Diamond Jewellers Ltd v Mittal (t/a Mittal Trading Co)

The claimant company, Diamond Jewellers Ltd. (“Diamond”) was incorporated on 18 April 2002. It appears that its business was that of the buying and selling of jewellery, so far as is material to the issues in this action, gold jewellery. Diamond appears to have traded from about 1 July 2002 until about April 2008. From 1 July 2002 until 27 February 2013 the company secretary of Diamond was Mr. Chaudry Nasir Ali. His wife, Mrs. Shamim Akhtar Ali, was the sole director of Diamond from 1 October 2003 until 18 February 2013. Although the issued share capital of Diamond was £1000, divided into 1000 £1 shares, only one £1 share was ever issued. That share was transferred to Mrs. Ali on 1 October 2003 and is still held by her.

It appears that the business of Diamond ceased, for practical purposes, after the arrest of Mr. Ali and the raiding by HM Revenue and Customs of the business premises of Diamond in April 2008. Mr. Ali was subsequently convicted at Kingston-upon-Thames Crown Court on 12 December 2012 of conspiracy to cheat the public revenue and was sentenced, on 19 December 2012, to a term of imprisonment of nine years. What was alleged against Mr. Ali, in essence, was that he arranged for the purchase of gold jewellery in Dubai in the United Arab Emirates and for such jewellery to be brought by a courier to Frankfurt Airport in the Federal Republic of Germany. There he, or an associate, met the courier and brought the gold jewellery into the United Kingdom as if it had been purchased in Germany and so was not subject to Value Added Tax upon importation into the United Kingdom.

The defendant in this action, Dr. Virendra Mittal, is a general medical practitioner and practises as such in London. However, he is also a trader in wholesale gold jewellery, under the name “Mittal Trading Co.”.

Dr. Mittal has a brother, Mr. Shashi Mittal. Mr. Mittal lives in New Delhi in India. He is the owner of a gold jewellery manufacturing business in India called M/S Gold Craft International, to which business I shall refer in this judgment as “Gold Craft”. However, Mr. Mittal is also a director of a wholesale gold and jewellery business in Dubai called Mittal Jewellery DMCC (“Mittal Dubai”).

It was common ground that Dr. Mittal agreed, on or about 25 May 2006, to purchase from Diamond a quantity of gold jewellery (“the May Jewellery”) weighing 6,530 grammes for the sum of £88,308.17, inclusive of Value Added Tax. The May Jewellery was delivered to Dr. Mittal in May 2006 and he paid for it by bank transfer from his account (“the Bank of Ireland Account”) maintained at the Sydenham Road, Croydon branch of Bank of Ireland on 18 September 2006.

It was also common ground that Dr. Mittal agreed, on or about 10 November 2006, to purchase from Diamond a quantity of gold jewellery (“the November Jewellery”) weighing 7,999.6 grammes for the sum of £99,260, inclusive of Value Added Tax. The November Jewellery was delivered to Dr. Mittal and he paid for it by bank transfer from the Bank of Ireland Account on 10 November 2006.

It was not in dispute before me that Mr. Ali caused Diamond to instruct its bankers, Barclays Bank Plc (“Barclays”), to make two transfers to an account (“the Dubai Exchange Account”) maintained at the Moorgate, London branch of Habib Bank AG Zurich. The Dubai Exchange Account was in the name of Dubai Exchange Centre LLC (“Dubai Exchange”), and that was the beneficiary named on the instruction document completed by Mr. Ali for Barclays. However, after the beneficiary name on the instruction document used by Barclays there was provision for “Payment Details” to be added. As completed in relation to the two transfers relevant to this action the “Payment Details” on the instruction documents were “Please forward this payment to Mittal [in one case, Mittle in the other] Trading Co.”. The first instruction was dated 19 September 2006 and related to a transfer of £88,308.77. The second instruction was dated 13 November 2006 and related to a transfer of £99,260.

It is immediately apparent that the first of these instructions was given the day after Dr. Mittal had paid an amount of £88,308.17 into the bank account of Diamond, and the second was three days after he had paid an amount of £99,260 into that bank account.

What was said in this action on behalf of Diamond was that, having received the May Jewellery, but not having paid for it until 18 September 2006, immediately after making payment Dr. Mittal sought to rescind the transaction, and get his money back in return for handing back the May Jewellery. Mr. Ali was agreeable to the course proposed, it was said, and so caused Diamond to instruct Barclays to transfer the money paid – that was the case of Diamond although what was transferred was £0.60 more than had been paid – to an account nominated by Dr. Mittal. The account which Dr. Mittal was said to have nominated was not, as one might have supposed, the Bank of Ireland Account from which the money had originally come, but the Dubai Exchange Account. Notwithstanding the fact that Diamond had, on its case, refunded the money for the May Jewellery to Dr. Mittal, Dr. Mittal did not return the May Jewellery and still has not done so.

