INSOLVENCY AND BANKRUPTCY CODE :

PUNJAB NATIONAL BANK SCAM

PRESENTED BY:

Ghanshyam Kakkar
Latika Singh
Little Raj
Shurbhi Sinha
ABOUT INSOLVENCY AND BANKRUPTCY
CODE
Insolvency is the ability
of person or corporate
to pay their bills as and
when they become due
and payable

Bankruptcy is
when a person is
declared Liquidation is the
incapable of process of winding
paying their up of a
dues and corporation
payable bills
 Inception of solvency laws in India
Presidency
town
insolvency
act,1909

Provincial Companies
insolvency act IBC,2016 act,2013
,1920

SICA 1985 RDDBI ,1993 SARFAESI

act,2002
 To ensure revival before Reduce the mounting NPA’S on
liquidation of company banks

NEED OF IBC

Need of Unified code To provide an easy exit for

corporate
 FEATURES OF IBC
 Resolution before Liquidation: If possible, the business should be
revived before liquidation
 Time bound process: Unlike previous practice, now the entire
insolvency resolution process shall complete in at max 270 days
 Information Utilities have been formed under the Code to provide
timely dissemination of information to the concerned
 Automatic liquidation if revival process does not complete within
180 or 270 days as the case may be
 Shareholders have no say during the process of revival as well as
resolution
 Operational creditors with more than 10 percent aggregate
exposure may participate during the CoC meetings
 IBC applicable to both corporate and non corporate persons

 Allow creditors whether secured or unsecured ,financial or

operational ,domestic or international to initiate a resolution
process thereby aiming for an early detection of fraud.

 It establishes time bond moratorium on acceleration and

enforcement of debt against the company

 According to IBC, resolution professional s can replace the

existing management during insolvency proceedings
 PNB SCAM
``SHINING DIAMOND TRADER TOOK AWAY
PNB'S SHINE."
 INTRODUCTION ABOUT PNB SCAM
 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 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.
 ROLE OF AUDITOR

 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.
 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 by passing 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
 WHY THE SCAM COULDN‘T BE
DETECTED EARLIER
 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.
 EFFECT OF SCAM ON PNB & OTHER
PUBLIC SECTOR BANKS
 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 (American Express), 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.
 INTERESTING AND SHOCKING FACTS
ABOUT BANKING FRAUD

 PNB has lost a total of Rs.227.43 billion due to bank fraud

between 2012 to 2016.
 During the first nine month of 2016-2017, 3870 cases were
detected worth of Rs.17750.27 crore.
 PSU have NPA of Rs.7.34 lakh crore and Private banks have
Rs.1.03 lakh crore by end of September 2017.
 SBI has the highest PSU of Rs.1.86L crore, PNB = 57,630 crore
 Between 1 Jan 2015 to 31 March 2017, 5200 employees of PSB
have been punished for fraud. (184 PNB Employee)
 From 1 April 2013 to 31 December 2016, all commercial banks
lost nearly 66,066 crore in 17,504 frauds.
 ASSETS SEIZED
 Enforcement Directorate (ED) seized luxury cars of Nirav
Modi (Rolls Royce Ghost, 2 Mercedes Benz GL Class, Porsche
Panamera, Toyota Fortuner, 3 Honda cars and Toyota Innova)
 Rs.30 crore in bank account and shows worth Rs.13.86 crores.
 Mutual funds and shares worth Rs.94.52 crore were frozen
which belongs to Nirav Modi and Mehul Choksi.
 Special economic zone property worth of Rs.1200 crore has
been attached by IT Department and it belongs to Choksi
helmed Gitanjali Group.
 141 bank A/C and FD has been attached by IT Department.
 CBI seized Modi’s Alibaug farmhouse worth Rs.32 crore
belonging to Nirav Modi.
 Rs.5100 crore in Gold and Diamond Jewelry has been seized by
ED.
 ED attached 21 immovable properties of Nirav Modi including
Penthouse, farmhouse worth Rs.5.23 crore.
 A see facing Samudra Mahal flat worth 15.45 Crore is also
attached by ED.
 Solar Power Plant worth Rs.70 crore in Karjat area has been
seized by ED
 Two office properties about Rs.80 crore.
 So Far, Rs.6393 Crore has been Seized.