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Excise spotlight on Gymkhana Club

The Gymkhana Club

By Ruan Pethiyagoda

The Department of Excise has become entangled in a battle between the Gymkhana Club and a third party running a nightclub called Zetter on the club premises. In a series of seemingly partial moves, the Excise Department has moved to cancel the extended license issued to the Gymkhana Club for its poolside bar, and is considering the transfer of another commercial licence to the Zetter nightclub.

The Gymkhana Club is the parent club of the Colombo Cricket Club (CCC), Colombo Hockey and Football Club (CH&FC) and Queens Club.

The matter erupted when incumbent Gymkhana Club President, Ranjan Kanagasabai met with Excise Commissioner D.G.M.V. Hapuarachchi, and spoke to him regarding concerns that the Zetter nightclub operating at their new building on Maitland Place was doing so illegally and in violation of excise regulations.

It is learnt that Kanagasabai's concern was that since the management of Zetter was a non-entity in the eyes of excise, their allegedly illegal activities would ultimately impact the Gymkhana Club, which holds the license under which Zetter was operating.

No legal authority

At the Gymkhana Club President's meeting in early August with Excise Commissioner Hapuarachchi it transpired that Zetter did not have any legal authority to sell liquor on their premises, and according to documents The Sunday Leader has seen, Kanagasabai requested that the Excise Department act to terminate the illegal operations at Zetter.

However, no such action was ever taken by the Excise Department and Zetter continued to operate and sell liquor, collecting revenue to private limited companies Perera Developments and ASPIC Entertainment, whilst purchasing its liquor stocks privately from supermarkets and in the name of the Gymkhana Club license.

Excise had subsequently raided the Gymkhana Club premises on October 2, leading Kanagasabai to once again meet the Excise Commissioner and ask that the club not be held responsible for the actions of a private party, and asking that the Zetter nightclub be shut down instead of penalising Gymkhana.

Notwithstanding this request, Excise slapped a fine of Rs. 200,000 on the Gymkhana Club for illegally selling alcohol in violation of the terms of their license. Ironically, it was Kanagasabai himself in his capacity as Gymkhana President who informed Excise about the illegal activity taking place at Zetter, yet it was the Gymkhana Club and not Zetter that was taken to task by Excise.


In the meanwhile, the management of Zetter has paid several million rupees to another private party in order to transfer another liquor license for use in their premises. There are two problems with this transfer. The first is that under existing excise regulations, two separate licenses cannot be issued to the same building assessment number. Thus the current Gymkhana Club extended license and the new proposed Zetter license cannot co-exist.

Although money has changed hands, the Excise Department maintains that it has not been officially asked to facilitate a transfer of the license (see box).

Several members of the Gymkhana Club executive committee have told The Sunday Leader that they suspect that moves are afoot with the collusion of Excise to cancel their existing license in order to facilitate a transfer of Zetter's' new private license.

Kanagasabai replied the Excise Department's letter of demand on November 5, refusing to pay the Rs 200,000 fine, and asking why action is being taken against the club and not the operators of Zetter. Kanagasabai also revealed in his letter that Excise had seized the Gymkhana Club's extended license last August over some other offences committed by Zetter.

His letter states that after Excise seized the license, the Department had improperly released it not to any officer of the Gymkhana Club, but to a private individual, one Buwanaka Kollonne. Gymkhana had to then make arrangements to get their license back from Kollonne, and not from the Excise Department. Kanagasabai cited a letter that he had seen on the desk of the Excise Commissioner from Kollonne to the Department requesting that the license be released to him.

Asked for copy

The Gymkhana President asked Hapuarachchi "respectfully" to forward him a copy of the letter "along with an account of the events that led the Department of Excise to release the Gymkhana Club liquor license to a private individual."

The letter also set out some facts that Excise would be hard pressed to contradict in justifying their actions. "The Gymkhana Club has never requested that the Excise Department extend the validity of the said license to either allow for the serving or storage of liquor on the second floor of the building, where the Zetter nightclub operates," he states, putting the ball straight in the court of Excise to explain why the club is still being allowed to function.

