TMI Blog2019 (7) TMI 1942X X X X Extracts X X X X X X X X Extracts X X X X ..... UPREME COURT ] is remembered where the Hon'ble Supreme Court observed that the economic offence having deep-rooted conspiracies and involving huge loss of public funds needs to be viewed seriously and considered as a grave offence affecting the economy of the country a whole and thereby posing serious threats to the financial health of the country. Fraudulent debt is a debt or not - HELD THAT:- Undoubtedly, the debt would include fraudulent debt obtained by the debtor in collusion and connivance with the bank employees. The issuance of LOUs is clearly the business activity of the applicant bank. The essence of the definition of debt under section 2(g) is the existence of the liability which is claimed to be due by the applicant which is legally recoverable - The amount claimed by the applicant though fraudulent in nature is a debt within the provisions of the 1993 Act. The liability arisen out of the unauthorized LOUs issued during the course of business activity of the applicant bank constitutes debt . This Tribunal therefore, has the jurisdiction to entertain and try the present application. Nirav Modi and Nirav Modi Firms, partners, Nirav Modi Companies, trust, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 of the 1993 Act to entertain and try the present application. Admission of Liability - HELD THAT:- The communication addressed by Nirav Modi and the balance sheets amounts to unequivocal admission of the documents as well as the quantum of the liability more particularly stated in the balance sheet of defendant nos. 1 to 3 - The averments made in the pleading clearly demonstrate that the admission of liability made by defendant nos. 1 to 3 in their respective balance sheet and the written communications made by Nirav Modi. All the documents read together constitutes unequivocal admission. In view of the admission of liability also, the applicant is entitled for the issuance of recovery certificate. Acquisition of properties - HELD THAT:- The applicant has pleaded that it is very likely that defendant nos. 1 to 16 may have purchased and acquired the movable and/or immovable properties worldwide from the proceeds of the fraudulent debt. These properties may have been acquired in the name(s) of other person(s) or Firms or Companies or its Subsidiaries or Entities affiliated, owned and controlled by Nirav Modi. The statements and averments also find place in the Complaint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort the delinquent employees). Nirav Modi enjoyed the credit facilities by unlawful means, conspiracy and deceit. iv. The recent press release on G20 summit at Osaka, Japan held on 28th/29th June, 2019 where the Heads of various G20 countries met reveals that on behalf of the Indian Government one of the issues addressed was to deal with economic offenders fleeing from one Country to another. The Indian Government strongly urged the global community to fight the menace of fugitive economic offenders running away. It was further urged that all G20 countries should combat and ensure that each country has the law to enforce preventing the fugitive economic offenders from fleeing the Country. The issue addressed at G20 summit by the Indian Government was the pointing of finger at Nirav Modi and his Uncle Mehul Choksi. v. The white-collar fugitive economic offenders living outside India are not far behind. Nirav Modi is one amongst them. The Central Bureau of Investigation and the Enforcement Directorate have initiated legal action to bring the Indian fugitive economic offender back to India. vi. Nirav Modi managed the delinquent employees and obtained 150 Letters of Undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present law suit is filed for recovery of debt obtained by fraudulent means. The fraudulent debt is legally recoverable debt from defendant nos. 1 to 16 who have received direct and/or indirect benefit either in India or in any other countries. xvii. I have heard Mr. Jain, defendants set ex-parte. I have scrutinized and examined the voluminous material placed before me. I am convinced that the applicant has made out the case of fraud perpetrated by Nirav Modi and others to obtain LOUs. The allegations of fraud are satisfactorily explained as required under Order VI Rule 4 of the Code of Civil Procedure, 1908. I have also considered the submissions that despite the admission made by Nirav Modi in obtaining the LOUs, defendant nos. 1 to 16 have failed and neglected to repay the debt. I have therefore, allowed the application with costs and ordered issuance of the Recovery Certificate. The factual matrix of the case is as under: 2. Defendant no. 1 i.e. M/s. Stellar Diamonds is a partnership firm. Defendant no. 6 i.e. Nirav Deepak Modi, defendant no. 7 i.e. Ami Nirav Modi, defendant no. 10 i.e. Neeshal Deepak Modi and Nirav Modi Family Trust represented by defendant nos. 6, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Brady House Branch in collusion and connivance with the delinquent employees of the applicant. Nirav Modi obtained the LOUs for raising buyer's credit to import diamonds, fresh water pearls, semiprecious stones, jewellery and precious stones. 