PNB fraud: ED asks Sebi to freeze Mehul Choksi's Gitanjali shares

Enforcement agencies ask Sebi to direct depositories

Central investigation agencies have asked national depositories to freeze the promoters’ holdings in Gitanjali Gems, to ensure  perpetrators of the alleged Rs 114 billion Punjab National Bank (PNB) fraud do not get away without paying back.

At the end of December 2017, Gitanjali Chairman Mehul Choksi held a 22.81 per cent stake in Gitanjali Gems. He held another 4.95 per cent through his holding companies. The combined holding of five promoters was close to 27.76 per cent, valued now at Rs 904 million. However, 78.56 per cent of the promoters’ shares were pledged in December.

Choksi and others are being investigated by multiple probe agencies after it came to light that PNB was allegedly cheated of Rs 114 billion through Letters of Undertaking, with the purported involvement of a few employees of the bank. The Central Bureau of Investigation and the Enforcement Directorate (ED) had registered two First Information Reports each. Both agencies have reportedly asked the Securities and Exchange Board of India (Sebi) to freeze the shares. Sebi had written to National Securities Depository ltd and Central Depository Services ltd, the two national depositories, said an official on condition of anonymity.

Confirming the development, another official told Business Standard the agencies wanted to ensure no third-party rights were created by the promoters or a group company owned by Choksi. According to ED sources, the amount accrued by selling the shares would be kept in fixed deposits till proceedings against Choksi were complete. In the past few days, tax and enforcement officials have searched several official and residential premises of the group’s promoters.

Choksi was investigated by probe agencies and the markets regulator earlier, too. In 2013, Sebi and stock exchanges had suspended the unique client codes of 26 entities, including those of Choksi and group entities, stopping them from trading for six months due to suspected market manipulation. In 2017, Sebi had issued an order against Choksi, along with other promoter entities of the companies, for alleged manipulative trading in the stock of Gitanjali Gems. The 29-page order, however, had said it would require six months to complete the investigation. The final order is pending.

The company’s shares have declined over 56 per cent in past six trading sessions. Shares of Gitanjali Gems plunged another 10 per cent to hit the lower circuit on Wednesday. Its market capitalisation has fell Rs 4.2 billion in the past week.