Author: Vanshika Singh, Vivekananda Global University, Jaipur
🔹 To the Point
The Nirav Modi-PNB scandal is one of India’s most shocking bank frauds, revealing systemic flaws in banking regulation, internal audits, and cross-border compliance with financial regulations. The case, which revolved around fraudulent Letters of Undertaking (LoUs), exposed the weaknesses of public sector banks and spurred regulatory changes throughout the financial ecosystem.
🔹 Use of Legal Jargon
• LoU (Letter of Undertaking) – A bank guarantee that allows customers to get foreign exchange credit.
• Shell Companies are corporations without actual commercial activity, commonly used for illegal financial transfers.
• Willful defaulter refers to a borrower who fails to meet payment commitments while having the ability to repay.
• Money laundering is the process of disguising the source of unlawfully obtained funds.
• A fugitive economic offender is someone who has an arrest warrant for a scheduled crime worth more than ₹100 crore but has fled the nation to escape punishment.
🔹 The Proof
• In January 2018, Punjab National Bank (PNB) reported fraudulent transactions of over ₹13,000 crore to the RBI and CBI, revealing the scandal.
• Nirav Modi and his accomplices got unapproved Letters of Undertaking from PNB’s Brady House Branch in Mumbai, circumventing fundamental banking systems. • These LoUs were used to get credit from foreign branches of Indian banks such as Axis Bank, Allahabad Bank, and UCO Bank.
• Senior PNB personnel, including deputy manager Gokulnath Shetty, falsified SWIFT entries to avoid internal audits.
• Shell firms were used to transfer funds around Hong Kong, Dubai, and the British Virgin Islands.
🔹 Abstract
The Nirav Modi-PNB scandal is one of the greatest financial scams in Indian history, comprising a complex scheme to defraud a nationalized bank by exploiting systemic flaws. The fraud revolved around the abuse of the SWIFT messaging system to issue illegal LoUs without collateral or sufficient recordkeeping. This issue not only aroused concerns about corporate governance and bank compliance, but also prompted Indian legal and financial institutions to reconsider fraud detection systems, regulatory enforcement, and the pursuit of extradition of economic criminals. In the legal aftermath, the Fugitive Economic Offenders Act, PMLA, and Companies Act were utilized to collect debts and bring the accused to court.
🔹 Case Laws
Union of India v. Nirav Modi (UK Extradition Case, 2021) o The Westminster Magistrates’ Court in the UK found in favor of extradition, stating a prima facie case of fraud and money laundering. Modi’s allegation of unfair trial owing to Indian jail circumstances was rejected.
State Bank of India vs. Nirav Modi Group Companies (NCLT Order).
In 2019, the NCLT Mumbai accepted SBI’s plea to commence bankruptcy proceedings against Nirav Modi’s enterprises under the bankruptcy and Bankruptcy Code (IBC).
In the case of Directorate of Enforcement v. Nirav Modi (PMLA Special Court, Mumbai), Modi was proclaimed a Fugitive Economic Offender under Section 12 of the Fugitive Economic Offenders Act, 2018. This allowed for the attachment of his assets worth ₹1,400 crore in India.
🔹 Conclusion
The Nirav Modi-PNB scandal highlighted the critical need for effective financial control, real-time audit systems, and improved communication between domestic authorities and foreign organizations. It placed the PMLA, Fugitive Economic Offenders Act, and SEBI restrictions into sharp relief. While considerable assets have been seized and extradition processes are underway, the case stands as a watershed moment in cross-border economic fraud. It also sparked a broader debate about corporate criminal culpability, banking ethics, and the importance of institutional accountability.
🔹 FAQS
Q1: What exactly is a Letter of Undertaking (LoU), and how was it employed in this scam?
A letter of credit (LoU) is a bank guarantee provided by a bank to allow a client to get credit overseas. In this scandal, LoUs were provided without adequate collateral or admission into PNB’s main banking system, allowing Nirav Modi’s businesses to steal cash unnoticed.
Q2: What legal provisions were applied against Nirav Modi?
A: Provisions from the Prevention of Money Laundering Act (PMLA), Fugitive Economic Offenders Act (FEOA), Indian Penal Code (Sections 420, 409, etc.), and Companies Act were used.
Q3: What is the status of Nirav Modi’s extradition?
A: As of 2025, UK courts had cleared his extradition to India. Final clearance was granted by the UK Home Secretary, although challenges to the UK Supreme Court were lodged.
Q4: How did the scandal affect Indian banking regulations?
A: The RBI prohibited LoUs and Letters of Comfort, enforced the integration of SWIFT with core financial systems, and enhanced internal auditing standards.
Q5: How much have you recovered from Nirav Modi thus far?
A: Indian officials seized and auctioned assets worth over ₹2,700 crore, including luxury residences, jewels, and artworks.
