Born in a family of diamond merchants in Palanpur, Gujrat on 27th February 1971 and raised in the Belgian city of Antwerp, the world’s diamond capital, Modi is a third-generation diamantaire. After dropping out of the University of Pennsylvania’s Wharton School, he joined the family business of his maternal uncle Choksi Gitanjali Gems.
Firestar Diamond International Company
At the age of 19, Modi and his father Deepa Modi returned to India and shifted to Mumbai to join his uncle Mehul Chosi and his Gitanjali Group, which was a retail jewellery company with approximately 4000 stores in India. Nirav Modi shot to prominence in the past decade when he became the first Indian to feature on the cover of a Christie’s auction catalogue for a Golconda diamond necklace in 2010 that fetched $3.56 million at its auction in Hong Kong.
In 1999, Nirav Modi founded the Firestar Diamond International Company Specialising mainly in high-end jewellery. Further, in 2014 “Nirav Modi” brand was born with its first store opening in New Delhi, India. In 2015, Nirav Modi opened stores in Mumbai, Madison Avenue- New York, and Hon Long. His company is claimed to have made more than $2 Billion in sales. He also has other companies in the name of Solar Exports, Steller Diamonds, and Diamond R US.
Before the Punjab National Bank Scam, In 2018 Neerav Modi was estimated to have a net worth of $1.7 billion. Post the fiasco becoming public, his net worth dropped like an inevitable avalanche and Forbes too removed his name from their list of billionaires.
Achievement of Neeraj Modi
Though Nirav Modi will go down in history as a scam star, he was a successful and visionary businessman. Here are the of his achievements and accolades testify to his excellent business skills.
| Year | Achievements |
| 2010 |
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| November 2010 |
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| 2012 |
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| 2013 |
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Inside the Scam
It began in 2011 with a much smaller amount with a single letter of undertaking worth around Rs.800 crore. A letter of undertaking is a guarantee that is bank is obliged to repay the loan if the actual borrower, Nirav Modi in this case fails.
When the borrower did not repay the first Rs.800 crore, the bank ought to have stepped in and booked a default by the group company. Instead, the two PNB employees, who were allegedly party to the fraud, issued more, LoUs on behalf of PNB, asking other banks to give out fresh loans to the firms. This continued until fresh loans to the firms. This continued until two weeks before the whole operation came to light after some of Modi’s employees visited the bank on January 05. The management was caught napping and the overdue loans exceeded Rs. 11000 Crore.
The scam was detected in the third week of January 2018, according to the PNB management which approached the Central Bureau of Investigation on January 29. The agency had seized over 34,000 pieces of jewellery worth Rs. 85 crore from Gitanjali Group, owned by Nirav Modi’s uncle and jeweller Mehul Choksi.
PNB sources say the bank isn’t fully integrated into a core Banking System (CBS) which could have immediately detected the discrepancy. According to sources, PNB’s integration to a CBS was initiated in 2002. Technology took a decade to develop. It should have been upgraded by 2012, but wasn’t.
Also Read This:Â Scam Exposed! Indian Securities Scam of Rs.24,000 Crore.
Interpretation of Neerav Modi’s Scam
In the year 2017, it was found that PNB was involved in a huge scam of around 11,000 Cr Rupees by issuing a false bank guarantee in an unethical manner to a business tycoon Mr Nirav Modi. He is a man dealing with the business of diamonds along with his uncle Mehul Choksi. To import diamonds from foreign countries, he approached PNB for the buyer’s credit. Against the buyer’s credit as per the RBI guidelines, the bank should ask for collateral securities issued.
But in this case, two employees of PNB manipulated the data and without taking any collateral securities issued the LOU which is the Letter of Undertaking issued by the Indian bank that is used by the importer to import goods from foreign countries by getting a loan from the bank which is used by the importer to import goods from the foreign countries by getting a loan from the Indian Banks present in the foreign countries. It implies if in case the importer fails to repay the loan amount to the foreign ban, then the Indian bank that has issued the LOU will be held responsible for the payment.
In this case, the loans were taken in eight different ways during the period of six years starting from the year 2011 to 2017. The LoU (Letter of Undertaking) was given by corrupt PNB officials to Nirav Modi and his firm. These LoUs were given without any collateral as security and any sanctioned credit limit. To make matters worse, all these transactions were not added to the PNB’s Core Banking System (CBS) which is used for record-keeping purposes. Also in some cases, a lower amount was quoted while making a corresponding entry.
