We’ve all heard stories of theft and robbery. These incidents have become so frequent, that they sometimes lose the intrigue and stigma associated with such heists. However, there are some particular cases that possess such a unique level of deceit and cunning, that it becomes hard to overlook. Such is the case of the Punjab National Bank. Stories of jewellery stores being robbed are not a novice tale, but have you ever heard about an incident where the Jeweller himself is the robber? The Punjab National Bank Scam is one of the biggest frauds India has seen. It made headlines, gripping the attention of the entire nation. This bank was robbed of ₹11,356.84 crores, and the main suspect was a famous luxury jeweller and designer, Nirav Modi.
How did it unfold?
On 29 January 2018, a complaint was filed against Stellar Diamonds, Solar Exports, and Diamonds-R-Us by the PNB. The complaint alleged that Nirav Modi, Ami Modi (his wife), Nishal Modi (his brother), and Mehul Choksi (his uncle) had fraudulently obtained the bank’s LOU’s (Letter of undertaking) to make payments to overseas suppliers. PNB suspected them of working with their bank officials to defraud them of ₹11,356.84 Crores.
Immediately after the complaint was filed, the news became public. Realizing the magnitude of the event, Nirav Modi and his family fled from India in early 2018.
To understand the scam better, we need to analyse what an LOU is. In general, a letter of undertaking is an assurance by one party to another party that they will fulfill the obligation that had been previously agreed on, but not written into a contract. For example, if one party wishes to complete some work for a business and get paid for it, the individual would issue a letter of undertaking to the business stating their intentions.
In banking parlance, an LOU can be called a bank guarantee, which is given on behalf of the customer, which allows the customer to raise money as secure short-term credit from the said Indian bank’s foreign branch. The bank issues LOUs based on the customer’s creditworthiness and the collaterals it secures.
Now, continuing the story, PNB on Nirav Modi’s request, issued LOUs. Procedurally any issued LOUs should be reported to the core banking system and SWIFT (Society for Worldwide Interbank Financial Telecommunications). It is a messaging network for securely transmitting instructions for all financial transactions through a standardised system of codes. But the PNB employees involved had failed to report the 1,212 LOUs issued. Because of this, the LOUs which were issued to Modi were issued based on PNB’s standing credit and not Nirav Modi’s. Therefore, this allowed Nirav Modi and his family to run their business and acquire goods at the expense of PNB. When the previous LOUs were due, they would repeat the process and get new LOUs. This cycle continued for over 2-3 years and ballooned to an unmanageable level. And this is how they scammed PNB out of ₹11,356.84 crores.
Where has Nirav Modi been since he disappeared? In June 2018, he fled to the UK and applied for political asylum. But in March 2019, he was arrested after a warrant was issued. His requests for bails have been rejected.
On February 25, 2021, the Indian government’s request to extradite Jeweller Modi was successful. The Jeweller had appealed the request, but on 23 June 2021, UK Court rejected the appeal.