PNB Manager and Loan Officer sentenced 2 Year Jail for fraud in Letters of Credit

A special CBI court on Wednesday convicted five people, including the former branch manager and loans officer of Oriental Bank of Commerce (now Punjab National Bank), and the directors of two fake companies, in connection with a ₹2.88 crore bank fraud case that dates back to 1998–99. The court sentenced all five to two years of rigorous imprisonment.

Special Judge B.Y. Phad said the accused had “entered into a criminal conspiracy to cheat the Oriental Bank of Commerce, Turbhe branch, by fraudulently issuing and accepting Letters of Credit without any genuine trade transactions, causing a loss to the bank and gaining illegally for themselves.”

The court said the offences took place between January 1998 and February 1999, when V.R. Pai, the then branch manager, and Sivasailam Hariharan, the then loans officer, approved funds worth ₹2.88 crore for two fake companies — Karan Cans Pvt. Ltd. and Zorawar Impex Pvt. Ltd. They created false accounts and issued fake Letters of Credit to these firms.

The judgment stated that Vinod Bhatia and Kunal Bhatia, directors of Karan Cans Pvt. Ltd., conspired with the bank officials to obtain multiple Letters of Credit. They also created two more fake firms — M/s R. Prataprai & Company and M/s Zorawar Impex Pvt. Ltd. — with the help of Ravindra Pratap Rai Doshi and Mahesh Patel, to route the funds and make the transactions look genuine.

“The evidence clearly shows that the accused worked together to create fake paper transactions to make it appear as legitimate business activity, while in fact, the Letters of Credit were used only to siphon off public money,” the court observed.

The fraud came to light in February 2000, when the bank’s chief vigilance officer noticed discrepancies in the records. After 17 years of trial, during which 23 witnesses were examined and over 1,000 documents were reviewed, the court found Pai, Hariharan, Vinod Bhatia, Kunal Bhatia, and Doshi guilty. Another accused, Mahesh Patel, died during the trial, and the case against him was closed in August 2022.

All five convicted persons were sentenced to two years of rigorous imprisonment and fined ₹20,000 each, while the two companies — Karan Cans Pvt. Ltd. and Zorawar Impex Pvt. Ltd. — were fined ₹5,000 each.

What is Letter of Credit (LC)?

A Letter of Credit (LC) is a financial document issued by a bank that guarantees payment to a seller on behalf of a buyer — as long as the seller meets certain terms and conditions. A Letter of Credit is a bank’s promise to pay the seller on behalf of the buyer. Suppose a buyer in India wants to purchase goods from a seller in another country (or even within India). The seller might worry that the buyer won’t pay after receiving the goods. To build trust, the buyer goes to their bank, and the bank issues a Letter of Credit in the seller’s name. This LC says: “If the seller provides the required documents (like proof of shipment, invoices, etc.), the bank will pay the seller — even if the buyer doesn’t.”