CASE STUDY

Presented By-
Shivani Agarwal
INTRODUCTION
On 29th Jan, 2018, PNB (Punjab National Bank) filed a criminal complaint with India`s federal
investigative agency against three companies and four people, including billionaire jeweller
Nirav Modi and his uncle Mehul Choksi, the managing director of Gitanjali Gems, saying they
had defrauded PNB and caused a loss of 2.8 billion rupees ($43 million).

In a regulatory filing on Feb. 14, the bank updated the sum involved in the fraud to 113.94
billion rupees ($1.77 billion), which it said was determined after further investigation at its
Mumbai's Brady branch.

This fraud is done by Nirav Modi in 2011 who fraudently raised funds worth of Rs.12,636 crore
from various public & private sector banks by showing Letter of Undertaking (LOU) issued by
Punjab National Bank.
The PNB informed the
Bombay stock
exchange that it had
detected ‘fraudulent and
unauthorised transactions’
amounting to Rs.
11,400 crores at its Brady
House branch in
Mumbai.
 FORBES
Forbes Magazine MAGAZINE RANK
Rank

#85 Nirav Modi

 PERSONS INVOLVED IN PNB SCAM
1. Nirav Modi – Nirav Modi is the Owner of Nirav Modi firm, Diamond RU.S., Stellar Diamond and Solar Exports
and the prime accused in this scam.
2. Mehul Choksi – Mehul Choksi is the Owner of Gitanjali Group and the Uncle of Nirav Modi.
3. PNB Employees – Gokul Nath Shetty (Retired Deputy Manager), Manoj Kharat (Clerk), Hemant Bhat (Clerk
and Authorised Signatory), Bechhu Tiwari (Forex dept. Chief manager), Yaswant Joshi, Praful Sawant (They
were trying to shift the blames to their colleagues.)
4. MK Sharma – Internal Auditor and Chief manager of PNB.
5. Vipul Ambani – CFO of Nirav Modi Company.
6. Kavita Mankikar – Executive Assistant and Authorised Signatory.
7. Arjun Patil – Senior Executive of Fire Star Group.
8. Kapil Khandelwal – CFO of Nakshtra and Gitanjali Group.
9. Niten Shahi – Manager of Gitanjali Group.
10.Rajesh Jindal – General Manager of PNB. He has headed Brady Branch in between 2009-11.
11.Bishnubrata Mishra – Former internal auditor of PNB. He was responsible for auditing the transactions
between 2011-15.
12.Miten Anil Pandaya – Financial Manager of Firestar International Ltd.
13.Sanjay Rambiya – CA firm Sampat & Mehta partner.
PERSONS INVOLVED IN SCAM OF NEEARV MODI’S FAMILY

NEERAV NEESHAL MEHUL AMI

MODI MODI CHOKSI MODI
(SELF) (BROTHER) (MATERNAL (WIFE)
UNCLE) 7
(c) RNGC 8
 HOW DID PNB SCAM OCCUR
Nirav Modi exported rough stone form foreign countries worth crores of rupees.
 The employees at PNB Brady House branch fraudently issued a LoU for 365
days without making any provisions for collateral and bypassing Core Banking
System (CBS).

 The Nirav Modi’s three companies named Diamond R US, Solar export and
Stellar diamond allegedly raised loans from Axis Bank, UCO Bank and
Allahabad Bank by showing LoU.

 The firm also raised funds from Indian bank's overseas branch for paying to
the suppliers.

 Nirav modi’s firm again requested the bank to issue another LoU but the
officials refused on ground that the company has to keep collateral with bank
but Modi’s firm argued that no such money was kept on margin for the previous
LoU.

 After that PNB officials started scanning the records and didn’t find any such
transactions and then filed a complaint with CBI.
KEY TERMS

10
 SWIFT CODE

 Society
S for worldwide interbank financial Telecommunication code.
 It
I is use for An International recognized identification code for banks around the
world.
 SWIFT
S code are mostly used for international wire transfer and are comprised of 8 or
11 alphabetic characters.

SWIFT CODE
12
(c) RNGC 13
PNB SCAM- FLOW CHART
 LOUs are generally given when the home bank has an approved
line of credit for the client.

PNB should have verified Nirav Modi’s Credit worthiness.

The LOUs are delivered to SWIFT which is coded messages that are used in international
banking.

In India, all the banking records are saved on the Core Banking System (CBS).

But surprisingly PNB didn’t use these mechanisms.

INVOLVEMENT OF PNB EMPLOYEE

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AND THE TRUTH CAME OUT
PNB files a case on CBI on
January 30th 2018.

The Total loot was of Rs.

11,400 Crores.

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 DID CBI ARREST NIRAV MODI?

Nirav Modi and Mehul Choksi

left India on January 6th ,2018.

His family moved to New York

on January 5th ,2018.
 ASSETS SEIZED

Rs. 5100 Crore in Gold and

Diamond Jewellery was
seized by Enforcement
Directorate.

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 CURRENT SCENARIO OF NIRAV MODI
The 48-year-old, who has been behind bars at Wandsworth prison in south-west London since his
two previous bail applications were rejected following his arrest on March 19, is to appear before
Chief Magistrate Emma Arbuthnot at Westminster Magistrates' Court in London on May 8 for a
third attempt.

The application for bail will be heard before Judge Emma Arbuthnot at Westminster Magistrates'
Court," said a spokesperson for the Crown Prosecution Service (CPS).

