Advisory For ED

Enforcement Directorate takes on PNB Scam

In 2018, Punjab National Bank learned that fraud had been done in its Mumbai branch worth $ 1.8 billion. It showed doubt in jeweller Nirav Modi and his other relatives, including his uncle Mehul Chinubhai Choksi. Mehul Choksi is chairman and MD of Gitanjali Group, and so they used this company with two other companies to commit this PNB Scam. 

Actions taken by ED after detection of the PNB Scam

Punjab National Bank is India’s second-largest public sector bank, so the ED took sudden action and booked a money laundering case against the accused based on an FIR lodged by CBI and PNB. But Nirav Modi left India before the PNB lodged the FIR. ED also summoned Gokul Shetty, former DGM of Punjab National Bank. Other officials from PNB have also been suspended. 

PNB detected this fraud and alleged that Nirav Modi, Mehul Choksi and their other relatives were behind this whole PNB Scam^[1]. On 15th February 2018, ED conducted the raid on PNB, Nirav Modi’s residence, his Kala Ghoda showroom with four other showrooms in Mumbai, 3 in Surat and 2 in Delhi. 

ED again conducted a raid at more than 20 places across India and seized assets worth Rs. 25 crores, and six properties of Nirav Modi in Mumbai were sealed in connection with PNB Scam. The assets included gold, silver, diamond and other precious metals and jewellery.

ED auctioned the luxury cars of Nirav Modi and Mehul Choksi under the Prevention of Money Laundering Act. Metal Scrap Trade Corporation Limited had carried out an e-auction of 13 vehicles, of which 11 belonged to Modi and 2 to Choksi in 2019. 

ED had attached assets worth 7664 crores in India and four other countries like the USA in the PNB Scam case. These assets included movable as well as immovable property. 

Facts of the case related to the PNB Scam

Punjab National Bank, the second-largest public sector bank in our country, detected fraudulent and unauthorized transactions in one of its Mumbai branches and informed the stock exchange that such fraud of $1.8 billion. The value of an unauthorized transaction is eight times the bank’s net worth. 

These fraudulent transactions were linked to a diamond jeweller of Mumbai, Nirav Modi, so PNB filed its first complaint against him on 28th January 2018. 

On 5th February 2018, the Central Bureau of Investigation lodged an FIR of criminal conspiracy, cheating under IPC and other provisions of the Prevention of Corruption Act against Nirav Modi, one of his companions, brother and wife. CBI alleged that they had cheated Punjab Nation Bank with over 280 crores. 

The PNB scam was committed between 2011 and 2017 by issuing unauthorized and illegal Letters of Understanding and Foreign Letters of credit. 

It was found out that Nirav Modi, Nishal Modi (his brother), Ami Nirav Modi (wife) and Mehul Choksi (his uncle and companion) were partners at three firms in Mumbai, namely Diamond US, Stellar Diamond and Solar Exports which were involved in PNB Scam. These companies approached the bank and asked for buyer credit to pay overseas suppliers. These companies were then intentionally crashed overseas from other banks, including public and private sector banks. Eight Letters of Understanding were issued in the name of Nirav Modi, without any mention in the bank’s books, so that he could get loans from the banks of Hong Kong. 

Other banks who have lent money to Modi are Union Bank of India (2300 crores), SBI Overseas Bank (960 crores), Allahabad Bank (2000 crores) and Axis Bank. 

A few days after the previous one, CBI lodged another FIR against Mumbai based Gitanjali Group of Companies and its MD Mehul Choksi for cheating and criminal conspiracy under the Indian Penal Code and Prevention of Corruption Act. Additionally, two other employees of PNB and three other companies of Gitanjali Group were made accused under this PNB Scam case for fraud of 4886.72 crores. 

Chargesheet filed by ED in PNB Scam

In mid-May of 2018, the ED filed its first chargesheet against Nirav Modi and 23 others for over Rs. 13,400 crores PNB Scam. 

