PNB makes first recovery of Rs 24 cr in Nirav Modi fraud case in US

In 2018, a group of companies belonging to Nirav Modi and Mehul Choksi fraudulently secured loans worth Rs 14,300 crore. It was the biggest banking fraud in India
Punjab National Bank (PNB) has made its first recovery of around Rs 24 crore in the Nirav Modi fraud litigation case in the United States.

"PNB has informed the Ministry of Corporate Affairs (MCA) which spearheaded the corporate governance litigation in a foreign jurisdictional court, that it has received $3.25 million (about Rs 24.33 crore) as the first tranche of recoveries," the corporate affairs ministry said in a statement on Tuesday.

This was the maiden case of corporate fraud in an overseas territory that the Ministry of Corporate Affairs intervened in. 

The government said that a sum of Rs 82 crore (or $11.04) will be distributed among unsecured creditors including the PNB, following liquidation of the assets belonging to the Nirav Modi group in the US.

"Further recovery therefrom is subject to other expenses and settlement of claims of other claimants," the ministry said. 

In 2018, a group of companies belonging to Nirav Modi and Mehul Choksi fraudulently secured loans worth Rs 14,300 crore. It was the biggest banking fraud in India.
The loans were allegedly issued by PNB executives through SWIFT, a global messaging system. The fraud went undetected for seven years since the SWIFT was not integrated with PNB’s core banking system (CBS).

The corporate affairs ministry said it has initiated proceedings for disgorgement of monies from the entities promoted and/or controlled Modi and Choksi.

Three companies promoted by Nirav Modi - Firestar Diamond, Inc., M/s.  A. Jaffee, Inc. and M/s.  Fantasy, Inc. - had filed for bankruptcy in the Southern District court of New York. PNB had requested the intervention of the government  in a bid to realise its claims in the debtors’ assets.

The examiner appointed by the court had in its report in August 2018 explained the modus operandi of the fraud, and the manner in which the US-based employees of the debtors participated in the fraud. 

"One prominent feature of the fraud was the apparent façade of independent companies, which were, in reality, entities promoted and/or controlled by Nirav Modi, that engaged in ‘round-tripping’ of the diamonds amongst themselves," the ministry said.

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