Creek Marina Pvt. Ltd (CMPL), and its parent company Meinhardt Singapore, who are embroiled in litigation and subject to the attention of federal investigators in Pakistan over a residential project under construction in Karachi since the mid-2000s, has deemed recent legal actions and media reports against it a "vicious and defamatory media campaign" launched against them to resolve a commercial dispute.
In a letter to The Friday Times, written in response to queries on the FIR lodged by the Federal Investigation Agency's (FIA) Commercial Banking Circle (CBC) against Meinhardt Singapore and Creek Marina PVT Ltd for allegedly opening a series of undisclosed accounts in local banks and deceitfully obtaining and embezzling investment funds through Creek Marina Project, DHA Phase 8, Karachi, the company explained that Meinhardt was foreign company and the sponsor, designer and manager of the Creek Marina Project which is owned and implemented by a local company incorporated in Pakistan, Creek Marina Pvt. Limited (CMPL).
The company's management further stated that Meinhardt was asked to take on this role by the Defence Housing Authority (DHA) following the completion of the master plan for Creek City in Karachi.
They claimed that DHA believed Meinhardt's involvement could help raise Karachi and Pakistan's profile as a destination for foreign investment, especially in real estate.
According to the company's management, CMPL is a fully owned subsidiary of Creek Marina Singapore Pte Ltd ("CMSL").
In the written reply, the company's management said that CMSL was set up so that investments from Singapore and from other members of the consortium of investors could be routed through a holding company. This is a common financial structure for development projects around the world.
"Omar Shahzad, Group CEO of Meinhardt, has no involvement in CMPL or CMSL and was not even in the company when the project was started," they claimed.
Escrow Account
As per the management of the company, CMPL set up a bank account with HSBC at the start of the project and was indeed the escrow account established with DHA's consent.
"Audited reports certified by an international auditor Deloitte (now renamed Yousuf Adil Chartered Accountants after Deloitte exited Pakistan), have been regularly submitted to DHA in conformity with the stipulations of the agreement. These were accepted by DHA without any objections ever," they claimed.
"CMPL's HSBC bank account was taken over by Meezan Bank when HSBC wound up their operations in Pakistan," they pointed out.
The written response stated that CMPL's banking relationship with HBL started when its construction contract was awarded to a state-owned foreign contractor, GOCG, in 2007, and their bank guarantees were issued through HBL.
"Moreover, advance payments made in US dollars to GOCG, could only be routed through a local bank in order to get SBP approval. Again, DHA was advised accordingly and were on board with this decision," they said.
Funds received
CMPL management claimed that it is preposterous to suggest that Rs17.1 billion and Rs12.1 billion were received in these accounts. CMPL has sold around 250 units, or approximately 30% of the total project inventory, at an average price of Rs5,500 per square foot.
"Even if we had sold the entire project at that time, the total sales price would not be Rs29.2 billion, so clearly, these figures do not add up in the FIR."
"The total funds received from customers till date amount to Rs3.68 billion whilst the project cost is Rs9.23 billion, so money could be siphoned off," they said.
As per them, CMPL's audited reports up to June 2021 state that total customer receipts were Rs3.37 billion. The project cost up to this date stood at Rs8.01 billion. Since then, an additional Rs1.27 billion of project-related costs have been incurred versus only Rs475 million of customer monies received since the last audited report. Clearly, CMPL has received an injection of funds to sustain the project rather than the funds being siphoned off, their reply said.
"It is clarified that all customer funds have been received through proper banking channels, and these funds were received in the bank accounts of CMPL. It is reiterated that DHA had full oversight on these accounts, and all funds were used solely for the construction and development costs of the project, and no dividend has ever been declared by CMPL, let alone the funds leaving the country.
"We note that the FIR does not highlight any specific transaction that is a cause for concern," they said.
Recovery of Bank Guarantees from GOCG
GOCG was appointed in 2007 to construct the project, but the contract was terminated in 2008 following their inability to properly mobilise on-site (partly on account of the fragile security situation in Pakistan) and falling behind in their progress.
CMPL claimed that the bank, which had provided guarantees for performance and the advance payments made by CMPL, did not release the on-demand guarantees immediately, giving the contractor's legal team time to get a stay through the Sindh High Court.
"It took us three years to get our bank guarantees of circa $14 million released through the legal process," the company said.
As soon as the guarantees were released, DHA took a stay and froze CMPL bank accounts to negotiate better terms.
The project could not move forward without an operating bank account, and the company said it had no choice but to set up an account under CMSL in a different local bank.
