Fraud Accused Indian Jeweler’s Firm Files For Bankruptcy in New York Court

Firestar Diamond Inc, the flagship U.S. company of Indian billionaire Nirav Modi, filed for bankruptcy in a New York court on Feb. 26, even as the Indian Enforcement Directorate (ED) moved court for a non-bailable warrant against him on Feb. 27.

The company, which is at the center of the controversy regarding a Punjab National Bank (PNB) scam, which has assets and liabilities in the range of $50 million and $100 million, has filed for bankruptcy under Chapter 11 of bankruptcy code. The code allows the company to reorganize its business.

In its filing in Southern District of New York Court, the company blamed liquidity and supply chain challenges. The bankruptcy filing also includes Firestar’s A. Jaffe Inc. wedding jewelry affiliate and Fantasy Inc. affiliate. It estimates the numbers of creditors at between 50 to 99.

Meanwhile, in Mumbai, Special Prevention of Money Laundering Act Court Judge MS Azmi heard the arguments of ED special counsel Hiten Venegoankar who told the court that the ED, which registered a case against Modi on Feb. 15, issued three summons to him to appear before the agency, PTI reported. Modi responded to two summons saying that he had business commitments, while in the third one, he brought up the issue of his security.

According to Venegoankar, the summons were issued on Feb.15, Feb. 17, and Feb.22, which asked Modi to appear before the agency on Feb. 16, Feb. 22 and Feb.26, respectively. The counsel then asked for non-bailable warrant as Modi ignored these summons.

A local court in Mumbai also issued summons to Modi to appear before it on March 12 in connection with an income tax evasion probe against him and his companies, officials said. Modi’s counsel said that diamond merchant will only return to India if there is a promise of a fair trial, the Economic Times reported.

Modi, along with his partner Mehul Choksi, have been accused of leveraging the loopholes in the banking system by seeking letters of undertaking (LoU) and raising credit from foreign banks to pay its suppliers. The scam, which became public earlier this month, could amount to Rs 12,600 crore, with Rs 1,300 being added to the fraud on Feb. 26 night. The amount allegedly defrauded by Modi and Choksi’s firms was earlier stated to be Rs 11,300 crore. The Central Bureau of Investigation and Enforcement Directorate are investigating the scam, which has allegedly been going on for past seven years. So far, both Modi and Choksi have denied wrongdoing.

Modi, his three firms Diamond R Us, Solar Exports and Stellar Diamonds, and his uncle Mehul Choksi, who owns Gitanjali Gems Ltd, were allegedly colluding with rogue PNB employees in the fraud. Ever since the news of PNB scam became public on Feb. 14, the bank’s stock has dropped 40 percent, taking Rs 153.3 billion ($2.36 billion) off its market value.

Modi’s company’s diamond operations are spread across the United States, Europe, the Middle East and the Far East, as per the group website.