Following the death by suicide of veteran art director Nitin Chandrakant Desai, one more borrower from the entertainment industry has levelled serious allegations against Edelweiss Asset Reconstruction Company (EARC) and top executives of the Edelweiss group. However, EARC says it is not the first time the 'defaulter borrower' has used LinkedIn to make false and malicious allegations against the company.
He says, "We fully understand that we had availed of a loan and defaulted, and we had mortgaged the property, but when we have offered to pay the loan on multiple occasions, they have refused to accept the payment and kept things pending to build up fake charges and extra interest and penalties. The intent of Edelweiss was not to collect the loan payment but to instead try and take our properties and possessions."
"We got an offer of Rs250 crore for a one-time debt settlement. This was in February 2023. However, the officers of the ARC deliberately chose not to progress further despite only having offers of less than Rs150 crore for the same. It is abundantly clear that ARC was playing games and had no interest in settlement," he added.
In 2017, SEPL and its parent AHA Holdings Pvt Ltd (AHA Borrowings) obtained non-convertible debenture (NCD) borrowings worth Rs250 crore.
Mr Morakhia, in his post, says, “I had obtained in September 2017, a loan of Rs270 crore for the globally famous active entertainment Brand Smaaash Entertainment from Edelweiss. The loan was availed with the such that we would be able to pay the loan from the proceeds of an initial public offering (IPO). My IPO was slated in August 2018 for listing on the prestigious NASDAQ. Unfortunately the collapse of Infrastructure Leasing & Financial Services Ltd (IL&FS) and free fall of Indian rupee led to us withdrawing the IPO and my ability to service the loan was severely impaired."
In May 2019, the loan account became a non-performing asset (NPA) and the next month it was handed over to EARC.
In a statement, EARC says it explored different options for restructuring and settlements through discussions and meetings. "However, these offers fell short when compared to the value of assets and the business and they did not meet the Reserve Bank of India (RBI)'s guidelines regarding settlements."
"Since June 2019, neither SEPL nor AHA has made any payments toward the outstanding amounts. In line with the regulatory framework established by the RBI which prescribes that, pursuing recoveries on NPA accounts is not just a right of creditor but also an obligation, EARC initiated measures like debt recovery tribunal (DRT), securitisation and reconstruction of financial assets and enforcement of security interest (SARFAESI), and insolvency and bankruptcy code (IBC) actions. Mr Morakhia has used his legal rights by pursuing various litigations in the DRT, debt recovery appellate tribunal (DRAT), high court (HC), and the Supreme Court (SC). Through legal processes available to it, EARC obtained possession of certain flats and bungalows that were mortgaged as collateral against the borrowing in 2022. Mr Morakhia has challenged SARFAESI in court and the DRT and some cases have already been dismissed."
According to Mr Morakhia, due to COVID-19, his business was closed for 21 months. "When COVID was lifted I was urged to start the business by RK Bansal, the CEO of EARC that he was willing to support the start and restructure of loans so that the business could restart in a sustainable manner as it had been affected by COVID. Since January 21, I have been giving them one proposal after another aggregating to over 180 pages of proposals for which there was silence from EARC."
EARC, however, says, .."over the past four years, the companies (SEPL/AHA) have not made any payments and have instead engaged in filing baseless litigation, participating in fraudulent transactions, and failing to honour commitments made during restructuring discussions. The commitments made even within judicial forums like the HC and NCLAT have been disregarded. EARC has had to spend a great deal of time and resources to not only legitimately recover its dues but to respond to various litigations by Mr Morakhia that are meant to derail, delay and stall the process of recovery instituted under law."
In his post, Mr Morakhia alleges that " Edelweiss ARC officials have intimidated me and family members with threats of multiple litigations filed before NCLT, DRT (Pune) and DRAT and attempting to 'grab' my bungalow at Lonavala. There were two-three investors ready to invest in company business which has an EBITDA of Rs3 to Rs4 crore on monthly basis, but the Edelweiss and its honchos demanded 'double-triple the dues' and pressurised me and family in different ways. They have looted my company business for their selfish motives and they did not accept my proposals and they tried to trap me."
"The last proposal before we were admitted to NCLT was on 27th February and I met Mr Bansal on 27th April where I said in writing that their proposal is fine but something should be done about interest during COVID period and we both parted on a happy note. Whilst these discussions were ongoing, without giving us an opportunity to be heard, we were admitted to NCLT ex-party," he says.
Further, the borrower alleges that EARC "went on to appoint its own former employee Bhrugesh Amin as the RP of the company."
EARC says SEPL was admitted to NCLT under IBC in May 2022, after almost two years of working through all options of revival and recovery and an RP was also appointed to manage this. "The RP discovered harmful fraudulent transactions that were detrimental to the resolution process. These were reported to NCLT and are now being addressed through legal means. Furthermore, Mr Morakhia also transferred the 'Smaaash' brand to Fun Gateway Arena Pvt Ltd, a company (owned or led) by Abhishek Asit Javeri (son-in-law of Mr Morakhia), for a paltry amount of Rs1.5 crore. This happened without EARC's consent, while SEPL was about to be admitted into NCLT."
