UIVC files FIR against Everest group for diversion of funds

From ET Realty

MUMBAI: Private equity fund Urban Infrastructure Venture Capital, which counts Reliance Industries as its core investor, has filed an FIR against the promoters of realty developer Everest Group, now known as Terraform Realty, for alleged breach of trust, cheating and misappropriation of money invested by the fund.

The fund raised by Jai Corp has filed a complaint against promoters Kishor Shah and his two sons, Vimal and Nainesh, in south Mumbai’s Cuffe Parade police station. While Reliance Industries is the core investor of the fund, other investors include State Bank of India, Bank of Baroda, IDBI Bank, Syndicate Bank, Life Insurance Corp of India and General Insurance Corporation of India.

The information has come to the fore in the wake of incidents relating to realty developers, Unitech and Mantri Realty, that shook up the sector last week.

According to the FIR, reviewed by media, promoter Shah and his two sons had raised funds from Urban Infrastructure Venture Capital for joint development of its realty projects in Mumbai. Between October 2007 and December 2008, the fund had invested Rs 110 crore in Everest Group’s subsidiary Joyce Realtors that was undertaking nine realty projects in Mumbai’s localities such as Tardeo, Parel, Andheri, Vile Parle, Ghatkopar, Govandi and Kandivali. These projects had got stuck for want of financing which led to promoters of Everest Group approaching the fund. A subscription pact was entered into in October 2007 for an investment commitment of Rs 168 crore. The promoters promised 30% internal rate of return on the fund’s investment.

According to a mail response from Shah’s office, the case was also filed with the Economic Offences Wing (EOW). However, EOW disposed of the case, classifying it as a civil dispute and a noncognizable offence. Subsequently, Bombay HC and the Supreme Court too dismissed the petition.

An email query sent to Urban Infrastructure Venture Capital remained unanswered.

The pact was entered into by Everest Group, its subsidiary Joyce Realtors and Urban Infrastructure Trustee. While promoters of Everest Group retained the right to operate Joyce Realtors, ownership was shared equally with Urban Infrastructure Venture Capital.

According to the investment agreement, promoters of Everest Group had committed timelines for title clearance of the project properties. Other terms of the pact included priority in utilization of funds, not changing the constitution of their group companies, returning funds if joint development agreements get terminated, etc.

However, the FIR states that promoters of Everest Group have cheated and misappropriated funds invested by the fund.

Of the total Rs 110 crore investment made by Urban Infrastructure Venture Capital, Everest Group promoters used Rs 82 crore for personal work and only Rs 28 crore was used for Joyce Realtorsprojects, according to Urban Infrastructure’s FIR filed in Marathi.

It alleges criminal breach of trust and other criminal violations as the promoters diluted their stakes in their family companies after taking the funds and this looks like a well-planned conspiracy to cheat the investor, the FIR added.

As per the complaint, Everest Group promoters requested for Rs 20 crore in April 2008 as security deposit for one of the projects in Ghatkopar. However, they paid this amount to another company without informing the fund’s directors on Joyce Realtors. They also paid Rs 10 crore to a certain Mr Singh, supposedly a tenant of Tardeo project, while the redevelopment pact did not include his name at all.

The FIR also added that the conspiracy took effect through many ways and added an instance of auction of a land parcel by Axis Bank.

Following a loan default, Axis Bank auctioned one of the land parcels, situated at Ghatkopar suburb. The property was acquired by Ozone Land Agro Pvt Ltd.

According to the FIR, the fund found out from the Registrar of Companies’ (ROC) website that the Everest Group’s promoters’ family company was also a shareholder in Ozone land Agro and have invested money and given advances to the promoters of Ozone Land Agro.

The Everest Group promoters cheated investors by filing cases against Axis Bank that drove away potential buyers and the reserve price was reduced to Rs 15 crore from Rs 46 crore, and finally the property was sold for Rs 21 crore to Ozone Land Agro, the FIR said.

Everest Group also paid salaries to other subsidiaries’ employees through Joyce Realtors.

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