Upon examining the events surrounding Ltd. Bison, a company belonging to Kibar Khalvashi’s brother Niaz Khalvashi, Ltd. Transcaucasus Crystal and Ltd. Megako, Transparency International Georgia believes that there are signs of corruption in the form of an agreement made by various public institutions.

Niaz Khalvashi v. Ltd. Transcaucasus Crystal

According to media reports, the dispute between Niaz Khalvashi and the owners of Ltd. Transcaucasus Crystal was launched three years ago. Khalvashi accuses the company of appropriating property that belonged to him since 2006 and that he lost in 2010 due a mortgage agreement with TBC Bank. After the property was transferred to TBC Bank in 2012, Transcaucasus Crystal purchased it and owned it until 2017.

Transparency International Georgia found that Niaz Khalvashi had expressed interest in retrieving this property several years ago and offered USD 1,100,000 to the company, however, the deal failed due to the price being too low; the owners of the company had asked for USD 3,500,000. According to information provided to us by representatives of Transcaucasus Crystal, after the deal failed, a government representative, left unspecified by our source, had contacted the owners of the company and warned them to sell the property to Niaz Khalvashi. After this, the company reduced its offer to USD 2,500,000, but Khalvashi refused to pay more than USD 1,100,000.

Ltd. Transcaucasus Crystal v. Ltd. Megako

The final failure of the above deal coincided with the launch of a dispute between Ltd. Megako, a company associated with TBC Bank,[1] and Transcaucasus Crystal. The former accused the latter of failure to meet contractual obligations.

Megako took the case to court and demanded compensation of GEL 1,297,914 from Transcaucasus Crystal for its failure to meet contractual obligations. A contract between these two companies was signed on July 20, 2010, according to which, Transcaucasus Crystal had 9 months to build a 2,196 square meter warehouse for Megako. Tbilisi City Court partially satisfied the claim and obligated the company to pay GEL 802,526. The first instance court imposed compensation for damages even on work that had been properly implemented by the contracted company. This decision was then rescinded by the Court of Appeal, which explained that: “Ltd. Transcaucasus Crystal had properly fulfilled the part of the contract that involved architectural design and geological works worth GEL 41,560”. In the end, Transcaucasus Crystal was obligated to pay GEL 635,453 to Megako.

The court fully accepted the report of an examination carried out by the National Forensics Bureau, according to which, the work performed by Transcaucasus Crystal was not in line with the agreed project. The court did not question the report despite inconsistencies being identified during case proceedings. While the report stated that the entire disputed building had been examined, an April 22, 2016 letter by the National Forensics Bureau stated that it was examined only partially. Furthermore, the report states that the “armature in the unfinished upper portion of the building” was also examined, while the examination expert testified in front of the court that he was unable to examine that part of the building due to lack of a ladder. Therefore, it is unclear why the presiding judge did not find these circumstances enough of a basis to question the credibility of the report, especially since the case file also included an alternative report prepared by HeidelbergBeton Georgia, which stated that Transcaucasus Crystal had properly carried out the construction work. It is also unclear why the judge did not invoke Article 173 of the Civil Procedure Code[2] to exercise a judge’s right to schedule an additional examination.

Enforcement measures used by the Court

In order to enforce the decision, the Court prohibited Transcaucasus Crystal from disposing of its 45% share in a company called Ltd. Phoenix Basalt, which was founded in 2013 and operates in the field of manufacturing, export-import, re-export, installation and service. The court also froze four pieces of real estate owned by the company:

• Khelvachauri municipality, village of Mtsvane Kontskhi, 2,501 sq. m. land plot
• Zestaponi municipality, village of Pirveli Sviri, 43,302 sq. m. land plot
• City of Batumi, settlement of Khelvachauri, 30,022 sq. m. land plot
• Telavi municipality, village of Kondoli, 63,021 sq. m. land plot

According to Georgian law, the court may freeze a party’s assets as an enforcement measure when “[...] the non-use of such a measure will make it difficult or impossible to enforce the decision, exercise the violated or disrupted right, or will cause irreparable and direct damage [...]”.

According to a report by the audit-consultation corporation InterAudit, the combined market value of the pieces of real estate registered in the villages of Kondoli and Pirveli Sviri alone amounted to GEL 1,043,344, which was 50% more than the amount that Megako was supposed to receive. Therefore, we believe that the Court’s decision to disproportionately freeze the assets of Transcaucasus Crystal is unsubstantiated.

