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[2016] ZAGPJHC 247
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Siafa Investment Holdings (Pty) Ltd v Motlekar and Another (08/36380, 15/35612) [2016] ZAGPJHC 247 (28 July 2016)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
Case
number:
08
/36380
Case
No.: 15/35612
DATE:
28 JULY 2016
In
the matter between:
SIAFA
Investment Holdings (Pty)
Ltd
...........................................................................
Applicant
And
Motlekar,
Faizel
...................................................................................................
First
Respondent
Motlekar
Capital Partners (Pty)
Ltd
.............................................................
Second
Respondent
Coram:
VALLY J
Heard:
18 MAY 2016
Delivered
28 JULY 2016
Summary:
Lien-Contract-Misrepresentation-Share
Certificates
ORDER
The
applicant is to return the Share Certificate issued to it by the
second respondent. The first and second respondents are to,
jointly
and severally the one paying the other to be absolved, make the
following payments to the applicant; (US$9 286 439);
(5 961 768 United Arab Emirates Dirham) and
(R6 000 000.00). The payments referred to in paragraph 2
are to
be made within ten court days of this order. The first and
second respondents are to jointly and severally pay the costs of this
application the one paying the other to be absolved, which costs are
to include those occasioned by the employment of two counsel
and are
to be taxed on an attorney and client scale.
JUDGMENT
Vally
J
Introduction
[1]
The applicant, SIAFA Investments Holdings
(Pty) Ltd (SIAFA) claims that it was enticed by a fraudulent
misrepresentation to subscribe
for shares in Motlekar Capital (Pty)
Ltd (Motlekar Capital) by a director of Motlekar Capital, one Mr
Faizel Motlekar (Motlekar).
Motlekar claimed to have owned a number
of companies either wholly or in majority. These companies he claimed
constituted the Motlekar
Group. The ownership was retained by a
holding company, called Motlekar Holdings (Pty) Ltd (Motlekar
Holdings), which was described
by Motlekar as “
a
100% black-owned diversified private equity firm founded by the very
well connected entrepreneur, Mr Faizal Motlekar.
”
SIAFA subscribed for shares in Motlekar Capital. The subscription
actually took the form of an agreement (the subscription
agreement).
Its case is that but for the fraudulent misrepresentation it would
not have subscribed for the shares. It seeks repayment
of the amounts
it disbursed in terms of the subscription agreement. Those amounts
are:
[1.1]
Nine million, two hundred and eighty-six thousand and four hundred
and thirty-nine United States dollars (US$9 286 439);
[1.2]
Five million nine hundred and sixty-one thousand seven hundred and
sixty-eight United Arab Emirates Dirham (5 961 768
United
Arab Emirates Dirham); and,
[1.3]
Six million rands (R6 000 000.00).
Undisputed
facts
[2]
The applicant wished to invest in this
country. SIAFA was set up as a special purpose vehicle through which
it would direct its
investments in South Africa. One of the
shareholders of SIAFA was a member of a family resident in Saudi
Arabia. The family is
referred to in the papers as the Vasaiwala
family. Two members of this family visited South Africa in 2012. They
were introduced
to Motlekar by a theologian whom they respected and
trusted. The theologian vouched for the integrity of Motlekar.
[3]
Eventually members of the Vasaiwala family
had a number of meetings with Motlekar. These meetings took place in
South Africa, Dubai
and in Saudi Arabia. During these meetings they
were told by Motlekar that the Motlekar Group had interests in a
large range of
businesses operating in the mining, construction,
development and roof tile manufacturing sectors. Motlekar claimed
that these
companies were collectively worth R400m and they produced
a net profit of R100m each year. He also claimed to own a private
jet.
Impressed by these claims they decided to subscribe for shares
in Motlekar Holdings. The agreement reflecting this is captured in
a
single email sent on 5 September 2013. The contents of the email
serve as a minute of a meeting held on 4 September 2013 in Jeddah,
Saudi Arabia. The contents read:
“
Motlekar
Holdings:
·
The value of the holdings was placed at 400
Million Rands with a N.P of almost 100 Million Rands.
·
Siafa Holdings decided to buy 50% shares
worth R200 Million Rands.
