Sebi on Thursday slapped a total fine of Rs 5 crore on fugitive Mehul Choksi, Gitanjali Gems and another individual for violating various regulations, including listing norms, in connection with a massive fraud on state-run lender PNB. Choksi, promoter and managing director of Gitanjali Gems, is the maternal uncle of Nirav Modi, who is also facing charges for defrauding state-run Punjab National Bank (PNB) of over Rs 14,000 crore.
Both Choksi and Modi fled India after the PNB scam came to light in early 2018. While Choksi is said to be in Antigua, Modi is lodged in a British jail and has challenged India's extradition request.
In its order, Sebi said it is imposing a fine totalling Rs 5 crore on Choksi, Gitanjali Gems and Dhanesh Sheth, the executive director of Gitanjali.
"... the default is grave and the gravity of this matter cannot be ignored," Sebi said.
It quoted a communication from PNB that it had reported to the RBI total fraud of over Rs 11,394 crore in case of unauthorized issuance of LOUs, foreign letters of credit and inland letter of guarantees in the group accounts of Nirav Modi Group and Gitanjali Group and in the account of one Chandri Paper & Allied Products Pvt Ltd.
The overall fraud size is said to be even larger at over Rs 14,000 crore.
"I am of the considered opinion that the deliberate defiance of the mandatory obligations and hiding the crucial and material information from investors, regulators and stock exchange, as found in this case should be dealt with sternly and the penalty in such cases should serve as effective deterrence," Sebi Adjudicating Officer Santosh Shukla said in a 28-page order.
Sebi has penalised the entities for failing to make various requisite disclosures.
Gitanjali has not made disclosures regarding withdrawal of credit limits by PNB in view of the alleged fraud by the firm and its subsidiaries, the sudden obligation to repay Rs 1,045.88 crore within 10 days and subsequent developments in the matter.
The firm also failed to make disclosures on various litigations and actions by enforcement agencies against it, its managing director and other senior managerial personnel to the stock exchanges and also failed to reply on various clarifications sought by the exchanges till date, Sebi said.
In addition, no disclosure was made on resignation of director, company secretary and chief finance officer to the stock exchanges.
No disclosures with respect to delay in payment of interest and principal amount for a period of more than three months from the due date and default in payment of interest and principal to LIC on NCDs was made.
Sebi noted that LIC has exposure to the firm under secured non-convertible debentures (NCDs) for Rs 125 crore.
Gitanjali had issued post-dated cheques which were payable up to July 2019. However, the company stopped making repayments from October 2017.
The firm has "prima facie" defaulted on debt obligations to LIC since October 2017, Sebi said.
"Noticees actively and deliberately concealed the important information and did not disclose at all by the noticees, to the stock exchanges," it added.
Highlighting Choksi's and Sheth's responsibility in making disclosures, Sebi said "instead of fulfilling their responsibilities, based on various media reports, it has been noted that the noticee no. 2 (Choksi) abdicated his responsibilities by leaving the country in the first week of January 2018, days before the alleged fraud came to light. Further, there is no information available with respect to the noticee no. 3 (Sheth)."
"In this case, the Noticees have committed repeated and serious defaults by not disclosing subsequent material events / information with regard to material events as found hereinabove. The defaults by the Noticees are blameworthy and serious considering the degree of responsibility bestowed upon them by the statute," Sebi noted.
Regarding Choksi and Sheth, Sebi said "the conduct of these directors is apparently mala fide."