Although the letter was not specific as to the laws being broken, it made clear that the management of Zetter was violating Section 18 of the 2001 Excise Ordinance, which states that "no excisable article shall be sold, or kept or exposed for sale, without a license."

In the letter Kanagasabai is clear that "the Gymkhana Club accrues no revenue from the sale of liquor at the said nightclub" and that the premises are managed by Perera Developments, and also that credit card payments are collected by Aspic Entertainment. "The club has never asked that any of our licenses be extended to the Zetter nightclub and has no intention of initiating such a request."

Request to take action

Kanagasabai further asked that unless Excise "has reason to believe that the sale of liquor by the operators of the Zetter nightclub is completely legitimate and in compliance with the law" that they move to "take any necessary action to prevent the sale of liquor" on the premises without prejudice to the areas legally prescribed for Gymkhana itself to sell liquor.

When we spoke to Kanagasabai, he confirmed that he had not received any response to the letter thus far.

Another fear that Gymkhana committee members have is the fact that default of VAT payments by the operators of Zetter would leave the club liable, and that the company could get away Scott free. The entire agreement with the nightclub as well as several other angles pertaining to the new building constructed at the Independence Square Roundabout have come under scrutiny since Ranjan Kanagasabai was elected President of Gymkhana earlier this year.

In the past few months, the club has had several of its accounts frozen by the Inland Revenue Department for non-payment of taxes, its electricity disconnected for non-payment of bills and its auditors, Ernst & Young, have, in a confidential report revealed that documentation is unavailable to verify over Rs 63 million in payments made by the club during the construction of the building and that a further Rs. 15 million worth of payments are "unidentifiable" in any manner at all.

Audit stopped

Ernst & Young have stopped their audit until the club forwards the necessary documentation to continue, and all indications are, according to committee members, that these documents are not available. Also, upon inspection it was found that several agreements are detrimental to the club, as their rental payments are a pittance.

These agreements were signed under the presidency of incumbent committee member and former cricketer Shammi Silva, a situation which has lead to severe divisions within the current committee with many members of the committee being against investigations into the club's past dealings.

The rental agreement with Zetter was more complicated. Perera Development, the company that runs Zetter nightclub was supposed to make a loan of over Rs 10 million to the club at 16% interest, in exchange for which the company was to be granted a lease to the Zetter premises for a fee of Rs 30 per square foot each month. The club's financial statements show that very little money has been received by Gymkhana.

Even more remarkably, despite the fact that Perera Development has not fully given the initially promised loan, some committee members allege that they continue to charge 16% interest in monthly installments to the club, in return for a financial facility that was never received.

Gained nothing

Thus in exchange for providing these rock bottom lease prices in the heart of Colombo 7, the Gymkhana Club itself has gained next to naught.

When all of these issues were raised at an emergency meeting of the club's past chairmen on Monday, November 3, a clear division arose between those present. The club's incumbent Secretary, Shiran Anthony and Immediate Past Chairman Shammi Silva took Kanagasabai head on at every turn.

The minutes of the meeting indicate that Silva chastised Kanagasabai for complaining to Excise about the illegal activities of Zetter.

Silva together with Secretary Shiran Anthony accused Kanagasabai of causing the problems with Excise by complaining about the illegal use of their license by Zetter. He said that he had met the Excise Commissioner, who had told him that the club was fined purely on the basis of Kanagasabai's supposed admission of guilt in committing an offence.

These statements were just the beginning of what was to become an evening of perverted distortions of the truth relating to the problems faced by the Gymkhana Club.

Interestingly enough, instead of making a 'request' to Kanagasabai for assistance in stopping Zetter's illegal sale of alcohol, the Excise Department has decided to target Gymkhana, without even a hint of investigation into the persons actually committing the crime of illegally storing and selling liquor.

