INDIA. Mumbai: The Securities and Exchange Board of India (SEBI) has banned fugitive businessman Mehul Chinubhai Choksi and Rakesh Girdharlal Gajera of Gitanjali Group, from the capital market for one year. They have also been levied a fine totaling Rs 2.5 crore ($333,500) for violating insider trading rules in the matter of Gitanjali Gems.
Insider trading is an act of buying, selling, subscribing, or agreeing to subscribe in the securities of a company, directly or indirectly, by the key management personnel or the director of the company who is anticipated to have access to Unpublished Price Sensitive Information (UPSI) concerning securities of the company and it is deemed to be insider trading.
“Choksi and Gajera have been fined Rs 1.5 crore ($200,100) and Rs one crore ($133,400) respectively, under section 11 of the SEBI Act, 1992 read with SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 and SEBI (Prohibition of Insider Trading) Regulations, 2015,” as per the statement released by Ananta Barua, Whole Time Member, SEBI on Monday.
In addition to the ban, Choksi and Gajera, have been restrained from buying, selling, or otherwise dealing in securities of Gitanjali Gems Ltd (GGL) for two years. Also, the SEBI has directed Gajera to disgorge a sum of Rs 15.82 crore.
Gitanjali Gems case
Choksi, promoter and managing director of Gitanjali Gems is the maternal uncle of Nirav Modi, both of whom are facing charges of defrauding the Punjab National Bank (PNB) of over Rs 14,000 crore. They 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.
Gajera is stated to be a citizen of Belgium and has been carrying on his business from Hongkong and Dubai. He is also said to be a Director of Shree Lakshmi Infosolutions and Jewelry Limited, Mumbai and Laxmi Infra Developers Ltd.(LIDL), Surat, Gujarat.
Gajera violated provisions of Regulation 29(2) read with Regulation 29(3) of Substantial Acquisition of Shareholding and Takeover (SAST) Regulations, 2011 since he held
68,24,226 shares (5.75%) of the total share capital of GGL during the quarter ending September 2017 and failed to disclose more than two percent change in his shareholding in GGL to the stock exchanges in December 2017.
He had acquired 68,24,227 warrants of GGL through preferential allotment and that initial payment was made in 2015. He submitted to SEBI that the amount was received in 2015 from Eternity Jewels, as a loan. But did not provide either documentary evidence or details of any collateral given for the loan. Based on the UPSI provided by Choksi, Gajera sold his entire shareholding of 5.75 percent in GGL in December 2017 intending to avoid loss ahead of the disclosure of fraudulent issuance of LoUs (letters of undertaking) by Gitanjali Group.
He informed the Stock Exchange about the disposal of shares, very late i.e on November 18, 2021.
GGL was incorporated in 1986 and got listed on BSE and NSE in 2006. It was in the business of global jewelry markets ranging from rough diamond sourcing, cutting, polishing and is distribution, jewelry manufacturing to branding and retailing in India and abroad.
SEBI issues show-cause notice
A show-cause notice was issued by SEBI to Choksi on July 15, 2021, under Section 12A (d) and (e) of the SEBI Act, 1992 and the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT regulations 2015) for communicating the UPSI of GGL to Gajera. Similarly, Gajera was issued a show-cause notice for not making the disclosures about a change in his shareholding in GGL.
A show-cause notice alleged that Choksi did not furnish the information sought by the Investigating Authority of SEBI and thereby hampered the process of investigation leading to violation of Section 11C(3) of SEBI Act 1992.
The LOUs were issued on behalf of Gitanjali Group by PNB through SWIFT message to overseas funding bank. They were issued without obtaining any documents required by law from the Gitanjali Group entities and without making an entry in the trade finance module of the bank’s Central Banking Solution (CBS) system to avoid detection.
As per the PNB’s final investigation report dated March 27, 2018, the number of fraudulent LOUs issued on behalf of Gitanjali Group (including GGL, Gili India Ltd., and Nakshatra Brands Ltd.) were 376 amounting to Rs.5822.02 crore and the outstanding 142 LOUs were worth Rs. 3011.39 crore. The closing price of GGL shares fell by 8.4% on February 06, 2018.
A fine of Rs 5 crore was imposed upon Choksi and an official of Gitanjali by SEBI for violating share listing norms in connection with the PNB fraud also in February 2020.
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