Conglomerate sues SIB for pounds 7m: Entrepreneur claims disclosure of letter was illegal

Click to follow
The Independent Online
THE Securities and Investments Board is being sued for pounds 7m by a privately owned Nottingham conglomerate it had been investigating.

A writ, issued on Friday by Melton Medes, claims the SIB illegally disclosed information it had received while looking into the affairs of one of the carpets and engineering group's pension funds.

Melton Medes, owned by Nat Puri, an Indian entrepreneur, maintains that the SIB breached the Financial Services Act by revealing the contents of a letter to a third party with whom Melton Medes was in legal dispute.

It has issued proceedings despite the usual immunity from litigation enjoyed by self-regulatory organisations.

Mr Puri, a self-made millionaire who arrived in the UK from the Punjab in 1966 with pounds 375, said: 'The SIB enjoys enormous powers under the Financial Services Act and it is only right that those powers should be seen to be exercised reasonably and responsibly. We say that the SIB has overstepped the mark.'

The SIB, which has never been successfully sued in a similar case, would not comment on the proceedings yesterday.

The alleged disclosure by the board occurred during a legal dispute earlier this year between Melton Medes and members of one of its subsidiary company pension funds. That dispute had prompted an investigation by the SIB of the company's pensions.

Argument in the case focused on claims by pensioners that Melton Medes wrongly borrowed money from their fund for use elsewhere in the business.

They maintained that Mr Puri had abused his position as a trustee of the pension fund to borrow money from it at an uncommercial rate, later repaying the debt with shares in two quoted companies he controlled.

According to the company, the pensioners' case, which led to Mr Puri being replaced as a trustee of the scheme, was strengthened when their solicitors were shown a letter from the fund's auditors to the SIB expressing doubt about whether they could approve the pension fund's accounts.

The auditors later gave the accounts their unqualified approval but Melton Medes claims that the uncertainty caused by the disclosure of the letter irretrievably damaged its case.

Mr Puri said: 'I fully appreciate that in the wake of the Maxwell scandal, the management of company pension schemes should come under the closest possible scrutiny. In our case, however, what has been done has gone beyond anything necessary to safeguard our employees' pension rights.'

The section of the Financial Services Act that is alleged to have been breached says that it is a criminal offence for (in this case) the SIB to disclose information received while fulfilling its function under the Act without the permission of the person to whom the information relates.

According to lawyers acting for Melton Medes such a breach is punishable by a fine or imprisonment.

Melton Medes borrowed pounds 5m from two pension funds set up for the employees of Robert Fletcher, a paper manufacturer it acquired from Imperial Group, part of Hanson, in 1986.

It later repaid the loans with shares in two small quoted companies, Marling and Delaney, in which Mr Puri had an interest. In the case of Delaney, Mr Puri was chairman and a controlling shareholder.

Shares in both companies subsequently fell in value, which the pensioners claim caused them losses.

According to Mr Puri, both funds are in substantial surplus and all obligations will be met in full. He added: 'The actions have involved us all in huge expenditure at the expense, ultimately, of the very companies whose employees' pensions are apparently being safeguarded.'

Mr Puri acquired Melton Medes in 1983, since when he has built a group of 35 companies. It is now one of the UK's 100 largest private businesses. Sales have grown from pounds 3m 10 years ago to pounds 255m last year. Losses of pounds 300,000 have been turned into profits of pounds 6m.

The personal fortune of Mr Puri is estimated at pounds 63m.