(LiveMint)
A day after Punjab National Bank (PNB) announced that it had unearthed fraudulent transactions worth Rs11,400 crore at one of its branches in Mumbai, the key question is who is liable to pay this amount. While PNB has said it will honour its commitments, it did not clarify whether it will bear the entire liability, pointing out that the matter is under investigation. However, lawyers said that the liability to pay foreign branches of banks rests with PNB.
“Laws are very clear about the letter of undertaking (LoU) or letter of credit (LC),” said Jayesh H., founder and senior partner of law firm Juris Corp. “The beneficiaries of the LCs would succeed in an action for recovery unless the beneficiaries are proven to be parties to the fraud.” According to the modus operandi which was described in a PNB caution notice to the chiefs of 30 Indian banks, a junior employee had issued letters of undertaking, essentially guarantees, on behalf of some Nirav Modi group companies without entering the same in the bank’s books.