Mr Morakhia, in his post, however, alleged that "...they (EARC) never wanted recovery of dues from us, rather, to take our properties and give them at low cost to individuals that they favour. It was illegal and forceful the sadistic pleasure in the way they took possession and that needs to be noted and probably it is this humiliation or fear of such humiliation that drove Mr Desai ji this extreme step."
Talking about Mr Desai, he says, "We both had one dream in common, to create a world-class destination of excellence to which Indians and foreigners rediscover Indian roots and heritage. The last I heard from him was in 2017, when my Marathi film Jogwa, which won eight national awards in 2017. Little did I know at that point of time that in years to come we would be tormented by the same lender Edelweiss and Edelweiss ARC."
Commenting on linking of the demise of Mr Desai by Mr Morakhia, Edelweiss, in its statement, says, "This is a clear case of an opportunistic defaulter exploiting the sad demise of Late Mr Desai for his own purposes, and if entertained may open the floodgates for other such cases and pose a larger threat to the lending industry. It is important to note that certain matters remain sub-judice and hence it is inappropriate to comment on them at this stage."
"Borrowers must always be accorded dignity and retain the right to challenge recovery proceedings, however any effort to restrict lenders' ability to initiate such actions within the boundaries of the law goes against fundamental lending principles and could impede the availability of credit," EARC says.
On 2 August 2023, Mr Desai's body was found hanging at one of the sets at his studio in Raigad. Neha Desai, the wife of Mr Desai, then filed a first information report (FIR) against ECL and Edelweiss group and five of its officials, including group chief Mr Shah, Edelweiss ARC's MD&CEO and Jitendra Kothari, the interim RP.
Edelweiss ARC sent Moneylife a detailed response to Mr Morakhia's allegations, which we are publishing in full below...
Thank you for reaching out to us. This is not the first time that that Shri Shripal Morakhia (the suspended Director of the gaming-center chain Smaaash Entertainment Private Limited (SEPL)) has used LinkedIn to make false and malicious allegations against the EARC. What is disheartening is that he has chosen to exploit the tragic demise of Late Shri Nitin Desai to serve his narrow self-interests. Here are the facts of the matter.
NCD borrowings by SEPL and its parent AHA Holdings Private Limited (AHA Borrowings) aggregating Rs 250 crores were made in 2017. However, in May 2019, the accounts became non-performing (NPA). This was of course way before COVID.
In June 2019, Edelweiss ARC (EARC) acquired these accounts. Both SEPL and AHA have acknowledged their debts of Rs 250 crores (plus interest and charges) at different times. EARC explored different options for restructuring and settlements through discussions and meetings. However, these offers fell short when compared to the value of assets and the business and they did not meet the RBI's guidelines regarding settlements.
Since June 2019, neither SEPL nor AHA has made ANY payments toward the outstanding amounts. In line with the regulatory framework established by the RBI which prescribes that, pursuing recoveries on NPA accounts is not just a right of creditor but also an obligation, EARC initiated measures like DRT, SARFAESI, and IBC actions. Shri Shripal Morakhia has used his legal rights by pursuing various litigations in Debt Recovery Tribunal (DRT), Debt Recovery Appellate Tribunal (DRAT), High Court, and Supreme Court. Through legal processes available to it, EARC obtained possession of certain flats and bungalows that were mortgaged as collateral against the borrowing in 2022. Shri Morakhia has challenged SARFAESI in court and the DRT and some cases have already been dismissed.
SEPL was admitted to NCLT under IBC in May 2022, after almost two years of working through all options of revival and recovery. A Resolution Professional (RP) was also appointed to manage this. The RP discovered harmful fraudulent transactions that were detrimental to the resolution process. These were reported to NCLT and are now being addressed through legal means. Furthermore, Shri Morakhia also transferred the 'Smaaash' brand to Fun Gateway Arena Private Limited, a company (owned or led) by Shri Abhishek Asit Javeri (son-in-law of Shri Shripal Morakhia), for a paltry amount of Rs. 1.5 crore. This happened without EARC's consent, while SEPL was about to be admitted into NCLT.
It is important to highlight that over the past four years, the companies have not made any payments and have instead engaged in filing baseless litigation, participating in fraudulent transactions, and failing to honour commitments made during restructuring discussions. The commitments made even within judicial forums like the High Court and NCLAT have been disregarded. EARC has had to spend a great deal of time and resources to not only legitimately recover its dues but to respond to various litigations by Shri Morakhia that are meant to derail, delay and stall the process of recovery instituted under law.
This is a clear case of an opportunistic defaulter exploiting the sad demise of Late Shri Nitin Desai for his own purposes, and if entertained may open the floodgates for other such cases and pose a larger threat to the lending industry. It is important to note that certain matters remain sub-judice and hence it is inappropriate to comment on them at this stage.
Borrowers must always be accorded dignity and retain the right to challenge recovery proceedings, however any effort to restrict lenders' ability to initiate such actions within the boundaries of the law goes against fundamental lending principles and could impede the availability of credit. We have been and continue to remain committed to upholding ethical standards and pursuing fair resolutions, while addressing any issues during the course through lawful means, ensuring transparency in all actions.
Thank you for your understanding and support.
Team EARC
