Dubai: A Sharjah court on Thursday reserved the judgement until July 5 on a judgement on the bad cheque case against Arif Naqvi, founder of private equity company Abraaj and a colleague, Mohammad Rafique Lakhani.

The public prosecutor’s office in Sharjah issued arrest warrants earlier this month against Arif Naqvi and Lakhani.

At Thursday’s hearing the court reserved the case for judgement and sentencing on 5 July 2018. Naqvi was not present in the court.

While Naqvi is out of the country, the arrest warrant in the UAE remains valid. Private equity industry sources and independent analysts said criminal proceedings against Naqvi in the UAE could seriously jeopardise company’s efforts to liquidate assets and pay lenders and investors. If the prosecutors press criminal charges against Naqvi, he could face a maximum jail sentence of three years.

According to sources the bounced cheque was used as partial security for approximately $300 million (Dh1.1 billion) in loans from Hamid Jafar, the founder of the Sharjah-based Crescent Group to Abraaj and Naqvi. In the UAE, cheque bounce is treated as criminal offence.

Abraaj and its lawyers said they were surprised by the cheque bounce case and the subsequent arrest warrant. Naqvi is represented by Dr Habib Al Mulla, executive chairman at Baker McKenzie Habib Al Mulla, who argues that the cheques were provided as security for the loans.

However Essam al Tamimi, Senior Partner at al Tamimi & Co. who represents Al Jafar, said these were not security cheques.

“Contrary to claims that have been reported, the cheques in question are not a guarantee but are part of documentation which confirms the accused’s liability to repay the debt on the due date of the cheques,” Al Tamimi said in an emailed statement.

Over the past day the accused has made attempts to negotiate a resolution of this claim but without acceptable proposals and yielding no result.

According to a statement from Al Tamimi, three cheques signed by Arif Naqvi totalling an amount of $300 million were presented to the Bank and subsequently dishonoured due to insufficient funds. These cheques stem from an emergency short-term loan made to Abraaj management six months ago without which Abraaj would likely have collapsed.

Al Tamimi said that the loan was a reflection of the trust placed in Arif Naqvi. “In time, however, it has emerged that the promises were not made in good faith, and that there was no intention of repaying the debt. It has also now become apparent that the representations made at the time the loan was requested and the cheques provided were false and misleading and the funds have been used for wholly other purposes whilst the debt remains unpaid,” al Tamimi said in the statement.

Restructuring

Al Jafar through their lawyers insist that the loan was a reflection of the trust placed in Arif Naqvi. “We are pursuing claims for the full sums owing under these cheques,” said Al Tamimi.

Earlier this month Abraaj filed for a court-supervised restructuring and sale of its funds. The liquidation move followed lawsuits by creditors on loan defaults and allegations of commingling of funds.

Last week Abraaj Group announced that it reached an agreement with New York listed Colony Capital, Inc for the sale of Abraaj’s Latin America, Sub Saharan Africa, North Africa and Turkey Funds management business and the Group’s Limited Partnership (LP) interests in the underlying Funds.

The company with an estimated $13 billion plus assets under management is facing legal challenges from investors and creditors. With the liquidation process under way in Cayman Islands and sale of Abraaj’s Latin America, Sub Saharan Africa, North Africa and Turkey Funds management business and likely sale of other investments, the company was widely expected resolve its financial obligations to both investors and creditors.

Analysts fear that new legal troubles and pressing of criminal charges against Naqvi and Abraaj in bad cheque cases could jeopardise an early settlement of claims of lenders and investors through liquidation and sale of assets.

Abraaj alleges that these cases are deliberate attempts to scuttle the restructuring. “We believe deliberate efforts are being taken to destabilise the positive developments that the Group and its Joint Provisional Liquidators have been working very hard to secure,” the company said earlier this week.

Counter claims

Al Jafar through their lawyers said on Thursday that the money given to Abraaj was an emergency short-term loan and they company has failed on its promises. “It has emerged that the promises were not made in good faith, and that there was no intention of repaying the debt. It has also now become apparent that the representations made at the time the loan was requested and the cheques provided were false and misleading and the funds have been used for wholly other purposes whilst the debt remains unpaid,” said a statement from Al Tamimi.

Al Tamimi on Thursday acknowledged efforts by Abraaj to arrive at a negotiated settlement. “Over the past days the accused has made attempts to negotiate a resolution of this claim but without acceptable proposals and yielding no result,” said Al Tamimi.