[Exclusive]: Nirav Modi blames PNB scam for bankruptcy; US Companies may be sold (Read court filings)
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[Exclusive]: Nirav Modi blames PNB scam for bankruptcy; US Companies may be sold (Read court filings)

Bar & Bench

Beleaguered diamantaire Nirav Modi has attributed the cause for his companies filing bankruptcy in a United States court to the PNB scam, court documents reveal.

Nirav Modi’s US Company Firestar Diamond Inc, along with its affiliate companies A Jaffe, Inc and Fantasy, Inc. (debtors) had filed for bankruptcy in the United States Bankruptcy Court for the Southern District of New York, under Chapter 11 of the United States Bankruptcy Code.

And now, President of the three companies Mihir Bansali has filed a declaration before the court in support of the debtors’ First Day Motions, through Modi’s US law firm Klestadt Winters Jureller Southard & Stevens, LLP.

Quite significantly, the declaration reveals that Nirav Modi is willing to sell his companies, in whole or in part, to pay off creditors.

The declaration states that as per news reports in India, Modi’s companies were involved in obtaining unauthorized loans from Punjab National Bank in the form of letters of undertaking (LOUs) amounting to $40 million. It also states that PNB later estimated the magnitude of the LOUs to an excess of $1 billion. This amount, it is contended, cannot be attributed solely to Modi’s companies.

“Those articles also referenced other individuals and diamond jewelry companies with which Modi is not affiliated. It is unclear how much of the estimated $1 billion number quoted in the articles is purportedly attributable to Modi, and entities with whom he is affiliated, and how much is purportedly attributable to other unaffiliated third parties.”

It is further stated that the move of the Central Bureau of Investigation (CBI) and other authorities to attach, seize and/or freeze various assets and properties belonging to Modi has resulted in the closure of several entities, thereby rendering thousands of employees out of work.

It is also revealed some of the entities that have shut shop include factories in India, which produced most of the fine jewelry merchandise of Modi’s companies. As a result,

“The sudden loss of its supply chain and back office support has dramatically impacted the operations of the Debtors in the short term.”

The declaration goes on to state,

“The supply chain disruption and negative publicity have dramatically impaired the Debtors’ business operations in the short term and have created a great deal of uncertainty and confusion in the market about the Debtors’ ability to continue to operate their business as a going concern…

…Without greater certainty and assurances, certain vendors have expressed a reluctance to continue doing business with the Debtors and certain customers have begun to explore moving certain of the Debtors’ programs to other suppliers.”

Therefore, it reveals, the voluntary petition under Section 11 of the Bankruptcy Code has been filed to “preserve the going concern value of their businesses and effectuate a sale or other transaction that will provide the resources necessary to allow the Debtors’ successful brands to continue to thrive”.

As per the filings, Firestar Diamond Inc and Fantasy Inc are co-borrower debtors under a co-lending facility with Israel Discount Bank of New York (IDB) and HSBC Bank USA. The principal amount of the IDB loan in $12 million, while the principal of the HSBC loan is $16 million.

Bhansali’s declaration concludes with an averment that the protection of the Bankruptcy Code will enable the debtors “to maximize the value of their assets for the benefit of the estates and their creditors”.

Read the Declaration and annexures:

Nirav-Modi-filing-2.pdf
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Exhibit-A.pdf
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Exhibit-B.pdf
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Image courtesy: Nirav Modi Jewels – Facebook

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