Bankruptcies choke gem industry

The industry has lost about Rs 346.50 crore in May, June and July this year following closures by seven major units.

In an 'uthamana,' the debtors state to their creditors that they do not have adequate cash to pay up.

The first to opt for an 'uthamana' was the firm of Haresh Ahmedabadi in Surat in May. Another Surat-based firm of Himmat Waghani in June also declared bankruptcy.

The Mumbai-based unit of Prakash Bawa closed its shutters in June. The worst was to follow in July, which saw four big closures.

The firm of Bhailalbhai Patel in Navsari, a small town about 35 kms south of Surat on the Ahmedabad-Mumbai highway, closed down. The well known firm of Mahendra Gandhi in Mumbai also downed its shutters, followed by Laxman Kakadia's unit in Surat. Another big upset was the closure of Antwerp Anish Mehta's unit.

Many of the closures involved hefty sums.

"The concept of 'uthamana' is not new. The only difference is the increase in its numbers. While earlier it was considered as the last resort, now the industrialists resort to it for their benefit", says former president of the Surat Diamond Association (SDA) Pravin Nanawati.

The resilient spirit of the industry is evident from the figures and statistics. The industry started with exports of Rs 65 crore in 1965 and in 2002-03, it had exported cut and polished diamonds to the tune of Rs 47,000 crore.

"Overall, the industry may be strong enough to absorb the shock, but ultimately it is the individual diamond cutter and polisher or the diamond broker who may be affected," a leading diamond broker said.

He added "There is an air of mistrust gradually building up and everyone "" be it a broker, a cutter, polisher or exporter "" look at each other with a sense of suspicion." Though the number of 'bankruptcies' has increased, the industry, which is governed by its own credo and business rules, shuns the authorities.

"Many from the diamond industry come to me to discuss such issues, but when I ask them to lodge a formal complaint, they run away," says Assistant Commissioner of Police (Mahidharpura) B N Sarvvaiya. The crowded Mahidharpura area in the old city houses the biggest gem market where diamonds worth crores are purchased and sold every day.

But with May, June and July witnessing such a major loss, the SDA is finally thinking of working out a framework to curb this practice. In fact, many reputed firms, in a bid to ensure that they are in a different league, make payments even before the proposed deadlines.

This, say industry sources, has helped in creating goodwill.

The SDA wants to frame rules for bankruptcy declaration as it has observed that many debtors opt for 'uthamana' and later get back into the business at an appropriate time.