9. Defendant no. 7 i.e. Ami Nirav Modi is the wife of defendant no. 6 i.e. Nirav Deepak Modi and daughter of Dinesh Saralal Jhaveri. Ami Nirav Modi is the trustee and beneficiary in the Nirav Modi Family Trust. 10. Defendant no. 8 i.e. ANM Enterprises Private Ltd. is registered under the Old Companies Act. Defendant no. 8 is a partner in defendant no. 3 i.e. M/s. Diamond R US. Defendant no. 6 owns 99.9% share of defendant no. 8. 11. Defendant no. 9 i.e. NDM Enterprises Private Ltd. is also a company incorporated under the Old Companies Act. Defendant no. 9 is a partner of defendant no. 3 i.e. M/s. Diamond R US. Nirav Modi is the shareholder of defendant no. 9 i.e. NDM Enterprises Private Ltd. and owns 99.9% shareholding. 12. Defendant no. 10 i.e. Neeshal Deepak Modi is the son of Deepak Keshavlal Modi. Defendant no. 10 is the trustee and beneficiary in the Nirav Modi Family Trust. 13. Defendant no. 11 i.e. Deepak Kesha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artnership Firms, companies and trusts for the purpose of perpetrating fraud and to isolate themselves from the liability that has arisen from unauthorized LOUs. No Sanction for LOUs: 24. The applicant never sanctioned any credit facility to Nirav Modi Group for issuance of the LOUs. However, Nirav Modi and others in collusion and connivance with the delinquent employees managed to obtain the LOUs illegally and unauthorisedly. 25. Nirav Modi Group and others in collusion and connivance with the delinquent employees openly flouted the guidelines/regulations for issuance of LOUs including Loans and Advance Circular No. 131 dated 19th October, 2009 and Loans and Advance Circular No. 35 dated 26th March, 2014. The guidelines require the importer to make an application in prescribed format. Upon careful scrutiny of the importer's application and satisfaction thereof, the LOU issuing bank issues LOU in favour of the Overseas Funding Bank. This is done through MT 799 SWIFT message being the format of the LOUs correspondence. 26. The LOUs once accepted by the Overseas Funding Bank credits the amount to the designated NOSTRO account of LOU issuing Bank. The confirmation is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout any such requirements. 31. This was the trigger point which alarmed the applicant and raised suspicion to the modus operandi of the Nirav Modi Firms, their partners and beneficiaries to investigate and examine the case thoroughly. 32. Upon scrutinizing and investigating the matter of the Nirav Modi Group, it came to the notice of the applicant that the delinquent employees had colluded with defendant nos. 1 to 16 and had issued the LOUs fraudulently through its SWIFT messaging system. The funds availed by the Nirav Modi Group were not entered into the trade finance module of the Core Banking System of the applicant. It was for this reason that the applicant could not detect the fraud perpetrated by the Nirav Modi Group. 33. The Nirav Modi Firms and their partners had approached the delinquent employees for issuance of the LOUs to enable them to avail the unauthorized funds for import of diamonds, fresh water pearls, jewellery and precious stones and semi-precious gems, etc. 34. The Nirav Modi Group did not make any application for the loan by way of fund based or non-fund based credit facilities. The Nirav Modi Group did not furnish any requisite import documents, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of defendant no. 1. 38. Upon coming to know the fraud perpetrated by Nirav Modi the applicant conducted internal enquiry, investigation to scrutinize the fraud which involved the issuance of the unauthorized LOUs to the Nirav Modi Group. Accordingly, on 27th March, 2018 the Final Investigation Report ('Investigation Report ) was made. The investigation report reveals that the Nirav Modi Group commenced the obtaining of the fraudulent LOUs from 10th March, 2011 till 31st May, 2017 the fraud amount was crystallized at INR 6498.18 Crore (excluding interest and calculated @ 1 USD = INR 64). The amount of fraud increased to INR 7029,06,87,950.65 (comprising of the principal amount of INR 6798,14,09,282.10 and interest component amounting to INR 230,92,78,668.54. The aggregate amount in the sum of INR 7029,06,87,950.65 under the fraudulent LOUs became forthwith due and payable. The investigation report reveals that the Nirav Modi Group obtained fraudulent LOUs which were issued through the SWIFT system. The report further reveals that no entry was made in the Trade Finance Module of Core Banking System to avoid detection. The investigation report further reveals that the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies of the Nirav Modi Group. The applicant informed Nirav Modi of severe consequences of his illegal act and actions as well as of the Nirav Modi Group. 