Author – Ivan Joe Jerson, Student Of Manipal Law School
To the Point
The Punjab National Bank (PNB) fiddle, revealed in 2018, is one of India’s largest fiscal swindles, relating to fake Letters of Undertaking (LoUs) amounting to ₹ 13,500 crore (latterly revised to ₹ 14,356 crore). manipulated by diamond captains Nirav Modi and Mehul Choksi, the fiddle took advantage of systemic vulnerabilities in PNB’s functional structure, specifically the absence of integration between SWIFT deals and the Core Banking System (CBS). scheming bank officers over a period of seven times finessed collateral conditions and nonsupervisory oversight to extend unauthorized LoUs, allowing Modi and Choksi to divert finances through shell companies. Legal cases under the Indian Penal Code (IPC), Prevention of plutocrat Laundering Act (PMLA), and Expatriate profitable malefactors Act (FEOA) have concentrated attention on institutional corruption, while long- drawn transnational repatriation cases reflect the complications of executingcross-border white- collar crimes.
Legal Principles Involved
The law dealing with the PNB fiddle involves several enactments.
Fraudulent Misrepresentation is applicable to the allocation of LoUs without collateral or bank permission. Felonious Conspiracy reflects the conspiracy among Modi, Choksi, and PNB staff to apply the fraud. plutocrat Laundering covers the layering of ill- gotten plutocrat via coastal companies in Dubai, Hong Kong, and Belgium. Falsification of Records deals with the falsification of SWIFT- CBS records to hide deals. Last but not the least, the Expatriate profitable malefactors Act (FEOA) handed for the protestation of Modi and Choksi as profitable malefactors, allowing the seizure of their means in India and abroad. —
The evidence
From 2011 to 2017, PNB’s Brady House branch in Mumbai sanctioned 1,212 LoUs, 1,159 of which were fake. These guarantees, transmitted via SWIFT to overseas branches of Indian banks similar as Allahabad Bank and Axis Bank, bypassed the CBS entirely, leaving no digital inspection trail.
The scheme reckoned on “evergreening,” where new LoUs were issued to repay aged debts, creating a Ponzi- suchlike structure. finances were channelled through shell companies, including Modi’s Firestar Diamond and Choksi’s Gitanjali Gems, which demanded genuine trade conditioning. crucial substantiation The Central Bureau of Investigation (CBI) revealed forged Letters of Undertakings (LoUs) and backhanders to PNB officers in its charge wastes of 2018 – 2025, showing PNB’s liability at ₹ 6,344 crores. The Enforcement Directorate (ED) attached means worth ₹ 2,565 crores under PMLA, which comprise luxury houses, diamonds, and bank deposits. An RBI inspection established that the fraud was made possible due to homemade SWIFT operations in the Brady House branch, since the deals were not bus-re-recorded into the CBS.
Abstract
The Punjab National Bank (PNB) scam marked a turning point in India’s financial history, exposing serious flaws in banking oversight and regulatory systems. By exploiting a loophole between the SWIFT messaging system and the bank’s internal software (CBS), Nirav Modi and Mehul Choksi with the help of dishonest bank employees carried out a fraud that lasted nearly ten years, bypassing checks on collateral and internal audits.
Although legal actions under the Prevention of Money Laundering Act (PMLA) and Fugitive Economic Offenders Act (FEOA) led to asset seizures and extradition efforts, delays in justice showed how difficult it is to handle international financial crimes. The scam pushed for important reforms like the RBI banning Letters of Undertaking (LoUs) and requiring banks to fully link their SWIFT systems with core banking to improve financial regulation and prevent future fraud.
Case Laws
The legal ramifications of the PNB fiddle draw parallels with corner judgments. In Harshad Mehta v. State of Maharashtra (1992), the Supreme Court established precedents for executing fiscal fraud involving manipulated banking instruments.
The Vijay Mallya Case (2016) stressed challenges in asset recovery and repatriation of profitable malefactors, mirroring Modi and Choksi’s flight from India.
The Satyam reproach (2009) underlined commercial governance failures and adjudicator responsibility, while the 2G Diapason fiddle (2012) demonstrated conspiracy between public officers and private realities, themes intermittent in the PNB case.
Legal Cases and Extradition Barriers
Nirav Modi
Nirav Modi has been held in custody at Wandsworth Prison in London since his March 2019 arrest. Although a UK court sanctioned his extradition to India in 2021, the process is still pending because of continued appeals based on human rights issues. Indian enforcement authorities have obtained orders under the Prevention of Money Laundering Act (PMLA) to seize ₹1,400 crore worth of assets belonging to Modi, such as properties in Dubai and Swiss bank accounts.
Mehul Choksi
Following his escape to Antigua in 2018, Mehul Choksi was arrested in Belgium in April 2025 after India renewed extradition attempts. He has opposed repatriation on grounds of health issues and claiming abduction in a 2021 episode in Dominica. His lawyers continue to dispute the legitimacy of the extradition request.
PNB Officials Held Accountable
Gokulnath Shetty, a previous deputy manager of PNB’s Mumbai office, is charged with criminal breach of trust (IPC Section 409) and conspiracy (Section 120B) for his involvement in the scam. Usha Ananthasubramanian, former CEO of PNB, was taken off duty for the laxity in supervision but was subsequently released on bail in 2018.
Systemic Flaws and Regulatory Reforms
The scam highlighted glaring weaknesses in PNB’s internal monitoring, especially the failure to link SWIFT transactions to the Core Banking System (CBS), through which fake LoUs could evade detection. As a result, RBI made linkage of SWIFT with CBS compulsory in 2018 and banned LoUs for trade credit and replaced them with secured Letters of Credit (LCs). The Fugitive Economic Offenders Act (2018) empowered authorities to seize assets of absconding offenders like Modi and Choksi. Additional measures, including surprise audits and mandatory employee rotations, were introduced to curb collusion.
Economic and Sectoral Fallout
The fraud caused devastating financial and reputation loss for PNB, with losses worth ₹14,356 crore for the year 2018 leading to a 60% crash in its shares. Public faith in India’s government-owned banks plummeted, which led RBI to tighten regulations on trade finance. Foreign operations of Indian banks like SBI Mauritius and Bank of India Antwerp lost their liquidity owing to exposure to fraud LoUs.
Key Takeaways
The PNB fraud highlights systemic weaknesses in India’s financial infrastructure, compounded by technology gaps and regulatory failures. Though reforms such as SWIFT-CBS integration and the FEO Act will help strengthen accountability, tardy extraditions of Modi and Choksi indicate challenges in cross-border legal cooperation. Ongoing vigilance, ethical governance, and technology-led transparency are key to avoiding future frauds.
FAQs
Q1. How was SWIFT misused in the fraud?
Scammers took advantage of the disconnect between SWIFT and CBS to make unauthorized LoUs, evading PNB’s internal audit systems for years.
Q2. How much of the defrauded amount has been recovered?
As of 2025, about ₹2,500 crore has been recovered through sale of assets, and recovery continues in foreign courts.
Q3. Why was Mehul Choksi arrested in Belgium?
Belgian authorities took action on India’s 2018 arrest warrants and a 2021 Interpol notice, and he was detained. His extradition is pending legal determination.
Q4. What were the key reforms after the scam?
The RBI prohibited LoUs, imposed SWIFT-CBS integration, and enacted the Fugitive Economic Offenders Act to hasten asset seizures and discourage financial crimes.
Q5. How did the scam impact public-sector banks?
It caused tighter audits, improved staff responsibility frameworks, and a sharp drop in investor trust in state-owned banks.
