A landmark clearance in the PNB fraud case

K V Brahmaji Rao discharged; what it means for India’s biggest banking scandal

Pallab Bhattacharyya

(Pallab Bhattacharyya is a former director-general of police, Special Branch and erstwhile Chairman, APSC. Views expressed by him is personal. He can be reached at pallab1959@hotmail.com)

On September 3, 2025, the Special CBI Court in Mumbai, presided over by
Judge A. V. Gujarathi, delivered a significant order in India’s largest banking fraud case, discharging former Punjab National Bank Executive Director K. V. Brahmaji Rao of all charges. The order, made public a week later on September 10, has reverberated across banking, legal, and investigative circles because Rao was the first senior official among the 25 accused individuals and companies to be cleared in the Rs 23,000-crore fraud linked to fugitive diamantaire Nirav Modi. The court’s observations were striking—there was no proof that Rao had obtained any illegal gratification, and it was “humanly impossible” for him, overseeing more than 7,000 branches, to have micromanaged or directly detected the fraudulent transactions at the Brady House branch where the scam originated.

This order strikes at the very heart of the case that shook India’s banking system in 2018. The Central Bureau of Investigation (CBI), in its charge sheet, had named Nirav Modi, his uncle Mehul Choksi, several of their companies, and PNB officials, including Rao, on allegations of conspiracy, cheating, breach of trust, and corruption. At the centre of it lay the fraudulent issuance of Letters of Undertaking (LoUs) from PNB’s Brady House branch in Mumbai between 2011 and 2017. These LoUs, totalling 1,214 in number and valued at nearly USD 3.73 billion (about Rs 23,780 crore), were issued without authorisation, bypassing the bank’s Core Banking Solution, and transmitted through the SWIFT system to foreign branches of Indian banks, enabling Nirav Modi’s firms to obtain buyer’s credit abroad without offering collateral. The scam came to light when PNB lodged a complaint on January 31, 2018, setting off one of the largest investigations into financial fraud in India’s history.

The CBI argued that Rao, as a senior executive, bore responsibility since the Reserve Bank of India had issued a cautionary advisory on August 10, 2016, alerting banks to a similar fraud involving 20 Letters of Comfort worth USD 64.08 million at another public sector bank. Known as Caution Advice No. 4094, this circular warned of fraudulent SWIFT transactions, highlighting that user IDs and passwords of the maker-checker system had been compromised and that fraudulent messages had been sent with suspected involvement of staff. The RBI directed all banks to acknowledge receipt, examine their systems, and report similar incidents, or file a NIL report if none were found. The CBI claimed that PNB did not respond until February 2018, after the fraud was unearthed, and that this inaction indicated negligence or complicity by senior officials, including Rao.

However, the court took a more nuanced view. It acknowledged that Rao had indeed convened a meeting after the RBI advisory, involving senior officers from multiple divisions, and that the responsibility of implementing SWIFT-related safeguards lay with the IT department and was ultimately authorised by the bank’s MD and CEO. Moreover, the court emphasised the absence of ‘mens rea’—criminal intent—on Rao’s part. There was no evidence he had been informed about the fraudulent transactions, nor had he gained any benefit from them. The prosecution, the court pointed out, had proceeded selectively against some officials while leaving out others with similar responsibilities, revealing what the judge called a “pick-and-choose policy”. In this light, the court concluded that Rao could not be fastened with criminal liability and discharged him from the case.

This judicial reasoning has profound implications for the broader trial, which has yet to commence despite the passage of seven years since the case was first filed. With Rao cleared, questions arise about how the court will approach the culpability of other senior executives whose roles were supervisory rather than operational. The distinction between negligence, systemic failures, and criminal conspiracy becomes crucial, especially when dealing with institutions as vast as PNB, which had thousands of branches and complex hierarchies.

Meanwhile, the principal accused remain fugitives or under custody abroad. Nirav Modi continues to be lodged in Wandsworth Prison in London, having had his bail pleas rejected repeatedly by the UK High Court, most recently on May 15, 2025, due to the risk of absconding. His extradition proceedings are in their final stages, and India remains hopeful of securing his return. Mehul Choksi, arrested in Belgium in April 2025 after moving from Antigua and Barbuda, faces extradition proceedings in Brussels under the India-Belgium treaty signed in 2020. This case, which formally opened on September 16, 2025, is being closely watched as it is the first extradition trial under that treaty. Nirav Modi’s brother, Nehal Modi, was arrested in the United States in July 2025 after India’s extradition request, while his brother-in-law, Maiank Mehta, has turned approver in the Enforcement Directorate’s money laundering probe.

The Enforcement Directorate has also moved aggressively to recover assets, attaching properties worth Rs 2,626.62 crore in India and overseas. Of this, over Rs 1,000 crore has been restored to banks, and nearly Rs 700 crore has been confiscated under the Fugitive Economic Offenders Act. Still, the total losses dwarf these recoveries, underlining the staggering scale of the fraud.

The discharge of Rao may also compel investigators to refine their approach. Courts are making it clear that accountability in economic offences must be tied to demonstrable intent and benefit, rather than broad supervisory lapses. For the prosecution, this means focusing on those directly involved in issuing the fraudulent instruments, such as deputy manager Gokulnath Shetty and single-window operator Manoj Kharat, who bypassed PNB’s systems to issue the LoUs. For the defence, Rao’s acquittal may become a template to argue for other top executives who were not directly operationally involved.

As the legal process continues, this case serves as a sobering reminder of the systemic weaknesses that can be exploited in large financial institutions. The RBI’s warnings, issued at least three times since 2016, were not adequately acted upon, exposing gaps between regulatory advisories and their ground-level implementation. The fraud also highlighted the vulnerability of the SWIFT messaging system when not properly integrated with core banking solutions. Since then, reforms have been introduced, including tighter integration, stricter audits, and enhanced accountability, but the scars of the PNB case remain etched into India’s banking history.

Looking ahead, the trial of Nirav Modi and others will test the resilience of India’s legal and financial enforcement systems. Extraditions from the UK, Belgium, and the US will be pivotal, and the recovery of assets will remain a top priority. At the same time, banks must ensure that lessons from this scandal translate into robust practices that leave no room for similar manipulations.

In this context, it is fitting that India will observe Vigilance Awareness Week from October 27 to November 2, 2025, with the theme “Vigilance: Our Shared Responsibility.” The PNB case underscores precisely why vigilance cannot be left to a few individuals but must be a collective culture embraced across institutions. For while fraud may be engineered by a handful, its consequences are borne by millions of ordinary citizens whose trust in financial systems must never again be so gravely shaken.