·
Siafa will pay the capital in terms of new
investments and acquisitions.
Siafa
will pay for the investments as follows:
1.
10M Rands immediately.
2.
70M Rands by the end of December 2013,
includes hyrax investment of 6M USD if agreed.
3.
20M Rands by June 2014
4.
20M Rands by June 2015
·
Remaining investment will be decided on the
go as the business expands.
·
Siafa’s profit share will begin from
the 1
st
of September 2013.
·
Motlekar Holdings financial year ends on
28
th
February and dividends are distributed 2 months after.
·
Charity will be paid as 2.5% Zakat and 2.5%
Waqf.”
[4]
That essentially was the agreement SIAFA
concluded with Motlekar Holdings, which was represented by Motlekar.
SIAFA was represented
by members of the Vasaiwala family.
[5]
Thereafter, these parties held several
meetings with each other over the period 15 to 22 September 2013 in
South Africa. During
these meetings Motlekar gave a presentation of,
amongst others, the financial state of Motlekar Holdings. The
presentation he gave
painted a picture of Motlekar Holdings being a
conglomerate with vast tentacles spread over numerous industrial
sectors. Acting
in his capacity as the sole director of Motlekar
Capital, Motlekar expressly warranted that as at 1 January 2014 (the
date of the
subscription agreement) Motlekar Capital held shares in
the following entities:
[5.1]
100% of the issued share capital of Motlekar Communication (Pty) Ltd;
[5.2]
100% of the issued share capital of Mobro Investments (Pty) Ltd;
5.3]
100% of the issued share capital of Motlekar Developments (Pty) Ltd;
[5.4]
100% of the issued share capital of Motlekar Roof & Tile (Pty)
Ltd;
[5.5]
30% of the issued share capital of Cyclocor Motlekar (Pty) Ltd;
[5.6]
35% of the issued share capital of Tarman (Pty) Ltd;
[5.7]
30% of the issued capital of Motprop (Pty) Ltd;
[5.8]
26% of the issued share capital of Citrine Construction Limited;
[5.9]
100% of the issued share capital of Motlekar Coal;
[5.10]
100% of the issued share capital of Motlekar Coal KZN (Pty) Ltd;
[5.11]
100% of the issued share capital of Motlekar Resources (Pty) Ltd;
and,
5.12]
35% of the issued share capital of Kilken Platinum (Pty) Ltd.
[6]
The warranty was material and induced SIAFA
to conclude the subscription agreement.
[7]
Finally, on 1 January 2014 SIAFA,
represented by one member of the Vasaiwala family, Mustafa Vasaiwala
(Mustafa), and Motlekar Capital
represented by Motlekar concluded the
subscription agreement. In terms of this agreement SIAFA subscribed
for 200 ordinary shares
at a subscription price of R110 647 079.00.
Once the price of the shares was paid by SIAFA, Motlekar Capital
would issue
and allot the shares to SIAFA and deliver a share
certificate to this effect. Just prior to the conclusion of the
agreement Motlekar
informed Mustafa that Motlekar Capital owned most
of the businesses that he previously claimed were owned by Motlekar
Holdings.
Mustafa accepted these representations to be true and
correct and relied upon them when committing SIAFA to the terms of
the subscription
agreement.
[8]
The obligations of SIAFA to make payments
for the subscription of the shares of Motlekar Capital were fulfilled
before the actual
subscription agreement was signed. The payment took
the following form:
[8.1]
the sum of US$9 286 439;
[8.2]
the sum of 5 961 768 United Arab Emirates Dirham; and’
[8.3]
the sum of R6 000 000.00
[9]
The payments were made between the period
12 September 2013 and 6 October 2014. The total payment is in excess
of R120m. The payments
were made to various third parties on the
instructions of Motlekar who acted on behalf of Motlekar Capital.
[10]
Before the payments were made SIAFA was not
provided with copies of any financial statements of Motlekar Capital.