ED submitted the chargesheet of about 12,000 pages in a Special Court in Mumbai against Nirav Modi, his brother Nishal Modi, father Deepak Modi, sister Purvi Mehta, and brother-in-law Mainak Mehta and 19 others in the case of the PNB Scam.

The three firms owned by Modi, Diamond US, Stellar Diamond and Solar Exports, were also named in the chargesheet submitted in the ED because the Letter of Understanding made by the PNB branch was in the name of these firms only. These firms were used to make payments to overseas companies and set the Letter of Understandings issued earlier. 

The chargesheet said that the investigation revealed that the other dummy companies were used to make overseas payments in Hong Kong, the US, and Dubai. It has been continuing since 2011 in the form of imports and exports. The directors and shareholders of these three Nirav Modi’s firms were also dummies, and they were employees in his Firestar group of company. Such dummy directors and other employees were acting based on the direction of Nirav Modi and his other trusted officials, and they were just mechanically transferring the goods and monies without any economic logic and reasoning.  

The chargesheet mentioned that the modus operandi of the PNB Scam was fraudulent import and export with these dummy companies, whereas these companies were not doing any business and were inoperative or inactive. The invoices were made with a very high price value to show balance sheets and procure high credits from the banks. The import and export were just rotational transactions and without any genuineness. 

ED obtained documents from overseas, which proved a few facts of the case and helped in the proceeds of the crime. 

The chargesheet further mentioned that the PNB Scam was not limited to these dummy companies and fraud of crores, but the export and import were also not genuine. The jewellery was exported from India and then dismantled. Diamond and pearls were taken out of them, while silver and gold were melted and re-exported to Dubai or India. These whole processes were carried out to raise the turnover of Indian companies, and there was no other genuine reason. It was all to get higher credits from the banks. 

All the funds acquired through the fraud were siphoned off in India and overseas dummy companies of Nirav Modi, the chargesheet read. 

The charge sheet has all the detailed attachments prepared by ED related to the PNB Scam against Nirav Modi and others associated with him. 

ED also filed chargesheet against Gitanjali Gems, Gili India Limited and Nakshatra Brands Limited; all three are owned by Mehul Choksi and were involved in siphoning and money laundering. ED also stated in the charge sheet that Mehul Choksi’s firm had done fraud of Rs. 3032 crores through Letter of Understanding and Rs. 1799.66 crores through foreign credits. During the investigation, ED found out that the funds obtained through illegal Letters of Understanding were siphoned off to alleged overseas companies: 4C’s Diamonds Distributors HK, Shanyang Gong SI Limited HK, Asian Diamonds, Jewellery FZE, Gitanjali Ventures DMCC and Abbeycrest (Thailand) Limited.  

In 2019 ED filed the second chargesheet against Nirav Modi, stating that earlier was filed before the special court under PMLA and that it has discovered new evidence in this case. 

ED, in 2021 filed another chargesheet against the wife of Mehul Choksi, Priti Choksi, in connection with the same PNB scam case as she was made nominees of all the funds of the companies owned by her husband, and she was the ultimate beneficiary of all the money laundered by him in the case of PNB Scam. 

Further developments in the PNB Scam case

Firestar Diamonds, a firm owned by Nirav Modi, filed a plea in Delhi High Court against ED taking in the PNB Scam case. The Delhi Court issues notice to ED on this plea to producing documents and warrants related to a money laundering case filed in connection with the PNB Scam. 

The firm asked the High Court to quash the ED’s actions of taking away its property and granting the same to PNB, and it also demanded the ECIR under which the ED is conducting search and seizure at its premises. 

In reply, the ED said that the plea is pre-mature, and various agencies are conducting an investigation in pursuit of the PNB Scam against the accused and complainant firm’s owner, including 23 others. And further, ED clarified that it had taken action on the basis of the FIR lodged by the CBI. ED and CBI have lodged the two FIRs in order to investigate the PNB scam. 

In 2019 December, Nirav Modi was declared Fugitive Economic Offender. 