43. On 23rd January, 2018 and 30th January, 2018 Nehal Deepak Modi sent an E-mail to the applicant requesting a meeting to discuss how to resolve the matter pertaining to the Nirav Modi Group. E-mails were exchanged between the applicant and Nehal Deepak Modi between 30th January, 2018 and 2nd February, 2018. Thereafter, various meetings were held with the representatives of the Nirav Modi Group including Nehal Modi. These meetings were held at Delhi and Mumbai to pay the outstanding of the LOU debt. On 5th February, 2018 Nirav Modi expressed his willingness and responsibilities to resolve the issue and liabilities of the Nirav Modi Group. On 6th February, 2018 follow-up email was sent by Nirav Modi to the applicant. On 7th February, 2018 the applicant responded to the email dated 6th February, 2018 stating that the so-called resolution offered by Nehal Modi was unacceptable as it was not back by any concrete timeline and cash flow etc. By this e-mail the applicant also called upon Nirav Modi to provide in writing the intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7th February, 2018 Nirav Modi sent an e-mail to the applicant. By this e-mail, for the first time, Nirav Modi sought to escape the liability of the applicant. Nirav Modi made frivolous allegations and assertions in an entirely volte-face manner. Nirav Modi stated that the LOUs were authorisedly issued in a genuine manner. The action of the applicant has affected the Nirav Modi Group adversely. Nirav Modi continued to acknowledge the liability owed to the applicant. Nirav Modi suggested that the sale of the assets of Nirav Modi Firms, Firestar International Ltd. and Firestar Diamond International Pvt. Ltd. will be sufficient to settle the claim made by the applicant. On 20th February, 2018 the applicant bank replied to the e-mail of Nirav Modi. By this e-mail the applicant once again recorded that no facility was sanctioned to the Nirav Modi Firms. Applicant further recorded that Nirav Modi, the Nirav Modi Group and their affiliates were fully aware of the unauthorized issuance of LOUs. It was further recorded that the money obtained through the illegal/unauthorized of LOUs was misutilised. The applicant was very clear in its mind that the LOUs were illegally and unauthorisedly obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... munication clearly reveal that he had no intention to repay the debt obtained by fraudulent means. 47. Since there was no fruitful deliberations on behalf of Nirav Modi, the applicant was left with no other alternate but to issue the demand notice on 14th May, 2018 calling upon Nirav Modi Firms, its partners, trustees, beneficiaries and Nirav Modi Companies to liquidate the entire outstanding on account of LOUs. The applicant called upon defendant nos. 1 to 16 to make the payment of the entire outstanding with interest @14.30% per annum until payment/realization. The applicant clarified that the interest @14.30% is charged in clean overdraft facilities in the normal course and therefore, the applicant justified it by claiming under the demand notice. The payment under demand notice was to be made within 10 days. However, defendant nos. 1 to 16 failed and neglected to make the payment claimed under the demand notice. On 30th May, 2018 Nirav Modi replied to the demand notice by e-mail. Nirav Modi made an attempt to avoid the liability. Nirav Modi also attempted to distance himself from Nirav Modi Firms. Nirav Modi, for the first time, denied that the debt claimed under LOUs is due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressed letter to the Joint Secretary, Department of Financial Services, Government of India and appraised the complete case of fraud. 55. On 11th April, 2018 Non-bailable Warrants were issued against Nirav Modi and Neeshal Deepak Modi. The investigation by various regulatory authorities and investigative agencies is going on. The Enforcement Directorate and Central Bureau of Investigation respectively have filed their charge-sheet. 56. On 14th May, 2018 the applicant obtained the charge-sheet from Central Bureau of Investigation which reveals that the Nirav Modi Firms and their partners have unauthorisedly obtained 150 LOUs by defrauding the applicant. The charge sheet also reveals that defendant nos. 1 to 3, Nirav Modi and Neeshal Modi have committed various offences concerning fraud. 