HKSAR v. SHARMA NIPUN

DCCC 665/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CRIMINAL CASE NO 665 OF 2016

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REASONS FOR SENTENCE

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Charges

1.  The defendant pleads guilty to two counts of fraud.

Facts

2.  Fook Choi Int’l Company (“Fook Choi”), Super Speed Limited (“Super Speed”) and Marshel Exports Limited (“Marshel Exports”) were business entities registered in Hong Kong. They held out to trade in electronic products.  The defendant was a shareholder cum director of Super Speed and Marshel Exports.  He was in charge of both companies. Fook Choi was registered by Mr. Kumar, who was a business associate of the defendant.

3.  Since 2007, Super Speed and Marshel Exports had been applying for loans from the Bank of Baroda (the “Bank”) to finance their trading business. The defendant signed various facilities letters with the Bank on behalf of both companies, which had pledged properties for security plus personal guarantees for the credit facilities. 

4.  When Super Speed and Marshel Exports wished to draw a loan, they had to submit to the Bank an application form together with a true copy of the invoice pertaining to the transaction for which the loan was to be used.  Once approved, the Bank would deposit the money directly into the supplier’s bank account. Super Speed and Marshel Exports had to repay such sums that were due from time to time through their accounts with the Bank. The defendant was the sole authorized signatory of those accounts.

5.  Between 21 April 2011 and 28 September 2012, the two companies made 122 fraudulent loan applications to obtain a total of US$14,770,225.26 (equivalent to HK$115.2 million) from the Bank: US$6,027,903.01 (equivalent to HK$47.01 million) were applied by Super Speed under 49 applications (Charge 1); US$8,742,322.25 (equivalent to HK$68.19 million) were applied by Marshel Exports under 73 applications (Charge 2).  The loans were purported to finance Super Speed or Marshel Exports making purchase from Fook Choi. All the claims, however, were false. Under deceit, the Bank approved the 122 applications and deposited the applied sums into the bank account of the purported goods supplier, i.e. Fook Choi.

6.  About 98% of the loan money was circulated from Fook Choi to Super Speed or Marshel Exports to enable the two companies to repay their previous loans with the Bank. The defendant himself had taken HK$842,500 from Super Speed’s account.

7.  Super Speed and Marshel Exports had no independent business address; they used the defendant’s home address. The two companies, however, had a joint-warehouse.  Its former storekeeper told investigators that business started to decline in 2008.

8.  In August 2012, winding-up petitions were presented against Super Speed and Marshel Exports by their creditors.  In October 2012, both companies were wound up by court order. At that time, Super Speed and Marshel Exports respectively owed the Bank US$1.092 million (equivalent to HK$8.52 million) and US$1.655 million (equivalent to HK$12.91 million).

9.  The defendant was first arrested in July 2013.  He jumped police bail in July 2014 and was re-arrested in March 2016.

10.  Supplemental to the Summary of Facts, there is information in documents MFI 1-7 from Prosecution and MFI 8 from Defence. The contents of these documents are not in dispute except for the two grey figures in MFI 1A. Defence Counsel, however, indicates he would accept the Bank still has to recover from the guarantors about HK$9 million of principal after setting off all securities.

11.  Page 1 of MFI 6 contains the 49 fraudulent applications pertaining to Charge 1.  The loan amounts varied from US$17,900 (SSL 20) to US$290,113.95 (SSL 22). Pages 2-3 relate to the 73 fraudulent applications in Charge 2.  The loan amounts varied from US$5,525 (MEL 15) to US$274,375 (MEL 3).

12.  The total sum for Charge 1 is US$6,027,903.01 (equivalent to HK$47.01 million). That for Charge 2 is US$8,742,322.25 (equivalent to HK$68.19 million). The grand total is therefore US$14,770,225.26 (equivalent to HK$115.20 million). However, as the defendant used subsequent loans to settle the earlier ones, the outstanding amounts owed by Super Speed and Marshel Exports to the Bank from time to time were only a portion of the charged sums.

13.  Pages 3-4 of MFI 2 is a table showing Super Speed’s outstanding balance versus security at the time of each of the 49 loans in Charge 1.  The outstanding balance ranges from HK$8.314 million to HK$16.944 million; the security amount was between HK$11.094 million and HK$11.144 million. Of the 49 transactions, there were 25 times when the outstanding balance exceeded the security amount by HK$0.145 million to HK$5.8 million. When Super Speed was wound up in October 2012, it owed the Bank an outstanding principal of US$1.092 million (equivalent to HK$8.52 million, see Annexure-3 of MFI 5).

