Dubai-based gold and jewellery retailer Mr. M.M. Ramachandran and his daughter had been arrested as they defaulted on loans worth about 500 million dirhams ($136.2 million), with banks considering options including legal action to retrieve the money, four banking and trade sources said.
Both of them were arrested after a number of banks lodged complaints over bounced cheques.
The non-payment by Atlas Jewellery, which has more than 50 branches across the Gulf and in India, affects at least 15 banks.
It was not clear why Atlas Jewellery had failed to honour its debts. Company officials declined to comment and its owner, M.M. Ramachandran could not be contacted.
This is the second scandal involving Dubai jewellery businesses .Earlier, in March 2010 the Dubai Financial Services Authority sanctioned three brothers behind Damas International over unauthorised withdrawals from the company of 1.94 kg of gold and cash worth about 365 million dirhams.
“At the next meeting of banks, a common line of action to recover the money will be decided,” one banker who attended the meeting told Reuters, indicating that they would meet again in early September.
The lack of consensus on how to proceed stems from United Arab Emirates’insolvency laws that make it challenging for lenders to seek legal redress against defaulters. Loan default, which is a civil matter in most Western jurisdictions, is treated as a criminal offence in the UAE.
When a wave of defaults hit UAE companies at the turn of the decade, most banks chose to extend debt maturities rather than initiate proceedings through the courts.
Atlas Jewellery, founded by Ramachandran in Kuwait in 1981 but forced to relocate to Dubai after its trading was suspended by the first Gulf War, also has interests in real estate and healthcare. It owns and manages two hospitals in Oman’s capital, Muscat.
As a last resort, banks are hoping they may be able to recover their dues by taking control of Atlas’s healthcare business, a second banker who attended the meeting said.
“Banks are in talks with other senior officials of the group to find a viable solution,” he said.
The matter is complicated by the arrest of Ramachandran, a popular figure in Dubai’s gold trade and in the south Indian state of Kerala, from where he hails.
Dubai police said Ramachandran was arrested on Aug. 23 by order of the prosector. “He is arrested and is in our custody,” a spokesman said, adding that investigations are ongoing.