The Mehul Choksi Scam: A Billion-Dollar Fraud Overlooked by Congress and Missed by the RBI

On April 12th, fugitive jeweller Mehul Choksi, one of the primary accused in the ₹13,500 crore Punjab National Bank (PNB) fraud, was apprehended by law enforcement authorities in Belgium. This development followed a formal extradition request from the Government of India. Reports indicate that Choksi had been residing in Belgium with his wife, Preeti, and had secured a residency card.

Mehul Choksi ₹13,500 crore scam began during UPA era. Congress and RBI failed to act. (Image: Dall-E)

His arrest is a positive development, potentially marking a step toward the eventual resolution of the fraud case. However, with his name back in the spotlight, a critical question persists: How was he able to orchestrate one of India's largest banking scams and flee the country? To understand the current state of the case, one must trace the trail of decisions made under the UPA government. At the time the scam was initiated, the Congress-led UPA was in power, and Raghuram Rajan served as the Governor of the Reserve Bank of India.

Congress and RBI: Silent Observers

Over the years, OpIndia has extensively covered the scam, providing a detailed explanation of its background. The PNB scam, which began in 2011 and amounted to an enormous ₹13,500 crore, involved Mehul Choksi and his nephew Nirav Modi during the UPA's time in power. Despite numerous red flags raised by concerned officials, the fraud persisted for years without intervention.

During this period, the Congress government remained indifferent to the issue. Even more concerning was the failure of the Reserve Bank of India, under Governor Raghuram Rajan, to take any significant action to prevent the misuse of Letters of Undertaking (LoUs). These LoUs were exploited to siphon off large loans with no adequate collateral. Additionally, these fraudulent instruments were repeatedly issued without triggering any alarm at either the bank level or under RBI oversight. In essence, this was a case of institutional negligence at best, or willful blindness at worst.

The 20:80 Gold Scheme: A Farewell Gift?

On May 16, 2014, the results of the Lok Sabha elections were declared, marking the rise of the Modi-led Bharatiya Janata Party to power. However, the Congress was not entirely out of the picture. The UPA continued as the caretaker government until PM Modi took his oath. During this time, several questionable decisions were made by the outgoing Finance Minister, P. Chidambaram. In what appeared to be a final act of goodwill, he signed an order that benefited 13 companies, including Mehul Choksi’s infamous Gitanjali Gems.

This decision was part of the controversial 20:80 gold import scheme, which allowed “star trading houses” like Choksi’s to import gold and sell 80% of it in the local market. The scheme encouraged hoarding and speculation, leading to a significant artificial inflation of gold prices. Despite warnings from trade bodies, the Congress government and the RBI under then-Governor Raghuram Rajan chose to overlook them. This policy ultimately paved the way for a massive fraud.

The Congress Narrative vs. Its Own Complicity

Before delving deeper, it's important to highlight that in 2023, Interpol removed Choksi from its Red Corner Notice list. This decision triggered a political storm in India. The Congress Party seized the opportunity to launch a strong attack on Prime Minister Modi. Congress President Mallikarjun Kharge accused the Modi government of shielding Choksi and misusing central agencies like the ED and CBI to target opposition leaders.

Other prominent Congress figures, including Supriya Shrinate, Randeep Surjewala, Jairam Ramesh, and Shama Mohamed, joined in, flooding social media with insinuations and poorly constructed conspiracy theories.

Ironically, the very party that had once facilitated Choksi’s rise was now crying foul over his escape.

Lawyer's Explosive Claim: 'Loose Alliance' with Congress

In August 2018, Mehul Choksi’s lawyer, David Dorsett, made a striking revelation during an interview with Republic TV. He claimed that Choksi had been in a "loose alliance" with the Congress Party. Dorsett argued that the political climate in India at the time was tense, and Choksi had become a scapegoat.

Dorsett’s statement was direct and unambiguous, pointing to the involvement of "serious political elements" and suggesting that Choksi had been used as a political pawn. He further asserted that Choksi's past ties to the Congress Party had fueled the controversy surrounding him. Additionally, Dorsett described Nirav Modi as another victim in this political game, framing the fraud as nothing more than a witch-hunt.

This statement offered a critical perspective on the political connections that may have allowed Choksi to evade scrutiny for years.

When did Rahul meet Nirav?

In 2013, BJP national spokesperson Shehzad Poonawalla, who was with the Congress at the time, claimed that Rahul Gandhi allegedly met Nirav Modi at a cocktail party in Delhi. This occurred during a period when the whistleblower at PNB was reportedly silenced by the Finance Secretary under UPA rule. The Finance Secretary at the time was Rajiv Takru, whose tenure coincided with the approval of fraudulent loans, yet he did not seem to react.

Further complicating matters, reports indicated that then-Finance Minister P Chidambaram had authorized the dismissal of the whistleblower, suggesting that efforts to suppress internal warnings about the fraud were not just bureaucratic, but also politically endorsed.

Donations to Rajiv Gandhi Foundation from Company Linked to Choksi

The Congress party's controversial ties to Choksi extended beyond political meetings and seemingly favorable policies. Reports suggest that in 2014–15, Choksi made donations to the Rajiv Gandhi Foundation (RGF), led by Sonia Gandhi, through a company called Naviraj Estates Private Limited, where Choksi held the position of director.

This disclosure came at a time when the Congress party was already under scrutiny for accepting funds from foreign governments, including China. The fact that the RGF, whose trustees include Sonia, Rahul, and Priyanka, received money from a scamster like Choksi only intensified suspicions.

What adds to the intrigue is that the foundation also received funds from various Indian government ministries, such as Environment and Forests, Health and Family Welfare, Small Scale Industries, and even the Home Ministry during the UPA's tenure. This not only raises red flags but also points to a clear misuse of Indian taxpayer money.

Fielding Choksi's Lawyer as a Congress Candidate

Congress's affinity for individuals connected to Choksi didn't end there. They went so far as to field his lawyer, HS Rajamauli, as a candidate in the Karnataka Assembly elections. Ironically, they had previously made false claims criticizing Arun Jaitley's daughter for allegedly representing Nirav Modi.

This hypocrisy faced criticism not only from external sources but also within the party. Veteran Congress leader Brijesh Kalappa was sidelined in favor of the relatively unknown Rajamauli. Congress’s actions sparked infighting within the party, providing the BJP with a sharp weapon to attack them.

Conclusion

The political and legal drama surrounding Choksi is likely to persist for years, but one undeniable truth remains: his scam was fueled by a mix of political favoritism, policy oversight, and regulatory complacency. The Congress party laid the foundation for the notorious ₹13,500 crore scam through its policy choices, political protection, and potentially even financial contributions. The RBI, under Raghuram Rajan, failed to address the issue in time, turning a blind eye to the growing crisis. Now, as India seeks to hold Choksi accountable, those who were instrumental in his rise are playing the role of victims.

Although uncomfortable for some, the truth must be confronted as the case continues to unfold.

(This Article was originally published by OpIndia)