Let Off in India, UK Court Says There Is Strong Evidence of Fraud Against Jatin Mehta

The England and Wales High Court (Chancery Division), while rejecting the Mehtas' plea to discharge the freeze on their assets and release their passports, opened up an extraordinary story of manipulation that has found very little mention or action in India.

Winsome Diamonds was a massive corporate default that burst onto the business world sometime in 2013 – in the same manner as Gitanjali Gems and Nirav 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 Rs 6,800 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 November 22, 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’.

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$1 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.

Also Read | Winsome, Lose Some: Jatin Mehta and the Great Rs 7,000 Crore Diamond Heist

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, the Central Bank of India’s audit report mentioned that Jatin Mehta and his 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 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 Mehtas’ 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 the 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.

Also Read: From Gujarat to Albania and Nigeria, How the Sandesara Business Family Evaded Justice

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 the 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 July 19, 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 Rs 6,800 crore fraud, in sharp contrast to how Vijay Mallya is being pursued, despite his willingness to pay back all he owes with interest. On the contrary, CBI’s closure report of 2021 and the failure to get an Interpol alert was used by Jatin Mehta and family as arguments in their favour; but these were brushed aside by the court.

File photo of Vijay Mallya in London outside the Westminster Magistrates Court. Photo: PTI

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 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’s actions would give us a clue.

CBI closure

Right until 2020, Indian investigators were putting out unsourced reports 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, the CBI said:

“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.”

The CBI closure also noted how employees received purchase orders from exporters on Skype calls with no details about the design, weight and specification of the 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[s] rise to [a] 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 the 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 proof of fraud. This did not help their case either, since the judge noted that the Indian lenders’ consortium has only recovered “approximately £15,443,152.98” and the ‘true position’ of recoveries 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.”

So the UK court finds there is a ‘good arguable case’ and ‘strong’ evidence of a huge international fraud, Indian investigators and lenders are apparently in no hurry to bring back Jatin Mehta and family or recover a few thousand crores owed to them!

This article was originally published on Moneylife.