Commissioner of Police v Investments Limited
[2015] NZHC 3139
•3 December 2015
ORDER THAT THERE IS TO BE NO PUBLICATION OR FURTHER DISTRIBUTION OF THE CONTENTS OF THIS JUDGMENT UNTIL
5.00 PM ON FRIDAY, 5 FEBRUARY 2016, OR FURTHER ORDER OF THE COURT. SEE PARAGRAPH [80].
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-002877 [2015] NZHC 3139
UNDER the Criminal Proceeds (Recovery) Act
2009
BETWEEN
COMMISSIONER OF POLICE Applicant
AND
INVESTMENTS LIMITED First Respondent
JKK HOLDINGS LIMITED Second Respondent
continued over
Hearing: 2 December 2015
[On the Papers]
Counsel:
M R Harborow for the Applicant
Judgment:
3 December 2015
Reasons:
10 December 2015
JUDGMENT OF EDWARDS J
This judgment was delivered by Justice Edwards on 10 December 2015 at 12.30 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors: Meredith Connell, Auckland
COMMISSIONER OF POLICE v INVESTMENTS LTD [2015] NZHC 3139 [3 December 2015]
JKK TRUSTEES LIMITED Third Respondent
BLUEMOON GROUP LIMITED Fourth Respondent
AKL SUNRISE COMPANY LIMITED Fifth Respondent
DC EMPIRES LIMITED Sixth Respondent
CHK INVESTMENTS LIMITED Seventh Respondent
SRKK GROUP OF TRUSTEES LIMITED
Eighth Respondent
DIVYAPREET KAUR Ninth Respondent
SUPINDER SINGH Tenth Respondent
RAJWINDER GREWAL Eleventh Respondent
JOTI JAIN
Twelfth Respondent
[1] On 3 December 2015, I granted the Commissioner of Police’s without notice application for restraining and other orders filed 2 December 2015. My reasons for doing so now follow.
[2] The restraining orders were made pursuant to s 25 of the Criminal Proceeds (Recovery) Act 2009 (the Act). The property restrained comprises 33 residential and commercial properties owned by the first to ninth respondents, and the contents of safe deposit boxes in the names of the ninth, eleventh and twelfth respondents. Effective control orders and ancillary orders were also made.
[3] The alleged significant criminal activity arises out of the operation of the Masala group of restaurants. The Commissioner claims there has been widespread and systemic tax evasion by the companies and individuals associated with the Masala restaurants in addition to breaches of immigration and employment laws in relation to restaurant staff.
[4] The Commissioner contends there are reasonable grounds to believe that the respondents have unlawfully benefited from this significant criminal activity. The unlawful benefit is alleged to have arisen out of the interrelationship between the entities and individuals involved with the Masala restaurants on the one hand, and the property holding companies named as the first to eighth respondents on the other hand. Alternatively, the Commissioner says there are reasonable grounds to believe that the property to be restrained is tainted property within the meaning of s 24 of the Act.
[5] The application was sought on a without notice basis. It was supported by lengthy affidavits with substantial exhibits filed on behalf of an Inland Revenue investigator, Elena Bryleva (sworn on 27 November 2015), Detective Fang Lin (sworn 30 November 2015), Immigration New Zealand Ltd Investigator Deena Naidoo (sworn 29 October 2015) and Labour Inspector Tasneen Ashyana Begum (sworn 6 November 2015).
[6] The application follows an Inland Revenue audit commenced in 2012 into the financial affairs of the Masala chain of restaurants. Documents were seized as part of those investigations and interviews were conducted with a number of past and present employees, including the former internal accountant for the Masala chain of restaurants.
[7] The principal persons of interest in the Inland Revenue investigation were (and continue to be) Mr Chahil (the founder of the chain, though not named as a respondent), Mr Singh (the tenth respondent), Mr Grewal (the eleventh respondent) and Ms Jain (the twelfth respondent). These key individuals form the link between the Masala chain of restaurants, the companies that own and operate those restaurants, and the respondents in this case.
[8] Ms Bryleva deposes to the history of the Masala chain of restaurants. They were initially set up by Mr Chahil in 2002, with Ms Jain later becoming a partner with him in a number of the restaurants. Mr Chahil was declared bankrupt in 2012.
