SEBI Issues Rs. 5.35 crores Demand Notice to Mehul Choksi

SEBI Issues Rs. 5.35 crores Demand Notice to Mehul Choksi

The Securities and Exchange Board of India (SEBI) has sent notice to fugitive businessman Mehul Choksi adjuring him to pay Rs. 5.35 crores in connection to 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 was issued after Choksi had defaulted in paying a fine imposed on him by the 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. Currently, both are facing charges of defrauding state-owned Punjab National Bank (PNB) of more than Rs. 14,000 crores.

Both Choksi and Modi flew out of 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.

As per the new notice, SEBI has ordered Mr. Choksi to pay Rs. 5.35 crores which included interest and recovery cost, within 15 days.

The market regulator shall recover the amount by attaching and selling his movable and immovable property in the event of failure to pay the dues and additionally maybe arrested.

For indulging in fraudulent trading in the shares of Gitanjali Gems, SEBI had fined him Rs. 5 crores in its order issued in October 2022. The market watchdog had also banned him from trading in the stock exchange for 10 years, as well as imposing sanctions.

While conducting an investigation into the trading activities of certain entities in the scrip of the company for the period July 2011 to January 2012, SEBI found 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.

SEBI also found that the fund transferred by the company to front entities were to the extent of Rs. 77.44 crores, out of which funds to the tune of Rs. 13.34 crores were used by front entities to trade in the scrip.

It was alleged that 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.

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

For violating insider trading laws in the case of Gitanjali Gems, in February 2022, SEBI had barred Choksi from the securities markets for a year and fined him Rs. 1.5 crores.

The regulator levied a total fine of Rs. 5 crores in February 2020 against Choksi, Gitanjali Gems, and another person for breaking several rules, including listing criteria, in connection with the enormous fraud on PNB.