All was well on February 14 when the market opened at 9 am. Within three minutes, a notice arrived informing the stock exchanges that a fraud amounting to $1.8 billion had been detected. The notice was from the Punjab National Bank, India’s second largest public-sector bank. And soon, all hell broke loose.
“The bank has detected some fraudulent and unauthorised transactions (messages) in one of its branches in Mumbai for the benefit of a few select account-holders with their apparent connivance. Based on these transactions, other banks appear to have advanced money to these customers abroad,” said the filing.
The notice did not just rock the share price movement at the exchanges, but the nation as a whole. Soon stories emerged of how Nirav Modi, billionaire diamantaire, and his uncle Mehul Choksi, promoter of Gitanjali Gems Ltd, swindled Rs 11,500 crore from Punjab National Bank through unauthorised transactions. Matters were not just restricted to the stock markets, but snowballed to greater political controversy with two national parties —the BJP and the Congress — resorting to mudslinging at each other accusing each other of being hands in gloves with corruption.
Law enforcement agencies soon descended on Nirav Modi and Mehul Choksi’s houses, showrooms and firms, freezing bank accounts and seizing diamonds, jewelleries, cars, watches and all that they could lay their hands on. What they couldn’t lay their hands on were the troika of Nirav Modi, his wife Ami and uncle Mehul Choksi who slipped out of the country in January itself.
PNB officials nabbed
A few officials of the Punjab National Bank and Modi’s firm were, however, not so lucky. The CBI arrested former PNB deputy manager Gokulnath Shetty, single window operator Manoj Kharat and group’s authorised signatory Hemand Bhat on February 18 for issuing fake guarantees to Nirav Modi. These guarantees or letters of undertaking (LoU) were issued to Modi without a collateral. The matter came to the fore after Gokulnath Shetty retired and another officer assumed office. The new official conducted an internal inquiry which revealed that some officials connived and issued hundreds of such unauthorised LoUs in the past seven years to Modi and Choksi.
LoUs are used by businesses to receive money overseas to pay for their imports. It is believed that the two jewellers hardly used these funds to pay for their imports. At most times, the money was used to pay previous loans. This continued for years till the amount stood at Rs 11,500 crore.
But this is not the first time that Nirav Modi came under scanner. Last year, the income tax department had found him guilty of diverting diamonds worth Rs 1,216 crore from the Surat special economic zone (SEZ) to the domestic market. The diamonds from the SEZ were meant to be processed and exported.
Till the reports of fraud emerged, many a common man may not have known Nirav Modi, but several celebrities already did. Modi, 47, a billionaire jewellery designer, is the founder and creative director of Nirav Modi chain of diamond jewellery retail stores whose clients range from Hollywood stars like Dakota Johnson, Kate Winslet to Bollywood divas like Priyanka Chopra and Deepika Padukone.
Not only is he one of the first Indians to feature on the cover of Christie’s and Sotheby’s auction catalogue, he has also been named #57 in the Forbes list of India’s billionaires in 2017. Born in the Belgian city of Antwerp, Modi learnt most of the art from his uncle Mehul Choksi while working at his jewellery retail Gitanjali Gems. Modi is said to have an eye for art and design from the very beginning.
In 1999, he founded his diamond sourcing and trading company Firestar from which emerged the Nirav Modi diamond jewellery retain chain. In an interview in 2017, Modi told a news agency, “Our international launches are a testament to our passion to pin Indian jewellery on the global luxury map. We currently have a retail presence in Mumbai, New Delhi, New York City, London and Macau, with one boutique in each city and three boutiques in Hong Kong."
Cut to the present scenario, PNB and Gitanjali scrips have taken a beating in the stock markets. Since the fraud was detected, the PNB scrip has plunged almost 30% to a price of Rs 113.40 on February 23. Gitanjali Gems witnessed a fall of 4.98% to Rs 24.80 per share till February 23. Apart from a few domestic public sector banks, a foreign bank Intesa Sanpaolo SPA’s Hong Kong branch has outstanding exposure to the PNB fraud.
While the investigating agencies scrutinise documents and interrogate officials and the rest of the world wriggles under the threat that more such frauds will soon be undone and more banks will sink in the red, there are no signs of the conspirator anywhere in the world except media reports of his appearance in a suite at JW Marriot’s Essex House in New York.
Nirav Modi’s passport has been revoked, giving him the chance to refrain from deposing before the Enforcement Directorate for investigation. Will the government be able to bring him to India and deliver justice or is he another Vijay Mallya in the making is a question yet to be answered.