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ICAI may Initiate Suo-Moto Proceedings in Nirav Modi Scam

Nirav Modi Scam and ICAI

Nirav Modi established the Firestar Diamond International Company in 1999, specialising mostly in fine jewelry. Additionally, “NIRAV MODI,” the brand, was established in 2014 with the inauguration of its first location in New Delhi, India. 2015 saw the opening of Nirav Modi storefronts on Madison Avenue in New York City, in Mumbai, and in Hong Kong. Sales for his company are said to have exceeded $2 billion. Additionally, he owns businesses under the names Diamond R. US., Stellar Diamonds, and Solar Exports.

The Nirav Modi scam was highly complex, and although investigations are still underway, it can be assumed that Nirav Modi and his uncle Mehul Choksi were behind it, working together with several Punjab National Bank personnel. It is important to first understand the meaning of the term “Letter of Undertaking” (LoU), as it was the unauthorized LoUs granted to Nirav Modi and Company by corrupted PNB officials that enabled Modi to flee with thousands of crores of the hard-earned money of taxpayers. This is necessary to understand the mode of operation of this grand, greedy scheme to defraud a leading public sector bank. These LoUs are provided for corporate or commercial transactions rather than typical retail transactions.

Companies connected to Nirav Modi bought these letters of understanding from PNB’s Brady House office in Mumbai, but it is claimed that the money was syphoned off by some dishonest PNB workers rather than used for legitimate business operations. The CBI received a FIR on February 13, 2018 against Chandri Paper & Allied Products Pvt. Ltd., Gitanjali Group, and Nirav Modi Group. Additionally, the Enforcement Directorate received a complaint. The following day, stock exchanges were alerted. In the lawsuit, PNB said that Nirav Modi and businesses associated with him conspired with some of its employees, including former deputy general manager Gokulnath Shetty, who was assigned to the Mumbai branch’s foreign exchange department. 

In order to get loans from Indian banks’ overseas branches, they illegally acquired guarantees worth USD 1.77 billion, or Rs 11,400 crore, by stating they needed the money to import pearls. A special court authorized the “restoration” of 500 billion rupees’ worth of companies’ assets of Nirav Modi to the Punjab National Bank (PNB). This is the third such order to have been issued in the past two weeks, bringing the total worth of properties owned by Nirav Modi’s firms that have been restored in this way to around Rs 1,000 crore.

The PNB filed many applications seeking the release of properties mortgaged with the bank against the credit facilities provided to these two firms in July of this year. The court granted two petitions seeking the release of properties valued at Rs 108.3 crore and Rs 331.6 crore, respectively, owned by Firestar International and Firestar Diamond International Private Ltd.

ICAI on the Nirav Modi Scam

The Delhi High Court held that the Institute of Chartered Accountants of India (ICAI) has the authority to begin suo motu disciplinary procedures against its members even in the absence of a written complaint. Chartered accountants submitted a number of petitions to stop the disciplinary actions the ICAI had taken against them.

A written complaint or accusation in writing cannot, in any way, be interpreted as a need or a sine qua non for the commencement of proceedings under Section 21, according to a single-bench judge, Justice Yashwant Varma. The Court ruled that a written complaint or allegation “cannot, in any fashion, be construed as a pre-requisite or a sine qua non for the start of action under Section 21.”

The Court further stated that any information that may come to the institute’s attention and from which it may gain knowledge would fall under the definition of “any information” as used in Section 21. However, the Court went on to say that a simple news article does not qualify as material that could support opening an investigation.

“It is widely accepted that a newspaper article cannot and does not constitute evidence, “The single judge stated that a report that might be published in print or on a visual news platform “might at best be viewed as being an external source from which the Institute may receive or draw knowledge of a specific fact or incident.”

The CAs had stated that because the ICAI’s suo motu proceedings were only based on news reports, they could not be started. The court responded, saying: “The court is of the firm conclusion that the Institute did have the necessary information as intended by Section 21 and that, given the conditions of the current case, warranted the beginning of the inquiry against the petitioners.” “The answer to the question of whether a certain authority is granted by statute must always be based on a reading of the law and an understanding of its parameters.” “A statute’s meaning cannot be determined only by the fact that a power, despite being established to exist, has never been used,” the panel added.

Ahir Mitra
Ahir Mitra

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