Businessman Nirav Modi has been arrested in London for his role in the Rs 11,400 crore Punjab National Bank (PNB) scam that came to light last year. He had absconded to London after he was accused of committing fraud in transactions with the country’s second largest lender, PNB. He will likely be extradited to India soon.
Modi, a 48-year-old diamond merchant, was at the epicenter of a money laundering scam conducted through PNB. Modi’s uncle Mehul Choksi is also accused in the scam.
The Enforcement Directorate (ED) has seized Modi’s assets worth close to Rs 2,000 crore under the Prevention of Money Laundering Act and Fugitive Economic Offenders Act. Indian officials had also suspended his passport and issued a request to extradite Modi from the UK in August last year.
Modi is well-known in high-profile pop-culture circles as he has worked with Priyanka Chopra, Kate Winslet, and Dakota Johnson.
He was also the first Indian jeweler to grace the front cover of Christie’s Hong Kong catalogue, alongside Harry Winston and Cartier.
His Riviere Diamond Necklace was bought for $5.1 million in a Sotheby’s auction in Hong Kong in 2012. His reach and popularity is visible in his network of boutiques in fashion capitals all across the world—New York, London, Singapore, Hong Kong, and Beijing, besides India.
According to reports, Modi is now making a living as a watch and jewelry trader in the UK.
Details of the arrest
UK Home Secretary Sajid Javid had approved the ED’s request to extradite Modi to India and issued a warrant for his arrest. The ED is an economic law enforcement agency in India.
Days later, Modi was arrested by local authorities near his home.
On March 19, Modi was apprehended at Metro Bank in Holborn, London, when he went to open a new account. A bank clerk alerted the authorities that a wanted fugitive was present in the bank.
He entered an “arrest by agreement” arrangement, meaning that he would need to be present in court on March 25. However, he was arrested before that date by local authorities on Tuesday, March 19.
After he was presented to District Judge Marie Mallon at the Westminster Magistrate Court, Modi’s lawyers offered to pay £500,000 and argued that he was communicating with the Scotland Yard’s extradition team.
Other than projecting cooperation, Modi’s legal team argued that he disputes India’s charges of fraud itself.
“He very strongly contests the allegations”, said George Scott, one of Modi’s lawyers.
Modi’s attorneys argued that he was an upstanding resident who is a salaried employee at Diamond Holdings Ltd. and pays his council taxes on time.
They also said that because Modi’s son is studying in London and Modi earns £20,000 a month. Therefore, he has no reason to suddenly disappear.
The court refused to grant him bail because it believed that there was “substantial risk” in letting Modi off before his extradition.
Modi can apply for bail again on March 29, the first day of his hearing in the UK. Moreover, his lawyers are likely to stall the main hearing by appealing to the UK high court.
What is the PNB scam?
The PNB scam is infamous for being the largest banking scam in Indian history, thus far.
Modi and Choksi’s companies and subsidiaries carried out fraudulent transactions at PNB between 2011 and 2017.
Two PNB employees, who were in on the scam, issued loans to Modi and Choksi’s companies and subsidiaries, knowing they would not be repaid.
These loans were carried out through letters of undertaking (LoUs), which are documents stating that foreign branches of PNB will be liable for the repayment of these loans if Modi or Choksi default.
The two colluding employees allegedly issued LoUs to other banks as well—Allahabad Bank loaned Rs 4,000 crore, Union Bank and Axis Bank gave upto Rs 2,000 crore each, and State Bank of India lent Rs 1,000 crore.
PNB says that it was unable to detect the fraud because these transactions were not recorded in its central banking systems and bypassed the traditional three-step verification process.
Confidence in Indian institutions
The PNB scam also provoked a massive loss of public faith in the safety and security of India’s banking system.
However, the ED prosecuting wealthy fraudsters like Modi reflects well on Indian institutions that have long been accused of complacency, laziness, and corruption.
Other than Modi, economic fugitive Vijay Mallya is also embroiled in extradition proceedings in London after defaulting on loans worth a whopping Rs 9,000 crore.
Like Modi, Mallya’s passport has been suspended.
If Mallya and Modi are successfully extradited to India, citizens may witness wealthy businessmen being held accountable for their fraudulent actions, as well as a cooperative diplomatic climate between India and the UK. Moreover, such experiences can help the country’s banking infrastructure rebound from the shock by growing stronger and more vigilant.
Rhea Arora is a Staff Writer at Qrius.