In June 2020, ED brought 108 consignments of precious metals and jewellery from Hong Kong worth 1350 crores in connection with the PNB scam. These consignments belonged to Nirav Modi and his uncle, Mehul Choksi. The accused sent the consignments from Dubai to Hong Kong, and ED received its information in July 2018. Since then, ED was making efforts to take charge of these consignments and finally, after finalizing all the formalities, it was sent to Mumbai on 10th June 2020. Out of 108, 32 were related to Nirav Modi, and the rest of them belonged to the Mehul Choksi. 

Earlier also, ED brought back 33 consignments from Dubai and Hong Kong. A special court of Mumbai had allowed ED on 8th June 2020 to confiscate property worth 1400 crores of Nirav Modi under the Fugitive Offenders Act. 

On 19th March 2019, Nirav Modi was arrested in the UK. Since then, he has been in London’s Wandsworth Jail. 

Purvi Mehta, Nirav Modi’s sister, had been allowed pardon in order to help the ED in the PNB Scam case. In mid of the year 2021, she remitted over 17 crores from a UK bank account to an Indian Government bank account; thus, ED was able to recover the amount from the proceeds of crime. She and her husband, Mainak Mehta, have been made approvers of this scam case on the condition to disclose the whole truth related to the PNB Scam. They reside in the UK, and they have never faced an investigation.  

She further informed ED that there is an account in her name which was opened and operated by her brother, and the funds of that account do not belong to her. 

On 13th December 2019, Interpol issued a Red Corner Notice (RCN) against Mr Choksi at the request of the CBI. Earlier in the same year, Interpol had also issued the RCN against Nirav Modi and others associated with him. 

Latest Updates of PNB Scam case

Some of the latest situations related to this Punjab National Bank fraud case, famous as the PNB scam case, are:

• Nirav Modi and Mehul Choksi are facing extradition proceedings in UK and Antigua, respectively. 
• Purvi Mehta, sister of Nirav Modi, approached the special court under Fugitive Economic Offender Act, asking to make ED to intervene in the bankruptcy case presently going on in the US against her brother. She has been made a defendant in this bankruptcy case in US court. To this effect, ED informed the said special court that it has already submitted the required documents related to the PNB scam case in the US court. The application related to seizing and confiscation of Nirav Modi’s properties related to the PNB Scam has been provided to the US Court. 
• Subash Shankar Parab, a former executive of Firestar firm of Nirav Modi, has been taken into custody by CBI for investigation in the PNB Scam case. ED has brought him to India from Cairo and produced him before the court, stating that he left the country the same day Nirav left to evade the process of law. Further, it said to the court that the Letter of Understandings was made under his instructions. He was handling all the dummy companies of Nirav Modi in different countries. 
• ED has earlier attached assets worth 2,550 crores and then 14.45 crores of Gitanjali Group of Companies and its MD Mehul Choksi in the case related to the PNB Scam.  
• ED has attached assets worth 7664 crores in India and four other countries like the USA in the PNB Scam case until last year. These assets included movable as well as immovable property. 

Conclusion 

The ED has played a massive part in the most prominent case of PNB Scam. It has conducted the investigation at a global level with the Ministry of External Affairs.It has also attached the assets worth around 7000 crores to the date of all the accused participating in the PNB Scam. It came into action quickly after the PNB detected the scam, and the FIR was lodged by CBI and PNB against the main accused. 

The PNB Scam began in 2011 and got detected in 2017 by the bank itself; the bank informed the stock exchange that fraud of around 1.8 billion had been committed at one of its Mumbai branches. The main accused named in the allegations made by the bank are Nirav Modi and Mehul Choksi; later on, ED came to know about all the accused associated with the two of them. ED finally filed a chargesheet against 24 people, including the main culprits of the PNB Scam. Later on, the sister and brother-in-law of Nirav Modi were made approver, and they also aided ED in realizing the assets. Currently, ED is trying to deport the offenders, and the extradition proceeding is going on in the respective countries they have flown to. 

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