After the payments
were made representatives and directors of SIAFA
made contact with Motlekar and requested that he furnish them with
financial reports
of the Motlekar Capital as well as with a share
certificate reflecting their holdings in SIAFA. They sought copies of
financial
statements, management accounts, loan agreements and a
reconciliation of the payments made by SIAFA. None of the information
sought
was provided. Sometime in July or August 2014 Motlekar met
with, amongst others, members of the Vasaiwala family in Saudi Arabia
to discuss issues relating to SIAFA’s investment in Motlekar
Capital. At this meeting Motlekar informed them that he had
invested
an amount of R70m of SIAFA’s money with a South African
businessman named Mr Zunaid Moti (Moti). Following this
meeting
representatives of SIAFA were able to verify that R70m of the monies
paid by SIAFA was directed to Moti by Motlekar. SIAFA
was not able to
establish the veracity of the claim that this was an investment made
by Motlekar Capital in the form of a loan
to Moti.
[11]
In September 2014 Motlekar produced two
share certificates, one reflecting SIAFA’s shareholding of 200
shares and the other
reflecting Motlekar Holdings’ shareholding
of 400 shares. The share certificates are signed by Motlekar in the
capacity of
“Director/Authorised Signatory”. Also in
September SIAFA learnt that the issuing of the SIAFA share
certificate followed
upon the passing of a number of resolutions by
Motlekar Capital over a period of three consecutive days – 7, 8
and 9 September
2014. One of the resolutions passed concerns a
declaration of a dividend of R200m in favour of Motlekar Holdings.
This particular
resolution was taken by Motlekar Holdings in its
capacity “
as sole shareholder
”
of Motlekar Capital. All the resolutions were signed by one person
only, Motlekar. In other words, he alone signed the resolutions
for
Motlekar Capital as well as for Motlekar Holdings. The resolutions
for Motlekar Capital recorded the amount paid by SIAFA for
the
shareholding in Motlekar Captial (the amount recorded is
R110 647 049.00), authorised the issuing of a share
certificate
in the name of SIAFA and declared a dividend of R200m in
favour of Motlekar Holdings, while the resolution taken by Motlekar
Holdings
consented to the declaration of a dividend by Motlekar
Capital in favour of itself.
[12]
One of the resolutions passed by Motlekar
Capital reads:
“
Solvency
and Liquidity
For
purposes of the Companies Act, the company satisfies the solvency and
liquidity test at a particular time if, considering all
reasonably
foreseeable financial circumstances of the company at the time –
The
assets of the company, as fairly valued, equal or exceed the
liabilities of the company, as fairly valued,
It
appears that the company would be able to pay its debts as they
become due in the ordinary cause of business for the period of
12
months after the date the test is considered or in the case of
distribution, 12 months following the distribution.”
[13]
At the time the resolutions were passed,
SIAFA in terms of the subscription agreement already owned 50% of the
shareholding of Motlekar
Capital.
[14]
Motlekar Capital was not solvent at the
time the resolutions were passed. It was indebted to the National
Empowerment Fund to the
tune of R50m and was unable to pay the debt.
Motlekar Holdings had committed itself as guarantor for the payment
of the debt of
Motlekar Capital and it, too, was unable to liquidate
this debt. Thus, both Motlekar Capital and Motlekar Holdings were
insolvent.
[15]
Representatives of SIAFA contacted Motlekar
on a number of occasions thereafter in the quest to obtain financial
records. Instead
of being furnished with the financial records they
were verbally informed by Motlekar that Motlekar Capital was indebted
to him
personally for the sum of R200m. He claimed to have loaned
this money in cash to Motlekar Capital. They were unsuccessful in
obtaining
the financial records. They asked for proof of the loan,
but this, too, was not furnished to them. Eventually, in October 2014
SIAFA decided to withdraw from the investment in Motlekar Capital.
[16]
On 21 November 2014 Motlekar met with
representatives of SIAFA in Dubai. During this meeting he represented
himself as well as the
companies, Motlekar Holdings and Motlekar
Capital. Motlekar was informed that SIAFA had decided to terminate
its relationship with
him, with Motlekar Holdings and with Motlekar
Capital. Motlekar accepted the decision and on behalf of Motlekar
Capital agreed
to refund it the original investment it made in
Motlekar Capital. He went further and committed himself personally to
refund the
amount invested in Motlekar Capital. The agreement to this
effect was subsequently recorded in the form of email exchanges. On
25 December 2014 a representative of SIAFA, Mustafa, wrote to
Motlekar stating:
“
Further
to our meeting in (sic) 21
st
November 2014 in Dubai, I wish to confirm on behalf of SIAFA
Investments (Pty) Limited that the following was agreed:
1.
