The Indian Ministry of Corporate Affairs and state-owned Punjab National Bank are asking the court overseeing the Firestar Diamond Chapter 11 case to adjourn the auction of the assets of that company, as well as related company Fantasy Inc.
The sales of those companies were supposed to take place on May 3. However, two days prior, those two auctions were postponed to a date to be determined.
On May 3, the court did oversee an auction of related company A. Jaffe. That auction was won by Parag Diamonds, which does business as Paramount Gems, though the price it paid has not been announced.
In its motion filed May 10 in Southern District of New York bankruptcy court, Punjab National Bank (PNB) said the result of the A. Jaffe auction, which is blacked out in the documents it filed, significantly undervalues the company.
“A. Jaffe’s Statement of Financial Affairs lists over $22 million in assets, over $14 million of which consist of non-perishable inventory,” according to the PNB motion. “Unfortunately, the winning bid falls far short of the estimated value of the assets, giving the bidder a windfall to the disadvantage of the estate.”
Nirav Modi, the owner of A. Jaffe, Firestar Diamond, and Fantasy Inc., has been charged with defrauding PNB of billions of dollars. His lawyer has denied the charges.
The Indian government motion, also filed May 10, argues that “there is a good faith basis for concern that the A. Jaffe assets are commingled with assets derived from fraudulent transactions tied to the Modi fraud. This is the likely cause of the disappointing auction results.”
A. Jaffe, which was purchased by Modi in 2007, has said “[it is] not in any way involved with any of the alleged conduct [overseas].”
The government and PNB motions argue that the court-appointed examiner needs to do more work before further sales proceed.
The court papers do not specify why the Firestar Diamond and Firestar Inc. auctions were postponed, although the PNB motion seems to suggest there was a lack of all-asset bids.
Veteran bankruptcy expert Seth Freeman, senior managing director of GlassRatner, calls the postponement “unusual, considering there were originally all these filings to expedite the sale. In that context, it’s pretty inconsistent.”
Parag Diamonds has not returned a phone call for comment. The debtors’ counsel has not returned numerous emails for comment.