US court junks Nirav Modi's plea against plaint seeking damages resulting out of PNB scam

In another setback for fugitive diamantaire Nirav Modi, the United States Bankruptcy Court in the Southern District of New York on October 15 rejected the plea filed by him and his associates seeking the dismissal of fraud allegations against them. Basically, Firestar Diamond, Inc., Fantasy, Inc. and A. Jaffe, Inc.- three US corporations indirectly owned by Modi sought protection under the bankruptcy code approximately a month after the Punjab National Bank filed a complaint against him and other entities alleging a massive bank fraud. After the failure to sell the debtors' assets, the court appointed Richard Levin as the trustee of the aforesaid firms in mid-2018.

Levin filed a complaint against Nirav Modi, Mihir Bhansali who served as the Director and CEO of these companies and Ajay Gandhi who served as their Chief Financial Officer in March 2019. The complaint sought to recover $15 million from the harm inflicted by the accused on the companies and their estates as a result of their 6-year long "extensive international fraud, money laundering, and embezzlement scheme". Languishing in the Wandsworth Prison in the UK, Modi has been accused of being the principal beneficiary of the fraudulent issuance of Letters of Undertaking as part of a conspiracy to defraud the PNB to the extent of Rs 13,570 crore.

Delving into the details of the complaint, the order of Justice Sean Lane read, "Bhansali and Gandhi acted in concert with Modi with respect to the Debtors’ participation in the Bank Fraud. In addition to his role as CEO of the Debtors, Bhansali served as CEO or director while Gandhi served as CFO for each entity in a group known as the “U.S. Affiliates. With Modi’s oversight, Bhansali and Gandhi together were able to coordinate and direct fraudulent transfers “among the U.S. Entities, Shadow Entities, and other Modi-Controlled Entities involving hundreds of millions of dollars in funds and diamonds.”

Finding merit in the complainant's arguments, the court held, "While the Amended Complaint describes the Bank Fraud against PNB, it also alleges a direct fraud against the Debtors by the Defendants". In a clear indictment of Modi, it added, "Defendants’ acts of obstruction were clearly in furtherance of a then-ongoing fraudulent scheme and not merely a cover-up of a previously completed scheme, thus satisfying the continuity requirement for establishing a pattern of racketeering activity within meaning of RICO (Racketeer Influenced and Corrupt Organizations) Act". The US court directed trustee Richard Levin to submit a proposed order and serve its copy to the counsels of all the three accused. 

Legal proceedings in Nirav Modi case

Pronouncing the extradition verdict on February 25, District Judge Samuel Goozee of the Westminster Magistrates’ Court ruled that a prima facie case of money laundering is established. Noting that the Letters of Understanding had been issued between 2011 and 2017 without being entered in the CBS system of the bank to mislead authorities, he did not accept that the accused was involved in a legitimate business. Expressing satisfaction that Nirav Modi could be convicted, the judge also rejected other arguments made by the defence counsel. 

Dismissing concerns about Nirav Modi's mental health, it contradicted the allegation of overcrowded prisons in India. Maintaining that Barrack 12 of Arthur Road Jail is far more spacious than the current prison where he is being held, the judge made it clear that the Indian government doesn't need to provide further details of healthcare that will be provided to the accused. Moreover, the judge said that there is no evidence to suggest that the fugitive diamond merchant will not receive justice if he is extradited to India. 

However, Justice Martin Chamberlain of the UK High Court permitted him to appeal against his extradition to India citing Grounds 3 and 4 apart from Section 91 of the UK's Criminal Justice Act. Grounds 3 and 4 pertain to Article 3 of the European Convention of Human Rights which protects a person from extradition protects if the court believes that he/she would face torture, degrading, or inhuman treatment in the said nation. On the other hand, Section 91 of the UK's Criminal Justice Act stipulates that the court has to consider the physical and mental condition of an individual and if it would be unjust to extradite him/her.