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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
In re: Chapter 11
SAMUELS JEWELERS, INC.1 Case No. 18-11818 (KJC)
Debtor. Requested Hearing date: September 13, 2018 at 9:30 a.m. (ET) Requested Objection Deadline: September 7, 2018 at 4:00 p.m. (ET)
PUNJAB NATIONAL BANK’S MOTION FOR ENTRY OF AN ORDER DIRECTING THE APPOINTMENT OF AN EXAMINER PURSUANT TO 11 U.S.C. §1104(c)
Punjab National Bank (“PNB”), by and through its undersigned counsel, hereby moves
this Court (the “Motion”) for the entry of an order directing the appointment of an examiner in
the above-captioned Chapter 11 case, substantially in the form attached hereto as Exhibit A,
under sections 105(a) and 1104(c) of title 11 of the United States Code, 11 U.S.C. §§ 101-1532
(the “Bankruptcy Code”) and Rule 2007.1 of the Federal Rules of Bankruptcy Procedure (the
“Bankruptcy Rules”):
PRELIMINARY STATEMENT
1. PNB seeks the appointment of an examiner, pursuant to section 1104(d) of the
Bankruptcy Code. The Debtor in this case is 100% owned by Gitanjali Gems, Ltd. (“Gitanjali”)
whose chairman and director is Mehul Choksi (“Choksi”). Both Gitanjali and Choksi have been
implicated in the largest bank fraud (the “Fraud”) in the history of the Republic of India. They
have been indicted by Indian authorities, and Choksi is currently an international fugitive from
justice.2 PNB is the largest victim of that Fraud.
1 The last four digits of the Debtor’s taxpayer identification number are 6316 and its address is 2914 Montopolis Drive, Suite 200, Austin, Texas 78741. 2 India Waiting on Interpol for Red Notice Against Fraud-Accused Mehul Choksi, The Daily Observer, https://antiguaobserver.com/india-waiting-on-interpol-for-red-notice-against-fraud-accused-mehul-choksi/ 01:23572343.4
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2. The Debtor admits through its First Day Declaration that the Fraud was a major
precipitating factor in the Debtor’s decision to file for bankruptcy under Chapter 11. The Debtor
likewise admits that several of its former officers and directors were implicated in the Fraud,
including Choksi (a director until February 2018), Nehal Modi (director and former CEO of the
Debtor until 2015, and also the step-brother of Nirav Modi) and Sunil Varma (CFO and
President until February 2018). Given these connections, it comes as no surprise that India’s
Enforcement Directorate (“ED”) (an agency of the Indian government roughly analogous with
the S.E.C.) has filed a criminal complaint alleging significant and troubling involvement of the
Debtor and its agents in the Fraud. Nor is it surprising that PNB’s initial investigation has
revealed suspicious transactions involving the Debtor.
3. This case has significant similarities and connections to In re Firestar Diamond,
Inc., Case No. 18-bk-10509 (SHL) (Bankr. S.D.N.Y.) proceeding before the Honorable Sean
Lane in New York. The debtors in those cases, Firestar Diamond, Inc., A. Jaffe, Inc., and
Fantasy, Inc. (collectively, the “Firestar Debtors”) are indirectly owned by the other mastermind
of the Fraud, Nirav Modi (“Modi”), one of Choksi’s nephews. Facing a similar situation, Judge
Lane appointed an examiner early in the Firestar cases. Order Signed on 4/13/2018, Directing
the Appointment of the Examiner, In re Firestar Diamond, Inc., Case No. 18-bk-10509 (SHL)
(Bankr. S.D.N.Y. Apr. 13, 2018), ECF No. 103. Like the Debtor in this case, the Firestar
Debtors cited the Fraud as a major factor in their filing for bankruptcy and attempted to proceed
as though they were unconnected to the Fraud. As events unfolded, however, that facade of
innocence collapsed as the Firestar Debtors’ President and former sole director invoked his Fifth
Amendment rights against self-incrimination, a Chapter 11 trustee was appointed, and the
Examiner published its report making it clear the Firestar Debtors participated in the Fraud. The
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similarities between these cases – and the underlying fraud – underscores the compelling need
for the appointment of an examiner in this case.
