(Adds background, lawyers response)
NEW DELHI, Dec 19 (Reuters) - India's federal police said on Wednesday eight employees of state-run Punjab National Bank and two directors of a Mumbai-based private firm had been arrested in a $1.4 million fraud case.
The case is separate from a much bigger one involving billionaire jeweller Nirav Modi and his associates, although it centres on the same branch of the bank, a spokesman of the Central Bureau of Investigation said.
"The case was registered on the allegations of defrauding of Punjab National Bank ... in the matter of dishonest and fraudulent issuance of two Letters of Undertakings aggregating to the said amount," the Central Bureau of Investigation (CBI) said in a statement.
The eight arrested officials were from the Brady house branch where Modi and his uncle Mehul Choksi have been accused of raising more than $2 billion in foreign credit using fake bank guarantees issued by rogue bank staff between 2011 and 2017. Both men have denied wrongdoing and left India before the controversy came to light in February.
Police said the arrested officials include Gokulnath Shetty and Manoj Kharat. Both are suspected by the CBI of steering fraudulent loans to companies linked to Modi and entities tied to jewellery retailer Gitanjali.
Shetty's lawyer declined to comment. Kharat's lawyer did not respond to repeated calls. (Reporting by Krishna N. Das, additional reporting by Sudarshan Varadhan; Editing by Sanjeev Miglani and David Evans)