57. The applicant has referred to and relied upon the Complaint filed by the Directorate of Enforcement against Nirav Modi and 23 others in IA/391/2018. The Complaint is filed under the Prevention of Money Laundering Act, 2002 (for short, the PML Act ) before the City Civil and Sessions Court, Mumbai (Designated Court). The Complaint reveals the following facts inter-alia amongst others: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audulent LOUs. 63. On 23rd February, 2018 an ex-parte injunction order was passed by the National Company Law Tribunal by invoking Section 221 of the Companies Act, 2013 and Section 43 of the LLP Act, 2008. By the aforesaid order, all the respondents therein who are defendants in the present law suit are injuncted from removal, transfer or disposal of funds, assets and properties. The independent Directors of Geetanjali Gems Ltd. filed Miscellaneous Application Nos. 180, 182, 183, 184, 217, 218 and 219 of 2018 to vacate the order dated 23rd February, 2018 against them. 64. On 2nd April, 2018, National Company Law Tribunal modified the order by vacating the injunction order dated 23rd February, 2018 qua the independent Directors. The vacating/modification of the order dated 2nd April, 2018 is challenged by the Union of India, Ministry of Corporate Affairs before the National Company Law Appellate Tribunal by filing Company Appeal (AT) No. 103 of 2018. 65. On 9th April, 2018 National Company Law Appellate Tribunal reserved the Company Appeal for Judgment. In the interregnum period, the applicant was impleaded as party to the Company Petition as Respondent No. 68 being proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try trade show which was set to be held in early 2018. The sale process was expedited with the bidders' deadline given on 27th April, 2018 and the auction was proposed to be held on 2nd May, 2018. 71. On 1st May, 2018 the U.S. Debtors' adjourned the auction to be held on 3rd May, 2018. Parag Diamonds Inc. made the winning bid for the purchase price of USD 6.95 Million in cash plus USD 1.05 Million secured note payable in 12 months. 72. The applicant raised objection to the sale which was proclaimed of A. Jaffe's to Parag Diamond. The objection was raised as the sale was propounded at a significant discount. The Ministry of Corporate Affairs also joined the applicant. The auction process could not have achieved a significant value and therefore, the sale was adjourned for clarification by the U.S. Debtors for the fraud perpetrated by defendant nos. 1 to 16 including the U.S. Debtors receiving at least USD 6 Millions in the proceeds obtained by way of fraudulent LOUs. On 14th May, 2018 U.S. Debtors filed their reply to the applicant's objections to the sale. 73. On 15th May, 2018 U.S. Court held hearing to consider the request of U.S. Debtors for approval and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iaries, affiliates, group companies all over the world purportedly towards their business activities. Thus, the LOU debt is legally recoverable debt by the applicant from defendant nos. 1 to 16. The LOU debt is also legally recoverable debt by the applicant from defendant nos. 1 to 16, their group companies, affiliates, subsidiaries, officials and all such entities and other persons who have received direct and/or indirect benefits either in India or outside India. 76. The applicant is claiming the repayment of the fraudulent debt on account of the fraud played by defendant nos. 1 to 16 in collusion and connivance with the delinquent employees. The fraud is the ultimate result of the issuance of unauthorized LOUs which were used and utilized to illegally procure the funds from Overseas Funding Banks. Therefore, the LOU debt constitutes a 'debt' under the 1993 Act legally recoverable by the applicant from defendant nos. 1 to 16 who are the debtors within the meaning of the 1993 Act. 77. Admitted liability: Nirav Modi made various admissions in the communication exchanged between him and the applicant. By the communication, Nirav Modi has admitted that the LOU debt i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstituted service by paper publication. The applicant was also directed to serve the summons through e-mail also. The order sheet dated 27th November, 2018 reveals that the summons was duly served upon defendant nos. 1 to 16 by e-mail. The order sheet dated 08th February, 2019 reveals that defendants were also served by way of paper publication in Times of India (English) and Maharashtra Times (Marathi). Absconder: 85. I have gone through the affidavit of service alongwith the material placed on record. I have examined and scrutinized it. I am satisfied that the applicant actually attempted to serve upon defendant nos. 1 to 16 as stated in the affidavit. Defendant nos. 1 to 16 purposely and intentionally avoided or evaded the service of summons. Defendant nos. 1 to 16 absconded from the last known address, by absconding from their place does not mean to hide but would mean to evade the service also. Here, I would like to take the assistance of the judicial pronouncement in the case of K.T.M.S. Abdul Cader Others vs. Union of India reported in: 1977 Cri. LJ. 1708 (Madras High Court, Full Bench) dealing with the meaning of absconding which is held as follows: The words a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the knowledge of the proceedings and had the sufficient time to answer the claim made by the applicant. However, defendant nos. 1 to 16 did not choose to answer the claim. Nirav Modi and others are absconding debtors having avoided or evaded the service of legal process. The reason for Nirav Modi and others to abscond is very clear to delay or protract the legal proceedings. The ratio of abscond and absconders squarely applies to the fact and circumstances of the present case. Defendant nos. 1 to 16 is rightly proceeded ex-parte. 