Be it legendary investor Warren Buffett or the infamous ponzi operator Bernie Madoff, both have become examples in court proceedings of a USD 350-million lawsuit seeking attachment of the crisis-ridden Indian group Sahara’s two prized hotel assets here.
Sahara, on its part, has told court that it has been wrongly dragged into the dispute between two entities over “a potential business relationship gone sour”.
Seeking an immediate rejection of the plea by Hong Kong-based JTS Trading to attach Sahara’s Plaza and Dream Downtown hotels here, the Indian group has submitted before the Supreme Court of the State of New York that the “plaintiff is attempting to attach property that falls outside of the jurisdiction of this Court.”
Sahara, along with two others, has been dragged into this USD 350 million (Rs 2,200 crore) lawsuit filed by JTS Trading Ltd, which claims to have proposed to partner UAE-based Trinity White City Ventures and arrange loans from Swiss banking giant UBS to acquire Sahara’s three overseas hotels – Grosvenor House in London and the two in the US.
In the lawsuit filed against Trinity, Sahara and UBS, JTS has alleged that Trinity cut it off from the deal for direct negotiations with Sahara.
JTS has also accused Sahara and UBS of having “aided and abetted” the UAE firm in breaching its “fiduciary duties” under their agreement.
The court has begun hearing the case, while the transcript of the proceedings released by the Court shows interesting arguments and examples being cited of Madoff and Buffett.
Madoff, a former stock broker, ran a ponzi scheme that is still considered the biggest financial fraud in the US history. He was sentenced in June, 2009 to 150 years in prison.
On the other hand, Buffett is among the most respected investors, figures among the richest persons across the world and is also known for his philanthropic works. His Berkshire Hathaway manages all these investments and operates through a large number of subsidiaries.
Pushing for JTS’ plea, its lawyer has now alleged in the court that Sahara was running the “largest international ponzi scheme since Bernie Madoff” and it was now trying to sell its three overseas hotels “to raise funds to post bail” for its jailed chief Subrata Roy.
In its submissions made before the court through its counsel here, Sahara has, however, said that JTS was seeking “to attach property owned by entities over which this court has no jurisdiction, and property owned by non-parties that are not accused of any wrongdoing, in the context of claims that are tenuous at best”.
Seeking to understand the organisational flow-chart of the Sahara group and its ownership interest in the hotels, the court, however, observed what first needs to be understood is who actually owns the hotels.
“… because you know what Berkshire Hathaway has lots of subsidiaries and I bet you Warren Buffet rarely comes into court as the parent. That’s the whole point.
“You know that, I know that and we all know that. That’s why we have subsidiaries to isolate liabilities and profits, too,” the judge said.
Further into the arguments, the JTS counsel said that the ‘flow chart’ provided by the Sahara group was not “supported” by any evidence.
“All it shows is a corporate shell game. Its not supported by, as I am sure Buffett’s corporations (do).”
The JTS lawyer further said that Buffett would hit all those check points, he would have the directors’ minutes, separate certificates, separate resolutions appointing the appropriate boards.
“He would have separate financial statements. He would have a filing consolidated tax return. He would have a footnote by the auditors indicating that the companies were indeed separate but being consolidated for tax purposes.
“We have nothing (in the present case). We have none of that. We have no resolutions. We have no board minutes. We have no tax returns of separate entities. We have no separate financial statements,” the JTS lawyer said, while adding that the documents filed by Sahara group were “nothing” but a statement that “this is the organisation, the entity, that piece of scintilla of supporting evidence.”
He further questioned the credibility of the affiant, who has submitted this flow-chart through an affidavit.
“The affiant is the majordomo of the progenitor. Its like Bernie Madoff’s kids or secretary,” the lawyer said.
Sahara has rejected the allegations that it was trying to “strip away the assets” of the two hotels.
It further said that Sahara entities will suffer harm if an order for attachment is issued, while adding that JTS was trying to block the group from engaging in any financial transaction in relation to the hotel properties by way of refinancing the existing loans or a sale of the properties.
Reacting to the lawsuit, Sahara Group had earlier said in a statement that “the lawsuit is brought against Trinity White City Ventures Ltd, which was apparently a potential joint venture partner of JTS Trading in a potential bid by Trinity to refinance our two hotels in New York and one in London.”
“Sahara was at one time in discussions with Trinity but had no knowledge of the dealings between Trinity and JTS,” the statement said.
“This is a private dispute between two parties who have had a falling out,” Sandeep Wadhwa, Head of Corporate Finance at Sahara Group, had said in the statement.
“JTS’ attempt to drag Sahara into this dispute is based on false allegations and we are confident that JTS’s claim will not survive the preliminary stages of the proceedings. Sahara intends to defend the lawsuit vigorously,” he added.
Sahara sources said this lawsuit will have no bearing on its fund-raising exercise.
It last month announced that it has reached a deal with another party, Reuben Brothers, for transfer of its existing debt from Bank of China on the three hotels – thus averting a ‘default-triggered’ sale of the iconic Grosvenor House hotel in London.
The Grosvenor House hotel was put on sale by its lender Bank of China earlier this year after a ‘technical default’.
Sahara Group has been trying to raise funds to secure release of its Chairman Subrata Roy, who has been lodged in Tihar Jail for over a year, through monetisation of its various assets, including the three overseas hotels that it had purchased between 2010 and 2012 for USD 1.55 billion.
The group has been engaged in a legal battle with markets regulator Sebi for a long time over a case involving raising of funds from investors to the tune of over Rs 24,000 crore.
Sahara, however, claims that it has already repaid 95 per cent of the investors money directly.