[9] Ms Jain was operations manager and later co-controller of the Masala chain of restaurants. She is alleged to have been involved in the purchase of various properties owned by the respondent companies. One of the properties owned by the first respondent is Ms Jain’s personal residence. It is alleged that weekly meetings were held at this address, or the home address of Mr Chahil (a property owned by the third respondent), where restaurant managers would undertake a reconciliation of the till system, cashbook and the cash takings from the restaurant. Physical cash would be given to Ms Jain or Mr Chahil at this time. Ms Jain is currently serving a sentence of home detention for immigration offences in relation to Masala restaurant staff.
[10] Mr Grewal is Mr Chahil’s brother in law. He was involved in the Masala restaurant business until mid 2004. At that time, he opened his own restaurants in various parts of Auckland and traded via a number of different companies. In mid
2012, Mr Grewal again became involved in the Masala chain of restaurants, including as a director of a number of related companies. Mr Grewal is also the director and sole shareholder of two of the respondents: AKL Sunrise Company Ltd (the fifth respondent) and CHK Investments Ltd (the seventh respondent). Mr Grewal is also serving a sentence of home detention for immigration-related offending in relation to Masala restaurant staff.
[11] Mr Singh is the sole director of One Hospitality Ltd, which is the nominal owner of three Masala restaurants. He is also the sole director of another company involved with the development of two restaurants in Auckland. Mr Singh is the sole director of JKK Holdings Ltd (the second respondent), which is the current owner of the premises from which five Masala restaurants operate. He is the director and beneficial shareholder of other respondent companies, namely: Investments Ltd (the first respondent), JKK Trustees Ltd (the third respondent), and SRKK Group of Trustees Ltd (the eighth respondent).
[12] The Masala restaurants are owned, and have been owned, by different corporate entities (referred to as the Masala related companies). These corporate entities include the first to eighth respondents. Ms Bryleva attaches a schedule to her affidavit showing the ownership of each restaurant in the Masala chain and the numerous changes in ownership of each restaurant. That schedule shows that the shareholders and directors of the Masala related companies are the same group of people, namely Mr Chahil, Ms Jain, Mr Grewal, Mr Singh, and their relatives.
[13] The Commissioner alleges that the Masala related companies and the associated key individuals have been involved in substantial tax-related offending, money laundering, breaches of immigration laws, and breaches of employment standards.
[14] It is the involvement of the same key individuals in both the Masala related companies and in the property holding companies that leads to the Commissioner’s claim that there are reasonable grounds to believe that the respondents have unlawfully benefited from this significant criminal activity.
[15] The first to eighth respondents to the application (the property holding companies) are entities which are associated with the key individuals. The Commissioner seeks a restraining order over the real property owned by the property holding companies.
[16] The ninth respondent, Ms Kaur, is Mr Grewal’s partner. She, with others, is a registered owner of safe deposit boxes which are the subject of the application. Ms Jain and Mr Grewal are also owners of safe deposit boxes which are similarly the subject of the application.
[17] As noted above, Mr Singh, Mr Grewal and Ms Jain are the tenth, eleventh and twelfth respondents to the application.
Section 25
[18] Orders were sought pursuant to s 25, or in the alternative s 24, of the Act.
[19] Pursuant to s 25, the Court must be satisfied that there are reasonable grounds to believe that the respondents have unlawfully benefited from significant criminal activity.
[20] The “reasonable grounds” threshold is a relatively low threshold to meet.1
Proof that the respondent did unlawfully benefit from significant criminal activity is not necessary. It is enough that there are reasonable grounds to believe that to be the
case.2
1 Commissioner of Police v Li [2014] NZHC 479 at [8].
2 Vincent v Commissioner of Police [2013] NZCA 412 at [45].
Significant criminal activity
[21] Significant criminal activity is activity that, if proceeded against, would amount to offending punishable by a maximum term of imprisonment of five years or more or from which property, proceeds or benefits of a value of $30,000 or more have directly or indirectly been acquired or derived.3
[22] The significant criminal activity in this case is alleged to be tax evasion,4 dishonest use of a document and obtaining by deception,5 money laundering,6 and breaches of the Immigration Act 2009.7 Those offences carry maximum penalties of up to seven years’ imprisonment.
