Kamal Holdings and Ventures Inc v Verma, 2016 ABQB 115

Court of Queen ’ s Bench of Alberta Citation: Kamal Holdings and Ventures Inc v Verma, 2016 ABQB 115 Date: 20160225 Docket: 1201 12109 Registry: Calgary Between: Kamal Holdings and Ventures Inc. Plaintiff - and - Mukesh Verma Defendant _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice B.E. Romaine _______________________________________________________ I.

Facts [ 1 ] The outcome of this trial rests primarily on the issue of credibility. [ 2 ] In 2011, Sohan Jeerh held 50% of the shares of Sylvan Lake Holdings Inc., a company that owned a hotel in Sylvan Lake. The other 50 % of the shares were owned by the Rafiq family, who managed the hotel. The hotel fell into financial difficulty, and Mr. Jeerh was unhappy with its management. The hotel needed substantial improvements and was in receivership, as the first mortgagee had

commenced foreclosure proceedings. Mr. Jeerh was looking for money in order to negotiate a resolution to the receivership proceedings. [ 3 ] Mr. Jeerh testified that, during the five to six months prior to October, 2011, he and Mukesh Verma discussed the possibility that Mr. Verma might purchase Mr. Jeerh’s shares in Sylvan Lake Holdings. Mr. Jeerh wanted $250,000 for the shares. [ 4 ] Mr. Jeerh says that on October 3, 2011, just before he was scheduled to go to India, Mr. Verma told him that he would not buy the shares, but that he could lend him $250,000. Mr. Jeerh says that Mr.

Verma said the interest rate would be 12%, and the money was with a lawyer. [ 5 ] Mr. Jeerh testified that he felt the interest rate on the loan was too high, but decided to take the loan for a short period. Mr. Verma suggested that they go to a lawyer the next day to have the loan documented. Mr. Jeerh was leaving for India on October 5, 2011. [ 6 ] On October 4, 2011, Mr. Jeerh and Mr. Verma attended before Ravinder Bagga, a Calgary lawyer. Mr. Jeerh says that Mr. Verma met with Mr. Bagga for a few minutes alone, and then he joined them. Mr. Verma said that he needed security for the loan. Mr.

Bagga prepared a promissory note, a resolution of the directors of Kamal Holdings and Ventures Inc. (a company wholly-owned by Mr. Jeerh that owned property in Calgary), and a power of attorney. [ 7 ] The promissory note provides for Mr. Jeerh to pay Mr. Verma $250,000 “for value received” plus interest at 12% per annum.

It includes the following provision: For the purpose of securing, to and for the benefit of Mukesh Kumar Verma the sum of $250,000.00 plus accrued interest, I DO HEREBY charge the said land for the benefit of Mukesh Kumar Verma and authorize Mukesh Kumar Verma, to file a mortgage and / or caveat on 316-3 rd Street S.E. Calgary, Alberta to protect it’s [sic] interest against the said lands. [ 8 ] The due date of the promissory note is October 4, 2012. Mr. Jeerh says that the due date was discussed.

He was concerned to ensure that he would be able to pre-pay the note without penalty and he intended to repay it before the due date. He testified that Mr. Verma suggested a due date of a year. They agreed on payments of $2,500 per month, but the promissory note does not reflect this. Mr. Jeerh thought that Mr. Bagga was present during these discussions. [ 9 ] The resolution of Kamal Holdings provides in a

preamble that the company wished to refinance certain property it held in Calgary in the amount of $250,000 from a private lender. It authorized Mr. Verma to execute security documents on behalf of the company. [ 10 ] Mr. Jeerh says that he understood the purpose of the resolution to be that, if he could not make the monthly payments on the loan of $2,500 and was therefore in default, Mr. Verma could borrow money against the Calgary property. [ 11 ] Under the power of attorney, Mr. Jeerh appointed Mr.

Verma to act on his behalf “to deal, in any manner, with the looking after and maintenance of my Hotel, Sylvenlake [sic] Inn and Resort at Sylvenlake, Alberta, in my name and on my behalf.” [ 12 ] Mr. Jeerh says that he expected that Mr. Verma would be acting for him to handle the loan proceeds of $250,000. He didn’t expect that Mr. Verma would have to look after the hotel in his absence, but thought that Mr. Verma may need the power of attorney if he had to attend the hotel for any reason. [ 13 ] Mr. Jeerh says that he then asked Mr. Verma for the money. Mr. Verma said that the money had left Mr.

