Tribunal rules in favor of applicant, finds Nirav Modi liable for fraudulent scheme, orders payment of INR 7029 crore debt.

The tribunal ruled in favor of the applicant, finding Nirav Modi and associated entities liable for a significant fraudulent scheme involving unauthorized transactions and misuse of banking facilities. The tribunal ordered the defendants to pay the fraudulent debt of INR 7029,06,87,950.65 with interest, issued a Recovery Certificate, mandated disclosure of assets, permitted publication of defaulters' names, and allowed the appointment of a Receiver for judgment enforcement.

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Issues Involved:
1. Fraudulent and unauthorized transactions.
2. Issuance of Letters of Undertaking (LOUs) without sanction.
3. Misuse of NOSTRO account.
4. Failure to detect fraud due to non-entry in Core Banking System.
5. Admission of liability by Nirav Modi.
6. Legal actions initiated by various agencies.
7. Recovery of fraudulent debt.
8. Jurisdiction of Debts Recovery Tribunal.
9. Admission of liability and fraudulent debt as legally recoverable debt.
10. Interest on the fraudulent debt.
11. Disclosure of properties and assets.
12. Publication of order and names of defaulters.

Detailed Analysis:

1. Fraudulent and Unauthorized Transactions:
The judgment details a significant fraudulent scheme orchestrated by Nirav Modi and associated entities in collusion with certain employees of a major public sector bank. The fraud involved unauthorized transactions and the misuse of banking facilities, specifically the issuance of Letters of Undertaking (LOUs) without proper sanction or approval.

2. Issuance of Letters of Undertaking (LOUs) without Sanction:
Nirav Modi, with the help of delinquent employees, obtained 150 LOUs without any sanction or requisite authority. These LOUs were issued in violation of the SWIFT System and Core Banking System guidelines. The fraudulent LOUs facilitated the import of diamonds and other valuable items, but the funds were misappropriated.

3. Misuse of NOSTRO Account:
The NOSTRO account of the applicant bank was misused to settle the buyer’s credit by making payments for previously issued unauthorized LOUs. This systematic misuse was part of the broader fraudulent scheme.

4. Failure to Detect Fraud Due to Non-entry in Core Banking System:
No entries were made in the Trade Finance Module of the Core Banking System, allowing the fraud to go undetected. The fraudulent transactions were circulated between Nirav Modi Firms and Companies, avoiding detection by the bank’s internal systems.

5. Admission of Liability by Nirav Modi:
Nirav Modi admitted in various communications that the LOUs were obtained and suggested the sale of assets to recover the debt. Despite these admissions, there was no intention to repay the debt, leading to the issuance of a demand notice by the applicant.

6. Legal Actions Initiated by Various Agencies:
Complaints were lodged with the Central Bureau of Investigation (CBI) and the Enforcement Directorate (ED), leading to investigations and legal actions against Nirav Modi and associated entities. The Ministry of Corporate Affairs also directed investigations into the affairs of the Nirav Modi Group.

7. Recovery of Fraudulent Debt:
The applicant sought recovery of the fraudulent debt amounting to INR 7029,06,87,951/- (inclusive of interest). The tribunal found that the applicant made a case of fraud perpetrated by Nirav Modi and others, leading to the issuance of a Recovery Certificate.

8. Jurisdiction of Debts Recovery Tribunal:
The tribunal asserted its jurisdiction to entertain and try the application, stating that the fraudulent debt constitutes a "debt" under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The tribunal referenced various legal precedents to support its jurisdiction over fraudulent debts.

9. Admission of Liability and Fraudulent Debt as Legally Recoverable Debt:
The tribunal emphasized that admitted facts need not be proved under Section 58 of the Indian Evidence Act, 1872. It was established that the fraudulent debt is legally recoverable from the defendants, who were the ultimate beneficiaries of the unauthorized LOUs.

10. Interest on the Fraudulent Debt:
The tribunal granted interest at the rate of 14.30% per annum from 30th June, 2018, till payment/realization. This was based on the applicant’s claim that similar interest rates are charged in clean overdraft facilities in the normal course.

11. Disclosure of Properties and Assets:
The tribunal ordered the defendants to disclose on oath the properties and assets, both movable and immovable, belonging to them and their affiliates, situated worldwide within one month from the date of the judgment.

12. Publication of Order and Names of Defaulters:
The applicant was granted permission to publish the names of the defendants as per Rule 15A of the Debts Recovery Tribunal (Procedure) Rules, 1993. This measure aims to create a deterrent effect and ensure transparency.

Conclusion:
The tribunal allowed the Original Application with costs, ordering the defendants to pay the aggregate sum of INR 7029,06,87,950.65 with interest @ 14.30% per annum from 30th June, 2018, till payment/realization. The tribunal also issued a Recovery Certificate and directed the defendants to disclose their assets. The applicant was granted liberty to publish the names of the defaulters and to apply for the appointment of a Receiver to implement the judgment in execution.

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