By Aditya Kalra and Devidutta Tripathy
NEW DELHI/MUMBAI (Reuters) - Indian billionaire jeweller Nirav Modi, one of the prime accused in the country's largest ever bank fraud, denies allegations levelled against him by Punjab National Bank (PNB), his lawyer said on Tuesday.
"There is nothing, there is nothing in it," Vijay Aggarwal, a lawyer representing Modi told Reuters, referring to a police complaint filed by the state-run bank that says companies linked to the jeweller and his relatives received credit worth close to $1.8 billion between 2011 and 2017, using false guarantees supplied by two bank officials.
India's financial crime fighting agency, one of the several that are investigating the fraud at the country's second largest state lender, is probing more than 100 shell companies suspected to have been used by Modi and others to route funds, a government source said on Tuesday.
Aggarwal, speaking by telephone, declined to comment on Modi's whereabouts. Indian officials are on the lookout for Modi and his family, who police say left India in January prior to the case being filed.
"Everything is documented," Aggarwal said of Modi's dealings with PNB, adding that the bank had regularly levied fees on its dealings with the jeweller's firms.
According to the police complaint, the two officials at a Mumbai branch of PNB fraudulently steered credit to firms linked to Modi and entities tied to jewellery retailer Gitanjali Gems, led by Modi's uncle, Mehul Choksi.
"They're covering themselves up," Aggarwal said referring to the PNB complaint. "They want to avoid liability ... that is why they are cooking up this story."
Asked about his legal strategy, Aggarwal said there was no strategy while no charges have been laid. "When there's a chargesheet, there will be a strategy," he said.
Choksi, who has also left the country, has not commented on the matter. Gitanjali, in a regulatory filing, denied Choksi's involvement in the alleged fraud.
PNB did not immediately respond to the lawyer's comments.
The fraud case has stunned financial markets and wiped off $1.7 billion, or more than a quarter, of PNB's market value. The stock ended little changed on Tuesday after falling in the past four sessions.
JEOPARDIZED RECOVERY
Separately, in a letter to PNB officials, Modi stated that his companies owed the bank less than 50 billion rupees ($775.25 million), much lower than the amount alleged by the bank. He also said PNB had jeopardized its chances of recovering the sums owed by going public with its allegations.
"The erroneously cited liability resulted in a media frenzy which led to immediate search and seizure of operations, and which in turn resulted in Firestar International and Firestar Diamond International effectively ceasing to be going-concerns," he wrote in a letter seen by Reuters. "This thereby jeopardised our ability to discharge the dues of the group to the banks."
Both companies are controlled by Modi. The fraud allegedly involves at least three firms controlled by Modi and others by Choksi.
"Your actions have destroyed my brand and the business and have now restricted your ability to recover all the dues," said Modi in the letter, accusing PNB of acting in haste and noting that his firm has always been current on paying what it owed.
COMPULSORY TRANSFERS
Five bank officials, including the two at the Mumbai branch, have so far been arrested. Police on Tuesday sought a 14-day remand for three of the men who were picked up the previous day.
The two branch officials and a third person whom a source described as the "authorised signatory" of the companies tied to Modi appeared at the weekend before a Mumbai court, which ordered them to be held in custody until March 3.
The alleged fraud occurred as one PNB deputy manager, with the assistance of one or more colleagues, issued more than 100 fraudulent Letters of Undertaking - essentially guarantees sent to other banks so that they would provide loans to a customer.
After entering the transactions on the SWIFT messaging system, the official, who worked at the same branch from 2010 to 2017 despite normal bank practices of regular rotations - did not record them on PNB's internal system, according to the bank's complaint.
A PNB source said on Tuesday all its branches have now been asked to reconcile SWIFT messages with entries in their core banking system going back eight or nine years.
The bank has also asked branches to ensure no clerical staff stays in one office for more than five years, and officers no more than three years, the source said.
Rating agency Fitch placed the bank on negative watch. Later, Moody's also placed PNB's ratings under review for a downgrade.
"PNB's capital position would deteriorate markedly, and fall below minimum regulatory requirements, if the bank is required to provide for the entire (fraud) exposure," Moody's said in a note on Tuesday.
(Reporting by Krishna V Kurup in Bengaluru; Editing by Sanjeev Miglani and Alex Richardson)
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