Author: Sahajal Meena from Dharmashastra National Law University
To the Point
In January 2018 the state-owned Punjab National Bank (PNB) disclosed a massive fraud – initially reported at about ₹11,400 crore and later ₹13,850 crore – stemming from fraudulent Letters of Undertaking (LoUs) issued from its Brady House (Mumbai) branch. Jewelers Nirav Modi and his uncle Mehul Choksi are accused of masterminding the scheme with the aid of crooked bank officials. Legal allegations include criminal conspiracy (IPC 120B), cheating (IPC 420), criminal breach of trust (IPC 406/409), forgery, and money laundering (PMLA 2002).Agencies involved include the CBI (fraud/IPC) and ED (PMLA) – a multi-agency probe was launched immediately after PNB’s complaint to RBI and police.
Investigations have led to numerous arrests (bank employees, Modi’s associates) and massive asset seizures. India has attached assets (jewellery, watches, real estate) worth thousands of crores and declared Nirav Modi/Choksi “Fugitive Economic Offenders” under the 2018 FEO Act. A PMLA court released around ₹66.33 crore of attached assets for bank debt collection.
International dimensions loom large: Nirav Modi was arrested in London (March 2019) and is fighting extradition under the India-UK treaty (Extradition Act 2003), while Choksi (who obtained Antigua then Belgian residency) was arrested in Belgium (Apr 2025) on India’s extradition request. Both fugitives have so far been denied bail on the “sheer quantum of fraud” involved.
The consequences has spurred immediate reforms: the RBI has outlawed LoUs/LoCs for import credit, compelled SWIFT CBS integration, and increased RBI/RBI monitoring. Parliament approved the Fugitive Economic Offenders Act (2018) and created the National Financial Reporting Authority (NFRA) to discipline auditors. The scam’s economic impact – plunging PSU bank stocks, bigger NPA write offs and higher funding costs – has underlined the need for corporate governance overhaul.
Use of legal jargon
Letters of Undertaking (LoUs) are bank guarantees provided to secure short-term international credit.Fraudulently obtained by Nirav/Choksi’s firms, these unrecorded LoUs (via SWIFT) bypassed PNB’s Core Banking System.
A cognizable offence is a significant offense that police can arrest without a warrant. The PNB fraud (cheating, breach of trust, conspiracy) and related money laundering are cognizable offenses under the IPC and PMLA, enabling immediate action by CBI/ED.
The Fugitive Economic Offender (FEO) Act of 2018 allows for the quick collection of the assets of economic offenders who depart the nation. Nirav Modi and Mehul Choksi have been designated FEOs, which allows for the seizure of their property (including benami assets) and the freezing of bank accounts.
Extradition Treaty (India UK, India Belgium): India’s bilateral treaties govern surrender of accused abroad. Under the UK India Extradition Treaty (1993), Nirav Modi was arrested in London for fraud and money laundering (ED and CBI cases). Belgium’s treaty permitted Choksi’s arrest and extradition procedures.
The Enforcement Directorate (ED) is India’s financial crime department that enforces the Prevention of Money Laundering Act (PMLA). ED files an Enforcement Case Information Report (ECIR) equivalent to an FIR for money laundering; it can attach (“provisionally confiscate”) proceeds of crime under Sec.5/17 PMLA. ED charged Modi/Choksi under Sec.3/4 PMLA and filed chargesheets (e.g. Sec.45 PMLA) after CBI’s complaint.
NFRA (National Financial Reporting Authority): A regulator for auditors, created after the scam. NFRA can penalize errant auditors five to ten times their fees and debar them up to 10 years, aiming to prevent future audit failures like those that allowed the PNB fraud to go undetected.
Charge Sheet vs. FIR: The CBI and ED submitted charge sheets in court once investigations were complete. (The CBI first filed an FIR on 14 Feb 2018 based on PNB’s complaint.) Charge sheets enumerate the offenses (with legal sections) for judicial scrutiny.
The Proof
The PNB fraud was meticulously planned over years. Nirav Modi, Mehul Choksi, and their enterprises (Firestar, Solar Exports, Gitanjali Gems) acquired 1,212 LoUs from PNB without necessary entries between 2011 and 2017. Only 53 of these were legitimate; the rest were bogus. Colluding PNB staff (e.g. Deputy GM Gokulnath Shetty) issued LoUs without authorization, collateral or accounting entry. In effect, loans were raised for offshore buyers with zero collateral and bypassed PNB’s core systems. An Oxford Business Law report noted that PNB’s SWIFT network was not linked to its Central Banking System, so these fraudulent LoUs “went under the radar”.
By January 25, 2018 PNB detected anomalies and reported the ₹13,850 crore fraud to RBI and CBI. Within days, CBI launched a criminal probe (IPC 420/406/120B etc.) and ED filed an ECIR under PMLA on Feb 14, 2018. PNB’s disclosures (Feb 2018) revealed ₹11,400 crore siphoned via LoUs – later revised to ₹12,700–13,850 crore. The scam was tracked back to loans “rotated” through 17 foreign shell firms in Hong Kong, Dubai, and the United States. ED’s first chargesheet (May 2018) implicated 24 accused (including Modi, his family, and jeweller firms) under Sec.45 PMLA, alleging ₹6,498 crore was laundered abroad using these LoUs. It noted ₹629.21 million of proceeds diverted to relatives and dummy firms. ED attached assets (bank accounts, jewellery, properties) worth ₹2,626.62 crore till date, across India and overseas.
