A New York court has called for an investigation into the role of Punjab National Bank employees in the alleged fraud involving Nirav Modi, before deciding on bankruptcy proceedings against three US-based companies of the diamond jeweller. The Bankruptcy Court for the Southern District of New York in an order dated May 4 said investigations should be carried out and employees of the bank be investigated.
ET had first written on May 8 that the court has appointed Alvarez & Marsal to conduct the investigations into the alleged fraud by Modi before deciding on bankruptcy proceedings against his companies Firestar Diamond Inc, A Jaffe Inc and Fantasy Inc. The court has also told the investigators to look into the role of PNB.
“Conduct a forensic financial analysis of the books and records of the debtors, bank records, vendor records, and any and all relevant information of other entities consistent with the investigation, and trace the movement of monies obtained under the alleged fraud circumstances against PNB (Punjab National Bank) to the debtors, and related entities and individuals,” the court order said. ET reviewed a copy of the order. An email query sent to PNB on Monday seeking is comments on the development did not elicit any response as of press time Tuesday.
The court said several conversations were held between the US court representative, and officials of PNB and the ministry of corporate affairs in India. The court-appointed examiner will have the right to conduct voluntary interviews of debtors, current and former accounting and audit professionals.
The examiner will also conduct depositions, issue subpoenas, or seek judicial intervention in cases where witnesses decline to cooperate. Modi and his uncle Mehul Choksi, also a jeweller, in connivance with certain PNB officials, allegedly borrowed nearly Rs 14,000 crore from lenders outside India using fraudulent letters of undertaking (LoUs) as guarantees. Court documents show that BDO had submitted its forensic investigation report in the Nirav fraud case.
According to the submission by BDO, India, Modi’s Indian companies remitted around $46 million, or about Rs 300 crore, in the form of LoUs from India to their US subsidiaries. Some of the shell companies including Fancy Creations Company, World Diamond Distribution, FZE, Eternal Diamond Corp, Empire Gems FZE, Pacific Diamonds FZE and Tri Color Gems were used as vehicles to launder money, it alleged. PNB has also hired law firm Shardul Amarchand Mangaldas and lawyers in the US to represent it in the bankruptcy court. This comes days after assets of A Jaffe were auctioned and sold for about $8 m, or Rs 54 crore.