Despite the failure of Dr. Mittal in the interim to return the May Jewellery, the case for Diamond was that when Dr. Mittal on 13 November 2006 sought to rescind the transaction in relation to the November Jewellery, and again get his money back in return for handing back the November Jewellery, Mr. Ali was once more agreeable. The case for Diamond was that, having been bitten once by Dr. Mittal receiving money without returning jewellery, Dr. Mittal then bit Diamond again, for the November Jewellery was not, and still has not been, returned.

In this action Diamond claimed, in effect, the amounts of the sums said to have been paid to the Dubai Exchange Account for the benefit of Dr. Mittal, alleged to total £187,568.17 (so omitting the curious £0.60 difference between the sum Dr. Mittal paid on 18 September 2006 and the sum transferred to the Dubai Exchange Account on 19 September 2006), as the alleged value of the May Jewellery and the November Jewellery which, in breach of contract, Dr. Mittall had failed to return. There was an alternative claim in conversion, but that added nothing of substance.

Dr. Mittal’s case was quite simple. He contended that he had never requested or agreed that either the transaction in relation to the May Jewellery or the transaction in relation to the November Jewellery be rescinded on terms that he would be repaid what he had remitted to Diamond and that he would return the relevant jewellery. The sums which it was accepted had been paid into the Dubai Exchange Account had not been paid for his benefit and he had not received the sums in question.

That case was fleshed out with the explanation, supported by Mr. Mittal, who was called to give evidence on behalf of his brother, that actually the monies transferred to the Dubai Exchange Account had been for the benefit of Mittal Dubai in payment of gold jewellery sold by Mittal Dubai to Diamond. The similarity of the amounts involved, it was suggested to Mr. Ali in cross-examination at the trial, was not coincidence, but was intended to put Diamond in a position to contend, as against HM Revenue and Customs, that neither the transaction in relation to the May Jewellery nor that in relation to the November Jewellery had proceeded, so that the Value Added Tax otherwise payable by Diamond in respect of those transactions was not due. Mr. Ali denied that suggestion.

In support of his evidence Mr. Mittal produced a copy of what, on its face, was a letter dated 15 November 2006 written by Mittal Dubai to Dubai Exchange and stamped on behalf of both Mittal Dubai and Dubai Exchange. The letter was in these terms:-

“Sub: Confirmation of receipts of Funds Transferred by Diamond Jewellers Limited

This is to confirm that we have received counter value of the following amounts remitted by Diamond Jewellers Limited UK for our account. These funds were paid to your account with Habib Bank AG Zurich, London Branch.

Date Amount

20.9.2006

Stg. Pounds 88308.77

13.11.2006

Stg. Pounds 99260

These payments were made in settlement of our trade transactions with Diamond Jewellers Limited uk [sic] through their buying agent Whiteline company LLC Dubai. We confirm the receipt of the same.”

In his witness statement made for the purposes of this action Mr. Ali commented upon that letter at paragraph 45, so far as is presently material:-

“I have been shown a letter dated 15 November 2006 purporting to be from Mittal Jewellery DMCC to the Dubai Exchange Centre LLC confirming receipt of funds from Diamond Jewellers Ltd. I now understand that Mittal Jewellery DMCC is SK Mittal’s business. I can confirm that the Claimant did not do any business with this company and I do not believe that this letter is genuine.”

Unhappily for Mr. Ali, Mr. Mittal requested Dubai Exchange to comment upon the contention that the letter dated 15 November 2006 was not what it purported to be. The response, of which a copy was adduced in evidence, was given in a letter dated 21 June 2014:-

“Ref: Your letter dated 15.11.2006 and 18.06.2014

With reference to your captioned letters please note that:

a.

We had obtained transfer confirmations vide your letter dated 15.11.2006 as a routine A[nti] M[oney] L[aundering] compliance only.

b.

We confirm that we never had any account in our books in the name of Dr. V.K. Mittal or Mittal Trading Co., London.”

Although it was suggested to Mr. Mittal in cross-examination by Miss Jennifer Thelen, who appeared on behalf of Diamond, that the letter dated 15 November 2006 written by Mittal Dubai to Dubai Exchange had been written later than the date which appeared upon it, it was not suggested that the letter dated 15 November 2006 had been produced simply for the purposes of resisting the claims made in this action. There was no attempt to suggest that the letter dated 21 June 2014 written by Dubai Exchange was not a genuine document. The contents of the latter letter made it plain, as it seemed to me, that the letter dated 15 November 2006 had been written by Mittal Dubai at the date it bore and at the request of Dubai Exchange.

