Prosecution Of High-Profile Financial Crimes And Bank Fraud
I. Introduction to Financial Crimes and Bank Fraud
Financial crimes include offenses like:
Bank fraud, embezzlement, and misappropriation of funds
Insider trading, securities fraud, and corporate fraud
Money laundering and violation of banking regulations
Key statutes involved in India:
Indian Penal Code (IPC), Sections 420, 406, 409, 415-420 – cheating, criminal breach of trust
Prevention of Money Laundering Act (PMLA), 2002
Negotiable Instruments Act, 1881 – for cheque dishonor cases
Companies Act, 2013 – fraud by corporate officials
Banking Regulation Act, 1949 – powers of RBI and bank management
Prosecution of high-profile financial crimes often involves multi-agency investigation (CBI, ED, SFIO, RBI, SEBI), due to the complex nature of evidence, cross-border transactions, and high stakes.
II. Landmark Cases in Financial Crimes and Bank Fraud
1. Harshad Mehta Case (1992) – Securities and Banking Scam
Background:
Harshad Mehta, a stockbroker, manipulated the stock market using bank receipts and ready-forward transactions, causing a financial scandal worth over ₹4,000 crore.
Legal Issues:
Cheating and criminal breach of trust under IPC Sections 420 and 409
Misuse of banking instruments and fraud in financial markets
Judgment:
Mehta was convicted in multiple cases by various courts, including Cheating, Criminal Conspiracy, and Forgery.
He was sentenced to prison terms totaling more than 10 years and fines.
Significance:
Exposed systemic weaknesses in banking and stock market regulations
Led to reforms:
Introduction of SEBI regulations for brokers
Real-time tracking of bank securities transactions
Enhanced auditing and oversight mechanisms
2. Ketan Parekh Case (2001) – Stock Market Manipulation
Background:
Ketan Parekh was a stockbroker involved in manipulating share prices of “K-10” companies using circular trading and bank funds.
Legal Issues:
Bank fraud by diverting loans for speculative trading
Cheating investors under IPC
Judgment:
Parekh was convicted under IPC Sections 420 and 406.
He was banned from trading by SEBI for 14 years.
Significance:
Strengthened enforcement of insider trading and market manipulation laws
Showed interconnection between banking finance and stock market fraud
Led to stricter Know Your Customer (KYC) norms in banks
3. Vijay Mallya Case (2016 onward) – Bank Loan Default
Background:
Vijay Mallya, promoter of Kingfisher Airlines, defaulted on loans exceeding ₹9,000 crore from multiple banks.
Legal Issues:
Cheating and criminal breach of trust under IPC
Money laundering under PMLA
Judgment:
Indian courts issued non-bailable warrants, and the Enforcement Directorate attached properties worth several thousand crores.
UK courts approved extradition proceedings, and India continues to prosecute in multiple jurisdictions.
Significance:
Landmark in cross-border financial crime enforcement
Strengthened bank recovery and asset attachment laws
Reinforced PMLA’s utility in prosecuting high-value fraud
4. Nirav Modi Case (2018 onward) – Punjab National Bank Fraud
Background:
Diamonds merchant Nirav Modi allegedly defrauded Punjab National Bank of over ₹14,000 crore using unauthorized Letters of Undertaking (LoUs).
Legal Issues:
Fraudulent banking practices under IPC
Criminal breach of trust, cheating
Money laundering under PMLA
Judgment:
ED and CBI filed multiple FIRs.
Courts allowed prosecution and attachment of assets in India and abroad.
Modi was arrested in the UK; extradition proceedings are ongoing.
Significance:
Highlighted internal control failures in public sector banks
Triggered RBI to strengthen risk management and internal auditing
Led to systemic reforms in issuing LoUs
5. Saradha Chit Fund Scam (2013 onward)
Background:
The Saradha Group ran a Ponzi scheme collecting funds from thousands of investors in West Bengal, defrauding them of over ₹2,500 crore.
Legal Issues:
Criminal breach of trust and cheating under IPC
Money laundering under PMLA
Regulatory violations under RBI and SEBI
Judgment:
CBI and ED registered multiple cases; directors were arrested.
Courts allowed investor protection schemes and attachment of properties.
Significance:
Highlighted gaps in regulation of non-banking financial companies (NBFCs)
Sparked SEBI reforms for collective investment schemes
Strengthened state-federal coordination in investigating financial scams
6. PMC Bank Case (Punjab and Maharashtra Cooperative Bank) 2019
Background:
PMC Bank officials allegedly colluded with HDIL developers to hide non-performing assets, misleading depositors and regulators.
Legal Issues:
Criminal breach of trust under IPC
Fraudulent accounting
Money laundering under PMLA
Judgment:
RBI imposed restrictions on withdrawals, arrested top executives, and filed criminal charges.
CBI/ED prosecutions are ongoing.
Significance:
Exposed cooperative bank vulnerabilities
Led to strengthened auditing, governance norms, and RBI oversight
Demonstrated high-profile banking fraud can threaten depositors and public confidence
III. Summary Table of Key Financial Crime Principles
| Case | Crime Type | Legal Principle / Impact |
|---|---|---|
| Harshad Mehta | Stock market scam | Strengthened SEBI oversight and banking reforms |
| Ketan Parekh | Stock manipulation | Enforcement of insider trading & bank loan misuse |
| Vijay Mallya | Bank loan default & money laundering | Cross-border asset recovery, PMLA enforcement |
| Nirav Modi | Fraud using LoUs | Bank internal control & RBI reforms |
| Saradha Scam | Chit fund Ponzi scheme | Investor protection, SEBI regulatory framework |
| PMC Bank | Cooperative bank fraud | Auditing, governance, RBI oversight |
IV. Key Takeaways
High-profile financial crimes are often multi-layered – involving banks, stock markets, and shell companies.
Prosecution requires multi-agency coordination – CBI, ED, SEBI, RBI, and state police.
Legislation like PMLA and IPC Sections 409, 420 are critical – providing tools for prosecution.
Precedent-setting cases influence systemic reforms – auditing, risk management, investor protection, and cross-border asset tracking.
Judicial intervention ensures enforcement and safeguards against collusion or regulatory lapses.
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