The eThekwini Municipality agreed to pay an inflated price of R7.5 million for a back-of-beachfront building once used as brothel, it emerged in court papers last week.
And while it later negotiated the price down to R5 million, it seemed to pay no heed to the fact that the Rochester Street property was under attachment by the Asset Forfeiture Unit and is still under threat of forfeiture to the state.
The property is owned by Valor Trade 94 Pty Ltd, whose sole director is Umhlanga doctor Genchen Rugnath.
Last month Rugnath and his wife, Ravina, were cleared of charges of human trafficking, racketeering and running a brothel after a mammoth and expensive trial in the Durban Regional Court, the magistrate ruling there was no evidence that they knew a brothel was operating from their Inn Town Lodge.
Their co-accused were convicted of a host of charges relating to a prostitution ring operating from there and will be sentenced next month.
The city’s deal to buy the property and one at 106 Anton Lembede (Smith) Street - owned by another of Rugnath’s property holding companies, Zelpy 1133 - is detailed in an urgent Durban High Court application launched this week for an interim order preventing Rugnath from selling the properties.
This is pending the outcome of a legal dispute between him and a property investment company, Everett Investments, which claims it bought the two properties from Rugnath in 2013 - apparently when he desperately needed money for legal fees - and sold them on to the city for what it admits was a “substantial profit”.
Rugnath has now refused to sign transfer to Everett and, it is alleged, is trying to do a deal with the city himself.
In his affidavit before Judge Kate Pillay last week, Everett’s Poobendren Pillay says the firm bought the Rochester Road property for R5 million and initially sold it to the city for R7.5 million. It bought the other property, also being used as a lodge, for R15 million and sold it on for R33 million in terms of agreements signed with Durban city manager Sbu Sithole in March 2013.
But the deals hit a big snag when the city realised it had paid too much, contending, for example, that the former brothel was only worth R2.5 million.
While the city went as far as to allege fraud, the company denied this.
“There was nothing irregular … we just managed to secure the purchase on more advantageous terms … we were bargaining well,” Pillay said. According to Pillay “a compromise was reached” and the city agreed to pay R5 million and R24 million for the properties, “more than it claimed they were worth, but less than originally agreed”. This deal was signed in December last year, but Rugnath was refusing to allow transfer to Everett so the company could fulfil its obligations to the city.
Pillay said he believed Rugnath was in “dire financial straits” and had purported to cancel the agreement so he could negotiate his own sales with the municipality.
“He was aware of the litigation with the city … he can see the advantages of selling the properties directly,” he said.
Rugnath is opposing the application but has yet to file papers. However, his attorney, in a letter attached to the court papers, claims the agreement was cancelled because of “non-performance” and a dispute over the sales prices. The alleged sale to the city is “unlawful and void”, the attorney says.
Pillay says if the company cannot give transfer, it could face a damages claim from the city “and it will then not be feasible for us to contend that the properties are not worth what the municipality has agreed to pay for them”.
He said while it could be suggested that the company could then claim damages from Rugnath, his financial predicament would make this impossible.
Advocate Kenneth Samuel of the Asset Forfeiture Unit has confirmed in an affidavit that a forfeiture application against the Rochester Street property is still pending because it was not dependent on the criminal conviction of Rugnath.
In terms of an order taken by consent this week, Rugnath may not do anything “which might be prejudicial” to Everett’s rights pending the final outcome of the litigation.
The city declined to answer any questions, including what it intended to do with the properties, saying the matter was before the court and sub judice.
Timeline
March 2012: Doctor Genchen Rugnath and his wife, Ravina, are arrested on charges of running a brothel from their Inn Town Holiday Lodge in the South Beach area.
January 2013: The trial begins in the Durban Regional Court. The couple, along with Sandile Zweni, Nduduzo Dlamini and Bhabha Dubazani, plead not guilty to 156 charges they collectively face.
March 5, 2013: Rugnath gives P R Maharaj Attorneys a mandate to sell the property and another he owns in Anton Lembede Street, also being used as a lodge’.
March 8, 2013: Rugnath signs the sales agreements with Everett Investments CC which agrees to pay R5 million for the former brothel and R15 million for the other property. Everett lodges a deposit of R1 million with P R Maharaj Attorneys which is also held by them as commission’ for the deal.
March 20, 2013. City signs a deal to buy the two properties for R7.6 million and R33 million respectively. In the agreement, the city acknowledges that it has done all due diligence’ including a valuation in respect of the property.
March 28, 2013: State obtains a preservation order against the former brothel, labelling it an instrumentality of an offence’. Between the latter part of 2013 and December 2015 the city litigates with Everett about the prices. In terms of a settlement agreement signed on December 9, 2015, it agrees to pay R5 million for the former brothel and R24 million for the other property.
December 2015: Rugnath says he has no money and asks that the R1 million deposit’ be released to him as a loan.
January 2016: This is refused after Rugnath indicates to Everett that he wants to renegotiate the deal.
March 14, 2016: Rugnath’s lawyers write to Everett placing on record unhappiness about the price and insisting the deal is off and Everett’s agreement with the city is unlawful. March 17, 2016: Rugnath and his wife are acquitted of all charges. Their co-accused are convicted.
March 24 2016: Rugnath’s lawyers write to the city’s lawyers asking whether “your client would be willing to negotiate directly with our clients”.
Daily News
* Use IOL’s Facebook and Twitter pages to comment on our stories. See links below.