NCLT Mumbai Vacates Property Attachment Of PNB Officers In Nirav Modi-Mehul Choksi Fraud Case

The National Company Law Tribunal at Mumbai has vacated the attachment of few properties in proceedings arising from the alleged fraud involving Nirav Modi, Mehul Choksi, and Gitanjali Gems.

The tribunal partly allowed applications filed by Punjab National Bank officers Becchu Tiwari and Prafull Sawant. However, it refused to dismiss the company petition against them.

The tribunal held that their individual role and knowledge of the alleged fraud would have to be examined on the basis of evidence.

A bench of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar modified its February 4, 2019 order read with the earlier February 23, 2018, order. The modification excluded the applicants' properties from the attachment.

The tribunal noted that the case against the two officers was primarily based on circumstantial inferences. It also said the Serious Fraud Investigation Office (SFIO) had not brought any incriminating or adverse evidence against them.

“However, as is noted above that the case against the Applicants is primarily based on circumstantial inferences, SFIO has not brought on record any incriminating or adverse evidence against the applicants and PNB has found no involvement of them in the perpetration of the fraud in their internal inquiry,” the Tribunal held.

The proceedings arose from an FIR filed by PNB alleging fraud by a Nirav Modi group company through its directors and other persons in connivance with bank officers.

The SFIO was subsequently asked to investigate the affairs of 107 companies and seven LLPs identified with the persons involved in the alleged fraud.

The order records that fraudulent Letters of Understanding (LOUs) and Foreign Letters of Credit (FLCs) were issued without corresponding entries in PNB's Core Banking System (CBS). Funds received as buyers' credit from overseas banks were subsequently used to repay imports and earlier buyers' credit.

Tiwari and Sawant were posted in PNB's Foreign Exchange Division at the relevant time. Tiwari was in charge of the branch's foreign exchange business, while Sawant was assigned the daily generation and reconciliation of SWIFT logs.

The SFIO alleged that their failure to generate and reconcile SWIFT logs, as required under a PNB circular, helped perpetuate the fraud. The Tribunal said it was yet to be determined whether the failure was intentional or resulted from negligence or oversight.

“However, whether such failure was intentional to further the perpetration of fraud or was only an act of negligence oversight without any knowledge of fraud having been perpetrated through exploitation of a loophole in the system (non-integration of SWIFT messages with CBS) is yet to be decided,” it held.

The Tribunal held that their status as employees of PNB, which was a creditor of the companies concerned, could not by itself fasten liability under Section 339 of the Companies Act.

However, their employment with the creditor bank could not automatically warrant their deletion from the proceedings if the material raised a plausible inference about their individual involvement.

It therefore refused to dismiss the company petition against them at this stage. However, citing the absence of incriminating or adverse evidence from the SFIO and PNB's finding that they had no involvement in perpetrating the fraud in its internal inquiry, it vacated the attachment of their properties.

For Applicants: Advocate Premlal Krishnan

For Respondent: Advocate Aditya Sikka