Only after his employee set up in competition did Ajay Kumar demand repayment of a claimed $211,000 loan. There was no loan; details of a loan had been an artifice for the employee to get extra funds when refinancing an informal funding arrangement for an Auckland apartment.
Mr Kumar operated an insurance and mortgage broking business out of his Epsom home: Global Financial Services Ltd. The High Court was told in 2003 he took under his wing, as a mortgage broker, a recent immigrant from India; Venugopal Chawdrapu. Support extended to having his Kumar Family Trust buy a Sandringham apartment rented by Mr Chawdrapu when threatened with possible eviction following a planned sale by his landlord. Circumstances of this purchase were later subject of disputed High Court evidence. Mr Kumar said his Trust was the registered owner and Mr Chawdrapu owed $211,000 for his subsequent purchase from the Trust.
Justice Davison ruled Mr Chawdrapu was beneficial owner of the Sandringham apartment from the outset, whilst nominally in occupation as tenant. A constructive trust operated. The ‘rent’ paid was above market rates; it covered mortgage payments on a bank loan raised by the Kumar Trust to buy the property. In addition, Mr Chawdrapu paid rates and body corporate fees levied on the apartment. Lump sum payments were made in reduction of the mortgage. This arrangement was consistent with Mr Chawdrapu being the ‘owner’ whilst legal title was held by the Kumar Trust.
When Mr Kumar later agreed to transfer title from Kumar Trust to Mr Chawdrapu, the transaction was recorded in an agreement for sale and purchase as if it were an arms-length transaction at then market price. The Trust was paid sufficient to clear the balance of the bank mortgage. Evidence was given that the deal was ‘dressed up’ to show a further $211,000 owing to the Kumar Trust for the purchase as a means for Mr Chawdrapu to increase his level of bank borrowings, allowing him further funds for investment. The High Court was to rule there was no $211,000 debt. It represented Mr Chawdrapu’s ‘equity’ in the Sandringham apartment and was a subterfuge to get further bank funding.
No formal acknowledgement of a $211,000 debt was ever prepared or signed. Mr Kumar’s trust did not demand payment until five years after title was transferred to Mr Chawdrapu and two years after he left Global Financial Services. The court was told Mr Kumar said to a Global Financial employee that he would ‘destroy’ Mr Chawdrapu after Mr Chawdrapu went to work for a rival business.
Kumar Trustee Co Ltd v. Chawdrapu – High Court (1.04.19)
19.070