If the evidence that the letter dated 15 November 2006 written by Mittal Dubai to Dubai Exchange was genuine was not fatal to the case of Diamond, if one contemplated the possibility that Dr. Mittal might have wished sums due to him from Diamond to be paid to his brother’s company, Mittal Dubai, it was certainly extremely damaging. That is no doubt why Mr. Ali sought to characterise it as not a genuine document.

Mr. Mittal explained in his evidence that Diamond had ordered a quantity of 22 carat gold jewellery which, as delivered, actually weighed 7,730 grammes. The basis of charging agreed between Mr. Mittal and Mr. Ali for manufactured gold jewellery supplied, Mr. Mittal told me, was that one gramme of manufactured 22 carat gold jewellery should be treated as requiring Diamond to pay 0.96 gramme of pure gold. Thus the 7,730 grammes of 22 carat gold jewellery delivered to it required Diamond to pay 7,420 grammes of pure gold. 22 carat gold actually contains 92% pure gold, so the rate of charge agreed enabled Mr. Mittal to make a margin of 4% to cover the cost of manufacture and a profit. Delivery of the 7,730 grammes of 22 carat gold jewellery was to be to a bonded warehouse at Dubai Airport for collection by a Mr. Sabir Ali, acting on behalf of Diamond. That jewellery was manufactured by Gold Craft, but, according to an invoice numbered GCI/52 dated 11 September 2006 raised by Gold Craft and addressed to Diamond, of which a copy was adduced in evidence, the price of the jewellery was to be paid to Mittal Dubai.

In fact, according to Mr. Mittal, it was he who delivered the jewellery the subject of the invoice numbered GCI/52 to the bonded warehouse in Dubai. At paragraph 11 of his first witness statement in this action, dated 11 April 2014, Mr. Mittal said:-

“I visited London on 13 September 2006 after depositing Jewellery in Dubai Custom. Mr. Ali told me that he would transfer funds in my account Mittal Jewellery DMCC in Dubai against this deposit of jewellery and would pay gold by fixing Gold once money is transferred. I provided him with details of my account in Dubai with Binsabt Jewellery LLC. After transferring funds to my account in Dubai with Binsabt Jewellery LLC he fixed the gold for which I gave him credit for that gold. Similar transaction was made in November 2006 where Jewellery was deposited and he transferred funds to me in Dubai and I gave him credit for the gold.”

For present purposes Binsabt Jewellery LLC can be treated as Dubai Exchange. The effect of paragraph 11 of Mr. Mittal’s first witness statement was that, instead of paying for the jewellery the subject of the invoice numbered GCI/52 in pure gold, Diamond was to tender payment in sterling, and the sum due was to be ascertained by reference to the price of gold on the world market on the date of payment. The sum of £88,308.77 paid pursuant to Mr. Ali’s instructions to Barclays on 19 September 2006, and received by Mittal Dubai on 20 September 2006, was, as it were, paid generally on account. Actually it exceeded the sum in fact due by an amount the equivalent on 20 September 2006 of 1,229.2 grammes of pure gold. The account of Diamond was credited with that amount.

Subsequently a further quantity of 22 carat gold jewellery was ordered by Diamond. The weight of the jewellery, as noted on an invoice numbered GCI/57 dated 6 November 2006 raised by Gold Craft and addressed to Diamond, of which a copy was adduced in evidence, was 11,130.1 grammes, the equivalent of 10,684.896 grammes of pure gold at the agreed charging rate. With the gold credit which Diamond had, what it had to pay for the second quantity of jewellery was 9,455.696 grammes of pure gold. Once again payment was to be made to Mittal Dubai, although the jewellery had been manufactured by Gold Craft. The sum of £99,260 received by Mittal Dubai on 13 November 2006 was in fact the equivalent on that day of the price of 9,450 grammes of pure gold, so there was a balance outstanding due in favour of Mittal Dubai of 5.696 grammes of gold – roughly, at that time, worth US$114.46, or £60.24. It was unclear whether that amount was ever paid.

What, in my judgment, sealed the fate of the claims made in this action were the facts that, first, it was inconceivable that, if Mr. Ali had made the agreement on 19 September 2006 that he had said that he had made with Dr. Mittal, he would have gone on to make a second agreement to like effect on 13 November 2006 when, on Diamond’s case, the May Jewellery, valued at £88,308.17, had not been returned; and, second, that there was no evidence to suggest that Diamond, or Mr. Ali, believed that there was any claim against Dr. Mittal in respect of the May Jewellery or the November Jewellery prior to the sending by a firm of solicitors called Charles Simmons, instructed on behalf of Diamond, of a letter dated 19 April 2012 to Dr. Mittal in which the claims made in this action were first advanced. This action was commenced by a claim form issued on 14 September 2012.

