“Hirawala to janta hata Mehul ane Nirav devaliya che. Pan aa fraud ni rit amara mate pan navi che (Diamond merchants knew Mehul Choksi and Nirav Modi were bankrupt but the modus-operandi of fraud is new even to us),” claimed a leading diamond merchant of Mumbai. The top diamond merchants knew that Mehul and Nirav’s businesses were failing, but they claim that the fraud perpetrated using the Letter of Undertaking route was unique, and not much was known about this modus operandi used to cheat the banks. Over-invoicing, under invoicing, buying and selling of smuggled goods, dealing in blood diamonds and evasion of taxes are most common in the diamond markets. Ask any banker in Mumbai and he will admit that nobody cajoles or bribes as well as diamond merchants do. Deception in accounting, cash transactions, cheating banks and customers are so routine that these are not even talked about. But even these merchants operating in the diamond markets of Surat and Mumbai are yet to understand how Nirav kept getting LoUs without making any entries in Punjab National Bank’s account books—an apparently easy way of draining the banks of public money.
This correspondent reported on Mumbai’s diamond market regularly between 1980 and 1997, covering dozens of minor and major scams. Those who are insiders know well fraudulent practices are rampant here. Such is the lust for profit, that cheating of public banks is done without much moral guilt.
In Surat, a top diamond merchant, for the last six months, has not been paying any interest on the Rs 4,000 crore plus loan he has taken from a private bank. The bankers are keeping their fingers crossed, while pleading with him not to shut shop. He is the same man who, a few years ago, awarded huge bonuses to all his employees.
“For more than half a century, 90% of the diamond trade in Mumbai and Surat has been running on black money. Diamonds are not for the poor or the middle classes. Purchasing a real diamond requires at least Rs 6 to7 lakh a pair, today. Who has that kind of money?” asked a merchant. However, due to tax rebates, lately more and more merchants have come into the tax net, although reluctantly.
The shenanigans of Mehul Choksi and Nirav Modi, the uncle-nephew duo, have not had an adverse impact on the diamond markets, except for traders realising that the banks will become far stricter on them from now on.
According to one of Mehul Choksi’s acquaintances, “Pappu (Mehul) splurged money on Bollywood heroines to dominate Mumbai newspapers’ page-three, so that bankers would notice him and continue to trust him.” The market knew that he was a “defaulter” for the last three years. His Palanpuri Jain community and fellow businessmen stopped lending him money. Most merchants and even their associates in Mumbai and Surat claim off the record that since the last three years, they gave the uncle-nephew duo diamonds only on cash. Neither of the two was paying back on time, and lost the diamond merchants’ trust long ago. “How is it possible that the bankers could not see what we saw?” asked a dealer who once supplied diamonds to Nirav in New Delhi’s Defence Colony for cash payment. The speculation is, that the bankers continued to give him money shows that without the connivance of the top management Mehul or Nirav could not have operated even for a day.
“Nirav na dhandha nu model bogus hatu (Nirav’s business model was bogus),” says a merchant who is a friend of Mehul Choksi. Mehul is known more commonly as Pappubhai. In the 1940s and 1950s, the Jains of Palanpur, a town in north Gujarat went to Belgium and Tel Aviv to start trading in diamonds. They got monopoly once a few of them became the site holder of De Beers, which sold rough diamonds to a select few in London. Most diamond merchants say that the Mumbai-Surat market has serious social tensions between Palanpuri Jains and Kathiawadi-Mehsana Patels over the last decade and a half. Saurashtra’s hard-working Patels, whose families have been in the agricultural sector since ages, have successfully broken the monopoly of the Jains of Palanpur in the diamond market. The manufacturing is now in the hands of people from Saurashtra. This tension has divided the market vertically. It’s not surprising that many are happy that the bank fraud has been exposed, as both Nirav and Mehul are Palanpuri Jains.
Nirav Modi does not have many friends and admirers among Gujaratis in Mumbai and Surat because he is perceived as snooty. Nirav, who was brought up in Belgium, was smug while dealing with Indian merchants. A middle aged Gujarati millionaire merchant who has dealt with Nirav says, “He would give us the impression that we have money but we don’t know anything about food, fashion, art and culture. But we know the business better than him. We knew there is no way you could do big retail business in diamonds opening one shop after another. There is no such business formula that would allow you such play. Bvlgari to Tiffany couldn’t do it. How can he? Of course, you can loot public money and run such sophisticated showbiz. We are not a bit surprised that the music has stopped suddenly.” Another merchant sarcastically remarked, “Highly smooth and sophisticated Nirav did speak in Gujarati sometimes.”
More than six millionaire businessmen pointed out to The Sunday Guardian that Nirav’s showrooms did not impress them mainly because “his jewellery was over-priced, so not good investment if you think of reselling it”. They also claim that the government’s belief that jewellery worth more than Rs 5,000 crore has been seized may not be correct as his stuff is overpriced.
Nirav’s maternal uncle Mehul Choksi is highly religious. Mehul recently donated crores in building a dharmashala in Shankheshwar near Ahmedabad. He is a devout follower of the highly acclaimed Premsuri Maharaj who died last year. One of Mehul’s friend claims, “The government’s job would have been easier if he was alive. On his call he would have surrendered. Mehul would have followed the command of Premsuri Maharaj whom most Palanpuris worshipped.”
This article was updated on 21 February.