MCA mulls legal ways to stall 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 ~130-billion scam at Punjab National Bank, according to officials.

The move comes on the heels of the National Company Law Tribunal (NCLT) res training around 60 entities, including Nirav, 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. 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.

Earlier this month, a US court passed an interim order that prevents creditors from collecting debt from Nirav-owned Firestar Diamond 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, some 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 firms while partnership firms include Solar Exports and Stellar Diamond.

The SFIO is probing 107 companies and seven Limited Liability Partnerships linked to Nirav and Choksi groups with regard to the scam.