Motlekar Holdings (Pty) Limited and SIAFA
(Pty) Limited will terminate its business relationship with immediate
effect.
2.
The total sum of R120 million that was paid
to Motlekar Holdings (Pty) Limited and/or its nominees as directed by
Motlekar Holdings
(Pty) Limited will be paid back to SIAFA
Investments (Pty) Limited.
3.
It is further understood and agreed that
while the shareholders of SIAFA Investments (Pty) Limited’s
funds are in credit in
Motlekar Holdings, all profits will accrue to
SIAFA Investments (Pty) Limited.
4.
It was agreed that Mr Faizal Motlekar will
present a short-term payment plan in January 2015.”
[17]
The fact that the above correctly reflects
the agreement reached in Dubai is manifest in the reply of Motlekar
to the email. His
reply reads:
“
Your
e-mail is noted and I will discuss the repayment once I have full
forecast from all my subsidiaries on how we will pay this
amount back
Inshallah.”
[18]
Motlekar was given some time to arrange his
affairs and produce a payment plan. After several attempts by
representatives of SIAFA
to meet with Motlekar a meeting was finally
held on 21 January 2015. However, no re-payment plan was produced by
Motlekar. At this
meeting the following was agreed:
“
We
hereby record that Mr Faizal Motlekar will by no later than end of
February 2015 give detailed payment schedule of total amount
(referred to in email dated 25
th
December 2014). However, Mr Faizal has also recorded that he is
making an effort to obtain an external loan, and if he is successful
he will pay the amount earlier. By the end of February Mr Faizal will
pay some amount to SIAFA Group against investment account.
We hereby
also agree that Mr Faizal will give Mr Zahir Ragie an amount of
R1 500 000 (one million five hundred thousand
Rand) against
Sasol filling station to assist with the cash flow for Angel
Cosmetics”
[19]
Motlekar did not comply with this
agreement. Again after some to-ing and fro-ing a further meeting was
held between representatives
of SIAFA and Motlekar on 25 February
2015. At this meeting it was, once again, agreed that he accepted
personal responsibility
for the indebtedness of Motlekar Capital.
Motlekar failed to meet his obligations in terms of the agreement.
Motlekar was threatened
that legal proceedings would be instituted
against him and against Motlekar Capital. In response thereto, he
sent an email on 19
March 2015 to a representative of SIAFA which
reads:
“
We
are awaiting a tax directive from the attorneys to be finalised. This
is due to external people getting no of the transaction,
we needed to
take advice on the matter.” (the quotation is verbatim)
[20]
Motlekar still did not make any payment or
present any payment plan. Representatives of SIAFA tried to pin him
down in this regard
but to no avail. However, on 11 May 2015 he wrote
to a representative of SIAFA stating:
“
I
have secured to refund the payments and payment will be repaid to the
accounts that it originated from. The process will take
approximately
60 days from Monday 11 May 2015.
I
therefore beg your indulgence for the process to be fulfilled over
the next week or so. I will need the account numbers in Dubai
and
Saudi Arabia to make arrangements for the refund of the advance
payments on behalf of SIAFA.
I
appreciate your patience thus far, but I needed to work on a plan to
resolve the issue. The funds will be returned from the source
it was
paid to. This is the process that I was working on to repay the
amount that was advanced, so in the interest of resolving
the issue
and not to prolong unnecessary delays I request that you be patient
and wait for this to be concluded.”
[21]
On 14 May 2015 the attorneys acting for
SIAFA sent Motlekar an email where they recorded that at a meeting
between Motlekar and
a representative of the SIAFA on 13 May 2015
Motlekar was informed, amongst others, that:
“
(He
had) represented to (SIAFA) that the assets in terms of Clause 4.1.8
of the
Subscription Agreement
do belong Motlekar Capital Partners (Pty) Ltd whereas this is not the
case. This is tantamount to a material misrepresentation.”
