How a routine request for collateral at a single Mumbai bank branch unravelled one of India’s largest banking frauds
Author: KSHAMA SHUKLA
COLLEGE- CITY ACADEMY LAW COLLEGE, LUCKNOW
Abstract
This article examines Central Bureau of Investigation v. NiravDeepak Modi & Others. This criminal proceeding grew out of the ₹13,000-crore-plus fraud discovered at Punjab National Bank’s Brady House branch in Mumbai in early 2018. It traces how a handful of unauthorised Letters of Undertaking, issued outside the bank’s core banking system over several years, escalated into one of the largest banking frauds in Indian history, and how the CBI’s investigation, chargesheets, and parallel extradition effort in the United Kingdom have shaped the case. Beyond the facts, the piece looks at the legal architecture invoked provisions of the Indian Penal Code, the Prevention of Corruption Act, and the Fugitive Economic Offenders Act, 2018 and situates the matter within the broader conversation on bank fraud, regulatory failure, and cross-border accountability. The discussion closes with the case’s ratio for Indian banking law and its continuing relevance as the extradition and trial proceedings unfold.
To the Point
• The fraud came to light in January 2018 when Punjab National Bank employees, on the retirement of a key official, asked Nirav Modi’s firms for the collateral security that ought to have accompanied their Letters of Undertaking all along.
• Two PNB officials at the Brady House branch had, for years, issued LOUs over SWIFT to overseas branches of Indian banks without any sanctioned credit limit and without recording the transactions in the bank’s core banking system.
• The CBI registered its first FIR on 31 January 2018, naming Nirav Modi, his wife Ami Modi, his brother Nehal Modi, his uncle Mehul Choksi, and PNB officials Gokulnath Shetty and Manoj Kharat.
• The alleged fraud, initially pegged at ₹280.7 crore, grew through supplementary investigation to more than ₹13,000 crore, and later to over ₹23,780 crore across multiple chargesheets.
• Nirav Modi left India before the scam surfaced publicly and was eventually arrested in London in March 2019; his extradition was ordered by the Westminster Magistrates’ Court in 2021 and upheld through successive rounds before the UK High Court.
• The case is being tried alongside a parallel money-laundering prosecution by the Enforcement Directorate, making it a rare instance of coordinated CBI–ED action against economic offenders who have fled the jurisdiction.
Use of Legal Jargon
A case of this kind cannot be discussed without some of the vocabulary that investigators, prosecutors, and courts use to describe it, and it helps to unpack a few terms before going further.
• Letter of Undertaking (LOU): a guarantee issued by one bank to another, permitting the second bank’s overseas branch to extend a short-term loan (buyer’s credit) to an importer, on the issuing bank’s assurance that it will repay if the importer defaults.
• SWIFT: the Society for Worldwide Interbank Financial Telecommunication, the messaging network banks use to transmit instructions such as LOUs across borders; the fraud persisted because SWIFT messages were sent without a corresponding entry in PNB’s own core banking system.
• Core Banking System (CBS): the internal software through which a bank records and reconciles every transaction; an LOU that never touches the CBS effectively becomes invisible to the bank’s own auditors.
• Chargesheet: the final investigation report a police or investigating agency files under Section 173 of the Code of Criminal Procedure, 1973, setting out the evidence collected and the offences alleged against each accused.
• Fugitive Economic Offender (FEO): a person against whom a warrant of arrest has been issued for a scheduled offence involving ₹100 crore or more, who has left India or refuses to return to face prosecution, as defined under the FugitiveEconomic Offenders Act, 2018 a law drafted substantially in response to cases like this one.
• Extradition: the formal process by which one country surrenders a person to another country to face criminal proceedings, governed here by the Extradition Act, 2003 (UK) and India’s bilateral treaty with the United Kingdom.
