CBI court grants bail to retired PNB officer in ₹9.10 cr LoU fraud

Retired Punjab National Bank official Gokulnath Shetty, accused in a fraud case related to the issuance of fraudulent letters of undertaking, has been granted bail by a special CBI court in Mumbai. The court noted that the alleged loss had been recovered and the bank had gained an additional amount of INR55 lakh ($79,000) in interest. Shetty is also an accused in the INR13,850 crore fraud at PNB.

MUMBAI: A special CBI court has granted bail to Gokulnath Shetty, retired deputy manager of Punjab National Bank (PNB) arrested in connection with a case registered against him and promoters of Chandri Papers and Allied Products Pvt. Ltd for fraudulently issuing a LoU (letter of undertaking), aggregating to US$1,421,311.82 – approximately ₹9.10 crore, to the firm.

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Shetty is also an accused in the ₹13,850 crore fraud at the public sector bank.

Special judge VP Desai granted Shetty bail, noting that the total alleged fraud amount of ₹9.09 crore was paid by the company before the case was registered and the bank has actually earned an income of ₹55 lakh in the entire episode.

Besides, the two accused namely Aditya Asiwasia and Ishwardas Agarwal — both directors of Chandri Papers have been discharged as they have already repaid the entire LoU amount on June 28, 2018.

The court further noted that the amount was kept in fixed deposit by PNB, and it has earned interest of ₹55 lakh.

“The alleged loss is not only recovered but the bank has gained an additional amount of ₹55 lakh towards interest. It cannot be brushed aside that now the applicant (Shetty) is in jail for more than four years and six months,” the court observed granting him bail.

It was alleged that on April 25, 2017, he fraudulently issued LoUs in favour of M/s Chandri Paper and Allied Products Private Ltd., when the company didn’t have enough approved credit limit nor had provided the requisite 110% margin to the bank for availing such credit facility.

Shetty had allegedly transmitted swift messages to banks at foreign destinations, and just like in the fraud involving diamond traders Nirav Modi and Mehul Choksi, did not enter the LoUs or the swift messages in the core banking system.

The fraud came into light during the probe of LoUs granted to Nirav Modi and Mehul Choksi – the prime accused in the ₹13,850 crore fraud at PNB.

Shetty’s lawyer Sandeep Karnik had moved a plea saying the investigating agency intentionally suppressed the fact that the LoUs were cleared, and entire amount was repaid by the company. Besides, Shetty contended that the main accused have been already discharged.

The plea was opposed by the CBI, saying Shetty was a bank official who deliberately omitted to make entries of the LoUs purportedly issued in favour of the accused companies, in the Core Banking Solution (CBS) system of the bank, to avoid detection.

The funds raised through the said LoUs were meant to be used for payment of import bills of the accused companies, whereas it was dishonestly and fraudulently utilised for discharging the earlier liabilities on account of buyer’s credit, causing loss of ₹9.10 crore to PNB.