Mr. Ali was plainly aware, when he made his witness statement for the purposes of this action, of the difficulties these obvious points raised.

At paragraph 28 of his witness statement he offered this feeble explanation as to why he was prepared to enter into a new agreement in November 2006 when the May Jewellery had not been returned:-

“… I didn’t and wouldn’t have raised with Dr. Mittal the return of the jewellery from the first transaction because of the trust point. I was conducting profitable business with Dr. Mittal (particularly in the form of the re-working of his jewellery) and who I knew to be a very wealthy man. I didn’t see a problem at this time.”

Later in his witness statement he grappled, I am afraid I have to say pathetically, with the need to explain how he seemed to have forgotten that Dr. Mittal had not returned to Diamond jewellery valued at some £187,568.17:-

“30.

It will be noted that almost six years elapsed from the above two transactions before the Claimant began to pursue Dr. Mittal for the return of the money or jewellery. The reason for this is that to begin with I didn’t understand or expect there to be a problem. I always expected that the situation would be worked out in the ordinary course of trade. My business was booming and experiencing high levels of turnover. While the sums involved were not insignificant, in the context of the trade being undertaken at the time it doesn’t surprise me that I lost sight of the matter. I am the first to admit that my paperwork was not in good or proper order and such matters or omissions usually came to light during the preparation of the Claimant’s accounts. In that regard I placed considerable reliance on the Claimant’s accountants to identify such matters.

31.

… As time went on the matter slipped from my mind and as the issue was omitted from the accounts prepared for the business for 2006 I didn’t get a reminder. It was not therefore apparent to me that I needed to follow up the return of the jewellery from Dr. Mittal.

32.

By the time the business was raided by HMRC and closed for trade in April 2008 the matter had completely slipped my mind as I had other problems to deal with.

33.

In fact, the matter only came to light during the investigation and prosecution which I detail below. During the investigation by HM Revenue and Customs a report was prepared and disclosed to me. An extract of the report prepared by Sheila Robertson for HMRC is at page 14 CNA1. The report drew my attention to the fact that I had not received from Dr. Mittal either payment or the return of the jewellery. …”

The report of Sheila Robinson, her correct surname, rather than the Robertson which she was given by Mr. Ali, was dated 25 June 2010. Mr. Ali did not explain when he received a copy, but the letter dated 19 April 2012 written by Messrs. Charles Simmons on behalf of Diamond was despatched some time before Mr. Ali had been convicted and sentenced. Far from the report drawing “my attention to the fact that I had not received from Dr. Mittal either payment or the return of the jewellery”, the page of the report exhibited by Mr. Ali to his witness statement recorded the payments made by Dr. Mittal, and continued:-

“6.12

Both of the later transactions [i.e. those relating to the May Jewellery and the November Jewellery] were transferred from Diamond Jewellers Limited bank account within three days to Dubai Exchange C606990 & C607640 – the recipient Mittal Trading Company. I have no explanation for these transactions. …”

The earliest in time of the financial statements of Diamond which were put in evidence related to the year ended 30 April 2007, which was the year in which the transactions said to be relevant to the claims made in this action occurred. As a small company Diamond was not required to file a profit and loss account, only an abbreviated balance sheet. The abbreviated balance sheet as at 30 April 2007 recorded current assets of £787,207 and net current assets of £188,563. The value of the May Jewellery and the November Jewellery, which Mr. Ali would have one believe he just forgot about, would have doubled the net current assets of Diamond as at 30 April 2007, and amounted to just under 24% of the declared current assets at that date. In the usual way, the financial statements for the year ended 30 April 2007 included comparative figures for the previous year, that ending on 30 April 2006. The abbreviated balance sheet as at 30 April 2006 showed current assets of £463,177. The value of the May Jewellery and the November Jewellery amounted to 40.5% of the latter sum.

The case for Diamond depended entirely upon the evidence of Mr. Ali. As is apparent, I was not impressed by his evidence. Quite simply it defied credibility. On the other hand, the evidence of Dr. Mittal and that of Mr. Mittal was coherent and logical, surviving, as it seemed to me, unscathed the searching cross-examination of Miss Thelen. The evidence of Mr. Mittal as to the dealings of his companies with Diamond and Mr. Ali was in large measure supported by a considerable volume of documentation. Various points were made by Miss Thelen concerning some of the documents which he had produced, focusing on questions of spelling, typography and format, but stopping short of any suggestion that any of the documents, other than the invoices numbered GCI/52 and GCI/57, and two others to which it is unnecessary to refer in this judgment, had in fact been fabricated for the purposes of supporting the defence of Dr. Mittal. I am satisfied that none of the documents produced by Mr. Mittal was a concocted document.

So, for the reasons which I have given, this action fails and is dismissed.