Facts of Nirav Modi case
Nirav Modi was from a very affluent family. His father was a diamond merchant.in 1999 he started his own company specializing in the high-end jewelry. In 2014 he started with NIRAV MODI in Delhi.
The PNB Scam
The investigations is still going on but it can be said that he an his uncle Mehul Choksi was involved in the crime. He in order to fulfill his greedy intentions did the fraud or a scam with the company. He made the issue with the LOU of the bank. Now we should understand the meaning of the term LOU. Lou stands for the letter of undertaking. Lou is a form a guarantee of the bank. It allows the receiver of the LOU to raise money overseas by the LOU.
The Foreign bank that issues the LOU is the creditor and it grants the money at the LOU and the banks here which issues the LOU acts as a guarantee, in case the person did not pay the money the bank can pay them. The bank sees the collaterals on fixed deposits and also the bank issue a credit limit to the LOUs.
In this case the unauthorized LOU is given to Nirav Modi by the corrupted PNB Officials. These LOU’s did not had any collaterals and the credit limit. Also, these transactions were not mentioned to the PNB core banking system which is used to keep the records. All these transactions were done by a swift system. The swift system is used by the banks for the quick and accurately banking purposes. This swift system ahs no link with the records of the core banking system. That means swift can bypass the core banking system.
Since the overseas branches trust their Indian counterparts they issue and credit the money to Nirav Modi.
How did the scam come into light
This scam, was continuing with the help of the corrupt official of the PNB banking officials. When one of them retired a new official appointed and he asked for the collateral from Nirav Modi to which he was informed that they have been getting LOU’s without any collaterals. And the banks that have been given banks to Nirav came for their repayment of the loan. The internal investigations began and there were no records because the officials did it from the swift system of banking. PNB suffered a loss of 2 million dollar.
In 2018 PNB then reported to Reserve bank of India and CBI and the scam hit the headlines.
AFTERMATH
- The RBI issues guidelines for not issuing the LOUs for the purpose of it not being misused. After this the Issue of LOUs as a guarantee was discarded by the commercial banks.
- RBI ordered that the swift system should be linked to the core banking system.
- Nirav Modi was charged with criminal conspiracy, cheating, dishonesty, fraud, breach of trust and breach of contract.
- PNB was expected to issue and clear the amount it has to pay to the overseas branches of the SBI, INDIAN OVERSEAS BANK, UCO, SBI etc.
Legal Aspects
- He was charges with criminal conspiracy under section 120A of the IPC.
- He was charged with (Section 409) Criminal breach of trust by public servant.
- He was charged with (Section 420) Cheating and dishonestly inducing delivery of property of IPC.
- He was charged with Corruption charges under Section 7A and Section 8 of the Prevention of Corruption Act, 1988.
- He was charged with (Section 506) Criminal intimidation to cause death of IPC.
- He was charged with Money laundering charges under Section 3 and Section 4 Prevention of Money Laundering Act, 2002.
Impact of Nirav Modi Scam on corporate frauds
- Investors lose their trust in the financial market and stock market.
- The banking stocks have seen a major downfall after the scam. The bank stocks sought a major downfall of thirty-six thousand crores of rupees.
- The credit ratings of PNB saws a major downfall. Major rating organizations has degraded the credit rating of the PNB.
- LIC Lost crore of rupees as the LIC is the biggest investor of these banks such as PNB, YES BANK, ALLAHBAD BANK, AND Mehul Choksi’s Geetanjali so the stocks of these companies get down LIC also lost its money.