Interesting to note is the explanation that was offered by the Court when refusing a request by Transcaucasus Crystal to freeze assets belonging to Megako. The Court explained that: “while an enforcement measure does constitute a restriction of the right or interest of the defendant, it must not be used as an unconditional restriction of the defendant’s right. […]An enforcement measure must be adequate to the decision made on the dispute”. The court went on to say that “the use of the enforcement measure requested by the claimant will undoubtedly paralyze the respondent’s enterprises, which contradicts the principle of equal protection of the interests of parties”. It is unclear why the court did not follow the same principle when deciding to freeze assets belonging to Transcaucasus Crystal.

National Bureau of Enforcement

The court’s final decision on the case was eventually transferred to the National Bureau of Enforcement, which was tasked with enforcing the payment of GEL 635,453 by Transcaucasus Crystal to Megako. Even though Transcaucasus Crystal appealed to the Bureau and provided a list of property the disposal of which would satisfy the creditor while resulting in the least possible damage to the company, the Bureau of Enforcement, upon request of Megako, decided to auction off precisely that piece of property which Niaz Khalvashi had originally wanted to buy. Considering the fact that the sole purpose of enforcing a court decision is to satisfy the demand of the creditor, rather than damage the debtor, it is unclear as to what served as the basis for the National Bureau of Enforcement’s decision to decline the offer made by Transcaucasus Crystal.

The National Bureau of Enforcement estimated that the 30,022 square meter land plot with its 9 buildings was worth GEL 6,284,000. Some of this real estate was evaluated without all of its component parts, which reduced the overall estimated cost. For instance, according to a report by Interaudit, the three cranes that were present on the property were installed in a manner that would damage the buildings upon removal. This meant that these cranes were part of the overall property and should have been included during price estimation. The same report stated that the price of all three cranes amounted to GEL 39,062. The appraiser had also not taken into account the addition 17 buildings on the property that had not been officially registered at the time.

Public Auctions

The first public auction, which was announced on March 6, 2017, had a starting price of GEL 4,713,000 on the property and failed due to absence of bidders. Two more auctions were held after this. Niaz Khalvashi became interested in buying the property only after its starting price had decreased to GEL 0. Eventually, his company Ltd. Bison purchased the land and its buildings for GEL 942,600, which is much lower than the amount originally offered by Kalvashi (USD 1,100,000) to the owners of Transcaucasus Crystal.

Actions of the Ministry of Internal Affairs

Transparency International Georgia was provided information, according to which, several days after the final auction, prior to Ltd. Bison becoming the official owner of the property, representatives of Niaz Khalvashi restricted the owners of Transcaucasus Crystal from entering the property, which did not receive a response from the Ministry of Internal Affairs. According to this information, after the ownership was officially transferred to Bison, Niaz Khalvashi and several accompanying persons tried to enter the territory on several occasions, but were restricted from doing so by Transcaucasus Crystal security guards. The suspicion held by Transcaucasus Crystal that various state agencies were acting against it is strengthened by the fact that at 12:00 am on March 29 patrol police arrived at the property based on Niaz Khalvashi’s telephone call and took the company’s security guards to the police station. The police had told the security guards that they had to verify their labor agreements and determine the legality of their presence at the property. The organization has stated that it does not understand why it was necessary for the police to transfer its security guards to the station if contract verification was all that was needed.

Niaz Khalvashi used this opportunity to enter the territory together with several accompanying persons. This lead to Transcaucasus Crystal being unable to retrieve its equipment that was located at the property and which is to this day being used by Ltd. Bison. The Ministry of Internal Affairs had not responded to this incident despite numerous requests from Transcaucasus Crystal.

Conclusion

The above circumstances create a suspicion that Niaz Khalvashi was able to get hold of a piece of property in the Khelvachauri settlement in the city of Batumi for a price much lower than what its original owners had requested through concerted actions, and possibly involving a corruption deal, of the Court, National Bureau of Enforcement, Ministry of Internal Affairs and National Forensics Bureau. Therefore, we call on the Chief Prosecutor's Office to look into this case and carry out a timely and objective investigation.

The case described above is not the first of its kind; others like it have been identified by Transparency International Georgia, which has been monitoring ongoing processes in the court and various other administrative institutions for years.