Pressure likely to mount on Winsome after SFIO entry

MUMBAI: Winsome has come under the glare of the Indian government agency specialising in white collar crimes.
Last week, the Serious Fraud Investigation Office (SFIO) has directed the company and all its directors to share financial record and bank account details.

Winsome Diamonds and Jewellery will have to submit information pertaining to past eight years while its directors will have to disclose details of their personal bank accounts and that of their family members, said two persons aware of the communication. Winsome group is India’s second largest ‘wilful defaulter’ after Vijay Mallya’s Kingfisher Airlines. Winsome Diamonds and Jewellery, a listed company, and group firm Forever owe Rs 6,800 crore to 15 banks in India.

Winsome promoter Jatin Mehta has been away from India for the past few years and had resigned from the boards of the companies before they defaulted in March 2013.

SFIO’s entry, signalling the investigation of an alleged corporate fraud, may increase the pressure on promoters, shareholders and directors for obtaining fresh evidence or corroborating the evidence gathered by other agencies.

Speaking to ET, Zulfiquar Memon, managing partner at the law firm MZM Legal, said, “The involvement of the SFIO in the Winsome fraud is a welcome step. In India, investigations on corporate frauds are generally plagued with delays resulting in little or no recovery of investor/lender funds. The Winsome fraud is seemingly of very complex nature and will not be within the area of expertise of the either the CBI or the ED. SFIO is the perfect body with multi-disciplinary expertise, especially designed to investigate corporate frauds and white collar crimes in coordination with other investigative bodies."

"The involvement of the SFIO will speed up the investigation to a great extent and hopefully we can expect some recovery of funds in this case. This case will be prove to be a test for the SFIO in terms of scale, complexity and the coordination which will be required with both the CBI and the ED.”

CBI has interrogated some of the former and existing officials of Winsome while the Enforcement has sent letters rogatory (LR) to obtain information from authorities in United Arab Emirates (UAE) where Winsome’s clients are located.

ED is probing into alleged violations of Prevention of Money laundering Act (PMLA). SFIO does not initiate investigation on its own but take up cases as directed by the Ministry of Corporate Affairs under various sections of the Companies Act.

A little over a month ago, senior officials of Standard Chartered Bank, the leader of the banking consortium, had sought the help of the PMO for going after Winsome. While Winsome said it was unable to repay banks due to huge derivative losses suffered by its UAE clients, banks and Indian enforcement agencies are keen to trace the money trail and detect the final identities of the counterparties who profited from these overthe-counter derivative deals.

All the 13 Dubai clients which failed to pay up were controlled by Haytham Ali Salman Abu Obidah, a Jordanian national based in Dubai. Winsome, which had moved the Sharjah court against these parties, has maintained that these entities are genuine third parties and are separate from any entity controlled by Mehta – a claim that ED and most banks think should be verified.

It’s with intention that ED had initiated the letters rogatory to UAE. Financial institutions in the consortium are PNB (which has highest exposure), Standard Chartered, Bank of Maharashtra, Canara, Central, Exim, Oriental, State Bank of Hyderabad, Union, Axis, Vijaya, Bank of India, State Bank of Mauritius, IDBI and Syndicate.

These banks had issued standby letters of credit - or SBLC which are similar to guarantees - in favour of international bullion banks which supplied gold to Winsome Group. The arrangement was if Winsome failed to pay the bullion banks, Indian banks would step in to pay for the gold consignment.

According to the agreement between Winsome and the bullion banks was such that a single default could accelerate the repayment and encashment of the quasi-guarantees.