Why now, Gupta lawyers ask, as Bank of Baroda cries reputational harm

Ajay and Atul Gupta speak to the City Press from the New Age Newspaper's offices in Midrand. (Muntu Vilakazi, Gallo Images, City Press, file)
Ajay and Atul Gupta speak to the City Press from the New Age Newspaper's offices in Midrand. (Muntu Vilakazi, Gallo Images, City Press, file)

Johannesburg - Bank of Baroda, the last resort for a group of Gupta-owned firms to stay afloat, has told the North Gauteng High Court that it wanted to cut ties with the controversial family's group of companies, as it feared reputational damage from conducting continued business with the firms.

Twenty Gupta-owned companies on Friday sought an urgent interdict to prevent the Indian-based bank from closing their bank accounts.

The court application was a last-ditched attempt by the companies to stay in business, after four of South Africa's biggest banks - Absa, Nedbank, Standard Bank and First National Bank - closed their Gupta-related accounts amid allegations of state capture.

The Bank of China also closed its Gupta accounts just three weeks after one of the companies, VR Laser, had opened an account with it.

The Gupta-owned companies, including Annex Distribution, Sahara Computers, VR Laser Services, Koornfontein Mines, Oakbay Investments, Optimum Coal Mine, Shiva Uranium, Tegeta Exploration, and Mabengela Investments, brought the urgent application in an effort to retain banking services. 

Judge Hans Fabricius said on Friday after a marathon court session, however, that he would only rule on the matter in two weeks' time.

Bank of Baroda had given the Gupta-owned firms until the end of September to remove their money from the bank. In response, the Guptas turned to the court last month in a desperate effort to keep the accounts open.

That case will only be heard in December, which forced the 20 companies to try to interdict the bank from closing the accounts in the interim.

In arguments that lasted till 17:00 on Friday, the court heard that six banks had refused to do business with the firms.

The Bank of Baroda argued that they no longer wanted to do business with the firms, because of the reputational damage and risks the firms presented.

Advocate Rafik Bhana, on behalf of some of the Gupta-owned firms, argued that the Bank of Baroda had been aware of the political risk associated with doing business with Gupta companies for more than 18 months - since the release of the Public Protector's State of Capture report.

He said the Bank of Baroda was effectively the last chance for these businesses to keep banking services operational, and asked that the accounts be kept open until at least December, when the court case will be heard, so as to not prejudice the firms. 

"How will more than 7 000 employees be paid if the bank closes the account?," he asked. He also argued that if even though a banking transaction is flagged as suspicious, this does not necessarily make it unlawful.

Pinch of salt

Adv Philips Daniels, also acting for the Gupta-owned firms, argued it was "half baked" for the bank to argue it had suffered reputational damage.

He said that, as the Public Protector's report had made no reference to the bank, it could not argue its reputation had been damaged. "It is not good enough," he said. 

He also argued that the basis on which the Bank of Baroda terminated the agreement with the firms was invalid. "There was no evidence that any of the transactions in questions had an adverse affect on the bank," said Daniels.

Bank of Baroda counsel, Adv Dennis Fine, said it was unfortunate that the firms could not find another bank.

He said that 36 suspicious transactions from the Gupta-owned firms, totalling R4.2bn, had been reported to the Financial Intelligence Centre (FIC) up to July 2017. He added that the large number of flagged transaction could open the Bank of Baroda to the risk of legal liability.

"[The risk] has increased substantially as a result of the other banks closing their accounts," Fine argued, adding that arguments by the Gupta-owned companies that it was mere speculation that the bank was suffering from irreparable harm held no substance. 

Fine said the effort to monitor the accounts was "tremendous" and had imposed additional costs on the bank.

He said the bank had to virtually monitor every transaction from the group of companies, adding there were as many as 150 – 200 per week.

This was taking up to 8 hours a day of senior executives’ time.

Advocate Gilbert Marcus also weighed in for the bank, arguing that granting the interdict would violate the rights of the bank. He said the overall case proposed by the Gupta-owned firms was "preposterous".

"We have made absolutely clear that we don't wish to be associated with the Gupta firms. It is a right we have, it is a constitutional right," he said. 

Bank of Baroda and FIC

It also emerged this week that the FIC had fined the Bank of Baroda R11m for its conduct when it helped the Guptas buy Optimum coal mine from Glencore in 2016.

The fine was levied after auditors Deloitte – appointed by the South African Reserve Bank (SARB) – conducted an investigation into transactions related to the R2.15bn acquisition of the mine by Tegeta in 2016, according to an exclusive report on Moneyweb.

Meanwhile Kumar Jha, acting CEO of the Bank of Baroda in South Africa, said in court papers that the Guptas posed a serious risk to the bank. “The Gupta family and the companies face very serious allegations of unlawful conduct including corruption and money laundering,” he said. 

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