4. The Court should appoint an examiner in this case to ensure the integrity of these
proceedings and allow a neutral third-party to assess the claims that might exist for and against
the estate of the Debtor.
JURISDICTION AND VENUE
5. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§1334 and
157. This is a core proceeding pursuant to 28 U.S.C. §157(A) as it relates to the administration
of the Debtors’ estates. Venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409.
BACKGROUND
A. Bankruptcy Proceedings
6. On August 7, 2018 (the “Petition Date”), the above-captioned debtor (the
“Debtor”) filed its voluntary petition for protection under Chapter 11 of Title 11 of the United
States Code, thus commencing these proceedings (the “Chapter 11 Case”). In its petition, the
Debtor estimated each of its assets and liabilities to be in the $100,000,000-$500,000,000 range.
ECF No. 1. On August 8, 2018 the Court held a First Day Hearing, ECF No. 18, and on August
16, 2018 a Committee of Unsecured Creditors (“UCC”) was appointed. ECF No. 108. To date,
the Debtor has continued in the possession and operation of its properties and businesses.
B. The Fraud on PNB
7. PNB is the second largest government-owned bank in India. It learned early this
year that it is the victim of the largest bank fraud in India’s history. Choksi and several of the
entities he directly or indirectly controls (collectively, “Choksi Entities”), along with his nephew
Modi and several of the entities Modi directly or indirectly controls (collectively, the “Modi
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Entities”), are the perpetrators of this fraud. See ECF No. 11, at ¶ 18. Choksi was chairman and
director of Gitanjali, which wholly owns the Debtor. Chosksi, who is now an international
fugitive from justice, also served as a director of the Debtor from 2008 until his resignation in
February 2018, shortly after the Fraud was discovered.
8. To implement the Fraud, Choksi, the Choksi Entities and their representatives
conspired to fraudulently obtain Letters of Undertaking (“LOUs”) and Foreign Letters of Credit
(“FLCs”) from PNB. See Declaration of Sean O’Neal dated August 27, 2018 and filed
contemporaneously herewith (the “O’Neal Decl.”), Ex. A (the “CBI Chargesheet”).3 An LOU is
a guarantee by the issuing Indian bank that guarantees repayment of loans made to such bank
customer(s) by a foreign lender, specifically, a foreign branch of an Indian bank. A bank issuing
an LOU (here, PNB) agrees to pay to the foreign lender the full amount of the loan plus accrued
interest if the importer (here, Choksi and the Choksi Entities) fails to pay back the foreign lender.
FLCs function in much the same way. See id. at ¶¶ 1, 4, 8.
9. Beginning in or about March of 2015, the Choksi Entities, including Gitanjali,
began obtaining fraudulent LOUs and FLCs from the Brady House, Mumbai branch of PNB.
See id. at ¶ 1. Several PNB employees, including Gokulnath Shetty (“Shetty”), the deputy
manager at the Brady House branch, and Manoj Hanumant Kharat (“Kharat”), a single window
operator, conspired with the Choksi Entities to issue the LOUs and FLCs without the necessary
underlying documentation or the pledging of collateral necessary to repay the amount of the
LOUs and FLCs, and after the Choksi Entities had already reached credit limits on their
accounts. Id. at ¶¶ 1, 8-9, 23, 27.
3 The chargesheet is akin to a criminal indictment. Both the CBI and the ED – agencies roughly analogous to the U.S.’s Federal Bureau of Investigation and Securities and Exchange Commission, respectively – filed charges against Choksi, Gitanjali and other Choksi Entities in relation to this Fraud. 01:23572343.4 -4-
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10. After being issued by PNB, the funds issued pursuant to the LOUs and FLCs were
transmitted by these same bank employees through the Society for Worldwide Interbank
Financial Telecommunication (“SWIFT”) system to the foreign branches of Indian banks. The
SWIFT messages authorized the release of funds in the amount of the LOUs and FLCs for
payment to the foreign “exporter/beneficiary” listed in the SWIFT messages for the goods listed
therein. See id. at ¶¶ 9, 12, 15-18, 23. According to the LOUs, these funds should have been
dispersed to the “exporter/beneficiary” to finance the import of goods into India; however, funds
were dispersed to other Choksi Entities instead of to third-party exporters/suppliers and were not
used for bona fide import/export purposes. See id. at ¶¶ 1, 12, 16-18, 26, 28.
