Nirav Modi’s firm faked foreign buyers, misused loans: CBI chargesheet

In its probe, CBI found that all SWIFT system messages with regard to LoUs issued to Nirav Modi’s firms were issued without making any entry into the core banking solution .

The Central Bureau of Investigation’s (CBI) chargesheet on the alleged fraud perpetrated by diamond trader Nirav Modi on Punjab National Bank has revealed, for the first time, that some of the purchases against which Letters of Undertaking (LoUs) were issued to Modi’s companies were to be made from companies with connections to him, shedding more light on the modus operandi of the ₹6,498-crore fraud.

Nirav Modi (pictured) and his uncle Mehul Choksi are accused of bank fraud to the tune of ₹14,500 crore.(File Photo)

The chargesheet, filed on May 14, also affirms a theory that has been articulated before, including in Hindustan Times, that some of the more recent LoUs were used to retire the older ones.

Finally, the chargesheet names former PNB managing director Usha Ananthasubramanian because the bank told the Reserve Bank of India 15 months before the fraud came to light earlier this year that there was no way SWIFT messages (which were also used to indicate that the LoUs had been issued) could go out without adequate authorisation because they were linked to the core banking solution (or enterprise software) of the bank.

Hindustan Times has seen a copy of the chargesheet which says that 43 LoUs were issued in 2011, 115 in 2012, 236 in 2013, 123 in 2014, 185 in 2015, 356 in 2016 and 150 in 2017.

The investigative agency’s chargesheet lists 27 overseas supplier companies to whom these fraudulent letters were issued.

Two of these, Sino Traders Limited and Auragem Company, Hong Kong, the chargesheet said, were controlled by Modi.

The chargesheet adds that most of the overseas suppliers are located in New York, Hong Kong and United Arab Emirates and that they are being probed further. It also lists eight LoUs issued between February 9 and 14, 2017 and which were used for making repayments against earlier Letters of Undertaking issued in 2016.

Vijay Aggarwal, who represents five of the 22 individuals charged in the case, termed the chargesheet ‘half-baked’ since agency is yet to obtain prosecution sanction against accused public servants. “CBI has filed incomplete and half-baked chargesheet only to defeat the right of the accused person in custody to get statutory bail. Various bankers against whom prosecution sanction has not been received, but still they have been included in the charge sheet and their sanction is awaited so the trial cannot begin in terms of right of joint trial of accused persons till the sanction comes.”

Prosecution sanction is required under section 19 of the Prevention of Corruption Act to initiate trial against public servants. There are 10 bankers including Ananthsubramanian named in the chargesheet and CBI is yet to receive sanction to prosecute them from the finance ministry (PNB is state-owned and comes under the purview of the finance ministry).

The chargesheet also says almost 15 months before PNB knocked the door of the CBI asking it to probe the fraud committed by diamond trader Nirav Modi and his maternal uncle Mehul Choksi, the bank told the RBI that all its outward SWIFT messages were being sent after making entries into the core banking solution (CBS).

Society for Worldwide Interbank Financial Telecommunication that provides a network for financial institutions all across the world to send and receive information about transactions in a secure and standardised manner.

In its probe, CBI found that all SWIFT system messages with regard to LoUs issued to Nirav Modi’s firms were issued without making any entry into the CBS.

Nehal Ahad, then general manager of international banking division of PNB, told RBI on October 31, 2016 that with entering into CBS, no financial SWIFT message can be sent.

“Investigation revealed that there was no basis to support the above kind of misleading reply and undertaking by Shri Nehal Ahad as no specific instructions were issued to authorized dealer branches until December, 2016 and no action taken reports from field units,” says the charge sheet.

Ananthasubramanian could not be reached for a comment.

On May 14, the CBI filed its first chargesheet in the case, naming 22 individuals and three firms.

A second chargesheet was filed on May 16 against 15 individuals and three companies belonging to Nirav’s maternal uncle, Mehul Choksi. The CBI alleged that Choksi and his companies defrauded PNB of ~7,080 crore in issuance of LoUs and foreign letters of credit.