88. The applicant has filed evidence affidavit (Exhibit-24) of Mr. Rajendra Prasad Keshri s/o. Mr. Shivnath Keshri and list of documents (Exhibit-25) thereby adducing in evidence the documents at serial nos. AW-1/1 to AW-1/88 which are admitted in evidence, read, recorded and exhibited. 89. I have scrutinized and examined the allegations contained in the Original Application and analyzed the evidence adduced by the applicant which has gone unchallenged, uncontroverted and unrebutted. 90. Secondary evidence: The applicant has filed evidence affidavit (Exhibit-24) of Mr. Rajendra Prasad Keshri s/o. Mr. Shivnath Keshri seeking permission to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nity in the prescribed format. The applicant also informed that the guideline requires the importer to sign and execute the agreement of hypothecation of goods in the prescribed format. Since Nirav Modi and others were avoiding the adherence of the guidelines and regulations which gave rise to suspicion of the issuance of the earlier LOUs. The applicant therefore, ordered to conduct scrutiny and internal investigation of the issuance of LOUs to Nirav Modi and others. 93. On 27th March, 2018 the internal investigation report of the applicant was ready and was placed before the competent authority. This report revealed that Nirav Modi Group started obtaining unauthorized LOUs from 10th March, 2011 which continued upto 31st May, 2017. The report further disclosed that Nirav Modi and others perpetrated fraud the amount of the Nirav Modi Firms which crystallized (excluding interest and calculated at the rate of $1 = INR 64) at INR 6798,14,09,282.10 crore (principal amount) and INR 230,92,78,668.54 crore (interest) aggregating in all to INR 7029,06,87,950.65 which was due and payable under the LOUs. 94. The report further reveals that the unauthorized LOUs were issued through SWIFT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued to Nirav Modi, Nirav Modi Firms, etc. All these communication shows that Nirav Modi, Nirav Modi Firms, admitted the issuance of LOUs. Though Nirav Modi and Nirav Modi Firms claimed that the LOUs were issued validly, no documentary evidence in the form of sanction letter, etc. was either referred to in any communication or sent to the applicant. 98. Under Section 58 of the Indian Evidence Act, 1872, admitted facts need not be proved. Section 58 of the Indian Evidence Act, 1872 is reproduced hereunder: (58) Facts admitted need not be proved: No fact need to be proved in any proceeding which the parties thereto or their agents agree to admit at the hearing, or which, before the hearing, they agree to admit by any writing under their hands, or which by any rule of pleading in force at the time they are deemed to have admitted by their pleadings: Provided that the Court may, in its discretion, require the facts admitted to be proved otherwise than by such admissions. 99. In the present the fact with regard to issuance of LOUs is admitted by Nirav Modi and Nirav Modi Firms. Therefore, as per the provisions contained in section 58 of the Indian Evidence Act, 1872 the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number 3731/STELLAR/17, 3731/SOLAR/17 and 3731/FIBC/17 was repeated in all the MT 799 SWIFT messages sent to various Overseas Funding Banks confirming the issuance of numerous LOUs. Nirav Modi and others are seen to have adopted these patterns or conduct to design to deceive and victimize the Bank by exposing it to actual or potential loss. The applicant is the actual victim of the fraud and therefore, it can be inferred that it is a good evidence of the fraud perpetrated by Nirav Modi and Nirav Modi Group. The applicant has further demonstrated that Nirav Modi and Nirav Modi Firms had intent to deceive coupled with injury by way of loss. 103. I am convinced by the pleading and material placed on record that defendant nos. 1 to 16 directed against victimizing the applicant bank. I am also convinced by the applicant's pleading and evidence about the falsity of the statements made knowingly with intent to execute the scheme to defraud the applicant and obtained money through fraudulent means. Nirav Modi and Nirav Modi Group not only obtained funds under unauthorized LOUs but targeted the applicant bank in the scheme of fraud. 