Bagga’s office. [ 14 ] Mr. Jeerh said that, at this point, he started to get worried. He insisted that Mr. Verma accompany him to his lawyer, Michael Dorchik. [ 15 ] Mr. Jeerh showed Mr. Dorchik the documents he had signed and told him the whole story. He says that Mr. Dorchik told him that he should not have signed the documents until he had received the money. However, Mr. Verma said, in the presence of Mr. Dorchik, that he would deliver the money to Mr. Dorchik in a day or two. Mr. Jeerh told Mr. Dorchik that he was to hold the money till he came back from India. [ 16 ] Mr.

Dorchik confirmed that he had been retained by Mr. Jeerh to deal with the hotel foreclosure and receivership proceedings in the spring of 2011. He testified that on September 29, 2011, Mr. Jeerh brought Mr. Verma to his office to talk about arrangements because Mr. Verma was going to loan Mr. Jeerh $250,000. He recalled that Mr. Jeerh was going to go to India the next day or the day after that. Mr. Verma confirmed in his presence that he would deliver the money to Mr. Dorchik within the next day or two. Mr.

Jeerh instructed him to hold the money in his trust account with a view to negotiating with the mortgagee and Mr. Jeerh’s partners in the hotel. [ 17 ] The money never arrived. On October 11, 2011, Mr. Verma, acting under the authority of the Kamal Holdings resolution, mortgaged the Calgary property to Paramjit Singh Ruprai for consideration of $250,000, interest at 12% and monthly payments of $2,500 commencing on November 1, 2012, due in one year. [ 18 ] In an Order to Pay dated October 13, 2011, Mr.

Verma, as agent for Kamal Holdings, instructed the solicitor who acted for all parties in the mortgage transaction to pay $40,000 “for legal fees regarding Satpal”. Outstanding property taxes on the Calgary property owed by Kamal Holdings in the amount of $30,226.24 were withheld from the proceeds of the mortgage and paid, as was the $40,000 for “Satpal’s legal fees” and various other adjustments and fees, leaving $168,929.92, which was disbursed to Mr. Verma. There is no disagreement that the $40,000 in legal fees related to a personal debt owed by Mr. Verma to Satpol Nahal, and that Mr.

Verma used the proceeds advanced to him for his own purposes, and not for anything related to Kamal Holdings or the hotel. [ 19 ] Mr. Jeerh testified that, while he was in India, he learned from his son-in-law that Mr. Verma had borrowed money against the Calgary property owned by Kamal Holdings. He was very upset, and tried to reach Mr. Verma two or three times, but Mr. Verma never returned his calls. He called Mr. Nahal, his mutual friend, to ask why Mr. Verma had done what he had done. He decided to come back from India early to deal with the matter.

[ 20 ] Vipon Dole, Mr. Jeerh’s son-in-law, was called by Mr. Verma to support Mr. Verma’s version of events, but his testimony corroborated Mr. Jeerh’s evidence. He testified that while Mr. Jeerh was in India, Mr. Dole received a call from Mr. Ruprai, who told him that Mr. Verma had borrowed money on the Calgary property. Mr. Dole told Mr. Ruprai that he didn’t know anything about it, and would call Mr. Jeerh. Mr. Jeerh was very upset, and told Mr. Dole that Mr. Verma was not supposed to borrow money against the property. [ 21 ] Mr. Dorchik testified that Mr.

Jeerh came to his office upon his return from India, on or about December 12, 2011. He told Mr. Dorchik that Mr. Verma had taken advantage of him, showed him the three documents he had signed, and said that Mr. Verma had told him he had to sign the documents before he got the $250,000. Mr. Jeerh told Mr. Dorchik that he had trusted Mr. Verma and that he was under pressure as he was about to leave. [ 22 ] Mr. Jeerh told Mr. Dorchik what he had found out on his return from India about the mortgage on the Calgary property, and the fact that Mr. Verma had used the money for his own benefit. [ 23 ] Mr.

Jeerh said that when he got back from India, he called Mr. Verma but that Mr. Verma was avoiding him. He went to Mr. Verma’s house two or three times. He said that over the next six or seven months Mr. Verma made many promises to repay the money, and that he admitted to Mr. Jeerh that he shouldn’t have done what he did. [ 24 ] Mr. Dorchik testified that, sometime after his meeting with Mr. Jeerh in December 2011, Mr. Jeerh brought Mr. Verma in to his office. To Mr. Dorchik’s surprise, Mr. Verma was apologetic. He admitted taking out the mortgage and said that he would be assisting Mr.

