Mehul Choksi, a prominent Indian jeweler and the founder of the Gitanjali Group, orchestrated one of the most significant financial frauds in India's banking history, defrauding Punjab National Bank (PNB) of approximately ₹13,500 crore between 2014 and 2017. This elaborate scheme involved collusion with bank officials, manipulation of financial instruments, and the diversion of funds through a complex web of companies.
Mechanism of the Fraud:
Letters of Undertaking (LoUs) and Foreign Letters of Credit (FLCs):
Choksi, along with his associates, exploited PNB's internal systems to obtain LoUs and FLCs without proper collateral. These financial instruments are typically used to facilitate international trade by providing a guarantee of payment to overseas suppliers. However, in this case, they were fraudulently obtained and misused.
Collusion with Bank Officials:
The fraud was facilitated by the collusion of Choksi and his associates with certain PNB officials. These officials overlooked standard procedures, enabling the unauthorized issuance of LoUs and FLCs. The funds obtained were diverted for personal and business use, rather than legitimate trade transactions.
Diversion and Laundering of Funds:
The illicit funds were funneled through a network of companies, including those owned by Choksi's family members. Assets were acquired both domestically and internationally, including properties in Dubai, the United States, and the Caribbean. The Enforcement Directorate (ED) traced these assets and initiated proceedings to attach and seize them.
Inflation of Business Turnover:
To conceal the fraudulent activities, Choksi's companies inflated their business turnover by manipulating financial records. This created a facade of legitimate business operations, misleading auditors, investors, and regulatory authorities.
Impact on Punjab National Bank:
The fraudulent activities led to a loss of ₹6,097.63 crore for PNB. This substantial financial setback not only affected the bank's operations but also had a cascading impact on the Indian banking sector, leading to increased scrutiny and regulatory reforms.
Legal Actions and Asset Recovery:
Charges and Investigations:
The Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED) filed chargesheets against Choksi, his family members, and associated companies. The charges included criminal conspiracy, cheating, and violations under the Prevention of Corruption Act.
Asset Seizure and Restitution:
The ED identified and attached assets valued at approximately ₹2,565.90 crore linked to Choksi. These assets included properties in India and abroad, such as villas, commercial establishments, and luxury items. In December 2024, assets worth over ₹125 crore, including flats in Mumbai and factories in SEEPZ, were returned to the liquidator of Gitanjali Gems Ltd., facilitating partial restitution to the affected banks.
Choksi's Defense and Current Status:
Choksi has consistently denied allegations of fraud, claiming that the charges are baseless and that he is a victim of a malicious campaign. He asserts that his businesses were destroyed due to false presumptions and unwarranted raids. citeturn0search6 Following the exposure of the scam, Choksi fled India in early 2018 and acquired citizenship in Antigua and Barbuda. Indian authorities have since initiated extradition proceedings to bring him back to face trial.
Conclusion:
The PNB scam exemplifies the vulnerabilities within India's banking system and underscores the necessity for stringent regulatory oversight. While efforts have been made to recover the defrauded amounts, the case remains a poignant reminder of the potential for financial misconduct in the absence of robust checks and balances.
