Indian jeweller Nirav Modi poses during the launch of his store in Mumbai, March 14, 2015. Fotocorp/Handout via REUTERS/FilesNew Delhi/ Mumbai: Firestar Diamond Inc, the flagship luxury jewelry brand owned by Nirav Modi accused of the Rs 12,400 crore bank fraud in India, has filed for bankruptcy in a New York court.
The U.S. bankruptcy filing by Firestar Diamond Inc comes as investigations by Indian authorities into the fraud case are becoming more aggressive, including a raid last week of Modi's former law firm that lawyers described as unprecedented.
Modi, along with his uncle Mehul Choksi, owner of Gitanjali Gems Ltd, are suspected to have colluded with bank officials at Punjab National Bank (PNB) to obtain unauthorized loans over a six-year period.
PNB late on Monday said the amount of those fraudulent transactions could rise by Rs 1,323 crore to nearly Rs 12,400 crore, sending its shares reeling to a 20-month low.
The scale of the fraud has raised concerns about the potential for similar cases across India's banking sector. The Finance Ministry on Tuesday set a 15-day deadline for state banks to take action to improve their oversight of operational and technological risks.
The ministry's department of financial services also ordered state-run lenders to comb through their bad loans of more than Rs 50 crore for potential fraud.
Among the actions lenders must take are identifying current oversight weaknesses and having banks' boards 'assign clear accountability' for implementation and compliance.
Analysts said the government directive could hit banks in the short-term if more fraud was detected, though it would benefit the sector in the long-term.
Law firm raided
Firestar Diamond Inc listed Rs 326 crore to Rs 651 crore in assets and liabilities and noted it had 50 to 99 creditors, according to a court filing in the Southern District Of New York on late Monday.
The company is a unit of Firestar International, controlled by Modi, a jeweler who built his range of international diamond businesses in part by drawing a famous roster of clients such as actress Kate Winslet. His flagship Firestar International had Rs 14,990 crore in sales as of March 2017, according to figures previously provided by the company.
Indian authorities have stepped up investigations into potential wrongdoing at PNB as well as companies tied to Modi and Choksi, although no charges have yet been filed.
An official at the Central Bureau of Investigation (CBI) said they had last week raided the offices of law firm Cyril Amarchand Mangaldas, which had represented Modi for a while, and taken away documents related to Modi. He did not give additional details.
Lawyers said they were unclear what legal basis the CBI had used to seize the documents.
Cyril Amarchand did not respond to a request for comment.
Meanwhile, the CBI source added current and former officials at PNB continued to be questioned, including former managing director Usha Ananthasubramanian, who now heads state-run Allahabad Bank, as well as officials from other lenders that lent to companies tied to Mehul Choksi and auditors.
Ananthasubramanian did not immediately respond to requests for comment.
At least a dozen people - six from the bank and six more from Modi's and Choksi's companies - have been arrested, while investigators have seized a number of properties from the two, including jewelry and luxury vehicles.
Both Modi and Choksi, whose whereabouts are unknown, have said they are innocent.
Banking shares reel
PNB's disclosure it had detected additional fraudulent loans, on top of the Rs 11,400 crore reported in a disclosure earlier this month, sent shares of state-run lenders sharply lower on Tuesday, reinforcing concerns about the escalating financial cost of the unauthorized loans steered towards the two jewelers.
The government's orders for tougher supervision is also raising concerns that Indian lenders, already struggling to clean up a record Rs 9,58,068 in bad debt, will face additional regulatory scrutiny and skepticism from investors about the scale of the fraud across the sector.
PNB shares slumped 12.2 per cent, after earlier falling as much as 14.2 per cent to its lowest since June 2016.
Since disclosing the fraud on Feb. 14, its stock has dropped 40 per cent.
A sub-index of state-run lenders, the PSU Bank index, was down 3.5 per cent, while top-ranked State Bank of India was down 2.5 per cent.
