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US court orders probe against Nirav Modi’s firms before bankruptcy proceedings



The noose is tightening around Nirav Modi, the billionaire diamantaire who defrauded the Punjab National Bank of over Rs 14,000 crore. In a fresh development, a US court has ordered a probe into the alleged banking fraud before deciding on bankruptcy proceedings against Nirav Modi’s firms Firestar Diamond Inc, A Jaffe Inc and Fantasy Inc.

The Court has appointed a global professional services firm Alvarez and Marsal to carry out the investigation. According to a report in the Economic Times, the Bankruptcy Court for the Southern District of New York has asked the Alvarez and Marsa to ‘investigate the circumstances surrounding the alleged fraud involving Nirav Modi, Modi entities and certain employees of PNB’.

The move comes weeks after the Indian government approached the New York Court against the bankruptcy proceedings of Nirav Modi’s US-based firms. Union minister P P Chaudhary recently said that the government intervened in the bankruptcy proceedings in the US to safeguard the Punjab National Bank’s interests.

The Minister further said that since the investigation against Nirav Modi led firms is still going on in India, the ‘filing of bankruptcy by these firms in the US would jeopardise the interest of the Indian bank’. Nirav Modi-owned Firestar Diamond Inc, which is a unit of Firestar International, had filed for bankruptcy in the US on February 27. According to a court filing, Firestar Diamond has 50 to 99 creditors with assets and liabilities in the range of USD 50 million to USD 100 million.

Earlier, the government officials had said that the effort would be to try and stall the bankruptcy proceedings so that the company’s assets are not liquidated before completion of the probe here in India. In February, the Indian bankruptcy court NCLT had restrained Nirav Modi and his uncle Mehul Choksi from selling their assets so that the creditors could recover their money.

Currently, India’s three investigating agencies – CBI, ED and SFIO- are investigating PNB’s multi-billion credit fraud. The CBI has arrested 19 people including PNB officials and top executives of Nirav Modi and Mehul Choksi’s firms. The investigating agency is set to file a charge sheet against all the arrested people. The Enforcement Directorate seized Nirav Modi and Mehul Choksi’s assets worth Rs 7,664 crore during the probe in the alleged fraud.

Earlier, the United States Trustee stopped Nirav Modi’s firms from paying bonuses to employees as part of a retention programme. The United States Trustee William K Harrington, who bjected to the firms’ request, argued that the ultimate majority shareholder of the debtors, and founder of Firestar Diamond Nirav Modi has been charged by the State Bank of India with criminal conspiracy, fraud and cheating related to the Punjab National Bank.

He further said that the ‘impact of [Nirav] Modi’s alleged large-scale fraud upon the three debtors here (US) is not yet known and is the subject of an investigation by the Examiner recently appointed in these cases’. “At this time, an award of bonuses to employees that may have known or should have known about any fraud on the part of Modi and/or these debtors is premature,” he added.

The US Trustee programme is a component of the Department of Justice responsible for overseeing administration of bankruptcy cases and private trustees.

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