Punjab National Bank Scam

The Punjab National Bank (PNB) Fraud (2018) was a fraudulent letter of undertaking scheme worth ₹12,000 crore (US$1.4 billion) issued by the Punjab National Bank at its House branch in Fort, Mumbai, making the Punjab National Bank liable for the amount.^[1] The fraud was allegedly organised by jeweler and designer Nirav Modi. Nirav, his wife Ami, his brother Nishal, and his uncle Mehul Choksi, have all been named in a charge sheet by the Central Bureau of Investigation (CBI), along with all partners of the firms M/s Diamond R US, M/s Solar Exports, and M/s Stellar Diamonds, PNB officials and employees, and directors of Nirav Modi and Mehul Choksi's firms.^[2] Nirav Modi and his family absconded in early 2018, days before the news of the scam broke in India.

India's Enforcement Directorate had begun to attach assets of the accused and was seeking immediate confiscation under the Fugitive Economic Offenders Ordinance.^[3] Nirav was on Interpol's wanted list for criminal conspiracy, criminal breach of trust, cheating and dishonesty including delivery of property, corruption and money laundering since February 2018.^[4][5] In March 2019, Nirav was arrested in central London by British authorities.^[6]

The bank initially had said that two of its employees at the branch were involved in the scam. The bank's core banking system had been bypassed when the corrupt employees issued LoUs to overseas branches of other Indian banks, including Allahabad Bank, Axis Bank, and Union Bank of India, using the international financial communication system, SWIFT. The transactions were noticed by a new employee of the bank.^[7] The bank then complained to the CBI, which investigated the scam apart from the ED and the Reserve Bank of India. The CBI named key officials Usha Ananthasubramanian, former CEO of PNB, executive directors KV Brahmaji Rao and Sanjiv Sharan in a charge sheet, holding them responsible for failing to implement several circulars and caution notices issued by the RBI regarding the reconciliation of SWIFT messages and core banking systems.^[8]

PNB alleged associates of three firms–Diamond R US, M/s Solar Exports, and M/s Stellar Diamonds–approached PNB on 16 January 2018, with a request for Letters of Understanding (LoUs) to make payment to their overseas suppliers. The bank demanded at least a 100 percent cash margin for issuing LoUs, but the firms contended that they had received LoUs without any such guarantee in the past. Branch records did not show any such facility having been granted to the firms. PNB suspected fraud and began investigating the transaction history.^[9]

On 29 January 2018, PNB filed a complaint with the CBI, wherein it was alleged that Nirav Modi, Ami Modi, Nishal Modi and Mehul Choksi, all partners of M/s Diamond R US, M/s Solar Exports, and M/s Stellar Diamonds. In collusion with two bank officials, they committed the offence of cheating against PNB and caused a wrongful loss. The PNB official, in his complaint, informed the agency that at the Bank's branch office at Brady House in Fort, Mumbai, two of its employees, Gokulnath Shetty, retired Deputy Manager of PNB and another bank official, issued fraudulent LoUs to Hong Kong based creditors on behalf of three firms associated with Nirav Modi and the Gitanjali Group. “The public servants committed abuse of official position to cause pecuniary advantage to Diamonds R US, Solar Exports and Stellar Diamonds and wrongful loss of ₹280.70 crore to PNB during 2017," said the first information report (FIR) filed by CBI.^[9][10]

On 18 May 2018, the scam was reported to have ballooned to ₹14,356.84 crore (US$2.1 billion), and Nirav Modi was said to be hiding in London, allegedly travelling on a fake passport.^[11][12]

On 13 June 2018, the CBI approached the Interpol to issue a red notice against Nirav Modi's brother, Nishal and one of his executives in connection with its probe into the Punjab National Bank (PNB) fraud. The CBI sent a request to the Interpol to issue an RCN against Nirav Modi and his uncle Mehul Choksi of the Gitanjali Group.^[13]

On 20 August 2018, former MD and CEO of Allahabad Bank, Usha Ananthasubramanian, was granted bail on a surety bond of Rs 1 lakh by the Special CBI court in Mumbai. A week earlier, the government had dismissed Usha on the last day of her work. Ananthasubramanian was MD of Punjab National Bank between August 2015 and May 2017 and had also served as its executive director. She was dismissed with immediate effect.^[14]

The CBI registered a disproportionate assets case against a retired deputy manager of Punjab National Bank, Gokulnath Shetty, a key accused, for allegedly amassing wealth 200 per cent more than his known sources of income.^[15]

