Even more novel ways to delay justice (7 April 2002)
T.B. Ruia’s firms have sued group firms to avoid paying the Custodian!
been a week of about-turns and surprises in the handling of two high profile
investigations. Is Mohammed Afroz a terrorist of a scapegoat of bumbling police
investigation? Is diamond merchant Bharat Shah victim of the underworld or was
he in prison for 15 months because of political vendetta? Nobody is quite sure
on-going, headline making investigations leave us so confused, what can one
expect from the labyrinthine mess of complicated financial litigation involving
the securities scam of 1992? But let us catch up with a one startling example.
On November 25 last
year this column wrote about Global Trust Bank (GTB) acquiring Rs 74 crore worth
of property belonging to Killick Financial Services in Mumbai by enforcing a
guarantee provided by three companies belonging to the T.B. Ruia group.
T.B. Ruia and his
companies were notified by the Special Court in connection with the 1992 scam.
Later Ruia had filed consent terms before the Special Court under which he owes
over Rs 50 crores to the custodian as of January 15, 2002. This money remained
unpaid as the issue was tied up in endless litigation and appeals that were
disposed off by the highest court of the land only in 2001. Following this, the
newly re-activated Custodian moved court to block GTB’s acquisition of T.B.
But an amazing new
twist to events tells us why litigation in Indian courts never reaches any
Two T.B. Ruia
companies—Dhanraj Mills Ltd and Killick Financial Services—have moved court
(Application 42 of 2002) against GTB, the Custodian and 13 other companies,
which are all, either subsidiaries or parent companies of the Ruia group itself.
claims seem completely contrary to earlier known facts about the dispute.
Instead of GTB acquiring Rs 74 crore worth of property against enforcement of
guarantees by T.B. Ruia’s companies, it is the Ruia group, which is trying to
extract Rs 74 crores from GTB. Yet, the land that is central to the dispute
belongs to neither —it is owned by Vysya Bank.
Let us back up a
little to Ruia’s consent terms of 1995. Under those terms the 13 companies
mentioned above were to make some payments to Dhanraj Mills (T.B. Ruia’s
flagship company), a notified company. Dhanraj Mills and Killick Financial
Services are now claiming that the 13 group companies have defaulted in their
payment of decretal dues under the consent terms.
Since they have
appealed to the court for reduction in interest and other reliefs, the amount
payable by them is also under dispute.
But here is how GTB
and the Custodian get dragged into the dispute. Killick Financial Services had
entered into an agreement with Vysya Bank in November 2000 to take on a 99-year
lease of 23,246 sq meters of property at Rs 50,000 per annum from the bank (the
details of the lease were finalised only in September 2001).
Since the land is
part of Killick Industrial Estate, one presumes that it had been acquired by
Vysya Bank against payments due to it. Even while it was negotiating with Vysya
Bank, Killick Financial started another negotiation with GTB to sub-lease the
same land to it at the same rental plus an interest free deposit of Rs 74 crores
for a 98-year lease.
In anticipation of
receiving Rs 74 crore from GTB, Killick Financial claims to have transferred Rs
49.37 crore parent Killick Nixon (the guarantor) and from there to Dhanraj Mills
which is the notified company. The sum, it says is thus attached but no money
seems to have been paid out as yet.
It would now seem
that Killick Financial’s application is an attempt to force GTB to cough up over
Rs 74 crore in accordance with the sub-lease agreement. Since all this seems
extraordinarily convoluted, let us examine a few key questions that it raises.
The problem starts
with the manner in which the Custodian appointed under the Special Courts Act
went about notifying the scam-accused in 1992. Although T.B. Ruia and his main
companies were notified, a slew of finance and investment companies seem to have
been left alone.
Bank and GTB’s lack of due diligence and care, suggests collusion with T.B.
Ruia. For instance, why would Vysya bank lease the land back to Killick
Financial Services, apparently without demanding a large deposit similar to that
which GTB seemed willing to pay for the sub-lease?
same Vysya Bank demands 100 per cent security even against tiny loans. Thirdly,
why was GTB giving away Rs 74 crores to T.B. Ruia? After all, it is not in the
real estate business and surely does not need 26,000 sq. meters of land at
Chandivili, a distant suburb of Mumbai? Further, why did it not negotiate better
terms with Vysya Bank, which is the land owner. Was the 98-year sub-lease merely
a ruse to transfer money? Were there other considerations? Also, why did Vysya
bank’s lease conditions allow Ruia to ‘assign or transfer their leasehold
interest’? Were Vysya Bank and GTB both involved in a shady deal? The RBI ought
to investigate these transactions, but it shows no signs of doing so.
Fourthly, how did
the ‘Appropriate Authority’ under the Income Tax department say that a No
Objection Certificate was not required for the 98-year deal? Finally, what is
the purpose of the action by the two Ruia companies? Isn’t it only a way to tie
up the whole issue in litigation and to avoid paying the custodian?
cunningly begin to sue their own subsidiaries to buy time and the regulators
sleep, one can expect the scam cases to drag on for several decades at