11. Shetty, Kharat and others concealed the issuances of these LOUs and FLCs by not
entering them, or entering much smaller amounts, into PNB’s Core Banking System (“CBS”)
thus preventing PNB from uncovering the Fraud. Id. at ¶ 9-10, 15, 23, 25. When the Fraud
finally was uncovered in January 2018, PNB referred the investigation to the Central Bureau of
Investigation (“CBI”) (analogous to the Federal Bureau of Investigations in the U.S.) which filed
formal charges against Choksi, Gitanjali and others in relation to the Fraud. Another agency, the
ED, launched its own investigation and filed its own prosecution complaint in June of 2018. See
O’Neal Decl., Ex. B (the “ED Chargesheet”).
C. Debtor’s Connections to Choksi and Gitanjali
12. The Debtor has numerous connections and relationships with Choksi and Choksi
Entities, giving rise to substantial concerns that the Debtor was a participant in the Fraud.
Numerous former officers and directors of the Debtor have been directly implicated in the Fraud.
The Debtor is a direct wholly-owned subsidiary of Gitanjali, one of the Choksi Entities that has
been charged with participating in the Fraud. ECF No. 11, at ¶ 6. Nehal Modi, the step-brother
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of Nirav Modi, was director and former chief executive officer of the Debtor until 2015.
According to the ED’s criminal investigation, Nehal Modi was in charge of Choksi’s broader
U.S. operations and “played an important role in the layering and receiving the proceeds of
crime.” ED Chargesheet at 72, 109. Nehal Modi was also involved in Nirav Modi’s operations
in the U.S. – he approved financial statements prepared for one of the U.S. Modi Entities and
became the investment advisor of a trust created for the benefit of Nirav Modi in May 2018. See
O’Neal Decl., Ex. D (the “Examiner’s Report”) at 139, 154. Sunil Varma (“Varma”) was CFO
and president of the Debtor from January 2017 to February 2018. ECF 11, at ¶ 19. Varma was
allegedly instrumental in devising the modus operandi of the Fraud along with Choksi. ED
Chargesheet at 8. He also served as the CFO and International Business Head for the Gitanjali
group of companies, and had been involved in the creation of several fictitious companies for the
routing and laundering of proceeds from the Fraud. ED Chargesheet at 108. His resignation
from the Debtor coincides with the discovery of the Fraud.
13. The Debtor also had significant financial connections to Choksi Entities. The First
Day Declaration reveals that significant portions of its merchandise were purchased from
Gitanjali and other affiliates implicated in the Fraud. Most notably, the First Day Declaration
admits that the Debtor had historically obtained funding from Gitanjali, a known participant in
the Fraud, giving rise to concerns that the proceeds of the Fraud were used to finance the Debtor.
ECF No. 11, ¶ at 21; CBI Chargesheet; ED Chargesheet. The First Day Declaration even
explains that the Debtor’s major source of inventory and financing dried up after Gitanjali and
several of its affiliates were implicated in the Fraud. ECF No. 11, at ¶ 21. The First Day
Declaration also refers to “certain news reports [that] have included assertions relating to
Samuels Jewelers,” Id. at ¶ 20. While the Debtor does not cite to these news report, PNB is
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aware of various news reports describing “concerns that Samuels Jewelers may have been used
by Choksi and his henchmen for [the] diversion of funds.”4
14. PNB’s preliminary investigation shows those concerns may be well-founded. The
ED Chargesheet lists the Debtor as among several Choksi Entities that have received proceeds of
the Fraud and were used for the “laying, siphoning and parking of funds.” ED Chargesheet at
22-24, 109. More specifically, it points to a $19.61 million diversion of fraudulently-obtained
funds to the Debtor from various Choksi Entities based in the UAE. Id. at 48, 113. The
chargesheet also describes a $13.27 million remittance to Debtor from Hong Kong-based Choski
Entities. ED Chargesheet at 51-52, 112. One of these entities is Taipingyang Trading Ltd.,
Debtor’s second largest unsecured creditor, which appears to have been created for the purpose
of laundering proceeds of the Fraud. Id. at 63; ECF No. 1. It further states “that the USA based
companies, namely Samuels Jewelers Inc. . . . wherein Mr. Nehal Modi was in charge were also
involved in receipt of the proceeds of crime in the guise of royalty agreement[s] etc. with the . . .
