The businessmen are said to have been issued with illegal letters of undertaking (LOUs) from PNB over a seven year period, and to have used them to get loans from overseas branches of other, mostly Indian banks.
Choksi, who owns Gitanjali Gems, told employees he did not want anyone to suffer due to an association with him, but that he was in no position to pay their salaries and they were free to look for other opportunities until he could prove himself innocent.
"With recent false allegations levelled against me of defrauding the PNB Bank and media frenzy, the situation has gone grave, which is turning graver by the day," Choksi wrote in the letter sent to employees on Friday.
The scandal, which came to light earlier this month, has shaken confidence in state-run lenders and turned the spotlight again on India's deep-seated corruption problem.
At least a dozen people -- six from the bank and six more from Modi's and Choksi's companies -- have been arrested and the investigation is still continuing.
Modi, who according to Forbes magazine has a net worth of some $1.8 billion, owns Firestar International and a chain of eponymous boutique stores from New York to Beijing.
On Saturday, authorities seized a farmhouse, a solar power plant and land that belonged to him.
Also on Saturday, Enforcement Directorate, which fights financial crimes, said on Twitter it had taken possession of 21 other properties belonging to Modi worth 5.24 billion rupees ($81 million) in the latest swoop in Mumbai and Pune, another city in western India.
Earlier in the week, the agency said it had seized luxury cars worth millions of rupees belonging to Modi.
A lawyer for Modi has denied his client was involved in any fraud.
Choksi's firm, Gitanjali Gems, has also denied involvement in the alleged fraud.
Separately, police on Thursday registered a case against a Delhi-based jeweller on a fraud complaint filed by Oriental Bank of Commerce, another state-owned bank, a police source said.
The lender has alleged the firm, Dwarka Das Seth International, cheated the bank with the help of some of its officials, using letters of credit (LCs) - a loan instrument similar to those used by Modi's and Choksi's firms in the alleged fraud.
Reuters was unable to reach the Delhi firm as the phone numbers listed online did not work.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)