All these unauthorised LoU-related transactions were done by corrupt officials using the SWIFT system, which is an elaborate messaging network used by banks and financial institutions internationally to accurately, quickly, and safely send and receive financial information.
The SWIFT system had no linkage with the bank’s record-keeping core system, i.e. CBS and this gave Nirav Modi and his chronicles the shadow area to operate with unauthorized LoUs. In other words, the SWIFT bypassed the CBS of the bank. Since the overseas Indian Bank branches trust their Indian counterparts, without scrutinising the credit quantity, they promptly issued a loan to Nirav Modi and his firms. Added to this, though these LoUs were given for import-related payments, Nirav Modi and his cronies used them to clear previous loans and for other purposes. These went on rampant and unchecked in the shadows for about seven years by Nirav Modi, Mehul Choksi and their associations in collusion with corrupt PNB officials.
As per the banking system, any transactions between Indian and foreign banks are done through the SWIFT system. Whenever any bank issues LOU it gets automatically recorded in Core Banking System (CBS). But in the case of PNB the SWIFT system was not directly linked with the CBS. These things were generally done manually in the Brady house, Mumbai branch. Both the PNB employees took advantage of the scenario and issued false LOU copies to the overseas bank.
This was smoothly continuing until January 2018 when the companies of Nirav Modi again approached the PNB for buyers’ credit. The officer in charge is based on the collateral security against the buyer’s credit. The company refused to give any collateral security and thus disclosed that they have been taking the credit for the past 6 years without any collateral security. When the officer after listening to the fact underewant for through verification found no records for the issuance of buyer’s credit to Nirav Modi’s company. Now this became an issue of great concern for the PNB and they handed over the case to CBI.
Scam Exposed!
As it investigated the case internally, before the public revelation, PNB found two junior branch officials had issued LoUs to foreign branches of India Leaders, on behalf of firms associated with Nirav Modi and his uncle, Mehal Choksi. These bank guarantees were essential to help these firms raise buyer’s credit from these overseas banks to pay for their imports.
When one of the corrupt officials retired, a new official took his place. But this official asked for collateral from Nirav Modi and his firms for granting LoUs without collateral for many years. Also, the foreign banks that had given loans to Nirav Modi and his firms based on PNB’s LoUs came knocking at the doors of PNB. At this juncture, internal investigations had started but no records of such transactions were found because the corrupt officials did not keep relevant records of the unauthorised LoUs in the bank CBS.
Following the PNB fraud case, jewellers are facing challenges in availing funds from banks every jeweller is misusing the funds, but not everybody is doing that, he said. To another question, he said the gems and jewellery industry was valued at Rs. 2,00,000 Crore with annual growth of 7-10 per cent. On January 31 and February 15, 2018, the CBI and the ED registered separate cases against Modi, his companies, and diamond jeweller Mehul Chosi concerning the multi-crore PNB fraud.
The CBI has so far arrested a total of 19 accused, including Goulnath Shetty, former DGM, PNB. A Special PMLA court has already issued non-bailable arrest warrants against Modi and his maternal uncle Chosi who had left the country before the alleged scam came to light.
Highlight of Scam
The Punjab National Bank helplessly reported to exchanges, the Central Bureau of Investigation and the Reserve Bank of India regarding fraudulent transactions of the staggering value of $1.8 billion and the Nirav Modi scam hit the headlines.
| Date | Circumstance |
| January 29, 2018 |
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| February 5, 2018 |
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| February 14, 2018 |
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| February 20, 2018 |
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| February 27, 2018 |
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| February 28, 2018 |
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| March 1, 2018 |
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| March 6, 2018 |
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| June 26, 2018 |
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| August 3, 2018 |
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| March 18, 2019 |
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| March 20, 2019 |
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| March 29, 2019 |
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| February 25, 2021 |
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Impact of Scam
In this heist of scam, Neerav Modi was not alone. His uncle Mehul Choksi and other family members are all being investigated by the authorities with the PNB Scam for charges ranging from aiding Nirav Modi to money laundering via companies owned by family members. There is a huge impact of the Neerav Modi scam in India.
| Impact On | Specification |
| Stock Market |
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| Â Banking Sector |
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| LIC |
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| Import-Export Secor |
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