PNB Scam: Passports of Modi, Choksi Revoked; ED Expands Probe

The Rs 11,000 crore fraud extends past PNB to other lenders – SBI, Union Bank, Axis Bank and Allahabad Bank. 

34 min read
PNB revealed that fraudulent transactions by billionaire jeweller Nirav Modi and related entities amounted to over Rs 11,000 crore.

The Nirav Modi Scam

India's second largest state-owned lender Punjab National Bank disclosed on 14 February that it was the victim of the country’s largest bank fraud. PNB revealed that fraudulent transactions by billionaire jeweller Nirav Modi and related entities amounted to $1.77 billion (or over Rs 11,000 crore).

In a complaint to the Central Bureau of Investigation, the bank said that Modi and the companies linked to him colluded with its officials to get guarantees or Letters of Undertaking to help fund buyer’s credit from other overseas banks. The funds, ostensibly raised for the purchase and sale of diamonds, were not used for that purpose, PNB alleged.

Later, it was revealed that the fraud extended past PNB to other lenders like State Bank of India, Union Bank, Axis Bank and Allahabad Bank.

Modi, as it turned out, left the country on 1 January. The CBI has approached the Interpol for help in locating Modi and his family. The agency has also registered a fresh FIR against Mehul Choksi, Modi's maternal uncle and the promoter of Gitanjali Group, who is also named in the fraud.

(With inputs from PTI and ANI)

8:41 PM , 25 Feb

ED to Seek Info from Over Dozen Countries on Nirav Modi, Choksi's Assets

Widening its probe into the PNB fraud case, the Enforcement Directorate will soon send judicial requests to over a dozen countries for obtaining information about the overseas businesses and assets of diamantaire Nirav Modi and owner of Gitanjali Gems Mehul Choksi.

Official sources said the agency will approach a competent court in Mumbai with a request to obtain Letters Rogatories (LRs) to be sent to about 15-17 countries where the central investigation agency has traced the footsteps of the diamond and gold jewellery businesses of the firms owned by Modi, his uncle Choksi and others associated with them.

The countries where the LRs would be sent include Belgium, Hong Kong, Switzerland, the United States, the United Kingdom, Dubai, Singapore and South Africa.

Some official requests on the basis of agency-to-agency exchange will also be sent to few countries, the sources said.

7:26 PM , 25 Feb

Lawyer Says He Will Advise Nirav Modi Not To Return To India For Investigation

Nirav Modi’s lawyer Vijay Aggarwal seems confident the case against his client, accused in a fraud worth over Rs 11,000 crore, would not stand in a court of law for “even five minutes”.

Punjab National Bank’s claim that there were no records of letters of undertakings extended to Modi’s firms could be easily refuted, Aggarwal told BloombergQuint in an interview.

To say it is not in the books of the bank is an incorrect statement, absurd, which is not going to stand for even five minutes in the court of law.
Vijay Aggarwal, Nirav Modi’s Lawyer
6:10 PM , 25 Feb

CBI Questions PNB's Executive Director for Second Day

The CBI has examined Punjab National Bank's Executive Director KV Brahmaji Rao for the second day today in connection with the Rs 11,400 crore PNB scam allegedly involving jewellers Nirav Modi and his uncle Mehul Choksi, officials said.

Rao, who started his career in banking 35 years ago as a probationary officer in Vijaya Bank, handled the Mumbai zone, among others, in the bank where the crime was allegedly detected, they said.

The officials said several other officers of the bank were being questioned by the agency as well.

5:27 PM , 25 Feb

Banks Plan Raising Cover Against Fraud

Rattled by a spate of frauds in the banking sector, lenders are now planning to increase insurance cover against delinquencies by their employees to protect their bottomlines.

Frauds of such magnitude and scale -- PNB fraud Rs 11,400 crore and OBC fraud Rs 390 crore -- has forced us to consider substantially much higher risk cover than the basic banker’s indemnity policy which various banks have right now.
Public Sector Bank official

Punjab National Bank had only bought a basic banker's indemnity policy, which covers employee fraud, to the extent of Rs 2 crore which would not cover even 0.2 per cent of Rs 11,300 crore fraud done allegedly by Nirav Modi, Mehul Choksi and his associates in connivance with officials of a Mumbai branch.

Soon after this, a case of alleged swindling of Rs 390 crore from Oriental Bank of Commerce (OBC) was registered against a Delhi-based diamond jewellery exporter. In between there was a fraud case of Rs 3,695 crore by Rotomac Pen company owner Vikram Kothari in which the CBI filed cases and effected several arrests.

With faith on their own internal audit system and risk management, banks were not keen for higher cover but a series of frauds in the system have compelled them and in the recent Indian Banks' Association meeting also the issue came up for the deliberation, the official of another public sector lender said.

However, the official said, cover can be for fraud not for the wilful default where number of lenders are involved and these two have to be dealt separately.

In the Winsome Diamond Group’s case, the company took a loan of Rs 6,800 crore from a consortium of banks, including PNB. However, Nirav Modi primarily cheated PNB by getting fake LoUs made in connivance with various bank officials.

Besides, there is allegation of forgery and unauthorised use of global payment network SWIFT for unauthorised issuance of credit instrument (LoU) while lenders issued standby letters of credit in favour of international bullion banks to supply gold to Winsome Group companies.

Out of Rs 6,800 crore outstanding, Winsome’s associate Forever Precious Diamonds and Jewellery owes another Rs 2,121.82 crore to a set of banks led by PNB.

At the same time, Winsome so far is seen and tried at various courts of law as case of commercial default by an old customer Haytham and due to cross-default clause in standby letters of credit (SBLC) resulting in cumulative large default on banks.

Recently, the Sharjah Federal Courts have passed decrees in favour of Winsome Diamond and its associate Forever and against the overseas customers controlled by Jordanian national Al Haytham in the suits for recovery of money.

The court process involved institution of an experts' committee which concluded that the transactions were genuine and money is owed by Haytham companies to Winsome. The order also attributed the cause of Haytham default to his losing money in derivatives trading.

Published: 19 Feb 2018, 1:27 PM IST
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