TWO MAJOR CORPORATE SCAMS IN INDIA MALLYA

SCAM

1. INTRODUCTION MEMON MOHAMMED HASAN SYBMS B ROLL NO. 138 TWO MAJOR CORPORATE SCAMS IN INDIA

2. CORPORATE SCAMS Corporate scams are deceptive or fraudulent activities perpetrated within the corporate sector for personal or organizational gain. These scams involve various forms of misconduct, including financial manipulation, insider trading, bribery, and other unethical behaviors aimed at deceiving stakeholders They undermine trust, integrity, and transparency within the business environment, posing significant risks to investors, employees, and the broader economy. Understanding the nature and implications of corporate scams is crucial for safeguarding against their detrimental effects and promoting ethical business practices.

3. NIRAV MODI SCAM TWO MAJOR CORPORATE SCAMS IN INDIA VIJAY MALLYA SCAM

4. LETTER OF UNDERTAKING:- A Letter of Undertaking ( LoU ) is a bank guarantee issued by one bank to another, promising to honor a commitment or payment on behalf of its client. SWIFT:- (Society for Worldwide Interbank Financial Telecommunication): A messaging network used by banks worldwide to securely transmit information and instructions for financial transactions BASIC TERMINOLOGIES

5. CORE BANKING SYSTEM (CBS):- CBS stands for "Core Banking System." It is a centralized system that enables banks to perform various banking functions, such as deposits, withdrawals, loans, and payments, from a single integrated platform. CBS allows for real-time updating of account balances and transactions across all branches of a bank, providing customers with seamless banking services regardless of their location. It enhances operational efficiency, improves customer service, and facilitates better risk management for banks . BASIC TERMINOLOGIES

6. Who is Nirav Modi? Nirav Modi is an importer of diamonds Basically importers prefer to take loans in foreign currencies as interest rates on that are lower. He is into Diamond trading business. He is the founder and creative director of the Nirav Modi chain of Diamond jewelry. In this case a loan that is taken from any overseas bank guaranteed by PNB. Nirav Modi, the billionaire jeweler who along with others scammed Punjab National Bank (PNB) of over 11400 crore’s has fled the country.

7. S yno p sis India's second largest state-owned lender Punjab National Bank disclosed on Feb. 14, 2018 that it was the victim of the country’s largest bank fraud. PNB r e v ea l ed th a t f r audul e n t t r ansacti o n s b y bil l ion a i r e j e w e l er N i ra v Modi a n d r e l a t ed e n ti t i e s amounted to $1.77 billion or over Rs 11,400 crore. The key accused in the case were jeweler and designer Nirav Modi, his maternal uncle Mehul Choksi, and other relatives and some PNB employees. Nirav Modi and his relatives escaped India in early 2018, days before the news of the scam became public. PNB scam has been dubbed as the biggest fraud in India's banking history.

8. Introduction On 29th Jan,2018, PNB (Punjab National Bank) filed a criminal complaint with India`s federal investigative agency against three companies and four people, including billionaire jeweler Nirav Modi and his uncle Mehul Choksi, the managing director of Gitanjali Gems, saying they had defrauded PNB and caused a loss of 2.8 billion rupees ($43 million). In a regulatory filing on Feb. 14, the bank updated the sum involved in the fraud to 113.94 billion rupees ($1.77 billion), which it said was determined after further investigation at its Mumbai's Brady branch. This fraud is done by Nirav Modi in 2011 who fraudulently raised funds worth of Rs.11,400 crore from various public & private sector banks by showing Letter of Undertaking (LOU) issued by Punjab National Bank.

9. PNB employees issued the fake Letter of Undertakings (LOU) which could lead to fraud. The two employees of PNB directly used SWIFT and while doing it, they did not pay attention on the core banking system (CBS).The FIR contained the details like those two PNB employees were issuing LOUs in unauthorized way for 7 years. Afterwards, one of them retired and the new employee came on his designation. In January, when the officials of firm demanded fresh LOUs from PNB, the new PNB officer asked for the collateral security. The officials of firm mentioned that this had been never asked by the PNB manager in the last 7 years. Now the bank got signal that something wrong has taken place. The new Bank officer got doubt on the past 7 years LOU issuance and he looked into the concerned matter in detail. Analysis of the Scam

10. An Indian bank (A) issues an LOU (Letter of undertaking) at the request of a corporate to a bank in a different country (B), guaranteeing a loan that (B) gives to a third party who is overseas. The third party generally is the beneficiary or the importer. The importer sells the goods and repays the loan. LOUs as corporate lending product is a common practice by banks in India. As it is a high risk lending, LOUs are generally issued against collateral. Regulatory compliance requires the LOU cannot be issued for more than 90 days. After detail investigation, it found near about 100 LOUs issued to these firms without asking for collateral security. PNB became the victim of the fraud. It faced the problem amounting to about 11,400 crores. The PNB reported to the RBI and CBI.