Enforcement actions are ongoing. PNB officials (e.g. ex-Branch Manager Bishnubrata Mishra) were arrested for issuing the fraudulent guarantees. The ED utilized PMLA to freeze Nirav and Choksi’s accounts and confiscate luxury items, including jewels worth ₹40.83 crore from Nirav’s Mumbai house.A Special PMLA Court in June 2025 approved release of ₹66.33 crore of these seized assets (including jewellery and a flat) back to PNB for recovery, with strict conditions to return funds if required. This restitution is only a fraction of the scam’s scale.
Internationally, legal battle continues. Nirav Modi was apprehended by UK authorities (Scotland Yard) in March 2019 on India’s extradition warrant. He has since exhausted appeals – the UK High Court in 2022 approved extradition, and the Supreme Court of the UK refused his leave to appeal. Modi’s multiple bail petitions were denied (UK judges highlighted the “sheer quantum” of fraud and flight risk). Reuters reported in May 2025 that a London court denied him bail pending surrender. In the meantime, India’s ED reported that Modi has three ongoing cases – PNB fraud (CBI), money laundering (ED) and witness tampering (CBI). His uncle, Mehul Choksi, who fled to Antigua (and later jumped bail) before settling in Belgium, was captured in Antwerp on April 12, 2025. Belgian officials confirmed India’s plea to extradite Choksi. India’s agencies are now seeking his surrender under the India Belgium treaty. Notably, the Bombay High Court has already questioned whether Choksi still holds Indian citizenship (a point he contests) before deciding on his extradition.
Overall, the legal proofs of the crime are overwhelming: the pattern of issuing hundreds of undisclosed LoUs, extensive paper trails of shell company payments, official confessions of PNB insiders and contemporaneous email evidence. The filings and charges demonstrate clear criminal conspiracy and misuse of banking instruments. The ED and CBI have issued massive charge sheets (tens of thousands of pages) alleging forgery, abuse of banking licenses, and money diversion abroad. Courts in India have already taken cognizance; for example, a Bombay High Court bench recently refused to strike out charges against Modi’s sister (Purvi Mehta) despite her earlier status as a PMLA approver. These facts firmly establish legal liability under multiple statutes and have galvanized reforms to prevent repeat incidents.
Abstract
The PNB fraud case – India’s largest banking scam to date – has starkly exposed systemic legal and regulatory gaps. Within weeks of its discovery (Jan 2018), the case triggered an intense legal crusade: bank officers and corporate promoters were charged under the Indian Penal Code for cheating, breach of trust and conspiracy; investigators invoked the Prevention of Money Laundering Act (PMLA) to trace illicit flows; and prosecutors designated the absconding accused as Fugitive Economic Offenders to enable asset seizure. The case spans domestic and international law: it involves extradition requests under bilateral treaties (Modi in the UK, Choksi in Belgium) and cooperation among enforcement agencies. In response, India swiftly enacted and enforced reforms – banning LoUs in trade finance, improving RBI oversight, and passing laws (FEO Act 2018, NFRA provisions) to deter financial criminals. Economically, the scam shook markets (PNB stock plummeted, PSU banks fell) and raised fears of hidden NPAs, affecting credit and investor confidence.
Legally, the saga underscores both the might and limitations of the law: while charge sheets and charges under IPC/PMLA provide a robust framework for prosecution, the high-value cross border nature of the fraud has tested extradition processes and asset recovery mechanisms. UK courts have repeatedly rejected Nirav Modi’s bail, observing the “massive fraud” involved, but his final surrender is still pending. Meanwhile, Indian courts (e.g. Bombay HC) continue parallel proceedings, even against accomplices who turned approvers, setting precedents on double-jeopardy principles. This analysis examines these legal dimensions in depth – outlining the applicable laws (IPC, PMLA, FEO Act), the roles of CBI, ED and RBI, the extraterritorial issues of extradition and MLAT assistance, and the ensuing policy reforms. It concludes that the PNB scandal must serve as a nationwide wake up call: demanding tougher enforcement, tighter internal controls, and more rigorous legislative safeguards to protect India’s banking sector and public funds
Case Laws
- Government of India v. Nirav Modi (2021, UK High Court) – UK authorities adjudicated India’s extradition requests. The High Court (Admin) dealt with two sets of crimes (PNB fraud by CBI and money laundering by
ED). (Nirav’s appeals to UK Supreme Court have since been dismissed.)
- Nirav Modi v. Government of India (2022, UK High Court Appeal) (Neutral Citation Number: [2022] EWHC 2829 (Admin)) – Modi’s challenge to extradition was refused, clearing the way for surrender. The court highlighted that the evidence supported dual crime (fraud and money laundering) and that there was “no bar” to extradition.
