Bombay High Court slams Punjab National Bank for not taking serious action against Nirav Modi

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The Bombay High Court has reprimanded Punjab National Bank (PNB) for not doing enough to recover the huge loan amount obtained by fugitive Nirav Modi. The court, which was hearing separate pleas filed by PNB and the Enforcement Directorate (ED), said that the bank had not taken “serious” steps to recover the money.

The ED has attached Modi’s properties worth Rs 500 crore, and has appealed against a Special PML Court order that allowed it to confiscate only 12 of these properties. The ED says that it is entitled to the remaining nine properties as it is the investigating agency in the case.

The court has asked PNB to file an affidavit stating what steps it has taken to recover the money from Modi. The court has also asked the ED to file an affidavit stating the basis on which it is claiming the remaining nine properties. The court will hear the matter again on July 12.

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What is the PNB Scam?

The Punjab National Bank (PNB) scam involves a fraudulent scheme where the bank issued fake letters of undertaking (LoUs) worth Rs 10,000 crore. The main people involved in the scam were jeweler and designer Nirav Modi, his uncle Mehul Choksi, some PNB employees, and other relatives. They managed to escape from India just before news of the scam broke. This scam has been regarded as the largest fraud in India’s banking history.

How did the Rs 10,000 crore scam occur?

The scam took place at PNB’s Brady House branch in Mumbai. Bank officials used fake LoUs to favor Indian bank branches for importing pearls. According to Reserve Bank of India guidelines, the total time period for these transactions should have been 90 days from the shipment date. However, overseas branches of Indian banks disregarded this rule. They failed to inform PNB about the relevant documents or information provided by the firms when they sought credit.

Nirav Modi obtained his first fraudulent guarantee from PNB on March 10, 2011, and went on to acquire 1,212 more such guarantees over the next 74 months. The Enforcement Directorate (ED) discovered bank token devices of foreign dummy companies used by Nirav Modi to transfer the fraudulent funds. Nehal Modi, Nirav Modi’s brother, destroyed these devices and even secured a server located in the United Arab Emirates (UAE) shortly after the scam came to light. These dummy companies received the fraudulent PNB LoUs and were based in British Virgin Islands and other tax havens.

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So far, the ED has seized movable and immovable assets amounting to Rs 2,362 crore in connection with the PNB fraud case.

How was the Punjab National Bank management unaware of this?

PNB employees misused the SWIFT network to send messages to Allahabad Bank and Axis Bank for fund requirements. Despite using SWIFT passwords for these transactions, they were never recorded in the bank’s core system. As a result, the PNB management remained unaware of these activities for several years.

How did the scam unfold?

On January 29, 2018, PNB filed a First Information Report (FIR) with the Central Bureau of Investigation (CBI), stating that fraudulent LoUs worth Rs 280.7 crore were issued on January 16. In the complaint, PNB named three diamond firms involved in the scam: Diamonds R Us, Solar Exports, and Stellar Diamonds. As of May 18, 2018, the scam’s total amount has increased to over Rs 14,000 crore.

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