Fallout of Rs 11,000 crore Nirav Modi scam: CBI trains guns on PNB auditors

Officials have seized Rs 5,100 crore in jewellery from stores owned by Nirav Modi

As many as 16 auditors have examined Punjab National Bank's (PNB) accounting books since 2011; so, why didn't even one of them raise a red flag about the Rs 11,400-crore Nirav Modi scam? This is the question the Central Bureau of Investigation (CBI) seeks to answer, as the probe deepens. This is not the first time that the role of auditors has come under scanner. Just a month ago, PwC was found guilty in the multi-crore Satyam scam and was banned from auditing companies for two years.

The shutters are down at Nirav Modi's Kala Ghoda store in South Mumbai due to raids and seizures over the last couple of days. Pics/Ashish Raje

PNB recently revealed suspicions that the Nirav Modi credit scam has been going on since 2011. However, as the bank's annual reports state, since 2011-12, a total of 16 auditing firms have examined the accounting books of the financial institution, but not a single one detected the massive fraud. A senior CBI officer from Delhi told this paper, "Multiple agencies are probing the case and role of all those involved, including PNB staff and others [auditors]. They will be called in for questioning, and further course of action will be taken as deemed fit."

Nirav Modi

Senior chartered accountants and lawyers in the city have raised serious questions about the manner in which PNB came out in public, claiming to have unearthed a major scam, only to shift the blame on two staffers - retired deputy manager Gokulnath Shetty and single window operator Manoj Kharat.

As mid-day had reported, though, the CBI does not buy that these two staffers could have pulled off a Rs 11,400-crore scam on their own. Noted chartered accountant Vimal Punamiya agreed: "The very incident clearly indicates that there was an act of negligence on the part of PNB management and the auditors. Every year, five different audit firms go over the bank's accounts. And yet, for reasons best known to them, they could not detect such a mammoth fraud during the audit process. The role of the auditors needs to be probed. This will expose the role of bigger players, within and outside the bank.

"Also, they have blamed the deputy manager for issuing the Letters of Undertaking (LOUs). But how was he allowed to remain in the same post for so many years, when the norm is to change posts every few years?"

'No immunity'
Senior criminal lawyer Majeed Memon said, "It is shocking that for all these years, such huge irregularities could not be detected, that too in a listed nationalised bank. The only conclusion to be prudently drawn is that the officials who were supposed to monitor or audit, were in connivance with the management and staff of PNB, right from the desk officer to the senior-most one. They must have been in the know and, as such, it is difficult to believe that they are not involved."

Advocate Memon added, "Once the investigation deepens, an examination of relevant documents will unveil the well-planned criminal conspiracy. The auditors role will also likely be probed; they do not have any immunity." mid-day contacted some of the audit firms mentioned in the annual reports of PNB, but they refused to comment. R Devendra Kumar & Associates - which is named in the most recent published annual report from 2016-17 - said they no longer audit the bank's finances.

Auditors from 2011-2017
Chhajed & Doshi, R Devendra Kumar & Associates, Hem Sandeep & Co, Suri & Co, SPMG & Co, Shah Gupta & Co, K N Gutgutia & Co, CVK & Associates, Ramesh Kapoor & Co, Borkar & Muzumdar, G S Madhava Rao & Co, Phillipos & Co, V K Verma & Co, Mookherjee Biswas & Pathak, Amit Ray & Co, Sarda & Pareek.

Modi Operandi
In a confidential caution notice issued to various banks on February 12, PNB explained the modus operandi of the racket: One junior-level branch official unauthorisedly and fraudulently issued LOUs to Nirav Modi's companies for availing credit from overseas branches of Indian banks. None of the transactions were routed through the core banking system, avoiding early detection.

Experts say

Dinesh Tiwari, senior criminal lawyer
'Most such frauds are committed with due connivance of chartered accountancy firms, which issue false certificates or conceal facts pertaining to the financial affairs of the company. Of late, investigators have started charge-sheeting CAs and auditors for criminal conspiracy. In this case, too, the role of auditors will be probed'

Kirit Somaiya, MP and Chartered Accountant
'It is true that such scams have to have the support and blessing of big people. The role of auditors cannot be ignored'

16
No. of auditing firms employed by the bank from 2011-12 to 2016-17

5
No. of auditors checking the bank's finances every year

The big fat Rs 11,400 crore Nirav Modi scam: All you need to know
Nirav Modi procured fraudulent letters of undertaking from a PNB branch in Mumbai, based on which he allegedly secured credit from the foreign arms of several other Indian lenders

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