Name – Prachi Rajesh Kamble

Roll no. – 19
Subject – Banking and financial Services Institutions

Winsome Diamond Scam

Introduction :-

The owners of Winsome Diamonds and Jewellery Limited, Jatin Mehta, his wife Sonia, and sons
Vishal and Suraj, have launched proceedings in the high court in London to be discharged of
the Worldwide Freezing Order (WFO) for US$ 932.5 million which was made in May 2022. The
Mehtas have maintained that the WFO was obtained through a private hearing without notice to
them and that they had no opportunity to argue their case.

The Mehtas are being pursued by the seven entities they once owned/controlled in the UK and
Ireland that were allegedly used to transfer proceeds of the fraud and were then placed into
voluntary liquidation. These seven companies, which have been restored to the Register of
Companies, are, along with two independent liquidators, the claimants in the big-ticket case which
has over two dozen counsels crowding the courtroom.

The court was told that the Mehtas were complicit in a $1 billion fraud whereby banking facilities
advanced to Winsome Diamonds and Forever Precious Diamonds were misappropriated and
laundered through companies where the ultimate beneficiaries were the Mehta family. The court
was told that a British Virgin Island-registered company Marengo Investment Group
Limited which was accepted by the Mehtas as their “family owned company” received £163
million, while Al-Noora FZE based in the UAE received $650 million. Both Al Noora and
Marengo were subsequently dissolved.
It is alleged that $162 million were transferred from Marengo to Oriental Expressions DMCC,
which was owned by Sonia Mehta. A further $15,000 of Marengo’s receipts were paid into her
bank account in the UAE. However, in submissions made before the court, the Mehtas deny any
relationship with Al Noora, which they say belonged to Haytham Obidah, a former business
associate, whose whereabouts are still not known.

It is a “good arguable case that the Mehta family were also behind this company,” the claimants
said in submissions to the court. “Like other companies involved in the laundering process, Al
Noora was established by Jatin Mehta before being transferred into the name of Mr Obidah.” The
Mehtas, represented by Justin Higgo, King’s Counsel, deny that Al Noora was owned or controlled
by the Mehta family.
Background story of bank fraud –

Around 2008, several Indian banks, led by SCB, provided bullion/gold to Winsome Diamonds and
Jewellery Ltd (Winsome) and a sister concern called Forever Precious on a 270-day credit facility.
In 2009, the banks also created a joint working capital consortium to lend more money to the
group. By 2013, both companies began to default on their obligations.

That year, Central Bank of India’s audit report mentioned that Jatin Mehta and family had relocated
abroad and he was not returning lenders’ calls. The media reports had said that the group had
removed hard-disks from computers feigning a tax raid, to wipe out evidence of their laundering
transactions.

It is only then that the huge scam burst into the public domain and the Reserve Bank of India (RBI)
and investigation agencies slowly swung into action, after a reference from the central vigilance
commission (CVC) in 2014. The first few cases pertaining to a part of the Winsome group scam
were registered only in 2017 by the central bureau of investigation (CBI) and, in just four years
(2021), it filed a closure report without making any headway.

Brief of bank fraud –

Banks were entrusting him with more credit, as his business grew and he and his company
Winsome had an excellent track record. That was up until 2012 when his leveraging techniques
fell apart like a house of cards.

Jatin Mehta defaulted on his loan payment in November 2012, stating that close to 13 UAE buyers
who were his regular traders of derivatives and commodities made unexpected losses for him.
These losses meant that he would be unable to pay for the gold that he was taking from the bullion
banks, as there was a flow of income from his business. No gold meant no more jewellery could
be made, and so on the cycle went.

Now Indian banks that agreed to guarantee the credit taken by Jatin Mehta were left in a mix, as
they had legally agreed to take on the repayment of the loan should he ever default. Winsome
Diamond, Forever Diamonds and Su-Raj Diamonds combined had raked up a scandal, amounting
to a heart-stopping ₹ 7,000 crores.

Logically, the Indian banks would not be able to repay the loan. The alternative would be to
conduct an investigation into the matter themselves, despite being fined for the whole debacle.

Timeline of events that contributed a fraud-

For years, this line of transactions proceeded smoothly. Mehta would obtain the gold on credit
from the bullion banks. That gold would be converted into jewellery pieces by the Winsome
Group. The finished products would then be exported to the existing group of 13 buyers in the
UAE.

In fact, the business was carried out so flawlessly that the banks deepened their trust in Jatin Mehta
and kept increasing his line of credit.
Until 2012, this arrangement functioned like a well-oiled machine. And then, suddenly, it broke
down without any warning.

In November 2012, Mehta defaulted on his payments. He claimed that his regular group of 13
buyers from the UAE, had run into unforeseen losses in the trading of derivatives and commodities.
As a result, they had not been able to pay him for the supply of jewellery. With no incoming
revenue, Mehta said he would be unable to pay for the gold that he had taken from the bullion
banks.

Parties who were responsible in fraud –

Winsome Diamonds case involving diamond merchant Jatin Mehta, who allegedly defrauded a
consortium of banks to the tune of Rs 7,000 crore, first came into the limelight in 2014, is back in
the news.

In a blow of CBI in the fraud case involving the promoter of Winsome Diamonds, Jatin Mehta, a
special court has discharged five Canara Bank ex-officers, all senior citizens, and said there is no
material to prime facie conclude they were part of any conspiracy.