Wanted for fraud and money laundering in the Rs 14,000-crore Punjab National Bank (PNB) scam, fugitive businessman Nirav Modi will face judgment in a UK court today (February 25) with regard to his extradition to India.

The 49-year-old diamond merchant will appear through video conferencing from Wandsworth Prison London at Westminster Magistrates’ Court. This legal battle, which has dragged on for nearly two years, marks one of many high-profile extradition cases involving alleged Indian economic offenders in the UK.

In the run-up to the ruling, let’s rewind to the origin of the case.

What is the case all about?

Modi was arrested on an extradition warrant on March 19, 2019, on charges of perpetrating fraud at a branch of PNB in Mumbai the previous year. He has since appeared for several court hearings through video conferencing but his multiple bids at seeking bail have drawn a blank.

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He is facing two sets of criminal proceedings — the Central Bureau of Investigation (CBI) case is with regard to a large-scale fraud involving PNB by illegally obtaining letters of undertaking (LoUs) or loan agreements, and the other Enforcement Directorate (ED) case is related to laundering of the proceeds of that fraud.

There are two other charges — evidence tampering and witness intimidation — that were later added to the CBI case.

How did the fraud take place?

According to investigators, the businessman, along with his uncle Mehul Choksi, cheated the bank with the help of some PNB employees by having fake LoUs issued. They also got the foreign letter of credit (FLC) enhanced 4-5 times of the original FLC amount without complying with norms, leading to losses for the bank.

Investigators say the PNB employees had complete access to Finacle, an internal software used by the bank to verify large transaction messages, and helped issue fake LoUs to Modi. Those were subsequently sent to foreign banks by violating an international messaging system in banking called SWIFT. The entries did not figure on Finacle, thus escaping any scrutiny by PNB.

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A LoU is an assurance given by an issuing bank to Indian banks that have overseas branches to give short-term credit to an individual. In case of default, the onus is on the bank which issued a LoU to pay the liability to the credit-giving bank along with the interest accumulated. Modi and Choksi’s businesses took loans from banks abroad on the basis of such LoUs but since they did not repay the amount, the liability was automatically transferred to PNB.

In its probe, the ED noted that "PNB bank officials in connivance with the accused issued FLCs for smaller amount within the sanctioned limit and once FLC number was generated, the same number was used for amendment by way of enhancement of FLC and increase in the amount and such enhancement of amount was done at 4-5 times higher value of the original FLC amount. Such amendments were done outside the CBS system and hence it was not captured in the books of bank."

The probe revealed that the bank's Mumbai branch “was holding documents of original FLC amount and no import documents of such increased amount were found in the branch and much of fraudulent FLCs payments have gone to liquidate the overseas exporters' liability arising out of earlier FLCs/discounting of bills."

Call for extradition

Arguing on behalf of the government of India, the Crown Prosecution Service (CPS), has said there are no human rights issues blocking his extradition to India. CPS barrister Helen Malcolm said Modi was at the helm of a ‘Ponzi-like scheme’ in which he used new LoUs for repayment of old ones.

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A Ponzi scheme is a form of investment fraud that lures investors and pays profits to earlier investors with funds from the recent ones. According to CPS’ argument, Modi used his firms including Diamonds R Us, Solar Exports and Stellar Diamonds to make ‘fraudulent use’ of LoUs and PNB officials were hand in glove. It has also played out videos in court to prove the businessman’s involvement in intimidating dummy officers of his firms to not get in touch with investigating authorities.

Mental well-being defence

Led by barrister Clare Montgomery, Modi's defence team has labelled the case as a commercial dispute involving ‘authorised though ill-advised lending’ that occurred in ‘broad daylight’. They have also claimed that no action on the part of the accused qualifies as fraud or perverting the course of justice. The team has also used the mental health card, saying Modi has a family history of depression and suicide.

The Westminster Magistrates Court has heard arguments from both sides regarding Modi’s ‘deteriorating’ mental health condition vis-à-vis the Section 91 threshold of the Extradition Act 2003.

Also read: Why PMC Bank fraud is bigger than Nirav Modi's PNB scam

The legislation was used in the UK earlier this year to block the extradition of WikiLeaks founder Julian Assange to the US on the grounds that it is ‘unjust’ and ‘oppressive’ since he was a ‘high suicide risk’. The US claims Assange is guilty of hacking into and publishing US military databases, but the accused has termed the case as being ‘politically motivated’.

Since extradition was refused on health grounds, with specific reference to mental well-being, the Assange verdict is hanging heavy over hopes of the Indian government.

Care for jail inmates

The CPS, however, has sought an independent evaluation of medical records by a consultant psychiatrist and has asserted that India has a mental healthcare system in place for prison inmates.

The Indian government has submitted a video clip of the prison at Barrack 12 in Arthur Road Jail in Mumbai, where Modi is likely to be held, to suggest that it meets human rights requirements of natural light and ventilation.

(Edited by : Jomy)

First Published:Feb 25, 2021 3:55 PM IST