Absconding diamantaire Mehul Choksi has been arrested in Belgium following an extradition request by Indian probe agencies for his involvement in the over Rs 13,000 crore PNB bank loan "fraud" case. The action against the second "prime suspect" in this case, after Choksi 's nephew diamantaire Nirav Modi , was taken on Saturday based on an extradition request moved by the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED).
Choksi was located in Belgium last year when he went there on the grounds of getting medical treatment. He had been staying in Antigua since 2018 after leaving India. A year prior, in 2017, he had acquired Antiguan nationality.
Choksi, Modi , their family members and employees, bank officials and others were booked by the CBI and the ED in 2018 for perpetrating the alleged loan fraud at the Brady House branch of the Punjab National Bank (PNB) in Mumbai.
Here's how the PNB scam unfolded
What is the Punjab National Bank scam?
The Punjab National Bank (PNB) scam is one of the largest financial frauds in India’s banking history. It involved the misuse of banking instruments to siphon off more than Rs 13,000 crore. The scam was led by jeweller Nirav Modi and his uncle Mehul Choksi, both of whom fled India after the case came to light in early 2018. The scandal exposed loopholes in the banking system, especially in the use of Letters of Undertaking (LoUs) and the SWIFT messaging system.
Role of PNB officials
The fraud came to light when PNB, a public sector bank, filed a complaint with the Central Bureau of Investigation (CBI) on January 29, 2018. The complaint said that Nirav Modi and his group of companies had obtained fraudulent LoUs from the Punjab National Bank's Brady House branch in Mumbai.
Also read - PNB bank loan 'fraud' case: Fugitive businessman Mehul Choksi arrested in Belgium
Nirav Modi was the face of the scam initially, but the focus shifted to his maternal uncle Mehul Choksi as more details emerged. It became clear that Choksi, owner of the defunct Gitanjali Gems Limited, had played an equally sinister role in the scam.
Letters of Undertaking are bank guarantees issued to overseas branches of Indian banks to provide short-term credit to customers. These LoUs are supposed to be backed by margin money or collateral and recorded in the bank’s core system. However, in this case, PNB officials issued LoUs without proper approvals or any collateral.
According to the CBI FIR, two PNB officials—deputy manager Gokulnath Shetty and clerk Manoj Kharat—bypassed internal protocols. They used the SWIFT system to send LoUs directly to overseas banks such as Allahabad Bank, Axis Bank, and Union Bank of India, which then credited the accounts of Nirav Modi’s companies. The SWIFT messages were not recorded in the bank’s internal banking software (CBS), which allowed the fraud to go undetected for years.
According to investigating agencies, officials at the Punjab National Bank (PNB) Brady House branch in Mumbai issued 165 Letters of Undertaking (LoUs) and 58 Foreign Letters of Credit (FLCs) during March and April 2017. These were linked to the discounting of 311 bills.
Also read: How Mehul Choksi plans to resist extradition to India from Belgium
The LoUs and FLCs were allegedly issued to companies linked to Mehul Choksi without any approved credit limits or cash margins. The officials also did not record these transactions in PNB’s central banking system, which would have helped avoid detection in case of a default.
LoUs are bank guarantees provided on behalf of a client to a foreign bank. If the client fails to repay, the guaranteeing bank becomes responsible for the payment.
Using these LoUs issued by PNB, several foreign branches of banks provided funds. These included SBI in Mauritius and Frankfurt; Allahabad Bank and Axis Bank in Hong Kong; Bank of India in Antwerp; and Canara Bank in Manama.
The Central Bureau of Investigation (CBI), in its supplementary charge sheet, stated that since the companies involved did not repay the money taken using the fraudulent LoUs and FLCs, PNB had to pay Rs 6,344.97 crore (USD 965.18 million), including overdue interest, to the foreign banks that had given buyer’s credit and discounted bills based on these fraudulent instruments.
How did scam came to light?
The scam started as early as 2011 and continued until 2017. The companies named in the FIR included Firestar Diamond, Solar Exports, Stellar Diamonds (controlled by Nirav Modi), and Gitanjali Gems (controlled by Mehul Choksi). The money was supposedly used for import and export of diamonds and jewellery. However, investigations by the Enforcement Directorate (ED) and CBI found that many of these transactions were circular in nature, and no actual goods were imported.
The fraud came to light when PNB officials demanded full margin money from the companies for issuing fresh LoUs in January 2018. When the companies said they had received such LoUs in the past without collateral, PNB began an internal inquiry, which led to the filing of the complaint.
Investigation, and recovery efforts
Following the complaint, the CBI registered multiple cases against Nirav Modi, Mehul Choksi, their family members, employees, and PNB officials. The Enforcement Directorate (ED) also filed money laundering cases under the Prevention of Money Laundering Act (PMLA).
Within days of the complaint, Nirav Modi had left India. He was later traced to the UK. In March 2019, he was arrested in London and has since been lodged in Wandsworth Prison . In February 2021, the Westminster Magistrates’ Court ruled that there was a prima facie case against him and allowed his extradition to India. However, Modi continues to challenge the decision in UK courts.
Mehul Choksi left India in early 2018 and became a citizen of Antigua and Barbuda. Choksi, 65, was located in Belgium last year when he went there on the grounds of getting medical treatment. He had been staying in Antigua since 2018 after leaving India.
Nirav Modi and Mehul Choksi have been declared "fugitive economic offenders" under the Fugitive Economic Offenders Act, 2018, which allows Indian authorities to confiscate their assets.
