Kumar loses court battle against former employee

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Global Finance founder Ajay Kumar has failed in an attempt to sue a former employee for $211,000 in a dispute over an Auckland property.

Monday, May 6th 2019, 8:38PM 2 Comments

Kumar's trustee company  has lost out in a court battle with ex-employee Venugopal Chawdrapu relating to a property in Arabi St, Sandringham, according to high court documents.

The case dates back to 2004 when Chawdrapu asked Kumar to buy the property for him and rent it back out to him as a favour. Chawdrapu claimed Kumar offered to buy the property as a reward for his loyalty. Kumar argued he was helping Chawdrapu complete the purchase, after he had signed an unconditional agreement that he could not complete.

Chawdrapu claimed he and Kumar agreed a deal on the property, which involved Kumar taking a 100% mortgage, and Chawdrapu making the loan repayments and other costs. The deal, according to Chawdrapu, would involve Kumar officially handing over the property at a later date.

The property was purchased for $187,500. The parties agreed a tenancy agreement for $250 a week, but Chawdrapu paid $700 a fortnight to cover the loan costs.

In 2010, the parties agreed to transfer the property, marking the beginning of the dispute. The property value had risen to $320,000, and the size of the mortgage had reduced to just over $75,000 in that time.

The court dispute centres around a letter written by Kumar, where the broker stated he had given Chawdrapu and his wife $245,000 to buy the property. Kumar claimed the letter was only written to support Chawdrapu's mortgage application. Kumar then found out his family trust did not allow gifts to parties other than the trust's beneficiaries.

In the court ruling, the judge rejected Kumar's argument, saying the adviser would not have agreed to provide false information to the banks. "I do not accept that Kumar would be prepared to risk his entire business by signing a letter containing false information that would be provided to the very banks his business relied on.

"Kumar sought to explain the letter as being prepared by Chawdrapu solely as a means of assisting the defendants to obtain bank finance and otherwise being of no significance.

"Irrespective of whether or not he assisted or was involved in drafting the letter, by signing a letter stating that Kumar Trustee Ltd had made an interest-free loan of $245,000 to the defendants to enable them to purchase Arabi St,  knowing that the letter could be submitted to banks to support applications for loan finance, would amount to a fraud on the banks if the contents were known to be incorrect and misleading.

"The serious nature of making such a misleading statement would not be diminished were the letter only to be used as a last resort in an extreme situation.

"I find that Kumar signed the letter because by January 2010 he recognised that the defendants were entitled to the whole of the equity and beneficial interest in the property because they had paid for it and that a gifting mechanism was a suitable method for effecting a transfer of the equity to them, and a letter confirming that would assist the defendants to obtain bank finance."

Chawdrapu eventually bought the home and resigned from Kumar's business in 2012. Three years later, Kumar's trust demanded $211,000 plus interest. Chawdrapu's lawyers denied liability and said the loan was "not in fact a loan at all". The judge sided with Chawdrapu. 

The judge said: "It is inconceivable that the defendants would pay an amount to service the loan in excess of the market rent for the apartment for any other reason than they believed that by making the payments at that level and reducing the bank loan they were increasing their interest in the property.

"I find that the defendants' expectation of a beneficial interest in the property was a reasonable one.

"While the evidence does not clearly establish whether Kumar expressly told the defendants that he would arrange to buy the property for them, it is nevertheless apparent that Chawdrapu and his wife proceeded on the basis and in the belief that they were the beneficial owners of the property."

Tags: Global Financial Services

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