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PNB scam: CBI, ED probe face massive bottlenecks as Nirav Modi, Mehul Choksi refuse to cooperate

Driven by greed, two seasoned jewelers, Nirav Modi and his uncle Mehul Choksi, colluded with a few crafty bankers to defraud India's second-largest state-run bank. The resultant Punjab National Bank (PNB) scam, which surfaced in February following a complaint by the lender, has triggered fears for PNB, fears about the health of the banking system and concerns about the regulator’s ability to police that system.

The Central Bureau of Investigation (CBI) will now widen its investigation of the PNB scam, following a second complaint by the bank, which now alleges that Modi’s flagship firm—Firestar—misused legitimate loans and guarantees.

File image of Nirav Modi and Mehul Choksi. YouTube screengrab.

File image of Nirav Modi and Mehul Choksi. YouTube screengrab.

PNB says it has been duped of an additional Rs 320 crore in the complaint filed on 4 March, reports Reuters. Firestar was not named in PNB’s first complaint that pulled up Modi, Choksi and three firms controlled by Modi.

The latest complaint reportedly pushes PNB’s total exposure to the scam to over Rs 12,700 crore. The bank’s scrip is down some 46 percent on the Bombay Stock Exchange (BSE) since 29 January, 2018, the day it filed the first complaint, according to stock market data.

The scam has pushed the Reserve Bank of India (RBI) to order banks to improve checks and balances. The regulator has set an 30 April, 2018 deadline for the same.

Earlier in the week, Choksi, who like Modi fled the country even before PNB filed its complaint, told the CBI that he won’t be returning to India anytime soon. Choksi said a ‘heart condition’ prevents him from travelling to India. He fears potential arrest in India and also accused investigating agencies of gross abuse of the law. Modi and Choksi are believed to be in the US. Both have turned down the CBI’s request to appear before it.

Meanwhile, the Serious Fraud Investigation Office (SFIO) has questioned PNB boss Sunil Mehta, as well as executives from ICICI Bank and Axis Bank about their exposure to the scam. Indian lenders who’ve transacted with Modi and Choksi are staring at some $3 billion in potential write-offs, reports The Hindu.

A bulk of the investigation is being handled by the CBI, which has arrested 19 people thus far: six PNB officials including former general manager Rajesh Jindal who headed the bank’s Brady House branch from 2009 to 2011, six staffers from Modi’s firms including one executive, four employees of Choksi’s Gitanjali Group including a vice president and a former director, two auditors who have worked with PNB and one auditor who rendered services to Modi.

The Enforcement Directorate (ED), tasked with recovering the proceeds of the crime—Modi’s firms allegedly owes PNB Rs 6,500 crore while Choksi’s Gitanjali owes Rs 6,138 crore to a consortium of lenders—is probing over a 100 shell companies thought to be used by the duo to divert funds, reports The Economic Times .

In the last week of February, Choksi and Modi communicated with their employees, asking them to look for other jobs. Modi said he cannot pay salaries following a seizure of assets. The ED has seized diamonds, gold, jewellery, cars and 21 properties, including a solar power plant and a farmhouse belonging to Modi. It has also frozen shares and mutual funds held by the duo.

With inputs from agencies

Updated Date: Mar 09, 2018 15:39 PM

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