Jeerh to get the money back. [ 25 ] In April, 2012, Mr. Jeerh received a Certificate of Lis Pendens in the mail with respect to an action to enforce the Ruprai mortgage. He was contacted by Mr. Ruprai, whom he had never met. Mr. Ruprai said that Mr. Verma had made three or four payments on the mortgage and then stopped. Mr. Jeerh paid Mr. Ruprai $10,000 on May 25, 2012, and then on June 28, 2012, paid an additional $250,000 to pay out the mortgage. [ 26 ] In the meantime, the foreclosure on the Sylvan Lake hotel continued. Mr.

Jeerh found a buyer for the hotel and funded that buyer, so that he would not be liable on his personal guarantee. In total, Mr. Jeerh invested $2.1 million in the hotel, which he was unable to recover. [ 27 ] Mr. Verma denied that he had ever offered to lend Mr. Jeerh money. [ 28 ] Mr. Verma conceded that from the end of May until October, 2011, he and Mr. Jeerh had discussed him purchasing Mr. Jeerh’s shares in Sylvan Lake Holdings. Mr. Verma acknowledged that in May, 2011, he was acting under a power of attorney for Mr. Rafiq, who was his friend. He knew from his involvement with Mr.

Rafiq that the hotel was in serious financial difficulty, and that the mortgagee was commencing foreclosure proceedings. He also knew of the difficulties between Mr. Jeerh and Mr. Rafiq. [ 29 ] Mr. Verma testified that there was no price agreed for the shares, that the negotiations ranged from $400,00 to $200,000. At questioning, however, he agreed that he was going to pay $200,000 to $250,000 for the shares. [ 30 ] Mr. Verma testified that he told Mr. Jeerh a couple of months prior to October, 2011 that he was not going to purchase the shares, while Mr.

Jeerh said that it was only a couple of days prior to October 4, 2011. I am satisfied from Mr. Verma’s answers on cross-examination that he was still considering purchasing the shares until early October, 2011. [ 31 ] Mr. Verma also testified that he and Mr. Jeerh had discussed him becoming a partner in the hotel business, but that he had decided against that. [ 32 ] Mr. Verma said that, just before he went to India, Mr. Jeeh gave Mr. Verma the promissory note in recognition of what he had done for Mr. Jeerh. On questioning about the services he had rendered, Mr. Verma suggested that he had driven Mr.

Jeerh various places since May, 2011. He said that Mr. Jeerh suggested going to a lawyer to sign various documents for Mr. Verma’s protection, so that Mr. Verma could use the money for the hotel or for his own purposes. [ 33 ] Mr. Verma said that Mr. Jeerh had given him the resolution of Kamal Holdings so that he could borrow money against the property to satisfy the promissory note. Mr. Verma suggested that the October 4, 2012 due date on the promissory note was a clerical mistake and that the $250,000 was supposed to be immediately owing. [ 34 ] Mr.

Verma then testified, somewhat inconsistently with his previous story, that after he mortgaged the Kamal Holdings property, he only received roughly $169,000 from the proceeds, and he realized that there was no way he could deliver $250,000 to Mr. Dorchik. He said that he had no direct communication with Mr. Jeerh while he was in India, but that he received a message from him, from either Mr. Dole or Mr. Nahal. He testified at first that the message was that he was to hold the money till Mr. Jeerh got back.

He later elaborated in his testimony that he was told not to give the money to anyone and not to do anything. Later still, he said that the message was that he was not to give the money to Mr. Dorchik. Finally, Mr. Verma suggested that the “clear message” was that he was not to use the money for the Sylvan Lake hotel. He then testified that, since it was clear when Mr. Jeerh gave him the promissory note that the money was his, he decided to go “with the initial plan” and use the money for his own benefit. [ 35 ] Mr.

Verma was asked whether he knew at the time he mortgaged the Kamal Holdings property that the promissory note was not due until October 12, 2012. He insisted that this was a clerical error. He also suggested that Mr. Bagga was Mr. Jeerh’s lawyer. [ 36 ] He acknowledged that the power of attorney imposed a duty on him to act on Mr. Jeerh’s behalf in looking after the hotel. He agreed that he knew the hotel was in financial trouble and needed money urgently. He acknowledged that he knew Mr. Jeerh was trying to find money for the hotel.

He also acknowledged that the money that would be obtained was to benefit the hotel at Sylvan Lake, at least at the time the documents were signed. He suggested that the money was his money, in accordance with the promissory note, but “in the meantime”, he “could” use the money for the Sylvan Lake hotel.