14.  Pages 5-6 of MFI 2 is a table showing Marshel Exports’ outstanding balance versus security at the time of each of the 73 loans in Charge 2.  The outstanding balance ranges from HK$11.795 million to HK$23.211 million; the security amount was between HK$12.82 million and HK$15.704 million.  Of these 73 loans, there were 67 occasions when the outstanding balance was greater than the security amount by HK$0.065 million to HK$8.278 million. When Marshel Exports was wound up in October 2012, it owed the bank an outstanding principal US$1.655 million (equivalent to HK$12.91 million, see Annexure-3 of MFI 5).

15.  MFI 1A is a schedule showing how much Super Speed and Marshel Exports still owe the Bank after realization of the pledged securities. Prosecutor says the final adjusted total is around HK$9.6 million; Defence Counsel only accepts it to be around HK$9 million.

16.  The defendant had some business associates including Mr. Kumar and Mr. Gupta, who had provided personal guarantees to the loans. The Bank points out in MFI 5 that they had obtained a judgment against the debtors.  But it remains to be seen if enforcement can be made successfully overseas since the guarantors and their assets are all in India.

Record

17.  The defendant is an Indian national of no previous conviction.

Mitigation

18.  Defence Counsel says the defendant ‘s wife and two teenage daughters are living in India.  The defendant had been in Hong Kong since 2002. He first carried out small trading.  In 2007, he joined in the business of Mr. Gupta and Mr. Marthur.  Mr. Gupta was a man of substance in India; Mr. Marthur was responsible for operation in China; the defendant managed the office in Hong Kong.  Trade had been good until the financial crisis in 2008. More unfortunately, Mr. Marthur died in 2009.  The companies missed Mr. Marthur’s skill in sourcing for trading. Since then, the business had been on continuous decline.

19.  Counsel says the defendant merely had Form 6 education in India.  He was not strong in financial management or banking. He thus foolishly made false claims to borrow from the bank in order to maintain cash flow for the business.  To meet his own needs, he had taken HK$800,000 odd out of the loans but most of the borrowed money was used to pay what was outstanding to the Bank then.

20.  Counsel says the credit lines of Super Speed and Marshel Exports were secured with pledged properties.  Mr. Gupta and others like Mr. Kumar had further provided personal guarantees.  (To support this saying, Counsel submits a core bundle MFI 8.)  Counsel says although the defendant was dishonest with those fraudulent applications, he always thought the loans could be repaid and the bank would not suffer any loss.

21.  Counsel points out that Fook Choi was set up by Mr. Kumar.  He submits there is no proof this or the other two companies were set up ab initio to perpetrate fraud.

22.  Counsel explains for the defendant’s failure to answer police bail in 2014.  He says the defendant had been reporting to police for a year since arrest in July 2013.  Nothing had happened so the defendant ceased to report.  He was arrested again in March 2016. Counsel submits if the defendant had caused any delay by his failure to answer bail, that can be set off by the delay of the whole process from arrest to the present.

23.  Counsel mentions two cases: CACC 196/2017 Ho Ka Keung (No 2) and CACC 242/2013 Yu Lai-lai Agnes. 

24.  In Ho’s case, the Court of Appeal said the sentencing count should consider such factors including “the nature of the fraud itself; the duration of the fraud; its sophistication; the role played by the convicted person; the effect it may have on the marketplace; whether there were cross-border or international implications; the nature and extent of the risk to the victim’s proprietary interests, as well as, albeit to a minimal extent, the extent of any loss actually sustained”. 

25.  In Yu’s case, the defendant made 15 trade loan applications involving a total deceit of HK$15 million odd. The bank lost all the money.  The defendant was convicted after trial and sentenced to 6 years and 8 months’ imprisonment (after a discount of 4 months due to her previous good character at the age of 63).  The Court of Appeal recognized there were no sentencing guidelines for fraud of this type.  Nevertheless, the appeal judges reduced the sentence to one of 5 years and 8 months’ imprisonment (starting point being 6 years).

