PNB fraud case: US bankruptcy court summons Nirav Modi, two aides

The US bankruptcy court has asked Nirav Modi and two of his aides — Mihir Bhansali and Rakhi Bhansali — to appear before it after Punjab National Bank (PNB) and the Ministry of Corporate Affairs (MCA) filed petitions to this effect.

Mihir was head of the US arm of Firestar Diamond and Rakhi was a director in the firm. PNB and MCA had filed a petition to issue subpoena or witness summons in the court. This writ is issued by a court to compel testimony by the accused.

For PNB and the MCA, this also means access to 13 million documents of the companies that are undergoing bankruptcy proceedings in the US. A court appointed trustee is running the firms at present. Apart from this, PNB and the MCA have established their case of dues by Nirav Modi’s companies. The US court had earlier not accepted PNB as creditor to the three companies. The three companies — Firestar Diamond, Inc. (FDI); Fantasy, Inc. (FI), and A Jaffe Inc. (AJI) – filed for bankruptcy protection in the United States Bankruptcy Court for Southern New York.

PNB’s petition stated that it had learnt that the debtors' CFO (Ajay Gandhi), financial controller (Kunal Patel) and other sales people as well as back office support employees had resigned or given notice of their resignation.

A petition filed by PNB and MCA says that it is unclear what steps have been taken to protect information, systems and assets or ensure that information will be made available to creditors and other parties who have been wronged by the Modi fraud.

In light of the increasing risk that information will be more difficult to obtain with the passage of time, PNB now seeks authority to subpoena the accused for depositions and document productions in order to obtain information relevant to PNB's claims against the debtors.

There was fear that the accused would invoke the fifth amendment under the US law, which means that they could not be compelled to be witness against themselves.

The petition said, “To the extent, Bhansali (or anyone else) is inclined to invoke Fifth Amendment rights. It should be done in the context of a pending subpoena so that there is an appropriate record to support any adverse inferences against the debtors and in favour of PNB.”

Meanwhile, after the National Company Law Appellate Tribunal (NCLAT) observed that the erstwhile directors of Nirav Modi’s companies had exposure to the fraud; the ministry of corporate affairs seized property of all the directors involved. One of the directors planned to sell his property worth Rs 60.5 million which got stalled after the order. The NCLAT had set aside the NCLT order that gave these directors relief.

In India, the Central Depository Services Limited and National Depository Services Limited had been instructed to freeze securities of all those who are party to the fraud. The Centre had asked the tribunal to also cease property of trusts and individuals involved in the fraud as they felt that a lot of funds have been routed to these trusts and individuals.