Nirav Modi–PNB Scam (2018): How One Fraud Shook India’s Banking System

When the Nirav Modi–PNB Scam came to light in early 2018, most people couldn’t believe the scale of it. It wasn’t just another financial crime — it was a scam that exposed loopholes in India’s banking system, shook the trust of millions, and triggered one of the biggest financial investigations in the country’s history.

At the centre of the storm was Nirav Modi, a celebrity luxury jeweller who dressed Hollywood stars, walked red carpets, and owned boutiques in some of the world’s most expensive cities. To many, he was a symbol of modern Indian success — until the truth emerged.

How It All Started

The scam revolved around a banking instrument called a Letter of Undertaking (LOU) — a tool usually used by importers to obtain short-term credit from foreign banks. In simple words, it works like a bank telling another bank:

“This person is trustworthy. We guarantee repayment.”

But at the Punjab National Bank (PNB) Brady House branch in Mumbai, things didn’t go by the book.

Two key bank officials — Gokulnath Shetty (Deputy Manager) and Manoj Kharat (Clerk) — issued fraudulent LOUs without proper approvals and without recording them in PNB’s official system. Instead, they used the SWIFT network privately, bypassing audits and detection.

These illegal LOUs were then used by Nirav Modi and his companies to borrow money from banks overseas.

How Big Was the Scam?

By the time PNB realised what had happened, the scam had ballooned into over ₹13,500 crore. Later investigations showed the fraud had been going on for nearly seven years — from 2011 to 2018.

It wasn’t just one person. The scam network included:

Key Accused

NameRole

Nirav Modi, the Main architect of the scam, owner of Firestar Group

Mehul Choksi, Nirav Modi’s uncle and owner of Gitanjali Group

Gokulnath Shetty, PNB Deputy Manager, who issued fraudulent LOUs

Manoj Kharat, PNB employee assisting in SWIFT instructions

Several employees of Firestar & Gitanjali Group helped forge documents

Also read: – Vijay Mallya & the Kingfisher Loan Scam: The Complete Story of India’s Biggest Bank Fraud Case – lostnews

How the Scam Worked — In Simple Terms

1. Nirav Modi’s companies approached PNB for credit.
2. Instead of following normal procedures, insiders issued fake LOUs.
3. These LOUs were used to borrow money from foreign branches of Indian banks, such as:
   • Allahabad Bank
   • Union Bank of India
   • Axis Bank
4. The loans were rolled over repeatedly and never repaid.
5. The scam remained hidden because the LOUs were not recorded in the bank’s core system (CBS).

It was a loophole — and Nirav Modi exploited it like a lifeline.

When the Scam Finally Broke: The Moment That Exposed Nirav Modi

In January 2018, a junior PNB employee refused to issue another LOU without proper collateral. When Nirav Modi’s representatives insisted, the bank started verifying past transactions and found discrepancies.

Soon after, PNB filed an official complaint with the Central Bureau of Investigation (CBI).

Within weeks, the scam was national news — and Nirav Modi had already left India.

Government and Agency Action

Once exposed, multiple agencies jumped in:

CBI

• Arrested several PNB officials and company employees.
• Filed multiple FIRs.

Enforcement Directorate (ED)

• Conducted raids across India.
• Seized assets, including:
  • Jewellery
  • Paintings
  • Luxury homes
  • Bank accounts worth thousands of crores.

Income Tax Department

• Filed tax evasion cases against Modi and Mehul Choksi.

Where Was Nirav Modi?

After fleeing India, Nirav Modi reportedly lived in:

• Hong Kong
• Belgium
• New York
• London

In March 2019, he was finally arrested in London after a journalist spotted him walking on the streets.

He has been fighting extradition ever since, but multiple UK courts have ruled in India’s favour.

Meanwhile, Mehul Choksi fled to Antigua and became a citizen before investigations caught up with him. His extradition case is ongoing.

What Happened to PNB?

The scam caused:

• A major drop in the bank’s reputation
• Stock market losses
• Public outrage

The bank later tried recovering dues by auctioning assets linked to Nirav Modi, including diamond jewellery and rare artworks.

Impact of the Nirav Modi Scam on India’s Banking and Financial Systems

The Nirav Modi–PNB Scam forced the government and banks to rethink how LOUs and foreign loan guarantees were handled.

Some reforms that followed:

• Ban on Letters of Undertaking
• Stricter SWIFT and core banking integration
• Stronger audit trails
• Better fraud monitoring systems

This wasn’t just a scam — it became a turning point in India’s banking regulations.

Also read: – Top 11 Biggest Scams That Shocked India: A Look at How Billions Were Lost – lostnews

Where Things Stand Today

• Nirav Modi is currently lodged in a UK prison, awaiting final extradition decisions.
• Mehul Choksi remains under legal protection in Antigua.
• Trials in India are ongoing.
• Asset recovery continues, though only a fraction has been retrieved so far.

Final Thoughts

The Nirav Modi–PNB Scam (2018) was more than just financial fraud — it was a wake-up call. It showed how one loophole, combined with greed and weak oversight, could cost a nation billions.

It also raised tough questions about accountability, transparency, and the safety of public money — questions that still echo today.