PNB fraud: As Gokulnath Shetty goes to jail, CBI seeks to re-arrest him in another FIR

Gokulnath Shetty, former deputy manager at the centre of the Rs 12,700-crore PNB fraud, was remanded to judicial custody along with five other accused today.

However, the CBI will arrest him again in a second FIR related to Mehul Choksi-promoted Gitanjali Gems. Earlier, CBI had sought his custody based on a PNB complaint relating to fraudulent transactions orchestrated in collusion with Nirav Modi group. Shetty's 14-day CBI custody related to the first FIR ended today.

Since Shetty has now been sent to Arthur Road jail in South Mumbai, CBI will have to arrest him in jail and present him before the CBI judge.

Of the five others remanded to judicial custody four are from PNB and the fifth is Hemant Bhat, authorised signatory of Nirav Modi group of companies. Modi is Choksi's nephew. Both the diamantaires have left the country. An ED court issued non-bailable arrest warrants against the two today.

At the heart of the PNB fraud is the unauthorised issuance of letters of undertaking (LOUs) by certain staffers from PNB's Brady House branch since 2011 in collusion with firms controlled by the two diamantaires. The LOUs opened by PNB favouring overseas branches of Indian banks which would pay the diamantaires' overseas suppliers of pearls and rough diamonds were not backed by any margin or collateral.

When the 90-day period to repay the foreign branch ended, PNB again issued LOUs as Modi and Choksi did not pay the PNB branch here to settle their dues. This ever-greening led to the scam snowballing into thousands of crores.