104. The applicant realized that prior to 20th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contains amount of funds remitted, date of funding, Rate of interest of the Buyer's Credit, Period of the credit, the maturity date and the Nostro account of the overseas bank in which funds have to be returned on due date of maturity with interest. Once funds are received in the applicant Bank's NOSTRO account with reference to buyers credit sought, the applicant branch makes debits and pays the overseas exporter who has drawn the bill on the importer. On maturity of the above mentioned buyer's credit, the applicant (Importer) needs to either provide funds in his current account maintained at the branch or submit debit authority utilizing his credit limits if any sanctioned with regards to buyers credit. From this the bank offset/repay with interest the buyers credit on due date to the overseas funding bank. (b) The applicant has also relied upon the investigation made by the Enforcement Directorate which reveals that the staff working in the Companies referred to in paragraph no. 3.1.4 of the Complaint was the same. The Companies were opened by Nirav Modi only to acquire the properties. The details of the share holding pattern of the Companies established by Nirav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther reveals that the dummy Companies were set up in Hong Kong and Dubai alongwith the regular Firestar Group Companies acted as nodes for circular transactions to layer and launder money generated by fraudulent LOUs. It further reveals that Nirav Modi floated these dummy Companies in Hong Kong as set out in paragraph no. 4.2.1 of the Complaint. (j) M/s. Stellar Diamond, M/s. Solar Export and M/s. Diamonds R US have their accounts maintained with Axis Bank, Andheri Branch, and PNB, Brady House Branch, have fraudulently rotated the amount from Dubai and Hong Kong Companies as set out in paragraph no. 4.13 and 4.13.1 of the Complaint. (k) Understood thus, the well planned and orchestrated fraud was perpetrated by Nirav Modi upon the applicant. 106. The applicant has made the averments demonstrating and indicating financial irregularities, dishonest and fraudulent transaction that have taken place in the affairs of the applicant Bank. The number of diamond import Firms are associated with Nirav Modi who have orchestrated a massive financial fraud. The fraud perpetrated by Nirav Modi is of a very huge magnitude which cannot be ignored or overlooked. I remember the judicial p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is very serious, premeditated and carefully planned and executed the fraud. Fraudulent debt is a debt: 108. Section 2(g) of the 1993 Act defines debt means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil Court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application [and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or]. 109. Undoubtedly, the debt would include fraudulent debt obtained by the debtor in collusion and connivance with the bank employees. The issuance of LOUs is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept the submission of the learned counsel for the petitioners that the debt which arises only out of a transaction carried out in a lawful manner and by executing appropriate documents, that the same should be construed as debt. In our view, when a person takes financial benefits for the purpose of business and by utilizing the bank money for the business, even if such benefits were taken in a fraudulent manner, still such a person can be said to be a debtor of the bank and even so called alleged fraudulent transaction can also be covered under the definition of debt. It is not mandatory that in every case, unless and until all necessary documents are executed at the time of taking financial help or benefits or assistance, in whatever manner one may get, yet such a transaction cannot be treated as a debt. In the instant case, the petitioners have utilized considerable money of the bank for the purpose of business and the said benefit had taken with the help of the officers of the bank. The amount was utilized for the purpose of business of the petitioners. Considering the said aspect, the petitioners can always be said to be a debtor of the bank and the bank is a creditor so far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a matter, which relates to the merit depending on the facts, which are to be gone into. Until this Court holds that this Court has jurisdiction, it cannot examine the same. 15.5 Fraudulent debt in Black's Laws Dictionary has been defined as a debt created by fraud. Such a debt implies confidence and deception. It implies that it arose out of a contract, express or implied, and that fraudulent practices were implied by the debtor by which the creditor was defrauded. It had also defined debt as a sum of money due by certain and express agreement. A specific sum of money owing to one person from another, including not only obligation of debtor to pay but right of creditor to receive and enforce payment (State v. Ducey, 25 Ohio App 2d 266 NE 2d 233, 235). A fixed and certain obligation to pay money or some other valuable thing or things, either in the present or in the future. In a still more general sense, that which is due from one person to another, whether money, goods or services. Also, sometimes an aggregate of separate debts, or the total sum of the existing claims against a person or company. 