Big Trouble in Park Chinois

bowers.law client, Harry Hassomal Mohinani recently?won a landmark case before the Court of Appeal of the Supreme Court of Mauritius against Bay Capital Investments Ltd (BCI), a collective investment scheme (CIS) which had an underlying investment in a high-end Chinese dining and entertainment restaurant in Mayfair, London known as the Park Chinois project. The CIS Manager of the project was?Bay Capital Partners Ltd (Investment Manager), whose Founder and Managing Partner is?Siddharth Dinesh Mehta, who is also a director of BCI and the Investment Manager.?

Park Chinois was designed to be a high-end luxury Chinese restaurant which would hark back to the age of 1930s Shanghai dining, bringing a vibrant opulence to the high-class streets of Mayfair. The cherry on top of this culinary experience was to be Hong Kong born chef, Alan Yau, known for founding the restaurant chain Wagamama as well as more curated dining experiences such as Hakkasan. With the marketability of such international talent, Park Chinois stood out as an attractive investment opportunity.?

The dispute arose when startlingly between 2013 - 2015, the cost of the restaurant ballooned from ￡17.4 million to around ￡39 million, raising suspicion over the handling of its development. Restructuring efforts would soon follow which further concerned investors seeing more and more of their money spent with less and less to show for it.?

In addition to soaring costs, there was limited transparency to investors. In a forced restructuring, investors who would not continue to back the already inflated project were written down to less than 1% of their investment. Simultaneously, a conflicted Mehta repaid his prior loans into the project and brought the same back and converted it into equity at the cost of other investors, which resulted in Mehta’s own stake rising to over 75% of the shareholding.

The final nail in the coffin was the unceremonious removal of Yau from the project. He was replaced by Kin Min How, who is not a celebrity chef. ?With Yau’s involvement and marketability having been a large part of the draw, this further weakened trust in the management and faith in the project since the money was suddenly no longer being invested into the idea which had been the initial drawcard for investors. Additionally, the way in which Yau was removed displayed a willingness to keep investors out of the loop as they were kept in the dark about this decision, let alone afforded any opportunity to be heard. Yau’s removal also opened-up an opportunity for Mehta to take full control of Park Chinois, whilst remaining the fiduciary for CIS, so creating a perceived or actual conflict of interests.

Mohinani made a successful application for leave to bring a derivative action in the Mauritius Court under s. 170(1) of the Mauritius Companies Act against the directors of BCI, Mehta and the Investment Manager.?

The Court of Appeal rejected BCI’s subsequent appeal from that Decision and essentially upheld the findings in the court below that:

• a claim against the BCI directors is likely to succeed as at all material times, it appeared that Mehta in his capacity as a director and founding member had not been acting in the best interests of BCI;
• Mehta’s affidavit evidence was contradictory / unsatisfactory;
• Mehta was more interested in saving the project than acting in the best interests of BCI;
• the facts of the case are that there appeared to have been a failure by the directors of BCI (Mehta and the Investment Manager) to act in good faith and in the best interests of BCI; and ultimately
• the acts of Mehta and the stand adopted by the BCI board were questionable and need to be investigated during a trial, thus warranting that Mohinani’s application for leave to bring a derivative action under s. 170(2) of the Companies Act was granted.?

Other investors (including Tanglin International Management) have taken out their own related actions in the Mauritius Court to secure their respective investments in the Park Chinois project.?

This case has only been the tip of the iceberg when it comes to unreliable investments for Mehta. It is understood that during mid-2022, Mehta had to settle about US$27,000 with the Securities and Exchange Board of India (SEBI) after being accused of being involved in insider trading. Prior to this, Mehta is also alleged to have been the subject of an investigation by the Enforcement Directorate in India into a financial scam involving IL&FS. Mehta was one of 14 board directors who had previously been removed, only later to find himself under investigation for money laundering. The board, including Mehta, were found to be diverting loans into their own accounts. It has been alleged that Mehta siphoned off US$363,000 from a US$3.6 million loan borrowed by Indus Equicap Consultancy, moving the funds into his personal account. It is also believed that Mehta along with 3 others recently agreed a US$520,000 settlement of another SEBI case for alleged violation of insider trading rules.

These Mauritius Court proceedings brought by investors in the Park Chinois project highlight the need for vigilance in respect of conflicts of interest and the fiduciary duties for directors of companies to act in the best interests of the company and its shareholders, not themselves and that in the absence of effective regulation, investor / shareholder activism is crucial.

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Click on the links below for the two Mauritius Supreme Court Judgments:?

Supreme Court of Mauritius (Bankruptcy Division) 2022 SCJ 299

Supreme Court of Mauritius (Court of Appeal) 2023 SCJ 516

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Insider trading notes:

https://www.business-standard.com/article/companies/two-entities-pay-rs-2-43-cr-to-settle-insider-trading-case-with-sebi-122061000752_1.html

https://www.newindianexpress.com/business/2022/Jun/10/two-entities-pay-rs-243-crore-to-settle-insider-trading-case-with-sebi-2464052.html

https://www.sebi.gov.in/enforcement/orders/may-2022/settlement-application-bearing-no-6497-2021-filed-by-siddharth-dinesh-mehta-in-the-matter-of-trading-activities-of-certain-entities-in-the-scrip-of-religare-enterprises-limited_59280.html