ON 8 MAY, 2019
Bail of Nirav Modi denied again despite his lawyers saying condition in
UK jail 'unlivable'
A UK court on Wednesday denied bail to Nirav Modi for the third time, saying the fugitive
diamond merchant who is the main accused in the Punjab National Bank fraud and money
laundering case amounting to up to USD 2 billion would fail to surrender.
SUMMARY: HOW THE FRAUD WAS ACCOMPLISHED
 WHY THE SCAM COULD NOT BE DETECTED EARLIER
The Following are the reasons for the same:

 The failure of Auditors – Auditors failed to detect any frauds which took place in PNB Brady branch,
Mumbai

 Not linkage of SWIFT with CBS – Society for Worldwide Interbank Financial Telecommunication
(SWIFT) and Core Banking System (CBS) was not linked with each other.

 Management Failure – The management system was very weak and couldn’t detect any fraud
because the Deputy Manager of branch himself was involved in the fraud.

 No rotation of Employees – According to Reserve Bank of India (RBI) guidelines ,every employees
working in banks should be rotated from one position to other position in every three years but the
same was not done in the PNB Brady Branch.
 ROLE OF AUDITORS
MK Sharma the senior internal auditor of PNB Brady branch was responsible for
auditing the system and practices of Brady branch and to report any fraud with
zonal office.
MK Sharma was knowing about the fraud but didn’t file any complaint with audit
office.
According to one report bank didn’t have enough independent members on
auditing board during 2015-17.
According to ICAI is mandatory for every auditor to verify and scrutinized every
transaction which takes place through SWIFT. But in this case the auditor
deliberately didn’t verify the transactions done through SWIFT.
The internal auditor, concurrent auditor & statutory auditor of the bank should have
been checking the transactions which was done through SWIFT but they
deliberately ignored all the transactions.
The audit committee of the board overseas a quarterly report, particularly on the
foreign exchange dealing of the branch. But they didn’t examine the quarterly
report of foreign exchange dealing.
 On march 2013, Non fund based loan of PNB was Rs.407 crore, on march 2014 it
zoomed to Rs.3458 crore and on march 2017, it raised to Rs.4302 crore.
 WHISTLE BLOWER
 On July 26, 2016 Bangalore based Entrepreneur Hari Prasad had written to the prime
minister’s office (PMO) drawing the attention of the authorities towards what he thought
could lead to a huge scam. According to Prasad, the balance sheets clearly gave out all the
details.
• He said that he had filed a complaint against Mehul Choksi – one of the prime accused in
the Rs.11,380-crore Punjab National Bank scam – after the latter’s company cheated him
of Rs 13 crore.
• He then registered a complaint with the Bengaluru Police against Choksi and his group
companies in 2015. A year later, he wrote to the Enforcement Directorate, the Central
Bureau of Investigation, the Securities and Exchange Board of India, the Ministry of
Corporate Affairs
and even the Prime Minister’s Office.
• Whistleblower Dinesh Dubey, a former Allahabad Bank director, has made abundantly
clear the number of interventions he had attempted to make regarding unsanctioned
loans to Mehul Choksi ("I have mailed multiple times. On every agenda. I have done my
duty.“)
EFFECT OF SCAM ON PNB & OTHER PUBLIC SECTOR BANKS
Effect of Scam on PNB & other public sector banks are as follows:

 Moody and Fitch places PNB under review for downgrade. Moody’s has rated PNB
‘Baa3’ and Fitch has rated ‘bb’.
 The stock price of PNB has fallen down from Rs.160 to Rs.95.5 as on 9th Mar,2018.
 The NIFTY Bank also fallen down 25810.25 to 24477.65 (1332.66 Points).
 RBI has said to PNB to pay all debts to other banks.
 The share price of Gitanjali Gems fallen down from Rs.64.2 to Rs.15.8 as on 09th
Mar,2018
 Sanjay Rishi (AmericanExpress), Gautham Mukkavilli (Ex.Executive pepsico), Suresh
senapaty (Ex.CFO of Wipro), Kirthiga reddy (Ex.MD of FB India)resigned from Nirav
modi’s Firestar Co. board.
 The RBI stops banks to issue LOU.
 Because of the fraud, PNB has lost Trust of People.
 Gitanjali Gems Share price fallen to 11.15 from 63.55(open price) as on 14.2.2018.
DECREASE IN SHARE PRICE OF PNB

Sudden
decrease in
Share Prices
after PNB
SCAM.
 MEASURES SHOULD BE TAKEN TO AVOID SCAM
The following measures should be taken to avoid PNB SCAM:
 Multi Factor Authentication.
 Monitor Transactions.
 According to RBI guidelines, every commercial banks should link their CBS with SWIFT by April
2018.
 Implementation of Anti-Money Laundering.
 Rotation of employees in every three years.
 NFRA is established by government which is an independent regulator for the auditing
profession.
 Better Management Control.
 Cyber Analytics/Cyber Security.
 Fraud Monitoring.
 Customer identification, authentication and risk assessment.
 Financial Intelligence.
 CONCLUSION
 The impact of frauds on entities like banks, and the economic cost of frauds
can be huge in terms of likely disruption in the working of the markets,
financial institutions, and the payment system.
 Besides, these scams can have a potentially weakening effect on confidence
in the banking system and may damage the integrity and stability of the
economy.
 It can bring down banks, undermine the central bank's supervisory role and
even create social unrest, discontent and political violence.
 The passiveness of banks to fraud has been heightened by technological
advancements in recent times.
‘’Shining Diamond trader took away the PNB’s shine’’
THANK
YOU !!!
FOR YOUR PATIENCE

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