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US Bankruptcy Court orders probe into Nirav Modi’s ties with Firestar Diamond

Radhika Merwin BL Research Bureau | Updated on January 11, 2019 Published on April 29, 2018

File Photo of Nirav Modi's Firestar Diamond company in Surat.   -  PTI

To study whether any claims in favour of the company may arise from the alleged fraud

In what could be seen as a positive development for PNB that recently objected to the expedited sale of assets by Nirav Modi’s companies — Firestar Diamond Inc, A Jaffe Inc and Fantasy Inc — the United States Bankruptcy Court has directed the appointment of an examiner to take a closer look at Nirav Modi’s ties to the US companies that filed for bankruptcy.

The examiner will have to investigate to what extent Modi or any of his entities have the ability to direct or influence the conduct of Firestar Diamond Inc, A Jaffe Inc and Fantasy Inc.

The examiner will also have to determine whether company executives knowingly participated in fraud or dishonesty in the management of the affairs.

A copy of the court order, accessed by BusinessLine states, “..the examiner is directed to investigate the circumstances surrounding the alleged fraud involving the individual known as Nirav Modi, certain persons or entities affiliated with Nirav Modi (the “Modi Entities”) and certain employees of Punjab National Bank … to determine: (1) whether and to what extent, if any, the Modi Entities have the ability to direct and/or influence the conduct, decisions or actions taken by the debtors in these cases; (2) whether any current officer or director of the debtors actively and knowingly participated in fraud or dishonesty in the management of the debtors’ affairs; (3) whether any claims or causes of action in favour of the debtors may arise from the alleged fraud circumstances”.

The court has ordered that the US companies provide to the examiner all non-privileged documents and information within its possession that is deemed relevant to perform the investigation.

Objections raised by PNB

The court-ordered probe comes at a time when PNB had raised objections to the accelerated sales process requested by the US companies.

The companies had filed for bankruptcy stating that the discovery of the alleged fraud in India involving Nirav Modi, had disrupted their supply chain and back office support, leaving no choice but to seek Chapter 11 relief.

Subsequently, the companies had asked the court to approve a highly-aggressive sales process, requiring sealed bids by April 19 and sale of the debtors’ assets by May 3.

The reason: closure of the sale before a jewellery trade show in June.

PNB had objected to the expedited sales process stating that there are enormous unanswered questions about the involvement of the debtors and their management in the Modi fraud.

“The debtors to date have refused to provide PNB with critical information necessary for PNB to assess the ramifications of the proposed sale.. it is imperative that the sale process slow down,” according to the objection document filed with the US court.

PNB had also objected to the entry of an order approving the sale of all or substantially all of the debtors’ assets, to the extent that any such assets may have been obtained by the debtors using monies fraudulently obtained from PNB.

Full co-operation

The US court has now ordered that the examiner co-operate with any governmental agencies in the US and India, including any federal, State, or local government agency that may be investigating the debtors, their management, or financial condition.

The examiner has to prepare and file his or her final report within 120 days of being appointed by the United States Trustee.

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Published on April 29, 2018
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