimes.com/news/ politics-and-nation/cbi-try-for-blue-corner-notice-against-jatin-mehta/articleshow/77776823.cms) suggesting that they were still trying to pursue the Mehtas even after Interpol turned down their request for a red corner notice.
But, in uncharacteristic hurry, CBI filed a ‘lengthy’ closure report in March 2021. Typically though, the CBI report equivocated and there was no clean chit. Although the Mehtas tried to use it in their favour, the court observed, “It contains nothing which is finally conclusive one way or the other.” On the contrary, it highlighted some damning paragraphs. For instance, CBI says, “Investigation revealed that all the exports were made to related parties based in UAE. Statement of witnesses recorded in group cases reveal that the control of all the UAE buyers was in the hand of Shri Jatin R. Mehta and Smt. Sonia J. Mehta. The entire functioning of 13 defaulting companies was handled by the employees of Smt. Sonia J. Mehta who was owner of M/s Oriental Expression DMCC, Noble Jewellery LLC and Oriental Jewellery LLC” (emphasis as in the order).
The CBI closure also noted how employees received purchase orders from exporters on Skype calls with no details about design, weight and specification of product (gold). Instead, after “processing the gold the manufacturing heads of units at Chennai and Cochin used to inform the employees” of Winsome group that the consignment was ready, therefore “it give rise to suspicion that there was some hanky-panky going on in these two companies."
Another factoid emerging from the order is that CBI registered 16 complaints against the Winsome group, of which “only one resulted in any charges being issued” against them.
Given that CBI’s criminal proceedings were ‘unresolved’ but ‘closed’, the court refused to place much reliance on them. The order shows that the actions of Indian lenders are equally vague.
Reluctant Indian Lenders
The Mehtas argued in the UK proceedings that 14 Indian banks of the lenders consortium had refused to participate in the international litigation and did not want to spend money on it, nor did they submit proofs of fraud. This did not help their case either, since the judge noted that Indian lenders’ consortium has only recovered "approximately £15,443,152.98" and ‘true position’ of through civil proceedings in India is ‘considerably more opaque’.
In closing, it is apt to quote what the order says about the Mehtas. “It is a notable feature of this hearing that direct evidence from the Respondents is very limited. There is ample evidence from their solicitors, but very little from the Respondents themselves.” It says that they offered ‘no direct evidence’ which “provides a plausible explanation of how the movement of the funds was legitimate” through layers of companies. It says, Jatin Mehta “has not taken the opportunity to set out his own account of how the Defaults came about.”
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