Daijiworld Media Network - Mumbai

Mumbai, Feb 19: The retirement of Punjab National Bank (Mumbai Branch) deputy manager Gokulnath Shetty, who hails from Mulky near Mangaluru, became a key factor in bringing the Rs 11,400 crore scam, into limelight.

On January 16, diamantaire Nirav Modi's company sought a letter of undertaking (LoU) from the Mumbai branch of the Punjab National Bank. The deputy manager who had come in place of Gokulnath Shetty asked the company to submit 100 percent margin as a deposit.

However, Modi’s company claimed that they have received LoUs earlier by not keeping any deposit, making the new deputy manager suspicious. He then started to probe the issue and unearthed the scam that has shocked the country.

Supposedly, when Shetty was serving as the deputy manager, he always managed to issue a LoU to Nirav Modi’s company illegally. Modi’s company then used these LoUs to gain funds by approaching the foreign branches of Allahabad Bank and Axis Bank and hence executed the Rs 280.7 crore fraud.

Shetty had issued LoUs on behalf of Diamond R US, Solar Exports, Stellar Diamonds by transmitting SWIFT instructions to the above-mentioned banks for raising buyers credit and for funding the Nostro accounts of PNB, without due procedure.

New agency Reuters reported that Gokulnath Shetty used the bank's SWIFT system to log in with passwords that allowed him, and in at least some instances a more junior official, to serve as both the person who sent messages and as the person who reviewed them for approval, according to court documents and interviews with bank executives.

"The involvement and connivance of more staff members and outsiders at this stage cannot be ruled out," said a CBI document submitted to the court in Mumbai, Reuters reported.

The scam was unearthed in January as the term of the LoUs were due to end and the other banks approached PNB to recover the loan amount.

Gokulnath Shetty was arrested on Saturday by CBI along with Manoj Kharat, the single window operator (SWO) and Hemant Bhat, the Authorised Signatory of the Nirav Modi Group of Firms.

Meanwhile, Nirav Modi who has fled the country with his family is reportedly in New York. His properties are being raided by the Enforcement Directorate.

PNB has been sending alerts to other banks, asking if they have received LoU’s as they need to be verified.