By Shane McGinley
Kabir Mulchandani was once the darling of the Dubai real estate industry. Then came fraud allegations, a legal battle and - in December - exoneration. In his first interview since being released, he tells Arabian Business why he's heading back into the property market
When people are faced with tough times they have two options, says Kabir Mulchandani: Crumble at the first sight of pain and take the easy way out, or absorb the hardship and stand and fight. One thing is certain, if anyone knows how to stand up and fight, its Dubai-based Indian businessman Kabir Mulchandani. Arrested over two years ago and accused of real estate fraud of up to half a billion dirhams ($136.2m), Mulchandani spent 140 days in custody and was interrogated for up to eight hours a day for 40 days straight by prosecutors.
As his queue of accusers mounted and his bail spiralled to a reported AED33m ($8.9m), he says he was tempted to settle but instead decided he wanted to fight to clear his name.
“It is a tough spot to be in I’ll tell you… I can truthfully tell you there are moments when one fears the worst. However, my family always said, at the end of the day everything is so clear. No matter what happens, eventually the truth really does not need any defence.
“I would have never pleaded guilty. I am not guilty and never have been guilty. I wasn’t going to [settle] because I wasn’t wrong. If I had settled, innocent or guilty, I would have been perceived as guilty the rest of my life, no matter what I did, although I was tempted.
“I thought I will have to face pain [but] I thought I’ll deal with that now.”
Fast forward to 2010 and in December a third Dubai court ruled he was innocent of all the fraud charges against him as they were “baseless and without foundation and without evidence.” His lawyer, Dr Habib Al Mulla, once again delivered when called upon.
Faced with such an experience, most people would leave Dubai and start afresh with a clean sheet, but Mulchandani is not going anywhere. Just a few months since his final court hearing, he says he is staying in Dubai, staying in the real estate sector and has set up a new company which is aiming to close up to AED1bn worth of new deals by the end of the year.
“It is easy to see why somebody would say I’ve had enough of this and let’s look at something else or let’s look at somewhere else to be.
“I can’t get put off by a city or a market by 20 bad apples, that would be extremely immature. At the end of the day, I am a businessman. Why should I leave a city, my home, my son, my family… because of 20 people who lied?”
His new venture capital scheme is looking to invest in Dubai real estate projects which have run into funding issues and need an urgent cash injection in order to meet their completion dates. SKA1, which Mulchandani launched this year with his brother Siddharth, has already signed one new deal and has big plans for the future.
“We have signed one [deal] in the Marina for AED300m, which is underway. I can tell you this: we estimate the transactions we will conclude this year will exceed AED1bn.” For all intents and purposes, Kabir Mulchandani is firmly back at the heart of Dubai’s property business. Looking back over the last two years, he says the world back in 2009, when he got the call from Dubai Police, was a very different place.
“Lehman Brothers started it and it steamrolled on and fraud cases were unearthed globally. It’s not just here but you had issues of wrongdoing by developers, it was a global phenomenon. The tide went out and it was there to see what everybody really was.”
At the time, the Dubai property market was grinding to a halt, prices tumbled by nearly half in a matter of months, construction cranes gathered dust and HH Sheikh Mohammed Bin Rashid Al Maktoum, Dubai's ruler, said he would strive to root out the corruption which had infected the sector.
As a series of high-profile scandals broke, Dubai's public prosecutor vowed that “the government will continue to have a strict stance against all aspects of corruption and will take legal measures against violators.”
Mulchandani could never have imagined he would one day end up at the centre of a major corruption scandal himself. Having only arrived in Dubai in 2004 to seek out and buy a villa on the Palm Jumeirah, Mulchandani was captivated by the fast-paced real estate market. He moved to the UAE, bought a house in Emirates Hills and was completing his first AED30m ($8m) deal in Discovery Gardens within two months.
With the market in a spiral and speculators and property flipping in full swing, his company Dynasty Enterprises began to get involved in bigger and more elaborate deals and in 2007 went into partnership with local developer Hilal Al Zarooni and established Dynasty Zarooni. The new team acquired around 32 buildings, villas and projects in Dubai and Abu Dhabi worth a reported AED24bn ($6.5bn). With the market moving at high speed, Mulchandani devised a scheme whereby he would negotiate a bulk discount on buildings and his top-tier purchasers would be given preferential treatment on the resales. All for a non-refundable fee of AED300,000 ($81,681).