[23] In respect of the alleged tax evasion, Ms Bryleva deposes to an audit undertaken by Inland Revenue into the financial affairs of the Masala related companies. She deposes to the results of that audit which revealed that between
1 April 2008 and 31 March 2014, the 17 companies that owned the Masala restaurants during that period underreported substantial earnings so as to evade the payment of over $7.4 million of tax (including use of money interest and penalties).
[24] Ms Bryleva deposes to her belief regarding the tax evasion as follows:8
5.1For the reasons set out below, I believe that the parties and companies involved in the financial operations of the Masala chain of restaurants, including Mr Chahil, Ms Jain, Mr Grewal and a number of relatives of those parties, have been involved in evading the assessment and payment of tax by systematically stripping cash from the restaurants and neither declaring cash sales in GST returns, nor returning cash income to IR.
5.2In addition, I believe the Masala chain of restaurants have been under-reporting salaries and wages paid to employees or failing to declare employees in the employer monthly schedules provided to IR. As a result, PAYE tax has been under-paid in respect of salaries and wages paid to employees and/or has not been deducted from payments and benefits to employees.
3 Criminal Proceeds (Recovery) Act 2009, s 6.
4 Tax Administration Act 1994, s 143B.
5 Crimes Act 1961, ss 228, 240, 241.
6 Crimes Act 1961, s 243.
7 Immigration Act 2009, ss 342(1)(b), 343 (1)(a), 351(1)(a).
8 Affidavit of Elena Bryleva, sworn 27 November 2015 at [5.1] and [5.2].
[25] Ms Bryleva’s affidavit also outlines alleged tax evasion by Mr Singh. He has a personal outstanding tax liability which was identified as a result of a second Inland Revenue audit. This audit disclosed that Mr Singh had been using money drawn from his companies for personal expenses and either not declaring this income or not properly classifying it in his individual tax returns and those of his companies. Proceedings initially filed by Mr Singh to challenge the Inland Revenue assessments have now been discontinued. Ms Bryleva deposes that the original assessment of $745,275.51 (excluding late payment penalties and use of money interest) therefore stands and remains payable by Mr Singh.
[26] Mr Naidoo gives evidence of the alleged immigration offending by Ms Jain, Mr Grewal and Mr Chahil, from which it is claimed that the Masala related companies also received additional unlawful benefits:
(a) Mr Chahil was charged with three charges of making a false document, and three charges of supplying false or misleading information contrary to s 342(1) (b) of the Immigration Act. He has pleaded not guilty to those charges.
(b)Ms Jain pleaded guilty and was convicted of various charges relating to the supply of false or misleading information, exploitation and aiding the breach of visa conditions. She is currently serving a home detention and community work sentence for that offending.
(c) Mr Grewal also pleaded guilty to charges involving exploitation and aiding the breach of visa conditions. He is also currently serving a home detention sentence.
[27] In addition, Inspector Begum deposes to breaches of the Employment Relations Act 2000 by the Masala related companies which have been upheld by the Employment Relations Authority.
[28] This evidence establishes reasonable grounds to believe that the key individuals (namely, Mr Chahil, Ms Jain, Mr Grewal and Mr Singh) and the Masala group of companies have been involved in significant criminal activity.
Unlawfully benefited
[29] A person unlawfully benefits if “the person knowingly, directly or indirectly derived a benefit from significant criminal activity (whether or not that person undertook or was involved in the significant criminal activity)”.9
[30] The Commissioner says that there are reasonable grounds to believe that the property holding respondents are alleged to have unlawfully benefited from the significant criminal activity through their association with the key individuals, the Masala group of companies and other property holding companies. Detective Lin
says the links arise in two broad ways:10
(a) The property holding companies have themselves unlawfully benefited from the criminal activity undertaken by the Masala related companies (directly or indirectly); and/or
(b) The property holding companies are in the effective control of the Masala related companies, or of key individuals (who have unlawfully benefited from criminal activity).
[31] The specific evidence in respect of each of the respondents is summarised below.
