Sucheta Dalal :Even more novel ways to delay justice (7 April 2002)
Sucheta Dalal

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Even more novel ways to delay justice (7 April 2002)  

T.B. Ruia’s firms have sued group firms to avoid paying the Custodian!

It has 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 anymore.

If 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. Ruia’s assets.

But an amazing new twist to events tells us why litigation in Indian courts never reaches any finality.

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.

Furthermore, Ruia’s 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.

Secondly, Vysya 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?

Ironically, the 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?

When companies 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 taxpayers’ expense.

-- Sucheta Dalal