Punjab National Bank and Ministry of Corporate Affairs of the Union of India filed with the U.S. Bankruptcy Court separate objections to Firestar Diamond’s motion for entry of an order approving the sale and assignment of the Debtor’s assets free and clear of all liens, claims, interests, and encumbrances. Punjab National Bank asserts, “There can be no serious dispute over the impact of the massive fraud committed by Nirav Modi, the majority shareholder of their ultimate parent, and his associates on the bidding and sales process.
Indeed, since the Court approved the sales and bidding procedures, substantial facts detailed below have emerged directly connecting the Debtors to the fraud committed by Modi and his affiliates against PNB. For these reasons, the Court should adjourn the sales process to allow time for the Court to determine, with the assistance of the Examiner, the extent of the Debtors’ involvement in the massive fraud. There is no compelling reason for Debtors to oppose this request. The failure of the auction is clear evidence that the justifications the Debtors provided for the expedited sales process are no longer applicable and a delay to permit the investigation to proceed may improve efforts to sell the Debtors’ assets.
If the investigation reveals that the Debtors have no responsibility for the fraud committed against PNB, it will undoubtedly result in a more robust bidding environment for the Debtors’ assets, including for the assets that have received bids to date. If, on the other hand, the investigation finds that Debtors were involved in the fraud, then the assets are subject to a constructive trust claim and other claims by PNB. To be sure, certainty over these issues will aid potential bidders in valuing the Debtors and will ensure that none of the rights of the fraud victim are compromised. Delaying the sale hearing will also allow the Court and parties in interest to evaluate the impact of various orders and laws of India affecting the Debtors’ assets in the United States. For example, the National Company Law Tribunal (‘NCLT’) has entered an order precluding the sale of any assets of various entities affiliated with Nirav Modi, including the Debtors, from selling assets.
While the Debtors have the ability to seek relief from this Order, they have not done so. Finally, despite the Court’s instruction that the Debtors run a fully transparent process, this was not the case. To date, the Debtors have still not filed with this Court, or served on PNB, the terms of the proposed sale. There has been no disclosure of the purchase agreement, a list of contracts to be assumed, the proposed sale order or related documents. It was only last night that the Debtors finally authorized the release of the proposed purchase price to PNB. The Debtors’ failure to provide sufficient notice of the terms of the sale violates the Bid Procedures Order, which required the Debtors to file a notice of the results of the auction one business day after the selection of the winning bidder. This alone justifies an adjournment of the sale hearing to permit all interested parties to review the full details of the A. Jaffe successful bid.” The Court scheduled a May 15, 2018 hearing to consider the objections.
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