Financial Daily
from THE HINDU group of publications

Monday, July 02, 2001



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Bankruptcy proceedings -- ITC accepts new Chitalias' offer

C.R. Sukumar


ITC Ltd has accepted the fresh offer made by the US-based Chitalias -- Mr Suresh Chitalia and Mr Devang Chitalia -- who have scaled down their claims for exemption of some of their assets in the bankruptcy proceedings before the Florida Court.

ITC had filed in the US a suit for recovery of $12.19 million against the Chitalias, based on whose complaint the Enforcement Directorate commenced its investigation against the tobacco major.

ITC tried to ensure full disclosure of all the original documents, records and books of the Chitalias before the US Court, which was the only appropriate forum to order a full and authentic disclosure of the Chitalias' documents.

As the Chitalias refused to make complete disclosure of their documents despite of repeated directions, the US Court decreed the entire claim of $12.19 million of ITC against the Chitalias and also ordered costs and interest of $2.9 million. Further, the court dismissed the entire Chitalia counter-claim of $55 million. The court also condemned the Chitalia action as willful and in bad faith resulting in substantial prejudice to ITC.

Following this, the Chitalias filed bankruptcy petitions before the Bankruptcy Court, Florida. While ITC had contested these bankruptcy petitions, the proceedings were going on in the Florida Bankruptcy Court for the last two years. According to ITC offi cials, the Chitalias avoided making full disclosure of their relevant and authentic records even before the Bankruptcy Court.

During the initial phase of proceedings, the Chitalias made an offer proposing that they would submit to a judgment of the Bankruptcy Court disallowing their applications to be discharged as bankrupt provided ITC was willing to withdraw its objections to their claims for exemption of some of their assets.

ITC rejected the Chitalias' offer following the advise of its US legal counsel that a large part of the Chitalias' claims for exempted assets was not legally sustainable.

Later, the Chitalias made a second offer of judgment in which they scaled down their claims of exempted assets. Following this, ITC's US counsel recommended that the Chitalias' offer be accepted since, under the US law, they would be entitled to the rema ining exemptions.

Based on this advise, ITC accepted the offer and the bankruptcy petitions of the Chitalias were disallowed by the Florida Bankruptcy Court. According to ITC officials, this has defeated the objective of the Chitalias to get themselves discharged as bankr upt.

However, according to ITC officials, the bankruptcy proceedings before the Florida Court were continuing for the purpose of collecting and distributing the property of the bankrupt estate and ITC's efforts for recovery of its dues against the Chitalias w ould continue.

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