[37] Mr. Verma remembered a meeting in Mr. Dorchik’s office in December or January, but denied telling Mr. Dorchik that hewas sorry for what he had done. He denied promising to repay the money. He also suggested that Mr. Jeerh had told him he could give$51,000 of the money he obtained from mortgaging the Calgary property to Mr. Rafiq, although he agreed at questioning that none ofthe approximately $169,000 he received was used for the benefit of Mr. Jeerh. [38] Mr. Verma said that, after he returned from India, Mr.

Jeerh had changed his mind about giving him the money, and harassedhim and his family about it. [39] Mr. Dole denied ever giving Mr. Verma a message when Mr. Jeerh was in India about how he could use the money from themortgage. Mr. Nahal was a very reluctant and evasive witness. He testified that Mr. Jeerh had called him from India a few times, andtold him to tell Mr. Verma that he was coming back from India, and to hold off and not do anything. He said he did not recall if he knewthat the $40,000 that Mr.

Verma paid him was obtained from mortgaging the property of Kamal Holdings. [40] When asked whether he had told Mr. Verma that Mr. Verma was allowed to use the money from the mortgage for his ownpersonal purposes, Mr.Nahal said that he had no authority to do that. Mr. Nahal was very reluctant to give a straight answer to questionsabout the alleged “message” but said that he just conveyed a message to Mr. Verma to hold off. [41] Mr. Bagga was called, but his evidence did not clarify matters to any degree. He said he could not say if he was Mr. Verma’slawyer or Mr.

Jeerh’s lawyer, that the two of them had been waiting for him one day when he returned from court. He said he draftedthree documents for them on an urgent basis as Mr. Jeerh was leaving for India the next day. He did not charge either Mr. Verma or Mr.Jeerh. He said that he drafted the promissory note with a due date of October 4, 2012 because that “must have been” his instructions. Hedenied knowing anything about the $250,000 or a loan. Findings of Fact [42] I find Mr. Jeerh was a credible witness. He was confused about dates of meetings, and appeared to conflate an earlier meetingwith Mr.

Dorchik with the meeting of December 12, 2011 when he returned from India, but his testimony was corroborated in essentialmatters by Mr. Dorchik, who was credible and has no interest in the proceedings and by Mr. Dole. I accept that Mr. Jeerh was forced toact precipitously with respect to Mr. Verma’s suggestions because of his impending trip to India and the financial pressures facing theSylvan lake hotel. I find that he found out about Mr. Verma’s misconduct through Mr. Dole and never authorized Mr. Verma to use thesecurity documentation to mortgage the Calgary property. [43] In contrast, Mr.

Verma’s testimony was unbelievable. He was inconsistent and contradictory in his version of events. Hissuggestion that Mr. Jeerh would pay him $250,000 for driving him around was incredible. His evidence was unsupported by either Mr.Dole or Mr. Nahal. His admitted conduct was inconsistent even with the odd wording of the documents prepared by Mr. Bagga. There isno air of reality about Mr. Verma’s constantly shifting version of events. I believe Mr. Dorchik’s evidence that Mr. Verma told Mr.Dorchik that he would deliver the $250,000 he was to loan Mr. Jeerh within a day or two of the September 29, 2011 meeting.

I alsobelieve that Mr. Verma was apologetic in Mr. Dorchik’s presence in a meeting in early 2012, admitted taking out the mortgage andagreed to assist Mr. Jeerh in recovering the money. [44] In

summary, I find that Mr. Verma agreed to lend $250,000 to Mr. Jeerh, and that Mr. Jeerh provided him with security forthe loan in the form of the promissory note, the resolution and the power of attorney. I accept Mr. Jeerh’s testimony about how thesedocuments were to be used. Mr. Verma did not advance the $ 250,000 and instead defrauded Mr. Verma of that amount through theunauthorized use of a mortgage on the Calgary property. Mr. Jeerh was forced to pay $260,000 to discharge the mortgage. I find thatthere was no message from Mr. Jeerh that authorized Mr.

Verma’s use of the security documentation in the manner he did. II. Analysis A. Claim in Conversion [45] The essential features of the tort of conversion are: (1) a wrongful act; (2) involving a chattel; (3) consisting of handling,disposing or destruction of the chattel; (4) with the intention or effect of denying or negating the title of another person to such chattel:Clow v Gershman Transport International Ltd. (2000), 2000 ABQB 360 , 265 A.R. 181 at para 13. [46] Since he failed to advance the funds he had agreed to loan Mr. Jeerh, Mr. Verma had no claim in debt against Mr.