26.  The Court of Appeal in Yu’s case had mentioned another precedent, i.e. CACC 356/2006 Law Chi Man.  That defendant applied for loans to three banks involving HK$15.6 million.  The banks finally lost HK$9.8 million.  The Court of Appeal approved an individual sentence of 4 years’ imprisonment for each count after trial and an overall sentence of 6 years’ imprisonment.  (One thing to note is that defendant was accepted to be not a key player in the scams nor had he made any personal gain.)

27.  Counsel agrees that in the present case the defendant was responsible for all the 122 loan applications.  The aggregate sums were large but the individual loans were paid back from time to time, with the bank being exposed to some risk only on those occasions where the outstanding amount exceeded the security (see paras. 13-14 above). Yet there were further safeguards from the personal guarantees.

28.  Counsel submits the Bank now only has to recover about HK$9 million and it is quite likely that can be done after due process.  He asks the court to sentence the defendant on that basis and as leniently as possible.  He says the starting totality for both charges should be well below 6 years’ imprisonment.

Sentence

29.  On the evidence before me, I accept the defendant was a man of previous good character running proper business.  When trade deteriorated, he engaged himself in the scams of Charge 1 and Charge 2 to sustain cash flow for the business and also for his personal needs.  The newly obtained loans were largely used to pay back the outstanding ones.

30.  The credit lines of Super Speed and Marshel Exports were secured to certain amounts (see paras. 13-14 above). There were in addition personal guarantees provided by the defendant’s business associates.  I accept the defendant at all times tried to repay the loans and he believed there would be sufficient securities plus personal guarantees without meaning to cause any loss to the Bank.

31.  However, Super Speed and Marshel Exports did so badly that they were eventually wound up in late 2012.  They then owed the Bank outstanding principals of US$1.092 million (equivalent to HK$8.52 million) and US$1.655 million (equivalent to HK$12.91 million) respectively, totalling US$2.747 million (equivalent to HK$21.43 million).

32.  After getting back its due shares from the sale of securities, the Bank still has outstanding principals of about HK$9 million to recover.  The Bank has to enforce the judgement order overseas against the guarantors, who and their assets are all in India. Whether the remainder can be recovered is uncertain at the moment though Defence Counsel is optimistic that can be achieved in time.

33.  Be that as it may, the Court of Appeal in Ho Ka Keung (No 2) states clearly that actual loss matters just ‘to a minimal extent’.  The gravamen of these fraudulent trade loan applications lies in the defendant’s abuse of the loan system and breach of trust. 

34.  Furthermore, Charge 1 and Charge 2 were no single breaches. Each straddled across a period of 1 year and 5 months.  There were 49 and 73 fraudulent applications respectively.

35.  The aggregate sums of Charge 1 and Charge 2 were also significant, i.e. US$6.027 million (equivalent to HK$47.01 million) and US$8.742 million (equivalent to HK$68.19 million).  However, to be fair to the defendant, such figures must be seen against the backdrop that they were aggregates of revolving loans from credit lines with securities and guarantees.  During the offence period of 1 year and 5 months, the highest outstanding amount in Charge 1 (Super Speed) was HK$16.944 million against security worth of HK$11.144 million (as at 24 August 2012); while the highest outstanding amount in Charge 2 (Marshel Exports) was HK$23.221 million against security worth of HK$15.704 million (as at 30 August 2011). When the two companies were wound up in October 2012, they respectively owed the Bank US$1.092 million (equivalent to HK$8.52 million) and US$1.655 million (equivalent to HK$12.91 million). After getting its share from the securities, the Bank still has to recover outstanding principals of about HK$9 million. Even if the Bank may enforce the judgement debt in full against the guarantors, it certainly will take time as the execution has to be done overseas.

36.  The defendant was responsible for the 122 fraudulent loan applications that took place in a span of 17 months. The magnitude of his misdeed and the degree of risk which the Bank was exposed to have been set out above. Taking those facts and counsel’s mitigation into consideration, I decide as follows:-

Charge 1 starting point is 4 years’ imprisonment; sentence after plea is 32 months;

Charge 2 starting point is 4½ years imprisonment; sentence after plea is 36 months.

37.  The total starting point for the two charges should be one of 5½ years’ imprisonment.  After plea, it is 44 months.  I thus order 8 months of the sentence for Charge 1 to run consecutively with the 36 months for Charge 2.  The resulting total term is then 44 months.