Clear criminal connivance of Nirav Modi and Gitanjali Gems in Rs 11000 crore scam, says PNB in letter to banks

Last Updated: Sun, Feb 18, 2018 17:50 hrs
Nirav Modi (AP Photo)

Till recently, diamantaire Nirav Modi was the toast of Mumbai and Maximum City's richest jeweller.

His fairytale rise since he established his first store in New Delhi saw Forbes value him at $ 1.8 billion in 2017.

With Hollywoood actresses like Rosie Huntington Whitely and Dakota Johnson swearing by his designs, and Priyanka Chopra turning his brand ambassador, it seemed like Modi was set to shine brighter than his famed jewels.

But then came the first inkling of trouble with Modi, his wife, brother and uncle Mehul Choksi, owner of Gitanjali Gems, being booked by the Central Bureau of Investigation (CBI) for allegedly cheating Punjab National Bank (PNB) of over Rs 280.70 crore.

Now comes an even bigger bombshell. The fraud, according to PNB, is way beyond the Rs 280.70 crore it had initially pegged it at.

PNB has filed a fresh complaint with the CBI against Modi stating that the total fraud spread over seven years from 2011 was $ 1.771 billion (a whopping Rs 11400 crore). This has transformed it overnight into the biggest banking scam in India's history. 

The fraud is nearly eight times the size of the bank's 2017 net income ($206 million) and shockingly originated from one PNB branch - Brady House in Mumbai.

It also represents as much as one-third of PNB's current market cap and is twice the amount (Rs 5473 crore) that the bank was supposed to get from the Centre as part of the recapitalisation plan. Essentially, this means that even if the bank were to recover 50% of the value lost in the scam, it would nullify the benefits of at least the PNB recap plan.

Advocate Prashant Bhushan, meanwhile, tweeted that CBI FIR clearly shows that some of Niraj Modi's biggest loans were taken in February 2017 (when as many as eight LoUs over a week) giving the lie to propaganda that they are UPA loans. How could this remain hidden from top management of PNB/RBI/govt for a year and discovered only when due, he wondered. Here is the snapshot of the FIR that he shared:

These eight LOUs issued by PNB total up to $ 44.225 million (the Rs 280.70 crore that PNB initially pegged the scam at).

The fresh CBI FIR against Nirav Modi and Mehul Choksi among others now involves 143 LoUs and 224 foreign letters of credit, which are separate from the earlier 150 LoUs relating to the FIR dated 31 January 2018, ANI reported on Friday.

"This cancer has been going on since 2011. We have brought it out and we are resolving it," PNB's chief executive Sunil Mehta told mediapersons on Thursday.

"We detected it in the third week of January (2018) and we promptly investigated it for three-four days. We went to the CBI on January 29 and the FIR was booked on 30," he explained.

"If the entire onus is on us, we will take responsibility," Mehta added.

A caution notice sent by the PNB General Manager possibly of the Brady House branch to other banks on February 12 had earlier said "there is clear criminal connivance of group of Shri Nirav Modi and Gitanjali Gems (owned by his uncle Mehul Choksi) with PNB branch officials and officials of overseas branches of Indian Banks" and this led to the scam.

Deputy Manager, Forex Division, Gokulnath Shetty (who has since retired and reportedly settled down in Malad) and a clerk Manoj Kharat were the two key officials whom PNB suspect of having helped Modi and his family in pulling off the mega fraud. It is quite another matter that most people don't buy this theory in its entirety.

Without doubt, India's 57th richest man according to Forbes is now set to face the heat and his seems to be another story of vaulting ambition that came to a crashing halt.

In fact, Modi has indirectly admitted to his role, if a CNBCTV18 report is to be believed. The report said that Modi had written to banks exposed to the scam and said that he would be able to sell Firestar Diamond, which he valued at over Rs 6435 crores, in three to six months to pay off the money owed to them.

Even assuming that Modi is right in his valuation - and that is indeed a hugely generous assumption - it only covers a little over half the amount siphoned off in the scam.

PNB shares took a hit falling by almost 25% over three days. Gitanjali Gems were battered too - with its market cap falling by Rs 300 crores in three days.

The caution notice sent by the PNB General Manager details how the scam was pulled off and also the allegations against Modi and Gitanjali Gems. It was shared by Siddharth Zarabi, Executive Editor of BTVi.

Before you read it, a few jargon busters.

Letter of Undertaking (LoU) - Is a bank guarantee for overseas import payments. An LoU marks a bank's solemn commitment to repay the principal and interest of a loan advanced by another bank to its client. Letter of Undertakings ideally should be backed by security from the client.

SWIFT - Society for Worldwide Interbank Financial Telecommunication: A messaging system used by banks to clear Letters of Undertaking (LoUs). These messages have to pass through a triple layer of checks and balances - involving the drafter, a checker and a verifier - before they can be sent across.

Nostro account - An account that a bank holds in a foreign currency in another bank

We reproduce it below:

A few interesting questions and opinions on the scam posted on twitter:

Also Read:

Namo! Nimo! and the Rs 11400 crore hoodwink - A Davos Talkies production

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I screamed in court against Choksi and Gitanjali Gems, but nobody heard me back then: cheated franchisee

Nirav Modi fraud: Jewellers apprehend impact on credit flow to industry

PNB capable of taking entire hit of Rs. 11,300 crore: Fin Min sources

CBI registers FIR against Gitanjali group in $ 1.8 billion fraud case

PNB should reveal due diligence on Rs. 1700 crore loan to Nirav Modi: AIBEA

Government suspends Nirav Modi, Mehul Choksi's passports

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