Punjab National Bank (PNB) plans to take part in the bankruptcy proceeding of Firestar Diamond, a group company of jewellery designer Nirav Modi who has been accused of defrauding the state-run bank of nearly Rs 13,000 crore. The bank is exploring all options for the recovery, including participating in the bankruptcy proceeding of Firestar Diamond Inc, sources said.
According to sources, the bank is in the process of hiring legal experts to take the matter forward. The legal firm would be hired soon. Various pros and cons are being examined in order to make a watertight case for the recovery, sources said, adding the bank is part of unsecured creditor category. When contacted, PNB declined to comment on the matter.
Last month, Firestar Diamond, a company owned by Nirav Modi filed for bankruptcy in a New York court. The US Trustee Program oversees administration and litigation for enforcement of the bankruptcy law. Modi and his uncle Mehul Choksi in connivance with certain bank officials allegedly cheated the PNB of Rs 12,968 crore through fraudulent Letters of Undertaking (LoUs).
A Mumbai branch of PNB had fraudulently issued LoUs for the group of companies belonging to Nirav Modi since March 2011. Different investigating agencies, including CBI and Enforcement Directorate, are probing the fraud, dubbed as the biggest banking scam in the country. Scam-hit PNB had issued as many as 1,590 LoUs to Nirav Modi, Mehul Choksi and their associates.
The total number of LoUs issued to the companies of Nirav Modi, his relatives and the Nirav Modi Group are 1,213, and to Mehul Choksi, his relatives and the Gitanjali Group are 377. The amount of repayment made by the companies against each LoU cannot be currently ascertained as the matter is under investigation, Finance Ministry in a reply to Parliament said.
PNB has apprised that payment of LoU is a contingent liability and may fall back upon the bank on due date only if the same is not paid on or before due date by the buyer. Following the scam, the Reserve Bank has stopped banks from issuing LoUs and Letters of Comfort for trade finance.