Decoding Nirav Modi’s (Alleged) Letter to PNB

Why did Modi offer to sell his assets? Is he trying to save his family from questions? Or is it about extradition?

On Monday, the Economic Times published the text of a letter allegedly sent by Nirav Modi to Punjab National Bank in which he claimed that their decision to go public with details of the controversy had “jeopardised” his companies’ ability to pay back their debts. The authenticity of the letter is yet to be confirmed.

The Congress has denounced the letter as arrogant, claiming that the jewellery mogul has written such a letter because he “knows he will not face any consequences because of this.” Congress spokesperson Manish Tewari also said that:

This clearly means that he is saying that he is not going to return the money. It further says that ‘as far as I am concerned you can go and climb a tall tree but you are not going to get your money’.

But is this an accurate reading of the letter? Why did Modi send this letter to the PNB? Is he trying to pass the buck and blame the bank? Will this help him defend himself in the criminal cases against him? Here are four key takeaways.

Too caught up to read the whole story? Listen to it here:

1. No Denial of Fraud Charges

The alleged letter does not at any point deny any of the criminal charges against Modi – that he entered into a criminal conspiracy with Gokulnath Shetty at the PNB to obtain Letters of Undertaking (LoUs) without following regular procedures (including providing sufficient security).

This is to be expected – from a legal standpoint, it doesn’t make sense for him to confirm or deny anything at this point. His lawyer has already said he will respond in more detail once a chargesheet is filed. It is the CBI which has to prove that he is guilty, after all, and it’s safer for him to see exactly how they’re trying to prove that before saying anything.

Till then, the letter does not in itself have any significance for the fraud allegations.

2. Offer to Sell Off Assets Indicates Admission of Default?

In the alleged letter, Modi mentions that he had twice offered to sell off his Firestar Group of companies (or their assets) to discharge the dues owed to the various banks, including on the day before the news broke. This is interesting, since it would appear to indicate that if he does not sell off his companies or their assets, his companies will be incapable of paying their dues.

It would not make much sense to admit this, since it negates the most obvious line Modi could have taken from a legal or PR perspective. He could have tried to say that he was never aware of the fraud, and that his companies which had used he LoUs to get money from banks abroad were always going to pay the money back. Even if there were a delay, the line of argument could have still worked, and it would have shown that he was actually acting in good faith. Even if he didn’t pay the money back (as is obviously going to be the case), he could still maintain the line that he would have been able to.

However, by indicating that he needed to sell off his companies to settle the amounts due under the LoUs – most of which came due in January 2018 – he’s indicated that his companies had not been operating in a way where they could fulfil their obligations.

That’s a rather strange admission to make – even though he claimed the liability of the group was “substantially less” than the Rs 11,000 crore figure.

3. A Strong Argument to Deflect Attention From Family

Paragraph 7 of the alleged letter is dedicated to saying that Modi’s brother and wife have been wrongly named in the complaint filed by PNB, the same with his uncle Mehul Choksi. According to the letter, neither his wife nor his brother were connected with the business operations of the three partnership firms in whose favour the LoUs were issued – Stellar Diamonds, Diamonds R US and Solar Exports. He also reportedly claims that his uncle Mehul Choksi runs his own separate business and has nothing to do with all of this.

This is actually a strong argument. Choksi has his own business but he is a partner in each of the three firms, as are Nishal Modi (the brother) and Ami Nirav Modi (the wife). However, while partners are jointly and severally liable for the activities of a firm under the Indian Partnership Act, this doesn’t apply to criminal liability. The Supreme Court has held that it is understandable that there are partners who are not aware of the day-to-day business of a firm, and that such partners should not be held liable for criminal offences.

This doesn’t mean that the CBI cannot proceed to investigate Nishal Modi, Ami Modi and Mehul Choksi. However, if they can’t show they were involved in the firms’ business, or if Nirav Modi is able to successfully rebut their claims that they were, then they cannot be held responsible. It is not clear at this time who exactly at the firm was responsible for colluding with the PNB officials (if there was collusion at all, of course), so the CBI can still motor along with things and decide whether to charge these three or not depending on what the investigation throws up.

At any rate, this is a good line of argument for Modi to take to get his family out of the firing line on these cases – courts have quashed cases against sleeping partners before, so getting this in place would help to forestall any cases against them.

4. Pre-Emptive Action Against Extradition – the Real Reason?

Despite the previous point, the alleged letter has no legal effect, nor does it have the potential to change the course of the investigation. For the sleeping partner argument to become operational, it will need to be used in an actual application to the courts. So what does this letter achieve for the embattled diamond trader?

The only thing that really comes to mind is that he’s trying to lay the groundwork for contesting any eventual extradition requests made by India.

If India does try to extradite him, then he will have the ability to appeal against this. If he shows that he acted in good faith and was cooperative (being willing to sell off his assets to satisfy the liabilities), but the investigation against him was – or will continue to be – in bad faith (inflated loss figure, unnecessary charges against his family), this will stand him in good stead in such proceedings.

The fact that he seems to have admitted that his companies would not have been able to pay back the credit amounts is the one negative mark against him, though it won’t matter if the CBI can’t prove fraud in the long run. It looks like it will be a long battle ahead to bring him to justice, and he’s not going to go down without a fight.

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