In the history of India, PNB Fraud Scandal has become the 2nd
biggest state run lending cases which astound the financial arena of our
country. It was found that the fraud of Rs
11, 400 crores had happened at a branch located in Brady House in Fort,
Mumbai. During the initial investigation, it was developed that the branch was
issuing the unlawful bank guarantees from many years to these two renowned jewelry
groups – Nirav Modi & his uncle Mehul
Choksi. They were alleged for raising billions of dollars in the foreign
credit which led them to commit this well-known bank scandal of India. This is one
of the frauds happened in India which not just shook the country but also shook
the banking sector to a great extent.
What
Exactly Happened?
On dated 29-01-2018, Punjab National
Bank lodged a criminal complaint against 3 companies & 4 people. It includes
jewelry billionaire Nirav Modi,
Mehul Choksi (his uncle), Managing
Director of Gitanjali Gems, stating that they deceived Punjab National Bank
which triggered a huge loss of $43 million which is 2.8 billion rupees. But
after the further investigation, it was determined that loss caused was $1.77
billion which comes to 113.94 billion rupees. The
bank also stated that two more junior employees were also involved of its Brady
House Branch located in Mumbai. These two were secretly engaged in the illegal
acts with firms belonged both Mehul Choksi and Nirav Modi. The junior employees
illicitly issued LOU (Letter of
Understanding) in an unethical way where it was not at all mentioned about
the margin money as security. It is also found that firm did not have any
previously approved credit limit in the past.
How
Did PNB Scam Expose?
As per Punjab National Bank, on
dated 16-01-2018, one of the officials from one of the accused companies
visited this bank. He furnished a set of import documents to the branch
situated in Brady, Mumbai and requested buyers for credit to pay suppliers of
overseas. The branch officers asked the firms to put down the entire amount as
security so that bank could give Letter of Understanding in order to sanction
the credit because they had no previously arranged credit limit.
The argument started and an official
from one of these firms said they (his company members) had used this facility
earlier also in the past without presenting any sort of money as security. Afterwards,
PNB had started scanning its bank records and found no evidence of any type of dealing
which was entertained in their bank’s account.
After further investigation,
shockingly it was revealed that two of the junior officials were occupied in
this. It was found that they had issued Letter of Understanding using the
interbank messaging system known as SWIFT. By doing this, none of the
transaction has shown up in the banking own system. It was surprisingly got to
know that, such type of transactions kept on going from numbers of years and
that too without any observation.
As per the bankers, the SWIFT
system is used for dealing the international transactions in various domestic
banks of India. It is the core banking system which actually works
individualistically in the banking system. In the matter of Punjab National
Bank, LOUs were not available on its banking system.
How
Many People & Companies Were Accused?
It has been got to know that
three companies were involved in this biggest scam. These were Diamond R US,
Stellar Diamonds & Solar Exports. The Diamond R US also belonged to Nirav,
an illustrious jeweler who used to run stores of Nirav Modi located in New York
& Beijing. As per the ranking of Forbes Magazine, during 2018, Modi’s net
worth was somewhere around $1.7 billion.
In a statement by PNB, it was
also suspected that the employees of other foreign branches of different banks
of India were also engaged and might have helped in extending the credit. The
other companies which were come in limelight by Mehul Choksi were Nakshatra,
Gili India and Gitanjali Gems.
Advocate
Vijay Aggarwal
On dated Jan 31-01-2018,
Central Bureau of Investigation had filed a case against both Nirav Modi &
Mehul Choksi. But both ran away out of the country before the scandal became
public.
Vijay Aggarwal Advocate had opposed all the charges imposed against
Nirav Modi. Modi also wrote a letter to Punjab National Bank secretly that his
companies were not significantly involved as the bank was showcasing.
Even, Gitanjali has also
invalidated the participation of Choksi in the scam. However, he also wrote a
letter to all his employees and said to find a new job as all his assets had
seen seized. He was not at all able to pay off the salaries of his
employees.
Earlier it was presumed that
Modi could be found in Switzerland and then the United States. But it was
reported that he is in the United Kingdom & seeking asylum there. Vijay Aggarwal Lawyer also informed the courts about his powerlessness to return to
India due to the fear of being lynched.
Present
Situation
At present, the developments
are now becoming more positive. Punjab National Bank has stated a net profit of
Rs 246.5 Crores in the December quarter of Fiscal Year 2019 after the
back-to-back loss of continuous loss of 3 quarters.
As per the statement by a
senior Punjab National bank, they are delighted & positive after the arrest
of Nirav Modi in United Kingdom.
The PNB scam also uncovered the
major differences of Minister of Finance and Reserve Bank of India related to
controlling powers. The Reserve Bank of India doesn’t hold all the provision of
Banking Regulation Act, 1937 on the banks run by the states related to hiring
& firing of employees which includes chairmen, MD and other persons of
managerial positions like directors of public sector banks.
However, the Ministry of Finance
monitors the supervisory powers of the central bank which includes the audit,
inspecting of books, reviewing managing directors and all the other related
officers.