sale companies of Mr. Mehul Choksi.” ED Chargesheet at 53. Specifically there appears to
have been a royalty agreement between Debtor and Al Arba Jewels FZE, a Chosksi Entity
established solely for the purpose of laundering fraudulently obtained funds, through which
proceeds of the Fraud were funneled. Id. at 57-58.
15. In addition, PNB has engaged BDO India LLP (“BDO”), an accounting firm, to
conduct a forensic investigation into the fraud. See Declaration of Mansi Mehta dated August
27, 2018 and filed contemporaneously herewith (the “BDO Decl.”). A preliminary investigation
by BDO has shown that in 2015-2016 the Debtor made at least four payments in the total amount
of $1.25 million, either directly or indirectly, to a Choksi Entity, which then used the funds to
4 Mehul Choksi Firm Samuels Jewelers Files for Bankruptcy in US, DNAIndia, https://www.dnaindia.com/business/report-mehul-choksi-firm-samuels-jewelers-files-for-bankruptcy-in-us-2647449 01:23572343.4 -7-
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repay fraudulently obtained LOUs or FCLs. See id. This Choksi Entity has been named in
formal charges brought by CBI. See CBI Chargesheet. At this stage, a complete investigation is
difficult because PNB has only limited information and has no access to the books and records of
the Debtor. PNB anticipates that additional investigation is likely to uncover additional
transactions.
16. Upon information and belief, each of the members of the Debtor’s current board
of directors was employed by the Debtor only after Gitanjali took control of the Debtor and two
of the three directors were employed during the period of the Fraud: Farhad Wadia has been
CEO since December 2015, Rajesh Motwani was Secretary from 2001-2013, and Bhavesh Shah
has been Chief Merchandising Officer since January 2010. ECF No. 11, at ¶ 7. These
employees clearly have long-term connections with Choksi, yet the Debtor has not named any
independent directors to ensure proper corporate governance or oversight. Nor has the Debtor
provided any guidance as to what protections or controls, if any, are in place to ensure that
wrong-doers do not remain at the helm of the Debtor’s operations and attempts to sell assets.
D. Related Proceedings of Firestar Diamond Inc., et al.
17. The Debtor is not the first U.S. entity to file for bankruptcy owing at least in part
to the revelations of the Fraud. On February 26, 2018, the Firestar Debtors filed voluntary
petitions for Chapter 11 protection in the Southern District of New York. Like Samuels
Jewelers, they also cited the Fraud as a major factor in their filing for bankruptcy. See Decl. of
Mihir Bhansali, President of the Debtors, Containing Information Required Pursuant to Local
Bankruptcy Rule 1007-2 and in Supp. of the Debtors’ First Day Mots., In re Firestar Diamond,
Inc., Case No. 18-bk-10509 (SHL) (Bankr. S.D.N.Y. Feb. 28, 2018), ECF No. 2 (the “Firestar
First Day Declaration”) ¶¶ 33-38. And like Samuels Jewelers, the ultimate majority shareholder
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of the Firestar Debtors was one of the instigators of the Fraud (i.e., Modi). Id. ¶ 17. And like
Samuels Jewelers, the Firestar Debtors’ management remained in place and in control of the
debtors notwithstanding serious allegations of fraud.
18. Realizing the need to ensure the integrity of the bankruptcy proceedings, Judge
Sean Lane granted the U.S. Trustee’s motion for the appointment of an examiner. Mot. to
Appoint Examiner, In re Firestar Diamond, Inc., Case No. 18-bk-10509 (SHL) (Bankr. S.D.N.Y.
Mar. 30, 2018), ECF No. 87. See O’Neal Decl., Ex. C. Among other things, the examiner was
charged with investigating “whether any current officer or director of the Debtors actively and
knowingly participated in fraud or dishonesty in the management of the affairs of the Debtors.”