The resale of the properties would be advertised in publications across Dubai and the scheme became so popular that, at one point, Dynasty Zarooni was the single biggest newspaper advertiser in the UAE, beating higher-profile titans such as Nakheel and Emaar.
Mulchandani says in September 2008, when Lehman Brothers collapsed, the company had their highest month of advertising and spent nearly AED9m ($2.4m) promoting their clients’ resale properties.
However, the crisis had hit Dubai hard and that was when things started to go wrong. “What happened was [the purchasers] had paid us from February to August . September the crisis hit and they requested us please hold the cheques, so September through to December we held the cheques and then in December we deposited the cheques.”
“On 31 December 2008, as that was our year-end, I think we had about AED18m worth of cheques due to us from about 25 or 30 people.
Except for one, every single cheque bounced,” recalls Mulchandani.
Within days, the same people who owed him money on the bounced cheques went to Dubai Police and claimed Mulchandani was operating a fraudulent scheme. They claimed he had asked them to pay AED300,000 a month and he had promised they would be paid around AED1m a month after six months, which they were now claiming he had failed to deliver on.
With the government’s zero-tolerance on real estate corruption, he was arrested. “Everyone is familiar with the law here and bouncing a cheque is a crime. The only way for these purchasers to get out of a bounced cheque claim is to say it was fraudulently obtained.
“They all went to one lawyer and brought everybody together. All of them, in a planned manner, showed up at a police station saying 'we have been cheated'.”
As the number of cases against him mounted, several accusations were made against him: that he had sold properties that were bogus and did not exist; he did not have the right to sell the properties; deposits were not placed in escrow accounts; and that he had operated the fraudulent investment scheme that promised returns on the AED300,000 a month after six months.
The case was then passed to the Dubai Land Department (DLD) for investigation. The real estate elements of the accusations were initially dropped as the developments had been listed with the DLD — so were real — and his contract with the developers stated he was permitted to resell the properties and deposits had been made into escrow accounts.
“I went through a very trying time. I am not going to say it was easy for me. I spent 140 days in custody, and while I was in custody more and more cases were being filed against me. I had questions in custody without documents, so I had to remember transactions.
“The Land Department conducted an investigation into all these points and it lasted for about seven or eight hours a day for 40 days. So this was about 300 man hours that went into this investigation in which they called all the developers for the projects that were allegedly bogus.”
While the real estate accusations were dismissed as being baseless, the fraud charges were upheld, purely on the word of his twelve accusers, says Mulchandani.
He was eventually declared not guilty by three courts in Dubai, his defence being that the purchasers could produce no documentation relating to the investment scheme and the promised returns or that they had made any effort to seek the return on their investment on the dates it had been promised.
“Let me ask you a question… you write me cheques for AED300,00 and you are due a million dirhams in August in 2008 and I don’t pay. You would write me a letter, you’d send me an email, you’d send me an SMS, you’d communicate with me in some form.”
“One guy could be relaxed and not care about a million dirhams, but not twelve. Come September 2008, now it is two million dirhams each. October, it is three million dirhams, four, five… But no one wants to write me a single SMS, fax, email, phone call saying you owe me a million dirhams?”
Mulchandani adds there was an agreement drawn up between the purchasers and his company relating to the services offered in return for the AED300,000. While the agreements were never signed “due to an administrative mess-up”, one of the accusers included this documentation in their police evidence and when this was unearthed it became the smoking gun in Mulchandani’s defence.
“That agreement clearly says this is what we are, providing services… Nothing to do with any form of AED1m back. That became a document in the court and that obviously had a major impact on the judge.”
He was finally declared innocent in January this year, but Mulchandani claims all his accusers came and paid him back the money relating to the bounced cheques that started the cycle of events, as it became clear they were going to lose their legal actions against him.
“Before the final judgment in this case, barring one, all these people came back and paid me the money for the membership fees so if they felt they were being cheated, before a judgment, why would they all come and say ‘please take the money’?