11. Nirav Modi exported rough store from foreign country worth crores of rupees. The employees at PNB Brady House branch fraudulently issued LOU for 365 days without making any provisions for collateral and by passing Core Banking System (CBS). The firm also raised funds from Indian banks overseas branch for paying to the suppliers. Nirav Modi's firm again requested the bank to issue another LOU (letter of undertaking) but the official refused on ground that the company has to keep collateral with bank but Modi’s firm argued that no such money was kept on margin for the previous LOU. Scam Operation

12. After the PNB official started scanning the records and didn’t find any such transactions and then filed a complaint with CBI. Nirav Modi’s firm again requested the bank to issue another LOU but the official refused on ground that the company has to keep collateral with bank but Modi’s firm argued that no such money was kept on margin for the previous LOU. After the PNB official started scanning the records and didn’t find any such transactions and then filed a complaint with CBI.

13. Issue LOUs via swift money paid to the overseas branch for maturity of earlier LOU I m por t er PNB Exporters Bank Clearing Bank Based on the LOU, the overseas bank funds PNBs Nostro account 2 11 Transaction Flow

14. Fraud Detection According to the complaint filed by PNB with the CBI on January 28, the fraudulent issuance of letters of undertakings (LOU) was detected at the mid corporate branch, Brady House in Mumbai. A set of partnership firm –Diamond R US ,solar exports and Stellar Diamonds –approached the bank on January 16 with a set of import documents and requested buyer’s credit to make payments to overseas suppliers. Since they had no pre-arranged credit limit, the branch official asked the companies to put down the full amount as collateral so the bank could issue LOU to authorize the credit.

15. This case comes under cheating i.e. under section 420 of IPC. According to section 420 IPC the person shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine. This case comes under also Criminal Conspiracy under section 120 B of Indian Penal Code. Legal Penalty

16. Introduction :

17. SCAM What is Vijay Mallya's Scam? 1 : Vijay Mallya wanted to expand his liquor and Airline business. He sold another company formed by his father to fund its airline company. 2 : Vijay Mallya’s kingfisher becomes India’s no.1 domestic airline company and first choice of every passenger. Due to some restrictions, the Indian Government did not allow kingfishers to fly international flights. To fly international flights, he leveraged United Spirits or United Breweries to buy Deccan Air which is a loss-making company and merged it with Kingfisher Airlines, but it could not make the profits thus in 2010 Malaya’s this business was in heavy loss.

18. 3 : To run this business he continuously took loans from banks. He took loans of 9000 crores by 17 banks. Although SBI has declared them as bankrupt other banks kept lending him loans because he was a member of Rajya Sabha, and some parties supported him. His company kingfisher also -held service tax of passengers, PF, Income Tax of Employees, but did not submit to the PF or IT authorities. The company also did not pay the salary of its employees or ran out of cash. In 2012 the company had to shut down its operation. Vijay Mallya had a loan of 9000 from different banks and he denied to pay this loan.

19. Loans Taken by Vijay Mallya: Banks Amount (in ₹ ) SBI 1,600 Crore PNB 800 Crore IDBI 800 Crore BANK OF INDIA 650 Crore BANK OF BARODA 550 Crore UNITED BANK OF INDIA 430 Crore CENTRAL BANKN OF INDIA 410 Crore UCO BANK 320 Crore CORPORATION BANK 310 Crore STATE BANK OF MYSORE 150 Crore INDIAN OVERSEAS BANK 140 Crore FADERAL BANK 90 Crore PUNJAB &SIND BANK 60 Crore AXIS BANK 50 Crore

20. Failure Reason of Kingfisher Airlines: Lack of Business Strategy. 2. Lack of Management. 3. 2008 Recession. 4. Air Deccan. 5. High Operational cost.

21. CONCLUSION On 29th Jan,2018, PNB (Punjab National Bank) filed a criminal complaint with India`s federal investigative agency against three companies and four people, including billionaire jeweler Nirav Modi and his uncle Mehul Choksi, the managing director of Gitanjali Gems, saying they had defrauded PNB and caused a loss of 2.8 billion rupees ($43 million). The scams involving figures like Nirav Modi and Vijay Malya serve as stark reminders of the far-reaching consequences of corporate malfeasance. These individuals, once celebrated as titans of industry, ultimately fell from grace due to their involvement in fraudulent activities that wreaked havoc on countless lives and the financial system. The Nirav Modi scam, involving fraudulent issuance of letters of undertaking ( LoUs ) worth billions of dollars from Punjab National Bank, exposed systemic weaknesses in India's banking sector. Similarly, Vijay Mallya's Kingfisher Airlines debacle, marked by loan defaults and financial irregularities, showcased the dire consequences of unchecked corporate greed. These scandals underscore the critical importance of robust regulatory oversight, transparent governance structures, and ethical business practices. Furthermore, they highlight the need for swift and decisive action to hold perpetrators accountable and prevent future occurrences. As we reflect on these notorious cases, let us reaffirm our commitment to fostering a culture of integrity, accountability, and transparency in the corporate world. By learning from past mistakes and implementing effective safeguards, we can strive towards a future where corporate scams are a thing of the past, and trust in our financial institutions is restored.

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