Mehul Choksi: SEBI issues ₹ 5.35-cr demand notice

Capital markets regulator SEBI, on Thursday sent a notice to fugitive businessman Mehul Choksi asking him to pay Rs 5.35 crore in a case pertaining to fraudulent trading in the shares of Gitanjali Gems Ltd and warned of arrest and attachment of assets as well as bank accounts if he fails to make the payment within 15 days.

The demand notice came after Choksi failed to pay a fine imposed on him by the Securities and Exchange Board of India (Sebi).

Choksi, who was the chairman and managing director as well as part of promoter group of Gitanjali Gems, is the maternal uncle of Nirav Modi. Both of whom are facing charges of defrauding state-owned Punjab National Bank (PNB) of more than 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 and Barbuda, Modi is lodged in a British jail and has challenged India's extradition request.

In a fresh notice on Thursday, Sebi directed Choksi to pay Rs 5.35 crore, which includes interest and recovery cost, within 15 days.

In the event of non-payment of dues, the markets regulator will recover the amount by attaching and selling his moveable and immoveable property. Besides, Choksi faces attachment of his bank accounts and arrest.

In its order passed in October 2022, Sebi imposed a fine of Rs 5 crore on him for indulging in fraudulent trading in the shares of Gitanjali Gems. Apart from penalising, the regulator had barred him from the securities market for 10 years.

The regulator had issued common show cause notice to Choksi in May 2022 pursuant to an investigation into the alleged manipulative trading in the scrip of Gitanjali Gems. The regulator conducted an investigation into the trading activities of certain entities in the scrip of the company for the period July 2011 to January 2012.

Sebi said that Choksi had funded a set of 15 entities known as 'front entities', who were directly or indirectly connected with him and with each other and who had taken position in the scrip of Gitanjali Gems both in the cash and derivative segments during the investigation period. He had used them as front entities for manipulation in the company's scrip.

It was observed that the fund transfers by the company to front entities were to the extent of Rs 77.44 crore, out of which funds to the tune of Rs 13.34 crore were used by front entities to trade in the scrip.

Choksi, through front entities, tried to corner the shares available in the market to reduce the shares available for general investors which subsequently increased after the front entities sold the shares in the market.

Further, the front entities cornered the position limits in the scrip of Gitanjali Gems by building up substantially large positions in the derivatives segment, as per the order.

In February 2022, Sebi had prohibited Choksi from the securities markets for one year and levied a fine of Rs 1.5 crore on him for violating insider trading rules in the matter of Gitanjali Gems and in February 2020, the regulator slapped a total fine of Rs 5 crore on Choksi, Gitanjali Gems and another individual for violating various regulations, including listing norms, in connection with the massive fraud on PNB.