As the Central Bureau of Investigation (CBI) made its first arrests in the Rs 11,400 crore Punjab National Bank (PNB) fraud Saturday, including two bank officials and an executive of Nirav Modi’s firm, investigations have expanded to include suspected shell companies, which allegedly received money from overseas branches of Indian banks, against import bills submitted by jewellery czar Nirav Modi and his family.
It is learnt that the CBI and Enforcement Directorate are preparing judicial requests to be sent to Dubai, Hong Kong, Germany, Bahrain and Mauritius among other countries to verify details of at least a dozen companies which received payments from banks against import bills.
Sources said that some may be shell companies used by Modi and his family for round tripping of money borrowed from PNB. In its complaint to the CBI last month, PNB had provided names of five companies based in Dubai and Hong Kong which had received money from foreign branches of Indian banks based on Letters of Undertaking (LoU) issued by PNB. The companies include Aura Gem Company, Sino Traders, Unity Trading, Sunshine Gems, Tri Colour Gems and Pacific Diamonds. While Pacific Diamonds, Tri Colour Gems and Unity Trading are based in the UAE, the rest are based in Hong Kong.
“Since the LoUs were fraudulently issued and there is evidence of round tripping of money, it is highly unlikely that all transactions carried out through the LoUs issued by PNB are genuine. We suspect some of the companies which received payments are shell companies floated by Modi and his family members precisely for the purpose of money laundering,” said an official.
On Saturday, CBI arrested two bank officials, Gokulnath Shetty (61), the deputy manager (retired) of PNB, Manoj Kharat (28), the single window operator of the bank, for their alleged role in issuing eight ‘fraudulent’ LoUs to various companies of the Nirav Modi Group in February 2017.
CBI also arrested Hemant Bhatt (64), the authorised signatory of the Nirav Modi Group of firms, who the CBI alleges is suspected to have played a major part in planning and execution of the scam which ‘likely to be in the vicinity of around Rs 6000 crore’ — many times more than reported by the Bank in its complaint, the CBI said.
Special Judge SR Tamboli said, “This court has gone through the FIR….The investigators must be given a fair chance to investigate into the offence which is very serious and has consequences on the economy of the nation,” while sending the accused to CBI custody till March 3.
CBI also searched PNB’s branch at Brady House Fort and said six bank officials are also being examined. In searches across the country at over 40 locations connected to Modi and his family, CBI and ED have recovered several import bills and applications related to imports. Companies associated with these bills are now under the scanner of the agencies.
While seeking remand before a special CBI court in Mumbai on Saturday evening, CBI claimed that Shetty and Kharat had misused their official position as public servants of PNB to “cause undue pecuniary advantage to the firms and wrongful loss of Rs 280.70 crores to PNB during 2017”. Bhatt, the CBI alleged is a director in around 15-16 companies of Nirav Modi Group, and is allegedly “aware of the modus operandi of the entire scam”. The CBI claimed that Bhatt is also aware of the involvement and role of officials of PNB and Nirav Modi Group but claimed that he is not cooperating with the investigation to reveal the quid pro quo arrangement followed to execute the scam.
“Bhatt has represented these firms and requested PNB to issue LOUs to them for payment from foreign banks for the purpose of export of material to supplier. This was done by the accused without obtaining security, taking interest of the bank or obtaining and mentioning it in the bank records. The amount instead of going to the supplier went to the Hong Kong branches of Allahabad and Axis Bank,” said public prosecutor Om Prakash, while seeking 14-day police custody of the three accused.
The CBI claimed that their custodial interrogation was necessary to ‘recover important missing documents related to the fraudulent LOUs issued by Shetty’. The CBI claimed in its remand plea that no documents or applications for issue of the fraudulent LOUs are available at PNB.
“From the Internal Investigation Reports of the PNB, it is revealed that the Logs in the SWIFT were used by many officials including Gokulnath Shetty by using passwords in the capacity of make/verifier/authoriser enabling fraudulent SWIFT messages,” the CBI claimed in its remand application.
As Shetty’s subordinate, Kharat acted upon his directions, CBI says, in making and verifying these messages before Shetty authorised and transmitted them in 2017. “He (Kharat) admits that this was happening regularly and many other officers have done this before,” the CBI claimed but said that he was not revealing their names.
After a complaint was received by the Banking Security and Fraud Cell of the CBI on January 31, 2017, from the deputy general manager of PNB Mumbai, an FIR was registered against Nirav Modi, Neeshal Modi and Mehul Choksi – all partners of Diamond R US, Solar Exports and Stellar Diamonds – and others including those arrested on Saturday. The accused have been booked under sections 120B (criminal conspiracy), 420 (cheating) and relevant sections of the Prevention of Corruption Act.
The lawyers for the accused said that they were not the ‘ultimate beneficiaries’ and said that they had cooperated in the investigation. “The ultimate beneficiaries are very conveniently let off, sitting somewhere comfortably. I (Shetty) have left PNB admittedly, how can I access the documents at the bank? Also, if the CBI is claiming that they do not have documents, how are they arriving at a number of Rs 280 crore or Rs 6000 crore?” argued Vikram Sutaria, representing Shetty. Advocate Kudrat Shaikh representing Kharat said that he was ‘under pressure’ as a worker in the Bank and that minimum custody should be granted. Bhatt’s lawyer Yashwardhan Tiwari submitted that he was not named as an accused in the remand plea but was arrested after he went before the CBI after being summoned without any notice.
According to CBI and ED, Modi and his family over the years got 293 LoUs issued through PNB and allegedly defrauded the bank of Rs 11,394 crore. The first CBI FIR listed eight fraudulent transactions worth over Rs 280 crore, which after further complaints from PNB, was found to be over Rs 6,000 crore from 150 LoUs. A second FIR lists another 143 fraudulent LoUs worth over Rs 4,886 crore issued for Gitanjali Group.
Companies owned by the family would get LoUs issued to make payments abroad purportedly for payment against import of diamonds. These LoUs were fraudulently issued for six months to a year though RBI guidelines state they cannot be issued for more than 90 days.
When the time for settling buyers credit, availed against the LoUs arrived, the accused got fresh LoUs issued and used the money to settle the account of the earlier buyers credit, sources said.
“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 Buyers Credit Facility allowed by overseas branches of Indian banks,” the CBI FIR said.
“This way the accused, in a way, kept renewing the old LoUs, and kept rolling over the money,” the official said.