SOMBA K'E/YELLOWKNIFE
Outgoing Industry, Tourism and Investment Minister David Ramsay says he does not regret granting Deepak International the rights to use the Polar Bear diamond trademark.

A photo of the four shipping containers on Archibald Street near the Yellowknife Airport. Callidus Capital lent diamond manufacturer Deepak International millions of dollars under the claim the containers held $18 million in equipment. The company is now alleging the containers are actually property of the GNWT and full of junk. - Karen K. Ho/NNSL photo

This is despite allegations coming out of a lawsuit by a lender alleging Deepak has no intention of re-opening its two diamond polishing facilities on Archibald Street.

"It's something we really wanted to see take off," Ramsay told Yellowknifer. "Part of the deal, of course, was the sale of the buildings."

In June of last year, Deepak Kumar, president and CEO of Deepak International, purchased 106 and 108 Archibald St. from the GNWT for $1.79 million.

However, the contents of several shipping containers in front of those two buildings on what used to be known as Diamond Row near the Yellowknife Airport are now the subject of a new lawsuit between Deepak International and the Toronto-based lending firm Callidus Capital Corporation.

On Dec. 3, Callidus served Kumar, Deepak Developments Ltd. and Ragani Kushalini Kumar with a 28-page statement of claim for more than $3.9 million for what it's calling outstanding debts and fraud based on "false and misleading claim" it held diamond and polishing equipment worth $18 million.

Callidus is now saying that the collateral is "junk" owned by the GNWT.

All of the details and allegations have yet to be proven in court.

The lawsuit from Callidus alleges that over the course of the loan and underwriting process, Kumar claimed diamond and polishing equipment was held in the shipping containers which could not be opened and inspected without a representative from the manufacturer present due to the conditions of a warranty as well as a service, maintenance and buyback agreement.

In the lawsuit, Callidus said it conducted "limited due diligence" as a result but still believed Kumar's claims and granted three loans in total. For these loans, Deepak pledged the mortgages of the two Diamond Row factories and the contents of the shipping containers located on the property as collateral. The property appraisal reports dated Jan. 27, 2014, put the combined value of the two factories at a little more than $3 million.

Callidus called the diamond equipment "the critical piece of collateral" in support of the funds loaned to Kumar's diamond polishing and finishing business.

"Without the existence of the diamond equipment as collateral, the plaintiff would not have advanced any funds to Deepak International," stated the lender in its lawsuit.

After Deepak defaulted on its loans and failed to pay more than $21,000 in city taxes, Callidus stated it sent its employee, James W. Hall, to Yellowknife in March of this year. In the lawsuit, Callidus said Hall discovered Deepak International had "failed to take any steps to renovate or otherwise prepare the factories for the installation of the diamond equipment" and requested Kumar open the shipping containers. Kumar refused, saying its buy-back agreement and warranty would be voided.

After Deepak tried to refinance its debt, a lack of proper insurance policies resulted in Callidus hiring a security firm at $1,000 per day to watch over the four shipping containers.

Court documents allege Kumar made arrangements for a representative from the manufacturer to travel to Yellowknife from India on Aug. 28 to open and inspect the contents of the shipping containers. These trips were cancelled, states the court document. The riots in Gujarat, India's westernmost state were given as the reason. When other arrangements were made for another representative to fly to Yellowknife from India on Sept. 25, Callidus said its employee discovered the flight reservation was cancelled.

On Sept. 27, the day before Callidus had informed Deepak it was going to open the shipping containers anyway, the company stated it received a suspicious looking warranty with "blurred letterhead and obvious typographical errors." Kumar also sent Callidus an offer to pledge "a significant number of rough diamonds" for additional time to repay the outstanding loans. According to Callidus, this was the first time in 10 months this was offered as a solution to Deepak International's defaulted loans.

When Hall and another witness opened the containers near the properties on Diamond Row on Sept. 28, the document states they found no functional diamond equipment inside at all. Only "a miscellaneous assortment of broken or obsolete hardware components and various other equipment in decrepit condition. In other words, the containers were full of junk."

Furthermore, Callidus stated it learned the four containers are actually owned by the GNWT, who told the company the contents of the containers are old and used equipment abandoned by the previous tenants of the diamond factories.

In February, Deepak International also faced a lawsuit in Ontario Superior Court from Chippingham Financial Group after it received $20.5 million in financing to help purchase the plants, according to court documents. Chippingham sued Deepak International for $615,000 for allegedly refusing to pay a finder's fee.

When Yellowknifer spoke to Ramsay, he repeatedly cited the downturn in the economy and the 25 per cent drop in demand for diamonds as to why the territorial government continued to try to work with Deepak International and maintains hope the factories will eventually open.

"It's been very difficult," he said. "We haven't had a rush of people coming in to get into the secondary industry in the Northwest Territories. It's still my hope we can have a secondary industry. It was always my hope that could happen here in Yellowknife."

Ramsay said he and his department have tried to be patient.

"The length of time really got out of our control," he said. As to when the GNWT would stop being hopeful about working with Deepak International, Ramsay said his department did try to find alternatives.

"We've spent the last four years trying to find companies to fill that void," he said, adding the presence of diamond polishing company Crossworks, which also runs the NWT Diamond Centre. "We've been trying to find other companies. That work has been going on at the diamond division of (the Department of Industry, Tourism and Investment) for the past four years to no avail. The straight-up economics of it today just aren't good.

That's the stark reality that we're living with. You just have to see what happens here and it looks like there are some hurdles to overcome and things to work out.

"As far of the government goes, we have made some decisions and we'll be moving forward with those decisions and trying to continue to work on this arrangement with Deepak International."

When Yellowknifer asked Drew Williams, for the Department of Industry, Tourism and Investment spokesperson, for a follow-up interview about what Ramsay meant by these decisions and how the GNWT is continuing to work with Deepak International, Williams called it a private business matter.

In a previous interview in January 2013, Ramsay praised the agreement Deepak International being granted Approved NWT Diamond Manufacturer status and the signing of an agreement allowing it exclusive use of the Polar Bear Diamond trademark.

"We are going to see the rebirth of the secondary industry here in Yellowknife and in the NWT," he said.

Following that announcement, Kumar said he expected the Diamond Row factories to be up and running that spring. Then in September last year he told the New York Times he would be opening at least one of the Yellowknife facilities before the end of the year.

Attempts to reach the company were unsuccessful, and the phone number listed on Deepak International's website is no longer in service.

However, on Monday the lights inside both 106 and 108 Archibald St. were seen to be on.

Deepak International's lawyers are set to be in court for a separate case involving the GNWT.

This court action is in response to an access to information request for documents related to Deepak International's plan to acquire the exclusive rights to use the Polar Bear Diamond Trademarks.

Deepak is arguing the disclosure of information would hurt its business.

The information was sought by a separate media outlet. The case will be back in court on Friday.

- with files from Shane Magee

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