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The Central Bureau of Investigation (CBI) has arrested a former and a current employee of Punjab National Bank (PNB) and one executive of the Nirav Modi group of companies in connection with a Rs 114 billion fraud at the bank.
A special court on Saturday remanded all three accused to CBI custody till March 3.
On Saturday morning, the CBI detained PNB’s former deputy manager Gokulnath Shetty, the bank’s single window operator Manoj Kharat, and Hemant Bhat, the authorised signatory for jewellery tycoon Nirav Modi’s group companies.
These are the first arrests in one of the biggest scams in the country’s banking history, allegedly premeditated by Modi and Mehul Choksi through a clutch of companies they own in collusion with some PNB employees.
According to the CBI’s remand application, the amount involved in fraudulent letters of undertakings (LoUs) issued is likely to be in the vicinity of Rs 60 billion, which is many times more than the Rs 2.8 billion in the bank’s first complaint.
The CBI remand plea said the accused were not cooperating with the investigation so their custody was required “to recover important missing documents related to the issue of fraudulent LoUs”.
The CBI also sought custody to understand the modus operandi and to locate relevant documents to identify a larger conspiracy and ascertain the magnitude of the scam.
The CBI will probe the role of other co-accused and the end-use of the huge amount of public funds diverted by them in conspiracy with other accused who were on the run and some of them were yet to be identified.
Business Standard has reviewed a copy of the CBI’s remand application submitted to the court.
During the hearing, the court observed that the offence was serious and could run into Rs 60 billion and that the CBI should get a fair chance to investigate the case.
“The case has consequences on the country and the economy,” the court noted. The move follows 2 first information reports (FIRs) filed by the CBI against 20 people, including Modi, his relatives, Choksi, their firms, some directors and PNB employees. The accused were charged with criminal conspiracy, cheating, criminal misconduct and abuse of official position. The FIR was based on two complaints filed by PNB, the first in January and the second on February 13. The second FIR said PNB employees Shetty and Kharat, in connivance with the firms owned by Modi and Choksi, defrauded the bank of Rs 48 billion.
With the first case registered involving a fraud of Rs 2.8 billion, the total covers LoUs of Rs 51.66 billion. Union Minister of State for Finance Shiv Pratap Shukla on Saturday said the government was thoroughly investigating the PNB fraud case and would not spare anyone involved in it. “Looking at the gravity of the act committed by Nirav Modi, the government will surely work towards his extradition and will punish them for all the fraud,” he added. The CBI conducted searches at PNB’s branch at Brady House Fort, Mumbai, which appears to be the centre of the alleged scam. Six PNB employees were questioned during the search. The CBI on Friday had conducted searches at 20 properties in six cities linked to Choksi and his group companies. It had also searched the residences of the PNB employees named in the FIR. Citing the PNB complaint, a CBI official said some bank employees deliberately omitted entries purportedly issued on behalf of the accused companies to avoid detection.
Funds raised through LoUs were meant to be used for payment of import bills of the accused companies whereas these were fraudulently utilised for discharging earlier liabilities on account of the buyer's credit facilities allowed by the overseas branches of an Indian bank, it was alleged. While in the case of foreign letters of credit (FLC), these were opened initially for smaller amounts by creating purported entries in the core banking solution system and sending the relevant FLC through SWIFT messages.
Raids by the ED against Nirav Modi and others continued for the third day on Saturday, with the agency saying it seized diamonds and jewellery worth Rs 250 million, taking the total seizure value to Rs 56.74 billion.