(a) Investments Ltd (first respondent)
[32] The sole director of Investments Ltd is Mr Singh. JKK Trustees Ltd is the sole shareholder. Mr Singh is the sole director of that company and he and his wife
are the ultimate beneficial shareholders in JKK Trustees Ltd.
9 Criminal Proceeds (Recovery) Act, s 7.
10 Affidavit of Detective Lin, sworn 30 November 2015 at [2.9].
[33] Loans by the company are secured against the assets of Masala related companies.
[34] Investments Ltd owns 58 Bell Road which has been Ms Jain’s residence since
2009. Detective Lin deposes to his belief that Ms Jain is the beneficial owner of the property.
[35] Ms Jain has been directly involved as the named purchaser in other properties held in the name of Investments Ltd. Detective Lin deposes to his belief that Ms Jain has an undisclosed interest in these other properties and has control of the financial affairs of Investments Ltd.
[36] Inland Revenue records show Ms Jain has made numerous payments to Investments Ltd from her personal bank account and from companies beneficially owned by her. Payments made from her personal bank account appear to have been funded by deposits into her account from Masala related companies. Detective Lin deposes to his belief that some of the funds contributed to the company by Ms Jain are likely to form part of undeclared dividend income that Inland Revenue has identified was paid to Ms Jain from the Masala chain of restaurants.
(b) JKK Holdings Ltd (second respondent)
[37] As noted above, the sole director of JKK Holdings Ltd is Mr Singh, and the shareholder is JKK Trustees Ltd which is beneficially owned by Mr Singh and his wife.
[38] JKK Holdings Ltd is the current registered proprietor of nine of the real properties subject to the Commissioner’s application. Detective Lin deposes to the funding of these properties by mortgages from the ASB Bank which are cross- secured and guaranteed by a number of Masala related companies and three of the respondents.
[39] Five of the properties owned by JKK Holdings Ltd are used as premises for the Masala restaurants and at least two of them are used to accommodate staff.
[40] There have been numerous changes in ownership of the properties but ownership has remained with the key individuals and their associated companies.
(c) JKK Trustees Ltd (third respondent)
[41] The director of JKK Trustees Ltd is Mr Singh, and the shareholders are
Mr Singh and his wife, Ms Kaur.
[42] JKK Trustees Ltd is the registered owner of 45 Westerham Drive. That property appears to have been used as security for loans obtained by Investments Ltd. It is also the residence of Mr Chahil. Ms Bryleva gives evidence as to alleged weekly meetings at this house where cash from the restaurants was handed over.
[43] Detective Lin deposes to his belief that JKK Trustees Ltd appears to have been used as a nominee company to hold the registered ownership of
45 Westerham Drive. A company owned by Ms Jain owned this property until shortly after the Inland Revenue commenced a search as part of its audit of the Masala chain of restaurants.
(d) Bluemoon Group Ltd (fourth respondent)
[44] The sole director of the company is Mr Harpreet Singh. He and his wife are the beneficial shareholders in the company. Their son is engaged to the daughter of Mr Singh and Ms Kaur.
[45] The company is the registered owner of two properties known or suspected to be used as staff houses for employees of the Masala chain of restaurants, and of a property which appears to have been purchased with the intention of developing a new Masala restaurant. Detective Lin deposes to his belief that Bluemoon Group is under the effective control of the Masala group.
(e) AKL Sunrise Company Ltd (fifth respondent)
[46] Mr Grewal is the sole director and shareholder of this company.
[47] The company owns the property at 15 Kauri Road. That property was originally purchased by Mr Chahil and his father and then transferred into the names of Mr Singh and Ms Kaur before being transferred to AKL Sunrise Company Ltd. Detective Lin deposes to a number of text messages sent and received by Ms Jain in relation to this property.
(f) DC Empires Ltd (sixth respondent)
[48] The sole director of this company is Ms Munpriet Kaur who is the daughter of Mr Chahil. The sole shareholder is a company of which Ms Kaur is the sole director and shareholder. At the time of incorporation, Ms Kaur was 19 years old and in receipt of a student allowance.
[49] DC Empires Ltd is the current registered owner of three properties the subject of the application.
[50] Detective Lin deposes to his belief that neither DC Empires Ltd, nor Ms Kaur, have earned sufficient declared income to fund the purchase of the three real properties which collectively own more than $539,000 equity.
