Nirav Modi being world-famous for his diamond jewellery is also famous because of perpetrating India's second-largest lender "Punjab National Bank" for a sum worth Rs 11000 crore. He is the owner of Nirav Modi's global diamond jewellery house which was established in 2010 and headquartered in Mumbai of whom Bollywood superstar 'Priyanka Chopra' was the ex-brand ambassador. He was the first Indian to be featured in Christie & Sotheby's catalogues. In 2013 he was featured in the Forbes list of Billionaire businessmen.
Have you ever wondered how he managed to pull off such an enormous amount of loan from PNB bank like a sly without having the bank know none of it? Let's Go with the Flow.
Introduction
Born in 1971 in Palanpur, Gujarat & grew up in Antwerp, Belgium, Nirav belonged to a diamond business family. when he was 19, his father Deepak Modi shifted to Mumbai to take care of his brother 'Mehul Choksi' Diamond business who is the head of Gitanjali Gems. Nirav attended Wharton school at the University of Pennsylvania but eventually dropped out & came back to Mumbai to take care of Gitanjali gems.
Nirav Modi - PNB case
Uncle Mehul Choksi taught Nirav the great con art to deceive the banks because somehow they became aware of the loopholes of the Indian banking system. They started to manipulate the banking system right then & there onwards.
In the scenario of Import & export, the banks act as a mediator for the exchange of money between importer & exporter to smooth out the payment system so that there is no confusion or conflict. This is a service that is compulsory for every bank. Nirav never used to pay the exporter directly but used to facilitate the payment via banks as it is intended.
The following Dialogue conversations will help you understand the whole scenario :
NM: I need a buyer's credit so that I can make payment to my Diamond supplier.
PNB: We can surely give you the loan but at a higher rate interest rate.
NM: I won't be comfortable paying a high interest rate, please find a cheap & better alternative.
PNB: Sure, we can arrange a buyer's credit for you via our foreign branch at a low interest rate.
NM: Thank you very much.
Now here's the flow of the whole mechanism
Nostro Account: It is an account that every bank maintains for felicitation of money transfer exchanges both nationally as well as internationally.
What used to happen?
From 2010 till 2017 Nirav used to extract the credit from PNB with the help of 2 rogue employees working over there. They used to make Fake LOU(letters of understanding) & send them to a foreign branch via swift instructions & that's how credit used to come in every time. In the business of Import & export Rollover of credit, as new credit is issued to make payment for previous credit and so on and forth, this is known as a Ponzi scheme. As this scheme is a Non-fund based scheme where No collateral has to be submitted to claim credit from a Foreign branch so there was no collateral of Nirav with PNB.
Now here's the catch :
The Data entry was never made in CBS(core banking solution), as a result, it was impossible to track the details of NM so the bank didn't know from whom it should recover the money going out of their pocket as all the dues were only being paid by PNB solely & Nirav Modi never returned even a penny.
The Hour of Doubt :
In 2017, both rogue employees who used to help Nirav Modi retired & new employees substituted their place. Now let's understand how:
NM: I need the Buyer's credit to make payment to my supplier.
PNB: Sure sir, kindly deposit collateral to us.
NM: No, that's not how it goes as I've never provided it.
PNB: Sir rules have been changed, you have to obey accordingly.
NM: I've never provided collateral for the past 7 years & kindly check my records in your CBS.
PNB: Okay sir, let me check your record in our database.
(* But the record was nowhere to be found in their CBS as the entries of NM transactions were never made by the prior employees.*)
This situation triggered him to report the matter to senior officials which later led to a CBI investigation. According to the audit which happened, it was earlier found that 280 crores were being scammed but later the figure stretched out to a staggering Rs 11k crore. Ultimately Enforcement Directorate came into action for further probing but before they could arrest NM for his connivance, he absconded & flew to the United Kingdom along with his uncle Mehul choksi (who was also found guilty) & whole family including his wife Ami Modi, brother Neeshal Modi & his children's.
His 3 companies were found to be guilty of fraudulence, the statistics show:
M/s Diamond RUS - Rs 2210.61 crore
M/s Solar exports - Rs 2215.88 crore
M/s Stellar Diamond - Rs 2134.71 crore
Further allegations
In August 2018, Canadian entrepreneur Paul Alphonso an entrepreneur filed a US $3 million civil lawsuit in the superior court of California against Nirav Modi, Fire Star Diamond & A. Jaffe Inc. for fraudulence & embezzlement. Mr Alfonso hired Nirav Modi to make two custom diamond engagement rings worth above $ 2,00,000 which turned fraudulent.
Plan of Action
1. Enforcement Directorate has seized Nirav Modi's assets all over India & overseas worth 536 crores.
Luxury Flat in New York seized- Rs 216 crore
Bank Balance seized - Rs 278 crore
Diamond jewellery - Rs 22.69 crore
South Mumbai Flat seized - Rs 19.5 crore
Alongside his company Fire Star Diamond has also been seized by the ED because of which his international business is also suffering conveyed by a letter written by him to PNB.
Adding further to the detailed letter to PNB, he says that the erroneous action taken from the latter has finally closed all the doors to repay the loan which clocks somewhere around Rs 6500 crores.
Corrective steps were taken by PNB
1. According to the sources, PNB has set up numerous recovery cells in all of its 6900 branches across India & has deployed 25000 employees to the Stressed Asset Vertical Department to take care of the recoveries issues to promote fast recovery of NPA(Non-performing Assets).
2. PNB has successfully recovered Rs 8500 crore worth of loans from willful defaulters from the 2017-2018 financial year out of which Rs 6500 crores have been allocated to different branches of PNB to curb from financial indebtedness of the company to its shareholders because of NM's con.
3. The country's law enforcement agencies are continuously supporting RBI's initiative for localisation of Data by the payments industry which could help prevention of money laundering via online transactions & would also thereby promote digital India.
The Final word
If Nirav Modi's intentions to pay back the loan had been pure then absconding from India would never have been in the picture in the first place, so relying on his statement would totally be stupid but the biggest question in front of the National Company Law Appellate tribunal is that how much money could be recovered out of freezing assets worth Rs 630 which is like peanuts in comparison to Rs 11000 crores & whether the government would ever be able to bring him back?
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