Explainer: Choksi and the Rs 14,000-cr scam that shook PNB
In early 2018, India was rocked by one of its biggest banking frauds — a staggering Rs 14,000-crore scam involving diamond trader Nirav Modi and his uncle Mehul Choksi, who was arrested in Belgium a few days ago. The fraud hit Punjab National Bank (PNB), the country’s second-largest public sector bank. What began as a single suspicious transaction soon unravelled into a massive case of financial misconduct spanning several years, triggering investigations by multiple agencies.
About the fraud
At the heart of the scam were fraudulent Letters of Undertaking (LoUs) — a form of bank guarantee used by Indian importers to avail credit from overseas branches of Indian banks. Normally, such guarantees are backed by collateral and proper documentation. However, Nirav Modi and Mehul Choksi manipulated this system to siphon off funds without putting up any security.
With the connivance of certain PNB officials, over 1,200 LoUs were fraudulently issued between March 2011 and November 2017. These LoUs were sent via the international SWIFT (Society for Worldwide Interbank Financial Telecommunications) banking system, but were never recorded in PNB’s core banking software. This allowed the fraudulent guarantees to bypass internal checks and audits.
Using these fake LoUs, companies linked to Nirav Modi and Choksi secured short-term loans from other Indian banks’ overseas branches under the pretence of trade finance. These funds, instead of being used for genuine business, were allegedly laundered.
How did it unfold
The fraud came to light in January 2018 when a new official at Punjab National Bank refused a repeat request for LoUs without requisite documentation. An internal probe followed, revealing that a massive web of fake guarantees had been spun over years.
By February 2018, PNB lodged a complaint with the CBI, followed by action from the Enforcement Directorate. Nirav Modi had already fled India by then, reportedly to the UK. His uncle Mehul Choksi also left around the same time, taking up citizenship in Antigua in late 2017 — months before the scam became public.
Who benefited
The primary beneficiaries were Nirav Modi, Mehul Choksi, their family-run firms, including Gitanjali Gems, and a few PNB officials. Investigations revealed that 1,265 LoUs were issued fraudulently, while only 53 were legitimate.
The funds obtained were allegedly used to buy luxurious properties, high-end jewellery, and shell companies — both in India and abroad.
Why Choksi fled
Mehul Choksi’s escape just ahead of the scam becoming public raised eyebrows, especially since he was part of a high-profile Indian business delegation at the World Economic Forum in Davos in January 2018 — where Prime Minister Narendra Modi was also present.
Choksi later claimed his departure was for medical treatment, but his swift move to obtain Antiguan citizenship and subsequent refusal to return indicated a premeditated flight from prosecution.
Recovery of money
So far, the recovery has been partial. The ED has attached assets worth several thousand crores, including luxury properties, jewellery and bank accounts. In 2024, a special court in Mumbai allowed the auction of 13 properties belonging to Gitanjali Gems. However, actual liquidation and fund recovery have been slow. Some proceeds are tied up in legal wrangles, while Nirav Modi’s extradition from the UK remains under appeal. Full recovery of the entire Rs 14,000 crore appears unlikely.
India