PUNJAB NATIONAL BANK SCAM
Author- Alankriti Singh, a Student of Christ Academy Institute of Law
ABSTRACT- The Punjab National Bank (PNB) scam is one of the most significant financial fraud cases in India’s banking history. In 2018, it was revealed that a multi-billion-dollar scam had taken place at PNB, one of India’s largest state-owned banks. The scam involved fraudulent issuance of Letters of Undertaking (LoUs) and Foreign Letters of Credit (FLCs) by two employees in collusion with Nirav Modi, a famous jeweler, and his uncle Mehul Choksi.
The fraudulent activities started in 2011 and continued until 2018, resulting in a loss of over $2 billion for PNB. The modus operandi of the scam involved the employees issuing LoUs on behalf of Nirav Modi’s companies without any collateral or proper documentation. These LoUs were then used to secure credit from overseas branches of other Indian banks.
The scam was discovered when PNB noticed a large number of fraudulent transactions and approached the Central Bureau of Investigation (CBI) to investigate the matter further. The investigation revealed that the LoUs were issued without appropriate entries in the bank’s core banking system, thus avoiding detection for several years.
INTRODUCTION TO THE CASE-
The Punjab National Bank (PNB) scam refers to a major financial fraud that occurred in India’s banking sector. It came to light in 2018 when it was discovered that PNB, one of the country’s largest state-owned banks, had been defrauded of billions of dollars. The scam involved the issuance of fraudulent Letters of Undertaking (LoUs) and Foreign Letters of Credit (FLCs) by two rogue employees in collaboration with jeweler Nirav Modi and his uncle Mehul Choksi.
These illegal activities had been carried out from 2011 to 2018, causing a massive financial loss of over $2 billion for PNB. The scam operated by the employees issuing LoUs on behalf of companies associated with Nirav Modi, without the required collateral or documentation. These fraudulent LoUs were then utilized to obtain credit from overseas branches of other Indian banks.
The scam came to the surface when PNB noticed a large number of unauthorized transactions and alerted the Central Bureau of Investigation (CBI) for further investigation. The subsequent probe revealed that the fraudulent LoUs were issued without proper entries in the bank’s core banking system, enabling the scam to go undetected for an extended period of time.
Due to its scale and impact on India’s financial system, the PNB scam garnered significant attention. Moreover, the involvement of high-profile individuals like Nirav Modi and Mehul Choksi added to the case’s notoriety. Both Modi and Choksi managed to flee India ahead of the scam’s exposure and are currently considered fugitives. The Indian government has been actively pursuing their extradition to face trial in India.
The PNB scam exposed flaws in the country’s banking system and raised concerns regarding the efficacy of internal controls and regulatory supervision. As a result, the government implemented reforms and strengthened oversight measures to prevent future occurrences. The case also emphasized the need for banks to be more vigilant and cooperative with investigative agencies to combat financial crimes effectively.
LEGAL CONCEPTS- Several legal concepts and provisions were implicated in the Punjab National Bank (PNB) scam case. Here are some of the key legal concepts involved:
1. Fraud: The scam involved fraudulent activities conducted by bank employees in collusion with Nirav Modi and Mehul Choksi. Fraud is the intentional deception or misrepresentation made for personal gain, causing financial harm to another party.
2. Forgery: The issuance of fraudulent Letters of Undertaking (LoUs) and Foreign Letters of Credit (FLCs) by the rogue employees constituted forgery. Forgery refers to the act of falsely altering, making, or imitating a document with the intent to defraud or deceive.
3. Conspiracy: The collaboration between the bank employees and the jeweler duo suggests a conspiracy to commit fraud. Conspiracy is an agreement between two or more individuals to engage in unlawful activities or to achieve an illegal objective.
4. Money Laundering: The scam involved the movement of funds across multiple accounts and jurisdictions to conceal their illicit origin. Money laundering refers to the process of making illegally obtained money appear legitimate by disguising its true source.
5. Criminal Conspiracy: The collaboration between the bank employees and Nirav Modi/Mehul Choksi can be seen as a criminal conspiracy to defraud PNB. Criminal conspiracy is the act of two or more persons planning an illegal act together.
6. Breach of Trust: As bank employees, the individuals involved in the scam violated their duty of trust and loyalty towards PNB by facilitating fraudulent activities. Breach of trust refers to the act of betraying or violating the trust placed in someone.
7. Investigation and Prosecution: The case involved the investigative efforts of agencies like the Central Bureau of Investigation (CBI) and the prosecution of the accused individuals. These processes involve legal concepts such as evidence collection, examining witnesses, and presenting the case in a court of law.
8. Extradition: Following their escape from India, Nirav Modi and Mehul Choksi became subjects of extradition requests made by the Indian government to foreign jurisdictions where they had taken refuge. Extradition is the legal process by which one country surrenders an individual to another country to face trial or serve a sentence.
These legal concepts were crucial in assessing the criminal liability of the accused individuals and establishing a case against them in the PNB scam.
JUDGEMENT OF THE CASE- The case is still ongoing, and the legal proceedings are being conducted in India’s courts. The accused individuals, including Nirav Modi and Mehul Choksi, are currently facing charges related to fraud, forgery, money laundering, criminal conspiracy, and breach of trust.
CONCLUSION- This is a clear case of Falsification/Fabrication as the records were manipulated by the employees of the PNB and false LOU was issued by them to the foreign banks. Apart from this even the banking system of PNB was not that strong because of which the employees were able to manipulate the things. If the SWIFT system would have been linked with the CBS, then definitely the records of issuance of LOU could be easily found and it won’t be possible on their end to do the transactions 8 times in a due course of 6 years. Hence, it is learnt from this case that upgradation of the banking system of PNB is highly required and all the employees should abide the laws of the organization they are associated with.
