PNB fraud case: Sebi slaps penalty of ₹5 crore on Mehul Choksi, others

Mumbai: The Securities and Exchange Board of India (Sebi) on Thursday slapped a penalty of 5 crore on Gitanjali Gems Ltd and its promoter Mehul Choksi. This penalty is with regards to non-disclosures by the company with respect to the Punjab National Bank fraud.

The state-owned bank was allegedly defrauded to the tune of 14,356 crore by Nirav Modi and Mehul Choksi, through his companies including Gitanjali, by issuance of fake Letter of Undertakings (LoUs).

This is the highest ever penalty imposed on a company for disclosure violations. Sebi’s decision is based on conduct of the company, the repetitive defaults and the principle of proportionality.

The regulator in its order held that Gitanjali Gems had failed to disclose the allegations of fraud levelled by PNB in February 2018. The allegation of fraud is a material information and impacted the share price of the company, Sebi noted.

“Further, on March 14, 2018, CBI (Central Bureau of Investigation) in their submission to Special Court stated that the fraud amount by Gitanjali group companies has increased by 942.18 Crores. However, no disclosures to stock exchanges were made by the Gitanjali on this matter,” Sebi said in its order.

The third material information pertained to PNB’s decision in February 2018 to terminate Gitanjali’s credit limited. Even this was not disclosed to stock exchanges, Sebi observed.

Sebi, in its order, listed out all the disclosures missing in Gitanjali’s stock exchange filings such as case registered by Enforcement Directorate, action by CBI, and company proceedings at National Company Law Tribunal (NCLT).

Sebi also observed a whole host of lack of disclosures such as litigations and writ petitions between 2012-2017. Sebi detected these based on public offer documents filed by another group company NakshatraWorld Limited.

According to Sebi such repeated defaults with regard to non- adherence to the laid down obligations compromises the regulatory framework and should be dealt with sternly by imposing monetary penalty as effective deterrence

Considering that Gitanjali Gems is currently undergoing liquidation proceedings, the liabilities of these omissions lay with Choksi and whole-time director Dhanesh Sheth.

“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,” said Sebi in the order.

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