FSRH II : THE NIRAV MODI SCANDAL

Updated: Mar 29, 2021

INTRODUCTION


Banking scams and rising NPAs have always been the main characteristics of the Indian Banking system for the past decade. Our economy suffered a loss worth 71,543 crore in the fiscal year ending ’20 from the Banking scams and frauds. The biggest scam witnessed in the banking history is “PNB Scam/Nirav Modi Scam” which gave the economy a shock of US $1.4 billion as revealed on 29th January 2018

KEY ACCUSED IN THE CASE


The key alleged in the scam are jeweller and designer Nirav Modi, his wife Ami Modi, brother Nishal Modi and uncle Mehul Choksi, all partners of the firms, M/s Diamond R US, M/s Solar Exports and M/s Stellar Diamonds; along with two of the bank employees, Gokulnath Shetty, retired Deputy Manager of PNB and another bank official.


WHAT HAPPENED ?


PNB fraud billionaire jeweller NIRAV MODI allegedly acquired fraudulent letters of undertaking from Brady House Branch, Mumbai allowing him to get credit from an overseas branch of Indian banks including likes of Allahabad bank, Axis Bank and Union Bank of India to pay its overseas diamond suppliers. PNB bank officials involved in the scam used the international financial communication system, SWIFT, to avoid the recording of transactions in the bank core’s system- keeping authorities at bay. The fraud has ballooned to nearly 14,356 cr in May 2018 whose first instance was recorded in 2011. Nirav Modi got his first fraudulent guarantee from PNB in 2011 and managed to get 1,212 more such guarantees over the next 74 months.

The whole scam started on 16th January 2010 when Nirav Modi partnered firms asked for LOUs for raising buyer’s credit, which was promptly denied by bank officials without cash margins as the officials involved in the scam had already retired. Upon digging further, the whole scam broke out!


INVESTIGATION- AS IT WENT


In the initial weeks of investigation, ED seized assets in its multiple raids and GoI suspended the Visa of Nirav Modi and Mehul Choksi, issuing a bailable arrest warrant.

June 2, 2018- Interpol issues a Red Corner Notice(RCN) for money laundering.

August 3, 2018- The Indian Government sends a request for the extradition of Nirav Modi to the UK authorities.

August 20, 2018- CBI requested Interpol Manchester to detain Nirav Modi after he was found on the streets of London.

March 9, 2019- Govt. of UK sent an extradition request of Nirav Modi to the court.

March 20, 2019- Nirav Modi arrested

May 2019- The UK court has denied him bail 5 times till now as he may tamper evidence if set free.

He further remained in judicial custody until October 17, which was working towards his 5-day extradition trial from 11-15 May 2020.

May 2020- 5-day extradition trial hearing postponed till September 2020.

Nirav Modi is currently in the UK seeking political asylum.


THE BOTTOMLINE


The PNB scam which has unfolded over 6 years without ever coming under suspicion should serve as an eye-opener as well and should not go in vain. It raises grave questions on the security of the Indian banking system and reflects poorly on the capability of the banking regulator, RBI as well. There is no guarantee that no similar scams are smouldering below the surface at other banks. In fact, a recent report suggests the suspicion of more than 12,000 cases in the past 3 years. These banking scams unveil loopholes still present in banking systems and an urgency to revamp it.


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