Id.; Order Signed on 4/13/2018, Directing the Appointment of the Examiner, In re Firestar
Diamond, Inc., Case No. 18-bk-10509 (SHL) (Bankr. S.D.N.Y. Apr. 13, 2018), ECF No. 103.
On April 20, 2018, John J. Carney, Esq., of Baker Hostetler was appointed examiner. Order
Signed on 4/20/2018, Approving Appointment of Chapter 11 Examiner, John J. Carney, Esq., In
re Firestar Diamond, Inc., Case No. 18-bk-10509 (SHL) (Bankr. S.D.N.Y. Apr. 20, 2018), ECF
No. 118. After the Firestar Debtors’ president abruptly resigned and, through counsel, invoked
his constitutional right against self-incrimination, Judge Lane appointed a Chapter 11 Trustee.
Order Signed 6/7/2018, Directing the Appointment of a Chapter 11 Trustee, In re Firestar
Diamond, Inc., Case No. 18-bk-10509 (SHL) (Bankr. S.D.N.Y. June 7, 2018), ECF No. 216.
19. Following the appointment of a Trustee, the Examiner continued his investigation
into the Firestar Debtors’ connection with the Fraud. On August 2, 2018 the Examiner submitted
his report. See O’Neal Decl., Ex. D (the “Examiner’s Report”). The Examiner’s Report
confirms what PNB had expected from the earliest days of the Firestar Debtors’ bankruptcy -
that the Firestar Debtors were significantly involved in the Fraud. As outlined in the report, the
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Firestar Debtors were the recipients, both directly and indirectly, of at least $15 million in
proceeds of fraudulently issued LOUs. Id. at 79. Additionally, the Firestar Debtors actively
concealed and laundered over $200 million in fraudulently obtained funds through a series of
sham transactions. Id. at 45-46. Though the Firestar Debtors initially represented to the Court
that they were innocent victims of the Fraud, the Examiner’s Report confirms that, in reality, the
Firestar Debtors were integral to the global mechanics of the Fraud. The similarities between the
Firestar Debtors’ Chapter 11 cases and this case are striking.
RELIEF REQUESTED
20. By this motion, PNB respectfully requests that the Court enter an Order
substantially in the form attached hereto attached as Exhibit A appointing an examiner pursuant
to 11 U.S.C. § 1104(c) to conduct a thorough and independent investigation into (1) whether and
to what extent, if any, Choksi or any Choksi Entity has the ability to direct and/or influence the
conduct, decisions or actions taken by the Debtor in this case, (2) whether the Debtor, or any
current or past officer, director or representative of the Debtor, participated in the Fraud, (3)
potential causes of action the estate may have in connection with such activities, and (4)
otherwise perform the duties of an examiner pursuant to section 1106(a)(3) and (4).
BASIS FOR RELIEF REQUESTED
21. Under the plain language of the Bankruptcy Code, the Court should appoint an
examiner. Section 1104(c) of the Bankruptcy Code mandates the appointment of an examiner
under circumstances such as those present here:
(c) If the court does not order the appointment of a trustee under this section, then at any time before the confirmation of a plan, on request of a party in interest or the United States Trustee, and after notice and a hearing, the court shall order the appointment of an examiner to conduct such an investigation of the debtor as is appropriate, including an
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investigation of any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor of or by current or former management of the debtor, if
(1) such appointment is in the interests of creditors, any equity security holders, and other interests of the estate; or
(2) the debtor’s fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000.
22. The statute’s requirements for the appointment of an examiner are therefore that:
(1) no trustee has been appointed; (2) no plan has been confirmed; (3) a party in interest or the
United States Trustee has requested an examiner; and (4) either (i) appointment of an examiner is
in the interests of the creditors of the estate or (ii) the debtor’s fixed, liquidated, unsecured debts
to non-insiders exceed $5 million. Here, no trustee has been appointed, no plan has been entered,
and PNB is a party in interest. In addition, both prongs are satisfied here: the appointment of an
examiner would be in the interest of the creditors, equity security holders and other interests of
the estate, and the debtor’s fixed, liquidated, unsecured debts likely exceed $5,000,000. The
Court should therefore appoint an examiner.