15.6 The definition of debt as defined in Section 2(g) means, debt means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the debt is fraudulent or not can very well be ascertained before the DRT. Even if it is alleged that the debt is fraudulent, it does not take away the jurisdiction of the DRT. Neither it creates a jurisdiction to a Court, the jurisdiction whereof is otherwise barred by reason of Section 18. Admittedly, it is a liability as in this case of defendant No. 53 to 57 towards SBI. At the same time, it is a liability of SBI towards the respondent No. 53 to 57 respectively the proceedings before DRT. Admittedly, each of these respondent No. 53 to 57 and SBI are either banks or financial institutions. The LCs were issued during the course of business activity undertaken by the SBI. Even if it is said that the LCs were issued fraudulently and SBI may not have undertaken this exercise during the course of its business, but it cannot be denied that the respondent No. 53 to 57 had undertaken this exercise during the course of its business activities. Admittedly, such business activities are permissible by virtue of the respective law in force, governing the respective business activities of the respective banks and financial institutions. Therefore, the ground that the LCs were fraudulen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were issued during the course of business activity undertaken by the applicant. The LOUs may have been issued fraudulently but the applicant's business activity of issuing LOUs is permissible by virtue of the law in force. 114. The law is well settled with regards to the expression debt that it has to be given widest amplitude. The allegations made in the application are also required to be seen for the purpose of jurisdiction. It would be appropriate to take note of the observation made by the Hon'ble Supreme Court in the case of United Bank of India versus Debts Recovery Tribunal reported in (1999) 4 SCC 69 at page 75: 15. In the case in hand, there cannot be any dispute that the expression debt has to be given the widest amplitude to mean any liability which is alleged as due from any person by a bank during the course of any business activity undertaken by the bank either in cash or otherwise, whether secured or unsecured, whether payable under a decree or order of any court or otherwise and legally recoverable on the date of the application. In ascertaining the question whether any particular claim of any bank or financial institution would come within the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with the delinquent employees. Defendant nos. 1 to 16 are the beneficiaries under the unauthorized LOUs. Defendant nos. 1 to 16 are therefore, bound to repay the debt with interest to the applicant bank. Therefore, the applicant is well within its right to file the application for the legally recoverable debt. This Tribunal has the exclusive jurisdiction under Section 17 of the 1993 Act to entertain and try the present application. The law laid down in the case of United Bank of India (supra) squarely applies to the facts and circumstances of the present case. Admission of Liability: 117. It is also pertinent to note that Nirav Modi by various communications has unconditionally, unequivocally and voluntarily admitted the liability as stated hereinafter. (a) By email dated 13th February, 2018 Nirav Modi recorded that I refer to the ongoing discussions regarding the amounts claimed from Solar Exports, Stellar Diamonds and Diamond R Us. These firms will pay to you whatever amounts are available with them and they are pursuing best efforts to their debtors to pay at the earliest. (b) On 15th February, 2018 Nirav Modi by his email recorded that the sale of the assets o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent Bank cannot amount to a pleading or come within the scope of the Rule as such statements are not made in the course of the pleadings or otherwise. When a statement is made to a party and such statement is brought before the court showing admission of liability by an application filed under Order 12 Rule 6 and the other side has sufficient opportunity to explain the said admission and if such explanation is not accepted by the court, we do not think the trial court is helpless in refusing to pass a decree. We have adverted to the basis of the claim and the manner in which the trial court has dealt with the same. When the trial Judge states that the statement made in the proceedings of the Board of Directors' meeting and the letter sent as well as the pleadings when read together, leads to unambiguous and clear admission with only the extent to which the admission is made in dispute, and the court had a duty to decide the same and grant a decree, we think this approach is unexceptionable. 