(Bold in the original)
[22]
Motlekar did not respond to the email.
[23]
Subsequent to the failure of Motlekar
Capital to fulfil its obligations in terms of the agreement with
SIAFA, representatives of
SIAFA investigated some of the affairs of
Motlekar Capital as well as other companies in the Motlekar Group,
which were subsidiaries
of Motlekar Holdings. They learnt that the
NEF was seeking R50m from one of the subsidiaries of the Motlekar
Holdings, i.e. Cyclocor
Motlekar (Pty) Ltd (Cyclocor Motlekar), and
that the Motlekar Group was not worth the R400m claimed by Motlekar
when he made the
pitch to SIAFA in Jeddah on 5 September 2013 to
invest in the Motlekar Group. They discovered that the true situation
was that
Motlekar Holdings was already insolvent for some time before
that. They also discovered that Motlekar had concluded a number of
loan agreements with the NEF and that he deliberately concealed these
loan agreements from them. Furthermore, in or during April
2012
Motlekar Holdings gave an “
unconditional
and absolute guarantee
” to the
NEF in regard to the R50m debt of Cyclocor Motlekar, (at that stage
operated under the name and style of Cyclocor
Western Cape (Pty) Ltd
(Cyclocor Western Cape) and was renamed later to Cyclocor Motlekar).
A month before, Cyclocor Western Cape
had ceded all its bank accounts
and book debts to the NEF. Cyclocor Western Cape had also ceded all
its shares to the NEF.
[24]
Hence,
in January 2014 when Motlekar represented to SIAFA that Motlekar
Capital owned 30% of Cyclocor Motlekar
[1]
,
(which we know is Cyclolcor Western Cape renamed) he knew this was
not true. He also failed to inform SIAFA that all the
bank
accounts of Motlekar Capital were ceded to the NEF, when he knew that
this information was material and would have affected
SIAFA’s
decision to enter into the subscription agreement. Furthermore, at
the time that Motlekar made the pitch for SIAFA
to subscribe for
shares in Motlekar Holdings he was aware that the representations he
made regarding the assets of Motlekar Capital
were false.
Furthermore, he made them with the intention to induce SIAFA to
conclude a subscription agreement.
[25]
On 26 August 2014 Cyclocor was finally
liquidated by the Western Cape High Court. An insolvency enquiry was
held in terms of ss
417 and 418 of the Companies Act, read with item
9 of Schedule 5 of the New
Companies Act, 71 of 2008
. During this
enquiry it transpired that Motlekar Capital was not a shareholder of
Cyclocor Motlekar as was claimed by Motlekar
during his
representations to SIAFA prior to SIAFA subscribing for the shares.
SIAFA’s
claim
[26]
Relying on the above undisputed facts,
SIAFA contends that it was induced by the false representations of
Motlekar to conclude the
subscription agreement with Motlekar
Capital. But for these false representations SIAFA claims it would
not have concluded the
subscription agreement. It claims further that
once it discovered that the representations were false, it was
entitled to rescind
the agreement and receive a refund from Motlekar
Capital. It goes further and seeks an order holding Motlekar
personally responsible
for the refund. For this order it relies on
the provisions of the new
Companies Act and
on the undertaking made
by Motlekar to it that he does accept personal liability for the
refund.
Motlekar
Capital and Motlekar’s response to the claim
[27]
Both Motlekar and Motlekar Capital claim in
the answering affidavit filed on their behalf that the applicants
lack the necessary
locus standi
to seek the relief they are requesting from this court. They base
their claim on the following two facts:
[27.1]
that SIAFA did not pay the monies out of bank accounts held in the
name of SIAFA; and,
[27.2]
that neither of them were the recipients of the monies paid by SIAFA.