The ED has attached or seized assets worth Rs 2,565.90 crore in the case against Choksi and the court has allowed "monetisation" of all these properties.
Choksi was located in Belgium last year when he went there on the grounds of getting medical treatment. He had been staying in Antigua since 2018 after leaving India. A year prior, in 2017, he had acquired Antiguan nationality.
Choksi, Modi , their family members and employees, bank officials and others were booked by the CBI and the ED in 2018 for perpetrating the alleged loan fraud at the Brady House branch of the Punjab National Bank (PNB) in Mumbai.
Here's how the PNB scam unfolded
What is the Punjab National Bank scam?
The Punjab National Bank (PNB) scam is one of the largest financial frauds in India’s banking history. It involved the misuse of banking instruments to siphon off more than Rs 13,000 crore. The scam was led by jeweller Nirav Modi and his uncle Mehul Choksi, both of whom fled India after the case came to light in early 2018. The scandal exposed loopholes in the banking system, especially in the use of Letters of Undertaking (LoUs) and the SWIFT messaging system.
Role of PNB officials
The fraud came to light when PNB, a public sector bank, filed a complaint with the Central Bureau of Investigation (CBI) on January 29, 2018. The complaint said that Nirav Modi and his group of companies had obtained fraudulent LoUs from the Punjab National Bank's Brady House branch in Mumbai.
Also read - PNB bank loan 'fraud' case: Fugitive businessman Mehul Choksi arrested in Belgium
Nirav Modi was the face of the scam initially, but the focus shifted to his maternal uncle Mehul Choksi as more details emerged. It became clear that Choksi, owner of the defunct Gitanjali Gems Limited, had played an equally sinister role in the scam.
Letters of Undertaking are bank guarantees issued to overseas branches of Indian banks to provide short-term credit to customers. These LoUs are supposed to be backed by margin money or collateral and recorded in the bank’s core system. However, in this case, PNB officials issued LoUs without proper approvals or any collateral.
According to the CBI FIR, two PNB officials—deputy manager Gokulnath Shetty and clerk Manoj Kharat—bypassed internal protocols. They used the SWIFT system to send LoUs directly to overseas banks such as Allahabad Bank, Axis Bank, and Union Bank of India, which then credited the accounts of Nirav Modi’s companies. The SWIFT messages were not recorded in the bank’s internal banking software (CBS), which allowed the fraud to go undetected for years.
According to investigating agencies, officials at the Punjab National Bank (PNB) Brady House branch in Mumbai issued 165 Letters of Undertaking (LoUs) and 58 Foreign Letters of Credit (FLCs) during March and April 2017. These were linked to the discounting of 311 bills.
Also read: How Mehul Choksi plans to resist extradition to India from Belgium
The LoUs and FLCs were allegedly issued to companies linked to Mehul Choksi without any approved credit limits or cash margins. The officials also did not record these transactions in PNB’s central banking system, which would have helped avoid detection in case of a default.
LoUs are bank guarantees provided on behalf of a client to a foreign bank. If the client fails to repay, the guaranteeing bank becomes responsible for the payment.
Using these LoUs issued by PNB, several foreign branches of banks provided funds. These included SBI in Mauritius and Frankfurt; Allahabad Bank and Axis Bank in Hong Kong; Bank of India in Antwerp; and Canara Bank in Manama.
The Central Bureau of Investigation (CBI), in its supplementary charge sheet, stated that since the companies involved did not repay the money taken using the fraudulent LoUs and FLCs, PNB had to pay Rs 6,344.97 crore (USD 965.18 million), including overdue interest, to the foreign banks that had given buyer’s credit and discounted bills based on these fraudulent instruments.
How did scam came to light?
The scam started as early as 2011 and continued until 2017. The companies named in the FIR included Firestar Diamond, Solar Exports, Stellar Diamonds (controlled by Nirav Modi), and Gitanjali Gems (controlled by Mehul Choksi). The money was supposedly used for import and export of diamonds and jewellery. However, investigations by the Enforcement Directorate (ED) and CBI found that many of these transactions were circular in nature, and no actual goods were imported.
The fraud came to light when PNB officials demanded full margin money from the companies for issuing fresh LoUs in January 2018. When the companies said they had received such LoUs in the past without collateral, PNB began an internal inquiry, which led to the filing of the complaint.
Investigation, and recovery efforts
Following the complaint, the CBI registered multiple cases against Nirav Modi, Mehul Choksi, their family members, employees, and PNB officials. The Enforcement Directorate (ED) also filed money laundering cases under the Prevention of Money Laundering Act (PMLA).
Within days of the complaint, Nirav Modi had left India. He was later traced to the UK. In March 2019, he was arrested in London and has since been lodged in Wandsworth Prison . In February 2021, the Westminster Magistrates’ Court ruled that there was a prima facie case against him and allowed his extradition to India. However, Modi continues to challenge the decision in UK courts.
Mehul Choksi left India in early 2018 and became a citizen of Antigua and Barbuda. Choksi, 65, was located in Belgium last year when he went there on the grounds of getting medical treatment. He had been staying in Antigua since 2018 after leaving India.
Nirav Modi and Mehul Choksi have been declared "fugitive economic offenders" under the Fugitive Economic Offenders Act, 2018, which allows Indian authorities to confiscate their assets.
The ED has attached or seized assets worth Rs 2,565.90 crore in the case against Choksi and the court has allowed "monetisation" of all these properties.
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