Nirav Modi, who disappeared in February 2018, has been in the British capital since June 2018. He was arrested in central London on 19 March 2019 after an Indian-origin clerk at a bank in central London recognized him and alerted the police. UK police arrested Modi on behalf of the Indian authorities, who asked for his extradition. Modi appeared in court on 20 March 2019. In the same month, the UK court refused twice to grant him bail on the grounds that he was a flight risk and could flee the country if given a chance.^[16] For the third time Modi was denied bail and was ordered to remain in prison till 24 May 2019. The court had also noted that Modi could tamper with evidence if left free. It has been revealed in earlier hearings that Modi had threatened to kill a prime witness and bribe another to escape justice.^[17] In June 2019, four Swiss bank accounts belonging to Nirav Modi and his sister, Purvi Mehta, were frozen by authorities in Switzerland as part of the scam. The total amount of ₹283.16 crore was frozen at the request of the Enforcement Directorate.^[18] After Swiss bank, a few days later, on 2 July 2019, the Singapore High Court ordered the freezing of four bank accounts in the names of Modi, Purvi, and her husband, Mayank Mehta. These accounts have Rs 44 crore between them. Interpol issued a red notice against both Purvi and Mayank.^[19]

In August 2019, the Central Bureau of Investigation (CBI) moved an application in the special CBI court, seeking to declare fugitive businessman Nirav Modi, his brother Neeshal Modi and a close associate, Subhash Parab, proclaimed offenders and to attach their properties. All three were declared 'wanted' by the CBI in its charge sheet in the ₹13,700 crore PNB scam. Though warrants were issued for their arrest, the CBI was unable to execute the warrant as the accused had fled India prior to the charges being filed in February 2018.^[20]

Nirav Modi's legal team had made four bail applications, which were rejected each time due to Modi being deemed a flight risk. Modi, who had been imprisoned at Wandsworth prison in south-west London since March 2019, which extended till 19 September and later further remanded to judicial custody until 17 October by a UK court, which said it was working towards his five-day extradition trial hearing for 11–15 May 2020, and he must appear via video link before a court every 28 days.^[21]

In September 2019, Antigua and Barbuda Prime Minister Gaston Browne said Fugitive diamantaire Mehul Choksi of the Gitanjali Group was a "crook" and should be repatriated to India after he exhausts all legal options. Mehul Choksi, who was currently in the Caribbean nation of Antigua, told the high court that he left India for medical treatment and not to avoid prosecution in the case. He said he would return to India as soon as he was medically fit to travel.^[22]

In December 2019, Nirav Modi, his step-brother Nehal Modi and two of their business associates tried to threaten witnesses and destroy evidence, said the Central Bureau of Investigation (CBI) in the additional charge sheet submitted before the CBI court in Mumbai. According to CBI's charge-sheet, the evidence came after nine of Nirav's employees submitted details to CBI of how Nirav and Nehal, along with associates, took them to Egypt against their will and coerced them into signing documents that would establish the nine as owners of dummy companies Nirav had floated.^[23]

In March 2020, the Enforcement Directorate (ED) auctioned 72 luxury items seized from Nirav Modi for Rs 2.29 crore.^[24]

In May 2020, based on a request from Indian agencies, Interpol had put Nehal Modi back again on the red notice for assisting his step-brother Nirav Modi in defrauding the PNB. Last year, his name was removed from the Interpol website when Nehal Modi and Neeshal Modi challenged the red notice.^[25] The CBI charged Nehal with purportedly managing two companies for Nirav Modi, which received $50 million from dummy entities. After the scam got exposed, he took away diamonds worth $6 million, 3.5 million in UAE dirham, and 50 kg of gold. In Dubai, he destroyed digital evidence in the form of mobile phones and a server and also threatened the key witnesses.^[26]

On 8 June 2020, The Prevention of Money Laundering Act (PMLA) Court ordered the confiscation of nearly Rs 1,400 crores worth of property of Nirav Modi.^[27]

In May 2020, the UK court adjourned the Nirav Modi trial until September 2020 on the Five-day extradition trial hearing. Modi applied for political asylum after his bail was denied five times in the UK.^[28]

In July 2020, the Enforcement Directorate (ED) filed a charge sheet against Mehul Choksi, alleging that he ran an organized racket to cheat customers and lenders in India, Dubai and the United States.^[29]

On 1 March 2018, the government approved the Fugitive Economic Offenders Bill to deter economic offenders from evading the process of Indian law by giving powers to the government to confiscate assets of a fugitive, including Benami assets of absconding loan defaulters.^[30] The bill covered a wide range of economic offences, including loan defaulters, frauds, and violations of laws governing taxes, black money, Benami properties, and corruption. On 12 March 2018, the government introduced the bill in the Lok Sabha.^[31]

In March 2018, the Reserve Bank of India scrapped banking instruments such as the Letter of understanding (Lou) and Letter of Comfort (LoC) in an attempt to plug a loophole and improve banks’ due diligence in trade credit. Some bankers noted that Lou's and LoCs led receiving banks to depend entirely on the issuing bank's assessment of creditworthiness.^[32]

The fraud was featured in the second episode, "Diamonds Aren't Forever", of the Netflix-based documentary series Bad Boy Billionaires: India. ^[33] The series got involved in legal issues, as Mehul Choksi approached the Delhi High Court and filed a plea demanding a pre-screening before the release.^[34] However, the plea was dismissed by a single judge panel of the Delhi High Court on 29 August 2020.^[35] The series was released on 5 October 2020.