Wanted in Rs 13,000-cr PNB scam, Choksi held in Belgium

Fugitive diamond trader Mehul Choksi, a prime accused in the Rs 13,000 crore Punjab National Bank fraud case, was arrested in Belgium on April 12. This marks a significant breakthrough in India’s prolonged efforts to extradite him to face trial.

Major breakthrough

Diamond merchant Mehul Choksi was arrested after years of evasion, marking a crucial step in India’s efforts to bring him to justice

The scam involved fraudulent LoUs issued by PNB’s Mumbai branch, enabling Choksi’s firms to secure overseas credit worth thousands of crores

Choksi’s arrest came after the Central Bureau of Investigation and Enforcement Directorate submitted a formal extradition request through international legal channels. The 65-year-old businessman had been residing in Antigua since fleeing India in 2018 when the PNB scam came to light. He had travelled to Belgium last year reportedly for medical treatment before being taken into custody by Belgian authorities.

Indian investigative agencies had been pursuing Choksi through international diplomatic and legal channels despite the revocation of his Interpol Red Notice. A Mumbai court’s two open-ended arrest warrants issued in 2018 and 2021 were shared with Belgian officials to support the extradition case. Sources say legal proceedings have now commenced in Belgium, where Choksi is expected to challenge the extradition. His legal representative Vijay Aggarwal confirmed the arrest and explained that Belgian law required filing an appeal against detention rather than applying for bail directly.

The massive banking fraud, which came to light in 2018, involved Choksi, his nephew Nirav Modi and other family members allegedly obtaining fraudulent letters of undertaking (LoUs) and foreign letters of credit (FLCs) from PNB’s Brady House branch in Mumbai in collusion with bank officials. Investigators found that between March and April 2017 alone, 165 LoUs and 58 FLCs were issued to Choksi’s companies, primarily Gitanjali Gems. These financial instruments enabled his firms to secure credit from overseas branches of Indian banks while bypassing proper documentation and avoiding recording in PNB’s core banking system.

Based on PNB’s LoUs, multiple foreign branches of Indian banks, including SBI (Mauritius and Frankfurt), Allahabad Bank and Axis Bank (Hong Kong), Bank of India (Antwerp) and Canara Bank (Manama), advanced large sums to Choksi’s firms.

LoUs function as a guarantee provided by one bank to another, typically on behalf of a client. If the client fails to repay, the issuing bank is obligated to cover the amount.

So when the payments became due, PNB was forced to honour these fraudulent guarantees, including overdue interest, resulting in a staggering loss of Rs 6,344.97 crore (approximately $965 million) to the bank.

The CBI has filed two chargesheets while the ED has lodged three prosecution complaints in the case. Choksi’s arrest has renewed hopes for bringing one of the key accused in India’s one of the largest banking frauds to justice after years of legal battles and international pursuit.

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