PNB fraud: Mehul Choksi's secret' was known in Telangana

Hyderabad: The price of the diamonds manufactured at the Hyderabad Special Economic Zone were inflated four or five times by the owner Mehul Choksi to artificially inflate his balance-sheet for pre-shipment and post-shipment credit. 

Traders from the city say this was no secret. Mr Choksi is uncle and business partner of Nirav Modi, involved in the PNB Bank scandal dominating the headlines currently. Diamonds from this SEZ based in Telangana are exported to Choksi’s companies in foreign lands. Banks provide loans to procure the raw material, to manufacture and even export them.

Sources in the gem and jewellery trade in the twin cities told Deccan Chronicle that “traders dealing in the multi-crore diamond business knew about Mehul Choksi’s fraud. 

“Traders who entered into business with Mehul Choksi in his three flagship stores (at Panjagutta, Hyderguda and Road number 36- Banjara Hills) which shut down due to bad business, were victims of Mr Choksi and ran into losses.” 

This apart, he opened flagship stores in foreign countries and used to export diamonds from the SEZ based out of TS. The company acquired pre and post-shipment credit for import and export and inflated the cost of diamonds by four to five per cent.”

Banks provide pre-shipment credit to procure goods (through import of raw material) but the loan can only be availed if there is a requirement order (a mandate condition). The loan is meant for procuring raw material and manufacture.

Secondly, post-shipment credit (loan) to export products can be availed on condition that the buyers agree for a 90 days’ timeframe to pay for the purchase.

 

But in both pre and post-shipment credit, the loan sanctioned is lower when compared to the other traditional jewellery traders.

The source further added, “Mehul Choksi took advantage to get higher credit (especially post-shipment credit) by  increasing the value of the diamonds. 

“Many knew that he had inflated the price of the diamonds to get benefit of the credits, despite the manufacturing and labour cost being low. The company enjoyed an edge in the costing of loans and this money was circulated in the black market at a higher interest rate or diverted into other business. 

Also, when the product cost is inflated, the money (loan) is brought into the country as export revenue, which is again a kind of hawala route.”