In a win for India, a Chapter 11 trustee will now administer the bankruptcy cases of American firms A. Jaffe, Firestar Diamond, and Fantasy Inc., which are owned by diamantaire Nirav Modi who along with his uncle Mehul Choksi allegedly perpetrated India's biggest banking fraud.
The development will fortify India's own investigation efforts while ensuring the integrity of other probes overseas, as concerns loomed large that fugitive Modi still remote controlled the whole operation in a chain of command leading from him and down through different entities.
The appointment of a Chapter 11 trustee is said to be a relatively rare remedy in bankruptcy cases. It is understood to be used in cases where there is possible criminal deception intended to result in financial gains. The trustee will take over the company and preside over the sale of its assets.
At a U.S. bankruptcy court hearing on June 7, Judge Sean Lane decided in favour of the appointment of a trustee, saying this is in the "best interests of the creditors, any equity security holders, and other interests of the estate," said the court order, accessed by DNA Money.
Interestingly, the US companies' have not opposed the appointment of the trustee, and are understood to be taking a position that they are in favour of any action that preserves the value of the companies' assets.
Last week, the U.S. Trustee William Harrington and Punjab National Bank (PNB) and India's Ministry of Corporate Affairs (MCA) had separately called for the trustee's appointment, citing the collapse of the proposed sale of A. Jaffe.
An entity called Parag Diamonds had won the auction for A. Jaffe's assets in May. But soon the company's counsel withdrew the sales motion, as it was revealed in court that A. Jaffe president Mihir Bhansali, said to be a close associate of Nirav Modi, had spoken to the now fugitive billionaire following the company's bankruptcy filing. Bhansali has since then resigned from the company.
The MCA had alluded to the possibility that companies, through Mihir Bhansali and perhaps others, may have engaged in post-petition acts that either perpetrated the Nirav Modi fraud or hindered the ongoing investigations into the fraud.
Separately, an examiner appointed by the US court is already engaged in investigating, among other things, whether, and to what extent Modi controlled or influenced the decisions and actions taken by the firms in these cases, as well as whether an officer or director of the companies participated in fraud or dishonesty in the management of affairs.
However, the examiner cannot participate in the management of the companies, nor can the examiner pursue causes of action on behalf of the estates and their respective creditors.
NOOSE TIGHTENS
- The trustee will take over the company and preside over the sale of its assets
- Last week, the U.S. Trustee William Harrington and Punjab National Bank (PNB) and India's Ministry of Corporate Affairs (MCA) had separately called for the trustee's appointment
- An examiner appointed by the US court is investigating, among other things, whether, and to what extent Modi controlled or influenced the decisions and actions taken by the firms in these cases
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