How Mehul Choksi, Nirav Modi Defrauded Punjab National Bank In A Rs 13,500-Crore Scam
The PNB scam first came to light in early 2018, involving Mehul Choksi and his nephew Nirav Modi. The two businessmen colluded with the bank staff to obtain fake LoUs worth thousands of crore of rupees at PNB's branch in Mumbai
Fugitive businessman Mehul Choksi, accused in the Rs 13,500 crore Punjab National Bank (PNB) loan fraud case, has been reportedly arrested in Belgium and will be extradited to India soon.
The absconding diamond jeweller was reportedly living in Antwerp with his wife Preeti Choksi, after being granted residency — F Residency Card — in Belgium in November 2023. He was held on April 12 from a hospital where he has been undergoing treatment.
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The arrest comes after an extradition request from Indian investigative agencies, the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED), which have been working to bring Choksi back to face trial for his alleged role in one of India’s largest financial scandals.
What Is The Punjab National Bank Scam?
The PNB fraud scam first came to light in early 2018, involving Choksi, his nephew Nirav Modi, and a number of accomplices, including certain PNB officials.
The scam relates to fraudulent letter of undertaking worth Rs 10,000 crore issued by the bank.
The two businessmen colluded with the bank staff to obtain fake Letters of Undertakings (LoUs) at PNB’s Brady House branch in Fort, Mumbai. The LoUs were secured by Choksi’s firm, Geetanjali Gems, to secure loans from foreign banks for import of pearls for a period of one year, for which Reserve Bank of India guidelines lay out a total time period of 90 days from the date of shipment.
This guideline was ignored by overseas branches of Indian banks. The loans were allegedly fraudulent as they were issued without a sanctioned limit or cash margin, and no entries were made in PNB’s central banking system to avoid scrutiny.
The activities led to a massive loss of Rs 6,344 crore for the PNB, with money lent by banks such as the State Bank of India, Axis Bank, and others, on the basis of fake documents.
How Did The Scam Unfold?
PNB employees misused the SWIFT network to transmit messages to Allahabad Bank and Axis Bank on funds. Thus, transactions were never recorded in the bank’s core system — thereby keeping the PNB management in the dark for years.
PNB alleges associates of three firms — Diamond R US, M/s Solar Exports and M/s Stellar Diamonds — approached the bank to make payment to its overseas suppliers. The bank demanded that it will need at least a 100% margin for issuing LoUs. However, the firm said they have received LoUs in the past without any such guarantees.
Branch records showed no such request was granted to the firms. This made the bank suspect there could be a fraud which led to them digging further into the transaction history.
The bank filed a complaint with the CBI on January 29, 2018 against Nirav Modi, Ami Modi, Nishal Modi and Mehul Choksi along with two PNB employees for cheating and causing wrongful loss.
The FIR stated that fraudulent LoUs worth Rs 280.7 crore were first issued on January 16, 2018. In the complaint, PNB had named three diamond firms, Diamonds R Us, Solar Exports and Stellar Diamonds.
The scam ballooned to over Rs 14,000 crore by May 18, 2018.
How Nirav Modi Was Involved
Nirav Modi got his first fraudulent guarantee from PNB on March 10, 2011 and managed to get 1,212 more such guarantees over the next 74 months.
The Enforcement Directorate (ED) found bank token devices of the foreign dummy companies used by the fugitive diamond trader to transfer the fraudulent funds.
The probe agency found that Nehal Modi, brother of Nirav Modi had destroyed the devices and had even secured a server located in United Arab Emirates (UAE) soon after the scam broke out. These dummy firms had been receiving the fraudulent PNB LoUs and were based out in British Virgin Island and other tax havens.
In 2018, Nirav Modi applied for bankruptcy protection in Manhattan, New York. In May 2018, the CBI and the ED registered FIRs against him. It is said that Modi fled the country before criminal charges were filed against him. In June 2018, it was reported that Modi was seeking political asylum in Britain. In March 2019, Modi was arrested in central London by UK authorities.
In 2019, Swiss authorities froze a total of $6 million in Modi’s Swiss bank accounts. He was also being sued by the state of California in the US for defrauding Los Angeles entrepreneur Paul Alfonso.
How Choksi Escaped
Choksi was declared a fugitive in January 2018, shortly before the PNB scam became public. Citing medical reasons, he fled India for the US, eventually settling in Antigua.
He obtained citizenship in Antigua in 2017, just a few months before his departure. His escape was well-planned, as he strategically moved through several countries to evade Indian authorities.
In 2019, his nephew Nirav Modi got arrested in the UK and has since been fighting extradition to India.
But Choksi continued to live in Antigua for several years before attempting to flee to Cuba in 2021. He was detained in Dominica, and his legal team claimed he was kidnapped, but he was eventually deported back to Antigua.
After that, he reportedly travelled to Belgium for alleged medical treatment for blood cancer.
Implications Of Choksi’s Crimes
The ED has so far seized movable and immovable properties to the tune of Rs 2,362 crore in the PNB fraud case.
Furthermore, investigations are in the process to trace and recover the proceeds of crime held by Choksi in foreign countries.
The ED has identified multiple properties owned by Choksi in countries like Thailand, Dubai, Japan, and the United States, and is working with authorities in those regions to seize and return these assets.
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