PNB fraud: CBI has probed only 6 of 142 LoUs in 3 months

The agency filed its second charge sheet before a special CBI court in Mumbai on Tuesday.

The Central Bureau of Investigation (CBI) has investigated only six letters of understanding (LoUs) and six foreign letters of credits (FLCs) since February 15, when they filed their second first information report into the multi-crore Punjab National Bank (PNB) fraud. The agency has to look at a total of 142 LoUs and 58 FLCs (which had 311 bills). The 12 letters have caused a loss of ₹512.27 crore to the PNB.

Mehul Choksi, an accused in the case. (HT Photo)

The agency, which filed its second charge sheet before a special CBI court on Tuesday, said the LoUs and FLCs were issued in favour of accused Mehul Choksi’s Gitanjali Gems Limited, Gili India Limited and Nakshatra Brands Limited fraudulently between 2015 and 2018.

An LoU is a guarantee by the bank that if the borrower defaults on repayment, it would pay back the money to the original lender. An FLC is a sort of guarantee to a third party or vendor that money for the goods supplied would be paid.

According to the CBI, the beneficiaries of the six LoUs issued to get freshwater pearls were 4C’s Diamond Distributors, Hong Kong and Shanyao Gong Si Limited, Hong Kong, who are also under probe. The credit was availed through State Bank of India, Frankfurt and State Bank of India, Mauritius. The money was remitted into the account of the two beneficiaries in UCO Bank, Hong Kong, states the charge sheet.

The agency stated the beneficiary of the six FLCs was Crown Aid Limited, a Hong Kong-based company, which was acquired by Gitanjali Gems in 2011. Accused PNB officials enhanced the value of the FLCs multiple times and omitted entries of LoUs, without making any entry into the core banking system (CBS) of PNB to favour Mehul Choksi and his firms, according to the CBI.

The details of the LoUs and FLCs were obtained from the Google drive of Vipul Chitalia, vice-president (banking operations & finance) of all three firms of Choksi.

The agency said Choksi’s firms submitted applications to PNB, stating they had imported cut and polished diamonds, raw material and capital goods from 4C’s Diamond Distributors, Hong Kong. The applications were made despite knowing they had crossed their sanctioned limited under the Foreign Letter of Guarantee (FLG) and they had not provided 110% cash margin, which was required in cases where the guarantee crosses the sanctioned limit as mandated by the Reserve Bank of India.

They falsely stated that the stock against the transaction will be treated unpaid, until the amount is repaid, and in case of default, the consignment will remain with the bank.

CBI stated the retired deputy general manager of PNB, Gokulnath Shetty, a key accused in the case, did not sign the counter indemnity that would have ensured the consignment stayed with the bank. Instead, at the behest of Chitalia, he fraudulently returned the applications submitted by Gitanjali Jewels and other accused companies.