“Also the money they disputed — September, October, November, December, even January and February while I was incarcerated — they had paid me for. They only did it because they knew they were going to lose.”
In addition to this public vilification, Mulchandani says his company also personally took a hit of around AED342m ($93m) as a result of the case.
“It is a lot but you don’t see me making cases against people or to get my money back.”
So does he not now want to pursue those who have tarnished his name?
“I was very tempted and this might sound philosophical but I don’t need this bad energy in my life. To be fair, like any human being, I felt those emotions. But after a while, I realised what’s the point? They know in their heads what they have done and I know where I stand on this. I have cleared my name.
“There has not been a single case against me and I have won in every court. That money is not going to make me sleep any better and the negative energy I spend in doing that is just going to distract me and just remind me even more of what an unfortunate situation it was. I want to move on and focus on my business. I see market opportunities.”
In some media reports he was referred to as the ‘Madoff of the Middle East’ and these are something which Mulchandani says he is “extremely angry” about. “There is no justification for them writing this. I did speak to lawyers and I may, or may not, pursue legal action.”
Never one to back off from a task, Mulchandani faced his first big life challenge when he had to return home to India from his studies in Stanford University to help save his family’s ailing electronics business.
He succeeded in that, but now faces an even bigger challenge in rebuilding his property empire. The early signs are good, with a string of deals being signed so far this year. And after spending an hour in his company, there is no doubt that Mulchandani’s energy and passion for the property business are back.
Few would be willing to bet against him succeeding again.
The SKA1’s the limit
Within months of Kabir Mulchandani’s final court hearing, in which he was fully exonerated, he set up a new venture named SKA1.
Set up to identify residential and commercial property investment opportunities, primarily in the UAE, the company is basically a venture capital vehicle, which aims to offer funding to projects that have a viable future but are in need of bridging funding to meet their complete date.
The name of the company is an acronym: the “S” stands for the first name of Mulchandani’s brother Siddharth; the “K” stands for Kabir; and “A1” is shorthand for “are one.”
“There are a lot of good projects out there and a lot of quality developers, I meet them all the time… [but] there is a lack of traditional capital. The banks are heavily exposed to real estate, here as well as globally,” says Mulchandani.
“We come in and provide the capital, we work with the contractors and finish it and then we have our sales and marketing team that can resale it once it is completed.
It is a great project and it should be completed.”
SKA1 has already completed one deal for a AED300m building six months away from completion in Dubai Marina and the firm now has big plans to continue to look for opportunities in the Dubai real estate market.
“I can tell you this… We estimate the transactions we will conclude this year will exceed AED1bn,” he says.
However, it says he is not targeting distressed assets with a quick exit strategy, but properties that are solid business opportunities but are simply facing cash flow issues.
“We are not a lender, we are an investor. We can afford to hold and realise gains for the developer, for us and for the market. It is good for everyone.”
Its really true - honesty always wins.
Itâ€™s very easy to climb to heights beyond imagination. The difficult part is to fall from those heights and start climbing again to reach new heights.
The Dubai real estate syndrome following the global crisis is no fault of anyone in particular; we were all caught unawares with no direction to take. Certainly, there were unscrupulous and over ambitious fraudulent people too who infiltrated the market place as they would have done during the good times too.
I have not known Kabir even though our company was also into mega investments; but I did know that he made dozens and dozens of people rich. Whether they went all war against him collectively was right or wrong is something I have no right to judge, but, yes- I can say that by him â€œbeing backâ€ can make a lot of difference.
That was all that crowd that eyed for money in excessive greed were to face then. Kabir was not at all at fault. I know he will do once again the best for the investor who are wise and not greedy. I was part of that management and have seen his blunt business style.
Arrived in dubai in 2004 and pretty soon making big deals....was not this flipping?
Similar story to that bloke from England who arrived in 2005 and went on to purchase few island in The World. He though is still in prison.
Can AB care to explain was he cleared cause he was innocent or a deal was brokered or may be the flippers who accused him left the country?
Its a true story
The truth, his honesty and passion for real estate has brought him back and he has nothing to prove but to..himself! And he knows he can do it..we look forward to the forthcoming projects.