Jeerh, andno authority to use the documentation drafted as security for a loan. While the special resolution of Kamal Holdings appears on its faceto give Mr. Verma authority to mortgage the Calgary property, the resolution was given as part of a security package in the context ofthe loan that was never advanced, and was therefore used fraudulently by Mr. Verma. [47] Mr. Jeerh’s testimony, which I accept, is that the purpose of the special resolution was to give Mr. Verma security against theCalgary property in the event he defaulted on the loan. [48] Mr. Verma’s own evidence was that Mr.

Jeerh had given him the special resolution so that he could borrow money againstthe property to satisfy the promissory note. Even if Mr. Verma had provided the $250,000 he had agreed to loan Mr. Jeerh, thepromissory note was not due until October 4, 2012. I find that the due date on the promissory note was not a clerical mistake; it isimplausible that the money to be loaned was to be immediately due and owing on the same day the note was executed. [49] Therefore, I find that Mr. Verma dealt with the Calgary property in a manner that was not authorized by Mr.

Jeerh, eitherexpressly or impliedly, and that he is liable in conversion in the amount of $239,773.76, being the $260,000 paid to Mr. Ruprai todischarge the mortgage, minus the $30,226.24 withheld from the proceeds of the mortgage to pay outstanding property taxes. Mr. Jeerh

is also entitled to pre-judgment interest on this amount, in accordance with the Judgment Interest Act . B. Fiduciary Relationship [ 50 ] Under the power of attorney, Mr. Jeerh appointed Mr. Verma to act on his behalf to look after and maintain the Sylvan Lake hotel. Mr. Jeerh clarified that this meant that Mr. Verma would handle the loan proceeds of $ 250,000 for the benefit of the hotel. Mr. Verma acknowledged that the power of attorney imposed a duty on him to act on Mr. Jeerh’s behalf in looking after the hotel and that at the time the documentation was signed, the money was to go to the benefit of the hotel.

I do not accept his testimony that he received a message from Mr. Jeerh that would change this duty. [ 51 ] I find that, in the context of the loan transaction, the power of attorney imposed a fiduciary obligation on Mr. Verma to use funds loaned to Mr. Jeerh for the benefit of the hotel, a duty that he breached by failing to advance the funds as promised and by using the funds obtained by mortgaging the Calgary property for his own benefit. I find that Mr. Verma misappropriated funds while acting in a fiduciary capacity with respect to Mr. Jeerh. C. Punitive Damages [ 52 ] Mr.

Jeerh claims either aggravated or punitive damages, in addition to damages in conversion. [ 53 ] I cannot find a sufficient basis for finding that Mr. Verma’s conduct, while callous and high-handed caused sufficient emotional or psychological distress to Mr. Jeerh to justify an award of non-pecuniary aggravated damages. [ 54 ] However, I find that Mr. Verma’s conduct was egregious. He knew that Mr. Jeerh needed money to save the hotel; he knew that there were issues between Mr. Jeerh and the Rafiq family, for whom he was acting, that were causing Mr. Jeerh severe financial distress, and he knew that Mr.

Jeerh was very shortly going to be leaving the country. He caused the preparation of a package of security documentation that gave him very wide direction and he lied to Mr. Jeerh about the availability of money to provide as a loan. Within days of Mr. Jeerh leaving the country, he mortgaged the Calgary property and used the funds for his own benefit, contrary even to the security documentation he had tricked Mr. Jeerh into signing. [ 55 ] This is conduct that needs to be denounced and deterred.

It was a violation of trust that merits condemnation, and I am not satisfied that the award of damages in conversion is sufficient to adequately address this situation, as it only address Mr. Jeerh’s loss from conversion, and not Mr. Verma’s conduct in failing to provide the promised loan or in failing to fulfill his fiduciary responsibility under the power of attorney. [ 56 ] I therefore award Mr. Jeerh $ 25,000.00 in punitive damages. D. Costs [ 57 ] Costs were addressed during argument at trial. Mr.

Jeerh has been entirely successful in this action and is entitled to costs under the appropriate column, payable forthwith. Dated at the City of Calgary, Alberta this 25 th day of February, 2016. B.E.C. Romaine J.C.Q.B.A. Appearances: Shawn.T. MacIsaac and Thomas J. Eaves Pittman MacIsaac and Roy for the Plaintiff

Verma Mukesh Defendant