A. PNB is a Party in Interest
23. Courts in the Third Circuit construe “party in interest” broadly. While 11 U.S.C.
§ 1109(b) provides that a party in interest includes “the debtor, the trustee, a creditors’
committee, an equity security holders' committee, a creditor, an equity security holder, or any
indenture trustee,” this list is not exclusive. In re Global Indus. Techs., Inc., 645 F.3d 201, 210
(3d Cir. 2011) (en banc). Rather, this section “has been construed to create a broad right of
participation in Chapter 11 cases.” In re Combustion Eng'g, Inc., 391 F.3d 190, 214 n. 21 (3d
Cir. 2004). A party in interest is therefore one who “has sufficient stake in the proceeding so as
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to require representation,” In re Amatex Corp., 755 F.2d 1034, 1042 (3d Cir.1985), or “‘who has
a legally protected interest that could be affected by a bankruptcy proceeding.’” Global Indus.
Techs., 645 F.3d at 211 (quoting In re James Wilson Assocs., 965 F.2d 160, 169 (7th Cir. 1992)).
24. PNB, the second largest public bank in India and the largest victim of a more-
than-one billion dollar fraud committed by the direct sole owner of the Debtor that controlled the
Debtor, financed the Debtor and engaged in numerous transactions with the Debtor, is clearly a
party in interest, with a compelling interest in identifying fraudulent conduct and tracing and
recovering the misappropriated public funds. The allegations of Debtor’s involvement in the
Fraud cited in the ED Chargesheet suggest that funds properly belonging to PNB have been
funneled to the Debtor through various fraudulent means. This is further supported by PNB’s
own preliminary investigation as described in the BDO Declaration. Depending on what an
investigation into the Debtor’s management uncovers, PNB may have significant claims against
the Debtor, including constructive trust and fraud claims.
B. The Debt Threshold under 1104(c)(2) is Met Here
25. Section 1104(c)(2) provides no discretion to the court where, as here, the claims
threshold is met. See Morgenstern v. Revco D.S., Inc. (In re Revco D.S., Inc.), 898 F.2d 498,
500-01 (6th Cir. 1990) (appointment of examiner is mandatory under section 1104(c)(2), based
upon the plain meaning of the statute). Here, the “debtor’s fixed, liquidated, unsecured debts,
other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000.”
Although Debtor has not filed its schedules to date, Debtor’s petition indicates that it has total
liabilities between $100,000,000 and $500,000,000. ECF No. 1. In its First Day Declaration,
Debtor states that of this debt, approximately $84,000,000 exist as the aggregate principal
amount outstanding under its Revolving Credit Agreement with Wells Fargo, secured by the
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assets of the estate, $10,000,000 represents a term loan agreement with GB Credit Partners, LLC,
secured on a second priority basis by the assets of the estate, and approximately $28,050,000
represents unsecured debt owed for goods and services to non-related parties.
C. Appointing an Examiner is in the Best Interest of the Creditors
26. While the requirements of section 1104(c)(2) are met here, the appointment of an
examiner is also appropriate under section 1104(c)(1) because a thorough investigation of the
Debtor’s involvement, if any, in the Fraud would benefit all creditors. “Appointment of an
examiner is in the interests of creditors and the estate, as such appointment allows for a thorough,
independent, and expeditious examination to be made into serious allegations.” In re JNL
Funding Corp., No. 10-73724, 2010 WL 3448221, at *3 (Bankr. E.D.N.Y. Aug. 26, 2010). Such
an investigation would benefit all creditors by identifying potential claims the Debtor may have
against Choksi, Gitanjali, affiliates or Debtor insiders based on the Fraud. The examiner’s
investigation would also help lift the shadow of Fraud currently impairing the Debtor’s ability to
operate and sell its assets.
