Nirav Modi who is in the middle of this controversy, is a luxury diamond jewellery designer who was ranked #57 in the Forbes list of India’s billionaires in 2017. He is the founder and director of the Nirav Modi chain of diamond jewellery retail stores, and is the Chairman of Firestar International, the parent of the Nirav Modi chain, which has stores in key markets across the world. His luxury designs have been won to the Oscars by ‘Hidden Figures’ star Taraji P. Henson and to the Golden Globes by Dakota Johnson, among others. Actor Priyanka Chopra is the brand ambassador.


Bank fraud is considered to be a white-collar crime. Bank fraud is a crime and occurs when a person uses unethical means to receive money or assets from a bank and financial institution. Recent bank scam shock bank sector across the nation. It was none other than the Nirav Modi PNB Fraud Story.

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According to the complaint filed by PNB with the CBI on January 28, the fraudulent issuance of Letters of Undertakings (LOU) was detected at the Mid Corporate branch, Brady House in Mumbai. Letter of Undertaking is a contract to perform the promise, or discharge the liability, of a third person in case of his default. It is a Buyer credit is a short-term credit available to an importer from overseas lenders such as banks and other financial institution for goods they are importing.


  • A set of partnership firms – Diamond R US, Solar Exports and Stellar Diamonds – approached the bank with a set of import documents and requested for Buyer’s Credit to make payments to overseas suppliers. The firms have Nirav Modi, his family members as partners.
  • As there was no sanctioned limit in the name of the firms, the bank branch officials requested the company to furnish 110% cash margin for issuing the LOU for raising the Buyer’s Credit. At this time the firm contested that they have been availing this facility in the past, but the branch records do not corroborate this.
  • Shetty, a former deputy manager at the Punjab National Bank, and Manoj Kharat, have been described as the “single window operators” of the scam that is now being billed as the biggest in India’s banking history.

Further, the bank officials discovered that two of its employees had fraudulently issues LOUs in the past without following prescribed bank procedures and approvals. The employees had then transmitted SWIFT instructions to the overseas branches of Indian Banks for raising Buyer’s Credit without making entries in the banking system to avoid detection.


  • SWIFT stands for Society for Worldwide Interbank Financial Telecommunication code. It is an internationally – recognized identification code for banks around the world. SWIFT codes are most commonly used for international wire transfers and are comprised of 8 or 11 alphanumeric characters. The International Organisation for Standardization (IOS) was the authoritative body that approved the creation of SWIFT codes.
  • The complaint also said that the funds so raised for the payment of the Import Bills have not been utilised for such purposes in many cases. As per the FIR, five of the SWIFT messages (SWIFT is a messaging network used by financial institutions to securely transmit instruction) were issued to Allahabad Bank in Hong Kong and three to Axis Bank in Hong Kong.

Further, the bank officials discovered that two of its employees had fraudulently issues LOUs in the past without following prescribed bank procedures and approvals. The employees had then transmitted SWIFT instructions to the overseas branches of Indian Banks for raising Buyer’s Credit without making entries in the banking system to avoid detection.


  • The worrying aspects of the scam is that in its statement, PNB says that based on the fraudulent transactions, other banks appear to have advanced money to the customers abroad. It goes on to add that these transactions are contingent in nature and any liability arising out of these on the bank will have to be decided based on the law and genuineness of underlying transactions.
  • However Rs. 11, 400 crore scam comes at a time when the central government is attempting to provide a breather to ailing PSBs, having announced an Rs. 2.11 lakh crore capital infusion to the sector in October 2017. For this year PNB will receive Rs. 5, 473 crore as capital infusion from the government through a mix of recapitalisation bonds and direct infusion.

So, these were all the little details of the PNB Fraud Story.

Thanks And Regards

CA Anurag Jain



The Insolvency and Bankruptcy Code, 2016 (Code) is considered as the biggest economic reform in India. It offers time-bound mechanism for orderly resolution of insolvency of companies, firm and Individual. It provide an ecosystem comprising National Company Law Appellate Tribunal, National Company Law Tribunal (NCLT), Debt Recovery Appellate Tribunal (DRAT), Debt Recovery Tribunal (DRT), Insolvency and Bankruptcy Board of India (Board), Information Utilities (IUs), Insolvency Professionals (IPs), Insolvency Professional Agencies (IPAs) and Insolvency Professional Entities (IPEs) for implementation of the Code relating to insolvency resolution and liquidation.

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Insolvency Resolution Professional (IRP) is appointed to conduct insolvency resolution process in accordance with the procedure laid down in the Code. He is a professional with specialised knowledge, training and recognised by Insolvency Professional Agency and Insolvency and Bankruptcy Board of India for undertaking insolvency proceedings. The IRP are registered and regulated by the Board. They have a critical role in transactions under the Code. Insolvency Process under the Code starts with a Financial Creditor, operational creditor or corporate applicant as the case may be who makes an application to the Adjudicating Authority about the debt default by the Corporate together with the name of IP who has consented to act as an interim IP. If no reference is made to the Board about the name of IP, Adjudicating Authority makes reference to the Board. A financial creditor is a person to whom a financial debt is owed and the loan is disbursed against consideration for the value of money borrowed etc. Operational debtor refers to an operational debt in respect of provision of goods and services including employment, repayment of dues to the Govt. authorities or any local authority.


The Insolvency process under the code should be completed in 180 days from the date of application by the applicant with one-time extension of 90 days. The duties of an Insolvency professional are quite onerous having regard to role and responsibility cast on the IP. The duties of IP are:

  • To do a public announcement of insolvency process in English language newspaper and regional language newspaper circulating at the location of corporate registered office and the principal office etc.
  • To manage the affairs of the debtor as a going concern;
  • To collect information relating to the assets, finances and operations of corporate debtor for determining the financial position;
  • To collect all claims received from creditors;
  • To constitute a committee of creditors

The code also specifies functions and obligations to be observed by the Insolvency Professionals. Where any insolvency resolution, fresh start, liquidation or bankruptcy process has been initiated, it shall be the function of Insolvency Professionals to take such actions as may be necessary in the manner provided in the Code.


The Insolvency professional occupies a strategic position and acts as an intermediary between the debtor/creditors on the one hand and the Adjudicating Authority on the other hand and functions under the watchful eyes of the Agency and the Board. The major benefit is that the process is strictly in time bound manner and there are no intervene by other legal authority so bank can recover their money timely and on the other side operational creditor who’s money is due but not paid by debtors can be recover through this legal process.