Nirav Modi-owned Firestar Diamond files for bankruptcy in New York even as PNB fraud balloons to around $2 billion

Two things happened yesterday that add further fuel to the raging inferno of a scam that has hit Punjab National Bank (PNB), and a clutch of banks as well. To begin with, in a late night filing to stock exchanges, the state-owned lender said that "the quantum of reported unauthorised transactions can increase by $204.25 million", hiking up the defrauded amount to around $2 billion (over Rs 12,700 crore). And Firestar Diamond Inc, owned by Nirav Modi - who is accused of masterminding the above scam - filed for bankruptcy in New York.

According to Inforuptcy, a database of asset sales in America, the "voluntary petition for non-individual" filed at the Southern District of New York Bankruptcy Court (Manhattan) under Chapter 11 lists assets - as well as liabilities - in the range of $50 million to $100 million. "This chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time," according to uscourts.gov, the US judiciary's official external website. "The chapter 11 bankruptcy case of a corporation (corporation as debtor) does not put the personal assets of the stockholders at risk other than the value of their investment in the company's stock."

A Bloomberg report adds that Firestar Diamond blamed liquidity and supply chain challenges in its filing, which also includes affiliates A. Jaffe Inc and Fantasy Inc, and estimates the numbers of creditors at between 50 and 99. Interestingly, an external spokeswoman for the company had previously told Bloomberg that Firestar isn't linked to the complaints filed by authorities.

In any case, it's worth remembering the parallels between Firestar Diamond filing for bankruptcy and Exelco NV doing the same last September. According to a Times of India report, the Antwerp-based company had also filed for bankruptcy protection under Chapter 11 on estimated debt of $50 million to $100 million. By doing so, it had managed to successfully hold off paying creditors back home in Belgium and left several companies owned by the Indian diamantaires in Surat, Mumbai and Antwerp staring at losses worth crores. Thankfully, the Delaware Court dismissed the case in December. Will history repeat itself with Firestar Diamonds?