- Bombay High Court – Purvi Mehta (Modi) case (2025) – The HC refused urgent relief to Nirav Modi’s sister, who challenged the CBI’s supplementary chargesheet adding her as an accused in the PNB fraud. The bench held there was no “legitimate expectation” shielding her from prosecution despite her earlier role as approver in the ED’s case. This demonstrates that being an approver in a money-laundering investigation does not shield a co-conspirator from additional fraud charges.
- UN Convention against Corruption (UNCAC) – India’s ratification (2011) obliges cooperation in asset recovery and extradition for corruption offenses. This international law underpins the mutual legal assistance being sought (for example, Letters Rogatory sent to Hong Kong, Dubai, USA as noted by ED).
Conclusion
The PNB scam stands as a wake up call for India’s legal and regulatory systems. It laid bare how even robust institutions (RBI, PSU banks) can be undermined by flawed processes and collusion. The legal fallout has been sweeping: massive fraudsters are being hunted under stringent statutes (IPC, PMLA, FEO Act); public servants involved face criminal liability; and victims’ rights (PNB’s claims) are being enforced through asset attachment and recovery proceedings. Internationally, this case has tested India’s extradition and mutual legal assistance framework – highlighting the need for timely treaty enforcement and vigilance even when accused gain foreign citizenship.
Crucially, the scam has driven significant reforms. RBI and the Government closed loopholes (banning LoUs/LoCs, mandating SWIFT CBS integration) and raised prudential norms. Parliament enacted the FEO Act to deter absconding culprits and created NFRA to hold auditors accountable. These changes aim to strengthen corporate governance and punish those who loot banks. Economically, India has acknowledged that frauds of this scale endanger financial stability – prompting tighter banking regulations (earlier NPA recognition by RBI) and discussions on recapitalization or restructuring of stressed PSU banks.
The legal saga is far from over. Nirav Modi’s extradition and Mehul Choksi’s case are in progress, and further judicial decisions will shape India’s cross-border enforcement landscape. However, one clear lesson emerges: protecting the nation’s financial integrity requires not only vigilant law enforcement but also preemptive legal safeguards. The PNB case underscores the imperative of legal reform – from more transparent banking practices to harsher penalties for corporate fraud. Only with such reforms can India hope to deter the next big scam and restore trust in its banking and judicial institutions.
FAQ
Q1: What was the PNB fraud, and who was responsible?
The PNB scam (2018) was a ₹13,000–₹14,000 crore fraud at a PNB branch in Mumbai, involving fraudulent Letters of Undertaking (LoUs). It was orchestrated by diamond tycoon Nirav Modi, his uncle Mehul Choksi (both fugitives now) and their companies, with colluding PNB officials providing unauthorized bank guarantees. The money was siphoned via bogus export guarantees to shell companies abroad.
Q2: What laws do the accused face?
The accused face charges under multiple Indian laws. Key provisions include IPC Section 120B (criminal conspiracy), IPC 406/409 (criminal breach of trust by bank officers), IPC 420 (cheating), and related sections for forgery. The Enforcement Directorate has filed cases under the Prevention of Money Laundering Act (PMLA), alleging they laundered the proceeds. Under the Fugitive Economic Offenders Act, 2018, Modi and Choksi have been declared fugitives, allowing authorities to seize their assets.
Q3: What happened to Nirav Modi and Mehul Choksi?
Nirav Modi fled India in January 2018. He was arrested in London on an Indian extradition warrant in March 2019. UK courts have consistently denied him bail, citing the gravity of the scam. His appeals against extradition have failed, so he is awaiting surrender to India’s legal system. Mehul Choksi escaped to Antigua in 2018 (where he illegally obtained citizenship) and later moved to Belgium. He was apprehended in Antwerp in April 2025 before India demanded his extradition. Both remain outside of India, however Choksi is now being held in Belgium for a future transfer.
Q4: What legal and regulatory reforms followed the scam?
In response, India quickly tightened laws and oversight. RBI banned LoUs and Letters of Comfort (LoCs) for import financing and mandated real-time integration of SWIFT with banks’ core systems. The government passed the Fugitive Economic Offenders Act (2018) to fast-track asset confiscation of absconders and created the National Financial Reporting Authority (NFRA) to hold auditors to account. Public sector banks are under higher scrutiny (e.g. stricter NPA recognition rules) to prevent governance failures. These steps aim to close loopholes that the PNB fraud exploited.
Q5: What is the economic impact of the PNB scam?
The scam shook confidence in Indian banks. PNB’s stock fell sharply, and other PSU banks saw declines as investors worried about hidden frauds. Analysts (e.g. Goldman Sachs) warned that the fraud could slow economic growth and increase banks’ bad loans. The government planned a ₹32,000 crore recapitalisation of PSBs, but even that may be inadequate if new losses emerge. Sectors like gems and jewellery saw lenders pull back, and trade credit mechanisms were disrupted by the LoU ban. In short, wiping out ₹14,000 crore of bank capital had broad ripple effects on credit, investment, and fiscal burden on taxpayers.
