PNB fraud: MCA mulls legal options to stall Nirav Modi firm Firestar Diamond's bankruptcy proceedings in US

The Ministry of Corporate Affairs is considering legal options to try to stall bankruptcy proceedings in the US against diamantaire Nirav Modi's group firm Firestar Diamond, amid stepped up action in the over Rs 13,000 crore scam at Punjab National Bank, according to officials. The move comes close on the heels of the National Company Law Tribunal (NCLT) restraining more than 60 entities, including Nirav Modi, Mehul Choksi, various individuals, companies and limited liability partnership firms, from selling their assets. A multi-agency probe, including by the Serious Fraud Investigation Office (SFIO), is progressing into the scam, whose kingpin is alleged to be Nirav Modi. The fraud, the biggest so far in the Indian banking industry, was perpetrated by way of issuance of fraudulent Letters of Undertaking (LoUs).

According to officials, Firestar Diamond that filed for bankruptcy in a US court is a subsidiary of one of the companies against whom the NCLT has passed the order. Since there is a strong possibility of fund diversion among various group entities, money could well have been diverted to Firestar Diamonds, they added. Against this backdrop, the ministry is exploring legal options with regard to the bankruptcy case of Firestar Diamond in the US and the process of engaging lawyers is being looked at, the officials said. They said the effort would be try to stall the bankruptcy proceedings so that the company's assets are not liquidated before completion of the probe into the scam.

Meanwhile, sources said PNB is looking to be part of the bankruptcy proceedings against the firm in the US as a claimant. Earlier this month, a US court passed an interim order that prevents creditors from collecting debt from Nirav Modi-owned Firestar Diamond Inc after it filed for bankruptcy. He has a majority stake in Firestar Diamond and its other sister companies through his other firms. The NCLT order, dated February 23, was passed against 64 entities that includes Nirav Modi, Mehul Choksi, few individuals related to the Punjab National Bank, various companies and limited liability partnerships.

Gitanjali Gems, Gilli India, Nakshatra Brands and Firestar Diamond are among the companies while partnership firms include Solar Exports and Stellar Diamond. The SFIO, which comes under the MCA, is probing 107 companies and seven Limited Liability Partnerships linked to Nirav Modi and Mehul Choksi groups with regard to the scam. Among others, the CBI and the Enforcement Directorate are also investigating the matter.