PNB scam fallout: NCLT removes constraint on Firestar directors

The National Company Law Tribunal's (NCLT's) Mumbai bench on Monday granted the independent directors of Firestar International a relief in accessing their financial resources. The Bench of Judges B S V Prakash Kumar and Duraiswamy has vacated the restraint order of February 23.
 
Firestar's independent directors, Gautham Mukkavilli, a former executive at PepsiCo; Suresh Senapaty, who used to work with Wipro; and Sanjay Rishi, who was with American Express, had asked the court to grant them access to their financial assets. They said their role in the company was limited and they had little powers to oversee the auditing or operational functions.
 
The two diamond companies Firestar International, owned and managed by Nirav Modi, and Gitanjali Gems, owned and managed by Modi's uncle Mehul Choksi, are embroiled in a cross-border financing scam, which came to light when the Punjab National Bank (PNB) informed the stock exchanges on February 14 that a few rogue employees had extended Letters of Understanding (LoU) worth Rs 129 billion to subsidiaries of the diamond firms.
 
PNB said the LoUs were issued and provided to the foreign branches of various Indian banks without the knowledge of senior executives.
 
Investigators have frozen Modi and Choksi's domestic accounts, and seized real-estate and other financial properties. Last week, PNB decided to honour Rs 65 billion of the fraudulent LoUs issued on behalf of Modi to seven lenders.
 
One significant power the Enforcement Directorate, the income tax department, the Serious Fraud Investigation Office and the Central Bureau of Investigation have is to 'freeze' the assets of any of the accused - land, securities, material property and bank accounts. This may be done even if formal charges have not been framed or a conviction order not passed by a court.
 
Since no formal charges have been framed or intimated against the three independent directors, the ability to restrain access to one's financial resources was tantamount to constraints on personal liberties, counsel for the independent directors told the Bench.
 
On February 23, the Mumbai bench of the NCLT had passed a restraint order, wherein the independent directors of the firm were allowed to access only up to Rs 2 million in cash. They can now access their property, illiquid or liquid financial assets and bank accounts, while investigators will continue to investigate the scam.
 
The Bench has also allowed two applicants the liberty to withdraw Rs 100,000 and Rs 200,000 per month, respectively.
 
Some of the two firms' secretaries have sought employment elsewhere. They are worried that their future income might be seized by investigators. The Bench has asked counsel representing these secretaries to provide a note detailing this information at the next hearing.  As of March 26, most of the applications, barring a few which will be heard on April 16, have been heard by the bench.

In other news:

Customers’ money safe with us: PNB

Punjab National Bank on Monday said customers' money was safe and there will be zero tolerance towards unethical practices. The lender had come out with a set of FAQs (frequently asked questions), seeking to address concerns of customers in the wake of the recent fraud. PNB said it had reached out to other affected banks and apprised them of the developments. About 30 odd banks were affected, including State Bank of India, Union Bank, Allahabad Bank, ICICI Bank, among others. PTI

Vipul Ambani in judicial custody till April 11 

A special Central Bureau of Investigation (CBI) court on Monday remanded Vipul Ambani and others, arrested in connection with the PNB fraud case, in judicial custody till April 11. Ambani, president (finance) of Nirav Modi's Firestar Diamond, and others were produced in the court of Special CBI Judge S R Tamboli. The CBI has alleged Nirav Modi's firms defrauded the bank of over Rs 65 billion, while the figure stood at Rs 70 billion for Mehul Choksi's firms. PTI

CBI questions senior bank officials

The Central Bureau of Investigation (CBI) had questioned senior officials of the Bank of India, Axis Bank and Allahabad Bank in connection with its probe in the over Rs  129 billion PNB scam case. Agency sources said about five officers, in the ranks of general manager and above, have been grilled by the agency in the last few days to understand how the Letters of Undertaking (LoUs) and Foreign Letters of Credit issued by PNB in this case were executed vis-a-vis Nirav Modi's businesses. PTI