Punjab National Bank (PNB), India’s second largest state-run lender by assets, had announced in 2018 that it had discovered a massive fraud, a case that shook the country’s financial sector to its core. The alleged fraud, worth ₹13,500 crore, originated at a single branch in Mumbai and involved high-profile individuals, including billionaire jeweller Nirav Modi and his uncle Mehul Choksi, the managing director of Gitanjali Gems.
Earlier on Monday, Choksi was arrested in Belgium on India’s extradition request over his alleged involvement in the PNB loan fraud case.
What was the scam?
Nirav Modi and Mehul Choksi allegedly manipulated the bank’s systems to obtain fraudulent Letters of Undertaking (LoUs) in collusion with a few rogue bank officials, allowing them to siphon off massive sums under the guise of trade finance.
The bank filed its first fraud report with the Reserve Bank of India (RBI) on January 29, 2018 followed by a criminal complaint to the Central Bureau of Investigation (CBI). A second fraud report and CBI complaint followed on February 7. By February 13, an FIR had been registered against the Nirav Modi Group, Gitanjali Group, and Chandri Paper & Allied Products Pvt Ltd. The Enforcement Directorate also launched parallel investigations into alleged money laundering.
LoUs, which are bank guarantees issued to facilitate short-term credit for business purposes from overseas branches of Indian banks, became the central instrument in the scam. These LoUs are not issued against general retail transactions and instead are used for business or trade transactions.
Investigators say Nirav Modi began securing these LoUs from PNB’s Brady House branch in Mumbai in March 2011. Over the next six years, he managed to obtain 1,212 such guarantees – far beyond the 53 genuine LoUs issued to his companies during the same period.
The fraud went undetected for years due to the complicity of bank insiders, including then Deputy General Manager Gokulnath Shetty, who allegedly bypassed core banking systems to issue these guarantees.
They fraudulently acquired guarantees worth $1.77 billion or ₹11,400 crore to obtain loans from the overseas branches of Indian banks, claiming to need the cash to import pearls. The funds, instead of being used for importing goods like pearls as claimed, were allegedly diverted and laundered.
Nirav Modi fled India in 2018 to evade the law days before a case was registered against him and his associates.
Mehul Choksi’s involvement: What probe agencies say
Mehul Choksi, through his firm Gitanjali Gems and other group companies, played a central role in the scam:
The Enforcement Directorate (ED) alleged that Choksi and his firms cheated PNB in connivance with corrupt bank officials.
He fraudulently obtained LoUs and got FLCs enhanced without following prescribed banking procedures.
The scam led to a wrongful loss to the bank and benefited the companies and individuals involved.
The CBI and ED have filed three charge sheets against Choksi till now, detailing the criminal conspiracy, money laundering, and embezzlement.
Flight and extradition battle
Shortly before the scam was publicly exposed, Mehul Choksi fled India. He later surfaced in Antigua and Barbuda, where he had obtained citizenship under a special investment program. His escape led to a protracted legal and diplomatic battle as Indian authorities sought his extradition.
In a strange twist in 2021, Choksi disappeared from Antigua and was found in Dominica, allegedly trying to flee to Cuba. He claimed he had been kidnapped, but the matter only complicated the extradition efforts further.