[28]
In my judgment, there is no merit in this
point. There are four main reasons for this, namely:
[28.1]
It is not disputed that the monies were paid on behalf of SIAFA for
the subscription of the shares in Motlekar Capital. There
are three
facts that militate against the claims of Motlekar and Motlekar
Capital. They are:
[28.2]
there is no dispute that the monies were only paid to third parties
on the instructions and at the instance of Motlekar,
who at all times
acted as the duly authorised representative of Motlekar Capital;
[28.3]
throughout the interactions between SIAFA and Motlekar, Motlekar
accepted that the monies were paid to Motlekar Capital;
and,
[28.4]
in a meeting held in Dubai between Motlekar and representatives of
SIAFA Motlekar admitted that the total sum of R120m was
paid by SIAFA
to Motlekar Capital.
[2]
[29]
In fact, in the light of all the undisputed
facts, and not only the four mentioned above, it is difficult to
understand why Motlekar
and Motlekar Capital would raise and persist
with the claim that SIAFA did not pay the monies and that Motlekar
Capital was not
the recipient of the monies.
[30]
Having raised the issue of SIAFA’s
standing to bring the application Motlekar and Motlekar Capital then
put up no significant
opposition to the merits of the claims.
[31]
The
undisputed facts demonstrate that SIAFA was deliberately deceived by
Motlekar Capital into concluding the subscription agreement
with
Motlekar Capital. Put differently, SIAFA was induced by various
fraudulent misrepresentations made to it by Motlekar Capital
into
concluding the subscription agreement. Consequently, it is entitled
to rescind the subscription agreement and to reclaim all
the monies
it has paid to Motlekar Capital. However, it has to return the Share
Certificate given to it by Motlekar Capital should
it elect to
rescind the subscription agreement. In other words, the subscription
agreement is voidable at SIAFA’s election.
[3]
SIAFA has elected to avoid it and has tendered this Share Certificate
to Motlekar Capital. The amount is has paid and which it
is
reclaiming is reflected in [8.1], [8.2] and [8.3] above.
[32]
Furthermore,
the undisputed facts show that Motlekar has accepted personal
liability for the repayment of the amount given to Motlekar
Capital.
[4]
Hence, SIAFA is entitled to look to him for the repayment should
Motlekar Capital fail to repay it.
[33]
Accordingly, Motlekar Capital and Motlekar
are liable for the loss sustained by SIAFA as a result of the
fraudulent misrepresentation
of Motlekar Capital.
Costs
[34]
SIAFA asks for Motlekar Capital and
Motlekar to pay the costs of this application on an attorney and
client scale. They say that
the fact that Motlekar’s conduct
was knowingly dishonest from the beginning, and that his dishonesty
continued throughout
the period, compelled them to bring this
application. It points out that it granted Motlekar numerous
opportunities to settle its
claim before it sought the assistance of
this court. These facts they say justify a punitive order. I agree
with these submissions
for there is great merit in them.
[35]
For the aforesaid reasons the following
order is made:
Order
[36]
It is the order of this court that:
1.
The applicant is to return the Share
Certificate issued to it by the second respondent.
2.
The first and second respondents are to,
jointly and severally the one paying the other to be absolved, make
the following payments
to the applicant:
2.1
Nine million, two hundred and eighty-six
thousand and four hundred and thirty-nine United States dollars
(US$9 286 439);
2.2
Five million nine hundred and sixty-one
thousand seven hundred and sixty-eight United Arab Emirates Dirham
(5 961 768
United Arab Emirates Dirham); and,
2.3
Six million rands (R6 000 000.00).
3.
The payments referred to in paragraph 2 are
to be made within ten court days of this order
4.
The first and second respondents are to
jointly and severally pay the costs of this application the one
paying the other to be absolved,
which costs are to include those
occasioned by the employment of two counsel and are to be taxed on an
attorney and client scale.
Vally
J
Date
of hearing: 18 May 2016
Date
of judgment: 28 July 2016
For
the applicant: T N Aboobaker SC with Goolam Ameer
Instructed
by: A R Kazi and Company
For
the respondent: Mphiri Mashilo
Instructed
by: Aphane Gani Attorneys
[1]
See
[5.4] above
[2]
See
[16] – [17] above
[3]
Kopelowitz
v West and Others
1954 (4) SA 296
(W) at 300F;
Preller
and Others v Jordaan
1956 (1) SA 483
(A) at 496E
[4]
See
[16] – [20] above