SEBI Issues Rs 5.35-cr Demand Notice To Mehul Choksi

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SEBI Issues Rs 5.35-cr Demand Notice To Mehul Choksi

| Updated: May 18, 2023 18:21

The Securities and Exchange Board of India (Sebi) has taken action against fugitive businessman Mehul Choksi, sending him a notice to pay Rs 5.35 crore within 15 days. The notice is related to a case involving fraudulent trading in the shares of Gitanjali Gems Ltd. Failure to make the payment could result in the arrest and attachment of Choksi’s assets and bank accounts. This demand notice follows Choksi’s failure to pay a fine previously imposed by Sebi.

Choksi, who was the chairman and managing director of Gitanjali Gems, as well as a part of the promoter group, is the maternal uncle of Nirav Modi. Both individuals are facing charges for defrauding the state-owned Punjab National Bank (PNB) of over Rs 14,000 crore.

After the PNB scam came to light in early 2018, both Choksi and Modi fled India. Choksi is believed to be in Antigua and Barbuda, while Modi is currently held in a British jail and has challenged India’s request for extradition.

In the latest notice, Sebi has directed Choksi to pay Rs 5.35 crore, which includes interest and recovery costs, within 15 days. Failure to comply will result in Sebi recovering the amount by attaching and selling Choksi’s movable and immovable properties. Additionally, his bank accounts may be frozen, and he may face arrest.

In October 2022, Sebi imposed a fine of Rs 5 crore on Choksi for engaging in fraudulent trading in Gitanjali Gems’ shares. Along with the penalty, the regulator banned him from participating in the securities market for 10 years. Sebi had issued a show cause notice to Choksi in May 2022 as part of an investigation into alleged manipulative trading in Gitanjali Gems’ scrip. The investigation covered the period from July 2011 to January 2012 and focused on certain entities involved in trading activities related to the company.

According to Sebi, Choksi provided funding to a group of 15 entities known as “front entities,” which had direct or indirect connections to him and each other. These entities traded in Gitanjali Gems’ scrip in both the cash and derivative segments during the investigation period. Choksi used them as front entities to manipulate the company’s shares.

Sebi discovered that the company transferred funds amounting to Rs 77.44 crore to these front entities, with Rs 13.34 crore being used for trading in the scrip. Choksi, through the front entities, attempted to corner the available shares in the market, artificially reducing the shares available to general investors. The shares became available again when the front entities sold them in the market.

Furthermore, the front entities acquired substantial positions in the derivatives segment, effectively exceeding the position limits in Gitanjali Gems’ scrip, as stated in the order.

In February 2022, Sebi had barred Choksi from the securities markets for one year and imposed a fine of Rs 1.5 crore on him for insider trading violations related to Gitanjali Gems. In February 2020, the regulator imposed a total fine of Rs 5 crore on Choksi, Gitanjali Gems, and another individual for various violations, including listing norms, in connection with the massive fraud at PNB.

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