The Proof
How the fraud was built
The prosecution’s case rests on a fairly simple mechanism repeated many times over. Companies linked to Nirav Modi and Mehul Choksi Diamonds R Us, Solar Exports, and Stellar Diamonds would approach PNB’s Brady House branch seeking buyer’s credit to pay overseas suppliers, ostensibly for the import of items such as pearls. Ordinarily, a bank issuing an LOU for this purpose is expected under Reserve Bank of India guidelines to either sanction a credit limit for the customer or demand a 100 percent cash margin. Neither happened here. A deputy manager at the branch, acting in concert with a single-window operator, issued LOUs on the SWIFT platform to the overseas branches of other Indian banks, including Allahabad Bank and Axis Bank, without any of these safeguards, and crucially without entering the transactions into PNB’s core banking system.
Because the CBS never recorded these LOUs, the bank’s own periodic reconciliation could not catch them; each fresh LOU was in effect used to repay the overseas bank on the previous one falling due, a pattern investigators have described as a rolling arrangement rather than a series of independent transactions. This continued for years, reportedly from as early as 2011, without detection.
How it surfaced
The scheme depended on continuity of personnel and complicity at the issuing end. When the deputy manager who had been issuing these LOUs retired in 2017, his successor, unaware of the informal arrangement, asked Nirav Modi’s firms for the standard collateral before issuing a fresh LOU in January 2018. The firms objected, pointing out that they had never been asked for collateral in the past. That objection was itself telling, and it prompted the bank to search its own records. PNB found no trace of the LOUs its former employee was said to have issued, discovered irregularities amounting to roughly ₹280.7 crore in the first instance, and reported the matter to the stock exchanges, the RBI, and the CBI on 14 February 2018.
The investigation and chargesheets
The CBI registered its first FIR on 31 January 2018 against Nirav Modi, Ami Modi, Nehal Modi, Mehul Choksi, and PNB officials Gokulnath Shetty and Manoj Kharat, invoking offences of criminal conspiracy and cheating under the Indian Penal Code together with provisions of the Prevention of Corruption Act, 1988, given the involvement of bank officials as public servants. As the investigation widened, the scale of the fraud grew: by May 2018 it stood at over ₹14,000 crore, and a supplementary chargesheet filed in December 2019 added a further ₹6,498.20 crore relating to 150 LOUs issued between February and May 2017, naming additional accused including Nehal Modi, PNB deputy general manager Sanjay Prasad, and others, and bringing the cumulative figure cited by the CBI to approximately ₹23,780 crore. That later chargesheet also alleged that Modi had threatened witnesses and taken steps to destroy evidence. These allegations were to matter a great deal once the case reached a courtroom in London.
The flight, the freeze, and the extradition proceedings
Nirav Modi left India before the fraud became public knowledge, reportedly on grounds connected to his business rather than any declared intention to evade the law, and did not return once the CBI’s investigation began. He was traced to London and arrested by UK police on 19 March 2019, after which he was remanded to custody at HMP Wandsworth, where he has remained through the course of the proceedings, his repeated bail applications having been refused by both the Westminster Magistrates’ Court and the High Court on the ground that he presented a flight risk.
India’s extradition request, first submitted in August 2018 and supplemented as the CBI’s evidence grew, ultimately succeeded. On 25 February 2021, the Westminster Magistrates’ Court held that a prima facie case had been established against Modi on all counts brought by the CBI and the Enforcement Directorate, including conspiracy to defraud, money laundering, and the later-added charges of intimidating witnesses and causing the disappearance of evidence. The court also considered, and rejected, arguments that Modi’s mental health and an asserted risk of suicide made extradition oppressive, concluding that the arrangements at Mumbai’s Arthur Road Jail could adequately safeguard him. The matter was referred to the UK Home Secretary, who ordered extradition on 15 April 2021. Modi’ssubsequent appeal to the High Court was dismissed after the Government of India furnished assurances about his conditions of detention, and later attempts to reopen the case, including one that leaned on a separate ruling in the case of Sanjay Bhandari have also failed, most recently in March 2026, when the High Court held that no exceptional circumstances justified revisiting the extradition order.
Case Laws
Because the CBI’s case against Nirav Modi is still at the trial and extradition stage rather than a concluded Indian judgment, the relevant “case law” here consists chiefly of the extradition rulings themselves, read alongside the statutory framework the prosecution has invoked.
