Peter Kerkar's Defence Strategy To Blame Creditors Fails Miserably In UK High Court

Personal Bankruptcy Petition Authorised and all allegations against SSG Capital Dismissed

The UK High Court has dismissed Peter Kerkar’s pleas against SSG Capital and one of its founder, Shyam Maheshwari, and ruled that his personally bankruptcy proceedings can continue in UK, while holding there is no or insufficient evidence to support the allegations made by Kerkar to satisfy the court that there is a real prospect of success. 

In the case of personal bankruptcy filed by SSG Capital, which was being defended by Mr. Peter Kerkar citing fraud by the creditors, the UK High court gave its ruling recently.  The process which spanned over 18 months involving multiple filing and full day court hearing, the court ruled that the bankruptcy process against Mr. Peter Kerkar can continue. We have perused the Judgment by Judge Burton and it goes into details and deals with all evidence tendered and allegations raised by Peter Kerkar before dismissing the same and finding him at fault.

The court ruled that Mr. Kerkar submissions of allegation of fraud against the creditors and its employees is all surmise, based on his unsubstantiated belief that Mr. Maheswari, as the controller behind all SSG entities, is somehow responsible for PHUK’s inability to repay monies it borrowed from SSG, which Peter Kerkar guaranteed.  The court also said that no  further investigation is warranted as there is no reasonable chance of any success.

This judgment further showcases that the novel defence strategy which is being taken up by promoters who have been charged with banking frauds these days, to blame the creditors, their own employees and other stakeholders, is not entirely successful. It may get one some breathing space, but eventually one sees through the smog, even if its as bad as the Delhi air quality, that usually promoters are not mere spectators when their companies are siphoning away funds. In the short term, maybe such a strategy does reap dividends. Unlike the CFO and internal auditor’s assets, the ED has not attached any assets of Mr. Kerkar, Urshila Kerkar or Cox & Kings (CKL) till date, which is quiet routine in other banking fraud cases by promoter companies. Similarly, whilst, the CFO and internal auditor were the first to get arrested in the matter, Urshila Kerkar was not arrested despite being the promoter of Ezeego and director of CKL and hence some may argue that the Kerkar’s strategy has indeed succeeded.

But it remains to be seen if such strategy is successful in the long run. Indeed, the UK Judgment records in a finding that I find it inherently implausible that a man of Mr. Kerkar’s extensive business interests would have been prepared to rely on a statement without accepting his allegations that the guarantees were merely procedural and not to be invoked. But the genesis of the allegations and their consistent usage by Mr. Kerkar across India, UK, Mauritius is what makes it intriguing in the first place.

The defence and allegations of Mr. Kerkar in UK were almost identical to those being taken by him in Indian proceedings. Mr. Kerkar has filed complaints against all banks, employees of the bank, funds including SSG Capital and its Partners and all others, whose loans he had defaulted on blaming them for the downfall of the CKL group. Incidentally, all such banks, and SSG Capital had filed prior complaints against Mr. Kerkar, Ms. Urshila Kerkar, CKL and other relevant employees before the EOW, Mumbai. We understand ten such FIR’s have been registered therein, in addition to the proceedings initiated by the Enforcement Directorate against Mr. Kerkar. Mr. Kerkar has been arrested by both the agencies and is currently in prison after his bail applications were rejected by Bombay High court. 

Perhaps, not so surprisingly, just like the UK court, the Indian courts had also seen through the defence of blaming each other and the creditors, employees and while rejecting the bail application in the money laundering case, the Prevention of Money Laundering Act, Court in Mumbai held that, “When illegal things were uncontrolled and gone beyond capacity of Mr. Ajit Ajay Peter Kerkar as he was taking the account in quarter end of each financial section, he woke up and lodged the report with intend not only to save himself but also to save from the actions to be initiated by the other promoters/directors/shareholders of CKL group of companies. Hence, all this is in result in registration of FIR and lead to registration of ECIR, which was dug out by ED in the investigation to show the offence of money laundering”. The Court actually went a step further and noted that Peter Kerkar is a main perpetrator of cheating and fraud and misused his position as CEO, may be in collusion with Mr. Anil Khandelwal and Mr. Naresh Jain in siphoning of funds from CKL.[1] 

The grim nature of the assets left for resolution in the instant case, make this one of the worst cases of banking fraud in Indian history, but the fact that Kerkar was allowed to still push through his version of facts, by doing a voluntary forensic analysis, which has been proved to be completely contradictory to the findings of the EOW and ED showcases the level of planning that was entered into and how prior in time, he must have been aware that the bubble is going to burst.

Knowing that one of the few creditors, which could go after him at international level where allegedly his funds were parked, Kerkar had levelled all kinds of allegations against SSG and one of its ex partners in India which he replicated in the UK proceedings. He tried to bring in a notion that SSG Capital engineered the default in UK to take over the Meininger Hotel business – forgetting to mention that he was on the board and the sale process was run by Lazards and the process had to be stopped due to COVID outbreak in early 2020.  Since then, SSG Capital and its co-investors has provided much needed capital for a COVID hit business to survive and protect payrolls – very different than what has transpired at CKL where thousands of employees have lost their jobs, with no recourse.

Further, Kerkar tried and failed to prove that sale of Meininger company in UK was triggered by SSG Capital and that the loan agreements were fraudulent and that Investment Opportunities acted with bad faith, Judge Burton said. The judge noted “In my judgment, this part of Mr Kerkar’s claim has no real prospect of success.  It is clear from the company filings and a letter of resignation that Mr Maheshwari was a director of HBL from 29 January 2019 until 27 August 2019. He had therefore resigned from the board before the discussions regarding the Meininger sales process took place. Despite Mr Kerkar himself being on the board of HBL at the relevant time, he tenders no evidence regarding the manner or basis upon which Mr Maheshwari exercised his alleged control over the board: no minutes or correspondence, nor any evidence of steps taken by Mr Kerkar as HBL’s CEO to show that he objected to the decisions being taken by the rest of its board.” 

Similarly his allegation that one of SSG Capital co founder Mr. Maheshwari controlled Redkite which benefitted from monies from Cox and Kings indirectly via Ezeego was shot down by the judge which held that Mr. Maheshwari was not a director or shareholder in Redkite. There is simply no evidence before the Court, beyond Mr. Kerkar’s apparent belief, that Mr. Maheshwari was able to exercise control over Redkite. The judgement noted that “Mr. Kerkar  has failed to provide any evidence beyond his own complaint to the police to show:  i) how Ares SSG Group was involved in Redkite ; ii) how Mr Maheshwari allegedly controlled Redkite; and iii) that monies siphoned away from CKL (of which Mr Kerkar was CEO), to Ezeego (a company controlled and owned by Mr Kerkar and his sister) which were then allegedly transferred to Redkite were ultimately used to fund the acquisition of TFCI.” 

Kerkar has now failed in proceedings in Mauritius and now in UK in addition to the ongoing Indian proceedings, which clearly showcases that the judiciary in all the countries, is not being convinced by the defence strategy of throwing the kitchen sink at the creditors and their officers in cases of fraud and default by promoter companies.

It remains to be seen how much the ED and EoW are able to recover from the accused persons in the fraud, although the PWC report filed in the chargesheet of EOW clearly showcases ample offshore transactions and subsidiaries of Peter Kerkar and Cox n Kings group. With the personal bankruptcy proceedings commencing against Mr. Kerkar, it remains to be seen if such assets are recovered and there is a possibility of restoration of some of the amounts to the multiple banks in the instant case.

[1] Sessions court order dated 29 April 2021

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