Gitanjali Gems is headed for liquidation as the committee of creditors has voted to end the resolution process citing time over-run. The Mehul Choksi-run firm owes over Rs 12,550 crore to 31 financial creditors and is a key player in the Rs 14,000-crore PNB scam.
In just six years' time, Gitanjali Gems went from being one of the most famous jewellers in India to facing liquidation. The promoter Choksi is on the run. He is currently in Antigua, facing extradition.
Senior bankers told Business Standard that no other alternative seemed plausible. "Resources (money) are precious to us and no one would like to throw good money after bad. There is no point in keeping a resolution professional and other infrastructure in place for a case like this," one of the bankers said. Some lenders have already filed claims in various forums for recoveries.
Moneycontrol could not independently verify the news.
Gitanjali Gems was founded by Chinubhai Choksi in 1966, and it was one of the prime jewellers of Mumbai. Mehul took over the company in 1985. Top Bollywood stars including Aishwarya Rai, Kareena Kapoor and Bipasha Basu endorsed the brand. A year before September 2018, when Gitanjali was suspended from the exchanges, the company stock was trading at a steady Rs 600. The company's market capitalisation was at Rs 6,000 crore.
However, in a year's time, the company's stock nosedived by 90 percent and the market cap worth Rs 5,000 crore vanished. In March 2018, a special PMLA court issued non-bailable arrest warrants (NBWs) against Choksi and his nephews, Nirav Modi and Neeshal Deepak Modi. They were suspected of colluding with two employees of Punjab National Bank (PNB) in the Rs 13,500 crore fraud, the biggest scam in the Indian banking history.
Early on, Choksi got muddled in a securities scam being probed by the Enforcement Directorate (ED) and the Securities and Exchange Board of India (SEBI). In 2012, he allegedly rigged shares in the company with a Mumbai-based brokerage, Prime Securities, along with other firms. He, along with Prime Broking Company (a subsidiary of Prime Securities), was banned from trading on the NSE in 2012.
It was also alleged that he ran various shell companies that siphoned funds from the company to be used in illegal trading practices, similar to what his nephew Nirav Modi did.
Choksi invested a lot of money in brands, which is what led to the downfall of Gitanjali, according to Atul Merchant, a former consultant at Gitanjali. Merchant was involved in multiple roles at the company. "If you research back to the start of the firm in the 1960s, Gitanjali's forte was diamond trading, not manufacturing and that’s the area that has gotten Choksi into trouble because he just didn't have the mindset for it," he told the paper.
According to Choksi, it was the strict regulations of the government and not his business strategy that took down the company. He wanted to build many luxury brands in India like Louis Vuitton and Gucci, and launched 30 different brands at once. This included Gili, Maya, Asmi, Nakshatra, and Gitanjali. Most of these brands did not last beyond 2013.
As per Gitanjali's filings with the exchanges, it has a debt of around Rs 12,558 crore in the form of working capital loans and external commercial borrowings (ECBs).
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