119. It is pertinent to note that M/s. Stellar Diamond has unconditionally, unequivocally and voluntarily made admission in Note No. 22 of the Balance Sheet as on 31st March, 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquent employees of the applicant Bank not to enter the LOUs in the Core Banking System. The delinquent employees in collusion with the dishonest defendants who purposely and intentionally with ulterior motive and malafide intention to dupe public money did not integrate the Core Banking System with the SWIFT messaging network. It appears that the two technical systems, i.e. SWIFT and the Core Banking System did not communicate with each other resulting in the failure to detect the fraud. Consequently, the applicant had no opportunity to reconcile the SWIFT messaging sheet for trade finance on behalf of defendant nos. 1 to 16. It was under these circumstances that the prior the fraud was triggered only upon issuance of letter dated 20th January, 2018 for rolling over the LOUs. The magnitude of fraud perpetrated by Nirav Modi reminds me of the judicial pronouncement in the case of Central Bureau of Investigation v. Jagjit Singh reported in (2013) 10 SCC 686. The Hon'ble Supreme Court observed that the offence when committed by the borrowers and the Bank employees, it has the harmful effect on the public and threatens the well-being of the society. These offences fall under the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders. (q) On 20th April, 2018 US Court passed order approving appointment of John J Carney as Examiner in the US Proceedings. (r) On 01st May, 2018 the US debtors adjourned the auction to 03rd May, 2018. (s) On 14th May, 2018 a charge sheet was filed by CBI with regard to LOUs. (t) On 14th May, 2018 US debtors filed the reply to the applicant's sale objections. (u) On 15th May, 2018 US Court held a hearing to consider approval of the US debtors request to sell the A Jaffe assets to Parag Diamonds. (v) On 19th May, 2018 Mihir Bhansali refused to testify and instead invoked his US constitutional rights not to incriminate himself. (w) On 31st May, 2018 US debtors did not contest the appointment of Trustees. (x) On 07th June, 2018 US Court passed order directing appointment of Richard Levin, a leading US bankruptcy lawyer, as Trustee. (y) On 15th June, 2018 Richard Levin was appointed as Trustee. (z) All the aforesaid dates and events reveal the systematic fraud was perpetrated by Nirav Modi and moving the US Court for insolvency to avoid the liability. Nirav Modi and his accomplishes have taken prompt steps before the US Court to avoid the seizer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e public. The timely repayment also ensures liquidity to facilitate loan to another in need by circulation of the money and cannot be permitted to be blocked by frivolous litigation by those who cannot afford the luxury of the same . 126. It is pertinent to note that on 14th May, 2018 the applicant issued demand notice calling upon defendant nos. 1 to 16 to repay the debt obtained fraudulently and unauthorisedly. By the demand notice the applicant placed on record that in a similar circumstances, interest at the rate of 14.30% per annum is charged in Clean Over Draft facilities in normal course. Nirav Modi by email dated 30th May, 2018 made and attempt to avoid or evade the liability admitted by his previous emails. However, Nirav Modi did not choose to reply in context to the repayment of the fraudulent debt due and payable with interest at the rate of 14.30% per annum. The applicant has claimed relief for interest at the rate of 14.30% per annum with monthly rest. The prayer is contrary to the pleading as regards monthly rest. In the facts and circumstances of the present case, I am inclined to grant interest at the rate of 14.30% per annum from 30th June, 2018 till payment/re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... June, 2018 till payment/realization. (D) Defendant no. 3 its partners and beneficiaries including defendant nos. 6, 8 and 9 are ordered and directed to pay to the applicant either jointly and severally the aggregate sum of INR 2391,15,68,796.46 (INR two thousand three hundred ninety-one crore fifteen lakh sixty-eight thousand seven hundred ninety-six and paise forty-six only) with interest @ 14.30% per annum from 30th June, 2018 till payment/realization. (E) Defendant nos. 1 to 3 their partners and beneficiaries, Defendant nos. 4 and 5 are ordered and directed to pay to the applicant either jointly and severally the aggregate sum of INR 7029,06,87,950.65 (INR seven thousand twenty-nine crore six lakh eighty-seven thousand nine hundred fifty and paise sixty-five only) with interest @ 14.30% per annum from 30th June, 2018 till payment/realization. (F) Defendant nos. 1 to 16 are ordered and directed to disclose on oath the properties and assets, both movable and immovable, belonging to them and their subsidiaries affiliates, related parties, directors, partners, officials and KMPs, group companies, situated worldwide within one month from the date hereof. (G) The applican ..... X X X X Extracts X X X X X X X X Extracts X X X X
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