27. An examiner is also appropriate in these circumstances because there are serious
allegations against former officers and directors of the Debtor which prevent the Debtor from
effectively conducting an investigation into the Fraud itself. Choksi served as a director and
board member of the Debtor from 2006 until his resignation in February 2018 when allegations
came to light regarding his key role in the Fraud. ECF No. 11, at ¶ 19. The First Day
Declaration also identifies several other former officers and directors of the Debtor who are
directly implicated in the Fraud, including Nehal Modi, the step-brother of Nirav Modi, and
director and former chief executive officer of the Debtor until 2015, and Sunil Varma was CFO
and president of the Debtor from January 2017 to February 2018. ECF 11, ¶ 19.
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28. Two of the individuals chosen to replace the directors connected to the Fraud on
the Debtor’s board are current senior officers of the Debtor that were employed in those roles
during the Fraud. ECF No. 11, at ¶ 7. Farhad K. Wadia has served as the Debtor’s chief
executive officer since December 2015 and Bhavesh Shah has served as the Debtor’s chief
merchandising officer since January 2010. Id. The Debtor states that none of its current officers
or directors “has been charged with a crime either domestically or in India, or to their
knowledge, is subject to investigation by Indian or U.S. authorities.” ECF No. 11, at ¶ 20.
Importantly, however, the Debtor does not disclose whether any of its current officers or
directors participated in the Fraud or had knowledge of the Fraud. The ED Complaint alleges
that during the time of two of the current directors’ service, Debtor was the recipient of proceeds
of the Fraud in highly suspect transactions. It also suggests that at least one of Debtor’s largest
creditors existed solely for the purpose of laundering the proceeds of the Fraud. ED Complaint
at 63. In addition, based on a preliminary review without the benefit of information from the
Debtor, PNB has already identified further suspicious transactions demonstrating that the Debtor
was participating in transactions involving fraudulent LOUs and FLCs. These transactions bear
the same hallmarks of the Firestar Debtors’ conduct. See BDO Decl. All of these facts make the
case for appointment of an examiner compelling.
29. Having an impartial third-party is crucial to conducting a thorough and credible
investigation into the Debtor’s involvement in the Fraud. This case is a matter of great public
interest given the extent of the Fraud and the fact that PNB, India’s second largest government-
owned bank, is the primary victim. To the extent that the Court or other parties in interest are
concerned about cost, an appropriate budget and timetable can be established, and it may be
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possible to appoint the Examiner that was appointed in the Firestar Debtors’ case who is already
knowledgeable about the Fraud and is well-positioned to provide a cost-effective investigation.
NOTICE
Notice of this Motion will be provided to: (i) the Office of the United States
Trustee for the District of Delaware; (ii) counsel to the Debtor; (iii) counsel to the UCC; and (iii)
all parties entitled to notice pursuant to Bankruptcy Rule 2002. Due to the nature of the relief
requested herein, PNB respectfully submits that no further notice of this Motion is necessary.
CONCLUSION
For the reasons set forth in this Motion, PNB requests that the Court enter an
order, substantially in the form of Exhibit A, appointing and examiner pursuant to section 1104(c)
of the Bankruptcy Code to conduct an independent investigation into (1) whether and to what
extent, if any, Choksi or any Choksi Entity has the ability to direct and/or influence the conduct,
decisions or actions taken by the Debtor in this case, (2) whether the Debtor, or any current or
past officer, director or representative of the Debtor, participated in the Fraud, (3) potential
causes of action the estate may have in connection with such activities, and (4) otherwise
perform the duties of an examiner pursuant to section 1106(a)(3) and (4).
01:23572343.4 -15-
Case 18-11818-KJC Doc 142 Filed 08/27/18 Page 16 of 16
Dated: August 27, 2018 YOUNG CONAWAY STARGATT & TAYLOR, LLP Wilmington, Delaware /s/ Ian J. Bambrick Pauline K. Morgan (No. 3650) John T. Dorsey (No. 2988) Ian J. Bambrick (No. 5455) Rodney Square 1000 North King Street Wilmington, Delaware 19801 Telephone: (302) 571-6600 Facsimile: (302) 571-1253
-and-
CLEARY GOTTLIEB STEEN & HAMILTON LLP James L. Bromley (pro hac vice pending) Sean A. O’Neal (pro hac vice) Rahul Mukhi (pro hac vice) 1285 Avenue of the Americas New York, New York Telephone: (212) 225-2000
Counsel to Punjab National Bank
01:23572343.4 -16-