[51] Although the source of the funds used to purchase the properties has not yet been determined, it appears that at least one of the properties (1129 Tutanekai Street) was purchased via a loan from a former property holding company.
(g) CHK Investments Ltd (seventh respondent)
[52] Mr Grewal is the sole director and shareholder of CHK Investments Ltd.
[53] Detective Lin deposes to his belief that Ms Jain has an undeclared interest in the property at 13 Te Arawa Street currently registered in the name of CHK Investments Ltd given her involvement in the purchase of the property. It is also believed that the property has been funded in part by Masala related companies.
(h) SRKK Group of Trustees Ltd (eighth respondent)
[54] The sole director of this company is Mr Singh and he is a shareholder in the company also. The company is the sole trustee of the SRKK Trust which was settled by Mr Singh. The beneficiaries of the trust are Mr Singh’s children, although Mr Singh retains the power to add or remove beneficiaries.
[55] SRKK Group of Trustees Ltd owns seven of the real properties subject to the Commissioner’s application. Mortgages over these properties are secured against and guaranteed by a number of Masala related companies. Detective Lin deposes to his belief that one of the properties is intended to be used as a new Masala restaurant.
(i) Ms Kaur (ninth respondent)
[56] Ms Kaur (ninth respondent) is Mr Grewal’s partner. She is the current registered owner of the property at 27C Mt Smart Rd, which is the subject of an effective control order pursuant to s 58 of the Act, and one of the properties to be restrained.
[57] The property at 27C Mt Smart Road is Mr Grewal’s home address. It was purchased by Mr Grewal in 2006 and was held in his name until being transferred to Ms Kaur shortly before Mr Grewal was charged with immigration related offences.
[58] Ms Kaur is a beneficiary. The evidence shows that neither Ms Kaur nor Mr Grewal have earned sufficient income to have purchased and maintained the property. There are reasonable grounds to believe that Ms Kaur may have unlawfully benefited from the criminal activity by having this property transferred into her name.
[59] A restraining order is sought in respect of the contents of a safe deposit box held in the name of Ms Kaur and two others. The evidence adduced in support of the application reveals that the family members of the key individuals appear to be closely involved with the Masala restaurants. Mr Grewal is one such key individual.
[60] I consider this evidence gives rise to reasonable grounds for believing that Ms Kaur has unlawfully benefited from the significant criminal offending by virtue of her relationship with Mr Grewal and her involvement with the Masala group of companies.
(j) Mr Singh (tenth respondent), Mr Grewal (eleventh respondent), Ms Jain (twelfth respondent)
[61] Much of the affidavit evidence adduced in support of the application is directed towards the involvement of the key individuals in the significant criminal activity. That evidence has already been canvassed both in the background and in relation to the significant criminal activity alleged in this case. On the basis of that evidence, I consider there are reasonable grounds to conclude that Mr Singh, Mr Grewal and Ms Jain have unlawfully benefited from the significant criminal activity.
Property of the respondents
[62] Orders made under s 25(2) of the Act must relate to the respondent’s property, which is defined to include an interest in real or personal property (s 5(1) of the Act). Interest, in turn, is defined to include a legal or equitable interest or a “right, power or privilege” in connection with the property.
[63] In relation to the real property sought to be restrained, I accept the Commissioner’s submissions that the first to ninth respondents have interests in the properties by virtue of them being the registered proprietors. Detective Lin estimates that there is a total of at least $6,983,850 equity in the various properties. The interests restrained exclude the interests of the mortgagees.
[64] The safe deposit boxes are held in the names of Mr Jain, Mr Grewal, and Ms Kaur. I am satisfied that each of those respondents has an interest in the contents of those boxes.
Conclusions on s 25
[65] The evidence adduced in support of the application shows that there are reasonable grounds for believing that the respondents have unlawfully benefited from the significant criminal activity. The evidence also establishes that the property to be restrained is the respondents’ property.
[66] The requirements of s 25 have therefore been met.
Section 24: tainted property
[67] Determination of the application under s 25 of the Act makes it unnecessary to consider whether the requirements of s 24 are met in the alternative.