• Government of India v. Nirav Modi, Westminster Magistrates’ Court (25 February 2021) held that a prima facie case existed on all CBI and ED charges, and that extradition would not be unjust or oppressive despite Modi’s declining mental health in custody.
• Nirav Modi v. Government of India, High Court of Justice, London (2022–23, appeal proceedings) upheld the extradition order, with the court satisfied that assurances regarding Modi’sdetention at Arthur Road Jail addressed the risk of suicide to the required legal standard.
• Nirav Modi v. Government of India, High Court of Justice, King’s Bench Division (March 2026) — refused to reopen the extradition proceedings on the strength of the Sanjay Bhandari ruling, holding that the threshold of exceptional circumstances for revisiting a concluded extradition order had not been met.
• Vijay Mallya’s extradition proceedings are frequently cited alongside this case as a comparator, since both involve Indian economic offenders resisting extradition from the UK on grounds of prison conditions and fair-trial concerns, though Mallya’s case has remained unresolved on separate humanitarian grounds even after a successful extradition order.
On the domestic statutory side, the CBI’s chargesheets draw on Sections 120-B (criminal conspiracy) and 420 (cheating) of the Indian Penal Code, 1860, read with Sections 7 and 13 of the Prevention of Corruption Act, 1988, given the alleged complicity of PNB officials as public servants. Nirav Modi was also declared a fugitive economic offender under the Fugitive Economic Offenders Act, 2018: a statute enacted in the direct aftermath of this case and the Vijay Mallya matter, permitting the confiscation of a fugitive’s properties in India even before conviction, in a proceeding heard separately from the criminal trial itself.
Conclusion
What makes the PNB fraud case difficult to summarise neatly is that it is really three cases running at once: a criminal prosecution in India that is still to reach trial in full, a money-laundering proceeding by the Enforcement Directorate that runs in parallel, and an extradition battle in the United Kingdom that has, for now, produced more definitive rulings than the Indian courts have. Each of these has its own timeline and its own standard of proof, and it is easy to lose sight of how they fit together.
What does not get lost, though, is the underlying lesson. A fraud of this scale did not require any special sophistication no exotic derivative, no cross-border shell structure beyond the ordinary. It required only that a handful of SWIFT messages go unrecorded in a bank’s own books for long enough that nobody thought to ask why. The case has already reshaped Indian banking regulation: the RBI discontinued the use of Letters of Undertaking and Letters of Comfort for trade credit shortly after the scam broke, precisely because the instrument had shown itself capable of moving billions of rupees off a bank’s own radar. It has also reshaped the law on economic offenders who leave the country, feeding directly into the Fugitive Economic Offenders Act, 2018.
Whether Nirav Modi is ultimately convicted, acquitted, or something in between will depend on evidence that an Indian trial court has not yet fully tested. But the case’s significance does not wait on that outcome. It has already demonstrated that a coordinated CBI–ED investigation, backed by patient evidence-building, can succeed in bringing an economic fugitive back within reach of the Indian legal system a proposition that, for a long time, India’s experience with extradition had given little reason to expect.
FAQ
1. What exactly was the fraud in the PNB case?
PNB officials issued Letters of Undertaking to overseas branches of other Indian banks on behalf of firms linked to Nirav Modi and Mehul Choksi, without sanctioned credit limits or collateral, and without recording these in the bank’s core banking system, allowing the fraud to continue undetected for years.
2. What is the CBI’s case against Nirav Modi based on?
The CBI’s chargesheets allege criminal conspiracy and cheating under the Indian Penal Code, along with offences under the Prevention of Corruption Act given the involvement of bank officials, and later added charges of intimidating witnesses and destroying evidence.
3. Why is the case being heard in the UK as well as in India?
Nirav Modi left India before the fraud surfaced and was later found in London, so India had to seek his extradition through the Westminster Magistrates’ Court and the UK High Court before he could be brought to trial in India.
4. Has Nirav Modi been convicted?
No. As of this writing, Modi remains in custody in the United Kingdom pending the completion of extradition formalities, and the criminal trial in India has not concluded.
Reference
