Written By: Anwesha Ghosh

“It is a fraud to borrow what we are unable to pay”

– Publilius Syrus


As per the contractual term as depicted under the Indian Contract Act, Sec 17 recommends that a fraud implies and incorporates any of the acts by a party to contract or with his conspiracy or by his agents with the goal to betray another party or his agent or to incite him to enter into a contract.

The banking frauds constitute an impressive level of white collar crimes being probed by the police. These crimes are not in any way near to the normal burglaries and thefts, the sum misappropriated in these violations keeps running into lakhs and crores of rupees.

The number of bank frauds in India is increasing with time. The major operational areas in banking represent a decent open door for fraudsters with growing numbers being reported for deposit, granting credits and between branch bookkeeping exchanges, including settlements.

The Fraud:

India is right now managing what likely is its greatest bank fraud which so far could end up being one of the greatest scams in the nation’s corporate history. The Delhi-based Punjab National Bank (PNB) had said currently that it had been duped of about Rs 114 billion by jeweler Nirav Modi, his maternal uncle Mehul Choksi, and different relatives through a group of certain organizations which they own.

The nation’s second-biggest public sector bank (PSB) also stated that two of its workers were associated with the fraud, where the bank’s core banking system was avoided to raise instalment notes to overseas branches of other Indian banks, including Allahabad Bank, Axis Bank, and Union Bank of India, utilizing the International financial communication framework, SWIFT.

The fraud took place between the span of 2011 to 2017 and the fraud was actually detected n January 2018 and later the PNB officials approached the CBI to take charge of such fraud.

It started with diamond firms moving toward PNB for opening letters of credit for import of rough stones. According to the terms of the LC (letters of credit), a typical banking instrument, PNB would pay the overseas suppliers for the sake on Nirav Modi’s organizations inside a specific period (normally three months) and recoup the cash from Modi. It’s a market practice to broaden the LC if the customer (i.e, NM) can’t give the cash toward the finish of the LC tenure.

There is actually an arrangement of bank guarantee known as a letter of undertaking (LOU) under which a bank enables its client to fund-raise from another Indian bank’s foreign branch as a short-term credit. The LOU is a form of bank guarantee.

To raise the LOU, the client should pay a certain sum of margin money to the bank issuing and as such the credit limit is granted accordingly. But in the case of Nirav Modi, neither there was any advance of margin money made nor was there any kind of credit limit.

Nirav Modi, by means of his three firms, Diamond R Us, Solar Exports and Stellar Diamonds, figured out how to pay to its providers of rough stones, the installments were made through the credits by banks including Axis Bank, and Allahabad Bank. The credits were raised by Nirav Modi’s organizations on presenting the letters of undertakings issued by the PNB.

Incidentally, there was no official record of such letters of undertaking in the PNB records as the bank found early this prior year revealing the issue to the CBI.

In an ideal case, Nirav Modi and his organizations should have reimbursed the advances yet up to this point, every one of these credits has not been paid for the need of assets. In the situation when the borrower neglects to make the reimbursement, the bank issuing the LOU (PNB for this situation) is compelled to pay the credits for the sake of its clients.

On Thursday (February 15), the Reserve Bank of India (RBI) supposedly coordinated the PNB to pay every one of these banks that offered advances to Modi’s firm based on guarantees/LOUs issued by the bank.

The Rs. 11,300 crores was uncovered simply after PNB representative Gokulnth Shetty, who had supposedly conspired with Nirav Modi in obtaining counterfeit letters of undertaking (LOUs), resigned as of late

In January, the misrepresentation was uncovered when Modi’s firm asked for advance LOUs for paying the overseas suppliers. On this, the bank authorities declined on the ground that Modi’s firm needs to keep 100% collateral securities for the same. The Modi’s firm contended that no such cash was kept even in the past also it was not given. Following which, the bank authorities checked the records just to find that there was no hint of any such exchange. This suggested that the guarantee was issued by bypassing the rules in arrangement with some PNB representatives.

The Major Questions:

Firstly, it is hard to see how banks in India and abroad could be swindled for quite a long time when every transaction must be accounted on a daily basis toward the finish of business hours and the RBI should guarantee to inspect of each bank’s books and records. This undertaking could have been troublesome in the times of manual accounting. But, in the period of PCs and incorporated servers, this lapse is relatively impossible.

Secondly, the question that pops up is how employees of such small hierarchies could continue with the scam for almost five years and the bank never noticed it.

Current Status of The Accused

The passports of Nirav Modi and Mehul Choksi have been suspended for a month as CBI and Enforcement Directorate are doing investigations. Extremely rich person Nirav Modi and his accomplice Mehul Choksi are the people blamed in the Rs. 11,300 crore Punjab National Bank scam, named India’s greatest banking scandal. Prior today,

Media Sources have affirmed that Nirav Modi, the principal blamed in asserted fraud of over Rs. 11,300 crores through 150 letters of understanding issued by Punjab National Bank, has been living at New York’s JW Marriott Essex House at 160 Central Park South.

Nirav Modi, who holds an Indian passport, left India on January 1, while his sibling Nishal, a Belgian national, left the nation around the same time. Nirav Modi’s wife Ami, a US national, additionally left on January 6 and his uncle and business accomplice Mehul Choksi, the promoter of Gitanjali jewelry chain, left on January 4, the authorities said.


India, shockingly, has not learned from a background marked by fakes that have been correct copies of each other. Modi’s usual methodology is very like the money related frauds executed by Harshad Mehta, Ketan Parekh, Vijay Mallya and numerous other people who obtained from banks to control the business sectors.

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