Effective control orders
[68] Effective control orders under s 58 of the Act are sought in respect of property over which the Commissioner alleges Mr Grewal and Ms Jain have effective control.
[69] Section 58 provides that if a Court is satisfied that a respondent has effective control over property the Court may, on an application made by the Commissioner, order that the property is to be treated as though the respondent had an interest in it specified by the Court. Property subject to an effective control order may be included in any restraining order made against the respondent.
[70] An order was sought over 27C Mt Smart Rd, Royal Oak. The Commissioner says that Mr Grewal has effective control over this property. The evidence adduced in support of the effective control order is referred to above.11 I am satisfied that this evidence establishes grounds upon which to make an effective control order over this
property.
11 At [56]-[58].
[71] An effective control order was also sought in relation to eight different properties over which Ms Jain was said to have effective control. Five of these properties are owned by Investments Ltd, including Ms Jain’s residence. Two are registered to JKK Holdings Ltd and another is registered to Bluemoon Group Ltd. As referred to above, Detective Lin deposes to his belief that Ms Jain has undisclosed interests in these properties and is effectively in financial control of Investments Ltd. The evidence suggests that Ms Jain or her companies (particularly Indian Hospitality Ltd) were involved with the purchase of these properties, the transfer of these properties, or the meeting of utilities in respect of these properties. I am satisfied that the evidence shows reasonable grounds for believing that Ms Jain is in effective control of these properties.
Ancillary orders to effectively execute restraining orders
[72] The Commissioner also seeks orders pursuant to ss 34 and 35 of the Act to allow members of the Police and representatives of the Official Assignee to enter on to the premises of Westpac Bank and NZ Mint for the purpose of gaining access to a number of safe deposit boxes and to locate and seize the restrained property held within them.
[73] Those orders will ensure the orderly transfer of any contents of the safe deposit boxes to the Official Assignee and reduce the risk of any dissipation of restrained property. For these reasons I made the ancillary orders sought.
Risk of dissipation
[74] The application is made on a without notice basis. The Court may grant an application on that basis if is satisfied that “there is a risk of the proposed restrained property being destroyed, disposed of, altered, or concealed if notice were given” (s 22(1) of the Act).
[75] The Commissioner says there is a real risk of that occurring in this case and points to the history of cyclic changes in the registered ownership of the properties, and Masala restaurants. This includes changes made shortly after searches of the
Masala premises and residential properties were conducted by Inland Revenue, and
after the commencement of an investigation into Mr Grewal’s affairs.
[76] The Commissioner also points to the risk that parties may try and access the equity in the properties by seeking to increase loans. The sheer number of properties affected makes monitoring of this sort of activity more difficult, and compounds the risk of dissipation if the application proceeded on notice.
[77] The Commissioner says there is a particular risk of dissipation in relation to
1129 Tutanekai Street, which is currently unencumbered, and 1 Apirana Avenue, which is currently being marketed for sale. The Commissioner says the purpose of the restraining orders is to capture the equity in those properties or alternatively the proceeds of sale, before they are dissipated. There is no desire to disrupt a sale to a bona fide third party. So as to avoid halting a genuine sale of the property, counsel for the Commissioner has indicated that a variation to the restraining orders made in respect of these properties could be sought so as to allow the sale to go ahead, and so as to allow any proceeds of sale to be restrained.
[78] I accept the Commissioner’s submissions. The grounds put forward by the Commissioner establish a reason for proceeding on a without notice basis in this case.
Result
[79] Orders are made in accordance with the without notice application dated
1 December 2015 and in accordance with the draft orders provided.
Confidentiality
[80] This judgment traverses the affidavit evidence filed by the Commissioner in support of its application. That affidavit evidence includes detailed allegations of significant criminal activity and criminal charges faced by some of the respondents. Because the orders were made on a without notice basis, the respondents have not yet had a reasonable opportunity to consider the nature of the evidence and
allegations made against them, nor to consider the references made to that evidence in this judgment. I consider that the respondents should have an opportunity to read and consider this reasons judgment before it is publicly released. I therefore make orders that there is to be no publication or further distribution of the contents of this judgment until 5.00 pm on Friday, 5 February 2016 or further order of the Court. Any applications for suppression should be filed by midday on Tuesday, 2 February
2016.
Edwards J
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