"Again, DHA was made aware of this bank account, and the project started construction based on monies sent from Singapore. We did not ask or receive any funds from customers during this period."
Enter a partner
In June 2017, the CMPL said said they were approached by a party which was interested to come on as a partner (up to 49%) on the basis that they could support the project as local partners and leverage their excellent connectivity.
The partner was required to make all investments within a period of 18 months of signing the agreement.
"We trusted them and even gave them our Power of Attorney to negotiate with DHA amid other pressing issues," the company management said.
However, they found out much later that their partner is blacklisted by the military for illegal gratifications and kickbacks.
"In fact, we were told that DHA was unwilling to negotiate through the partner," the company said.
Moreover, this partner, CMPL said, did not fulfil its investment commitments.
"They reneged on their signed investment commitments," the company said, adding that the partner only paid less than 45% of their total investment based on the investment agreement and prevailing exchange rates.
In June 2019, CMPL managed to get a new Addendum-A signed with DHA through its efforts, including procuring additional floors to enhance the sellable area and number of units. This was done to accommodate DHA's new terms. A new Escrow Agreement was also signed in May 2020.
Once the agreement with DHA was signed, the partner expressed interest in resurrecting the investment agreement on its original terms.
"Our stand was that the Pakistan rupee has depreciated considerably, and SSL should pay a higher sum for the balance monies to account for the cost escalation," the company claimed. But at this point, CMPL claimed the partner started coercing them to return their money with a huge markup.
"Our commercial dispute with them is the subject of several cases in various courts of Pakistan. The Sindh High Court has stayed their efforts to incriminate us into a criminal case which has been stayed for three years."
Enquiries
CMPL said that it has been subject to previous enquiries from the National Accountability Bureau (NAB) and from the Directorate of Intelligence and Investigation (Inland Revenue), Federal Board of Revenue, which public authorities completely and categorically closed the enquiries and absolved the company and its management on the very same allegations in 2021 and later in 2023, respectively.
"In frustration, we believe [partners] have filed fictitious complaints with FIA at the end of 2022 and have unleashed an extensive media campaign against the project and its stakeholders with the single-point agenda to take over the project and kick us out, bragging openly how much monies they are spending on this effort," the company claimed, adding, "it is noteworthy that the FIA enquiry started soon after the Sindh High Court stayed the criminal case for three years."
In the midst of the commotion created by the FIA enquiry and one-sided reporting, the company claimed to have received a detailed term sheet from the former partner containing lopsided and prejudicial terms of settlement.
The company management claimed that their partner and his son are actively involved in the project, "held Powers of Attorney and were joint signatories to the Meezan Bank Account from August 2017 to January 2019. We believe it is only fair that their names are also included in the FIR."
"We do not believe there is anything wrong with setting up more than one bank account, especially when these bank accounts were set up primarily to facilitate receipt of monies from the sponsors to support the construction of the project when CMPL had a commercial dispute with the master developer, and consequently, the company was not receiving any funds from customers during this time," it said.
"The intention to set up these bank accounts was to have operational flexibility to run the day-to-day operations. All our customers have contracts with CMPL, and no customer money has come into any CMSL directly or indirectly," it added.
Admittedly, CMSL said it did not obtain approval from Board Of Investment when setting up a bank account in another local bank. "But this was because we were not aware of this requirement. However, we believe the onus for such regulatory compliance lies primarily with the banks, as is the case internationally."
Immediately, upon being advised of the BOI requirement for opening a foreign company account, we applied to regularise this and have been chasing the latter regularly for several months. Our application is currently pending.
Conclusion
It is a tragedy that this project is now suffering due to the vindictive and heavy-handedness of our erstwhile project partner. This is especially so after the sponsors successfully convinced DHA to sign a new addendum after meeting various onerous demands.
Based on the new addendum and an onerous Escrow account mechanism signed in May 2019 and June 2020, respectively, all payments in and out of the Escrow Account are certified by our Auditors (Deloitte or Yousuf Adil as it is now known) as before, but on a monthly basis.
It is disappointing that CMPL is subject to another enquiry on the same subject after having been vindicated by NAB and FBR previously.
The company categorically denied that funds were ever siphoned off, given that the project [cost] is more than double the total funds received from all customers.
"Despite all the malicious allegations and hardship, CMSL remains steadfast in their commitment to deliver the best residential project in Pakistan, which many do not wish to see us complete. We seek the support of all stakeholders, media, and government agencies to provide us with an enabling environment so we can complete this project with dignity."
The company challenged anyone to prove that even one rupee has been misappropriated.