Question of VAT

When Kanagasabai brought up the fact that Zetter is not paying VAT on their liquor sales, and that these VAT bills may eventually be landed on Gymkhana for millions of rupees, Secretary Shiran Anthony responded that Zetter is also not claiming input VAT on their purchases, proposing that the club could do so to save some money.

Anthony glossed over the fact that it is illegal to claim input VAT without actually paying the output VAT and that such a scam would just raise more alarm bells at Inland Revenue and bring the entire situation crashing down even harder on the head of the already financially beleaguered club.

On the same topic of VAT, when Kanagasabai highlighted that the club's accounts had been frozen out of owing Rs 11.4 million to the Inland Revenue Department, Shammi Silva again lashed out at the Chairman saying that the cheques had bounced since he had refused to sign several agreements that would have brought the needed money into the club accounts.

Kanagasabai did not have at hand the necessary documentation to show that out of the six dishonoured cheques given to the Excise Department, three of them were dated before he assumed the presidency of Gymkhana on July 30, 2008.

Dishonoured cheques

Thus the rejection of the cheques and the lack of money in the accounts cannot be pinned on Kanagasabai but the accuser, then Chairman Shammi Silva. The document we saw from the Inland Revenue Department gives the dishonoured cheque dates as June 30, July 15, July 30 and three other cheques after Kanagasabai took over.

By the time he assumed office however, the club had already issued Rs 1.476 million in dud cheques to the Inland Revenue Department.

When Kanagasabai tried to defend his integrity by pointing out that when the electricity to the club was disconnected on August 1, he personally gave Rs 800,000 to the club out of pocket to get the line reconnected, Silva again took him on blaming him for the disconnection in the first place.

He said that the electricity was disconnected to the club as part of the fallout from Kanagasabai 'carrying tales' to Excise about the crimes committed by Zetter. Electricity was disconnected on August 1, many days before Kanagasabai met the Excise Commissioner Hapuarachchi.

There is thus simply no way that the excise meeting could have affected the disconnection of electricity to the club.

Mathata Thitha

The internal politics of the Gymkhana Club and its finances aside, the most sordid part of this saga is that even under the Mahinda Chinthana's Mathata Thitha policy, the transfer of a commercial liquor license is underway to a privately run nightclub not even 100 metres away from St. Bridget's College.

The owners of some of Colombo's fledgling boutique hotels such as Tintagel, Casa Colombo and the Park Street Hotel, who have been unable to get liquor licenses for their properties despite even approaching the President directly, will likely have some inspiring things to say if the Excise Department were to allow a nightclub to run within jumping distance of a girl's school.

Zetter operation illegal - Excise

Excise Commissioner D.G.M.V. Hapuarachchi told The Sunday Leader that his department has never issued a license for the sale of liquor within the premises of Zetter. Asked whether the sale of liquor within these premises would be illegal, he replied "yes."

Hapuarachchi also explained that the reason that Gymkhana was being fined is that they are the party holding the license that is being exploited for the running of Zetter. "This was all done by the previous management of Gymkhana," he said asserting that the club as an entity must be held responsible.

He also said that no written request has been received for the official transfer of the other private license to the premises of Zetter, and that he can only consider questions emanating from the transfer when such a written request is received. "There has only been talk so far," the Excise Commissioner said.

Meanwhile The Sunday Leader learns that the financial transaction between the two parties for the transfer of the license is complete and over Rs. 2 million has changed hands through the deal.

Ask Shammi - Zetter Management

The former administrator of Zetter, Buwanaka Kollonne said that he is no longer involved in the operations of the nightclub, and that thus he cannot answer questions pertaining to the legality of its sale of liquor.

He asked that we speak to the club's Former President, Shammi Silva, also stating that Silva is now the owner of the Zetter nightclub.

Shammi Silva, however, when contacted, denied that he was involved with Zetter and declined to answer any further questions citing legal concerns.

The club suffers - Kanagasabai

Incumbent Gymkhana Club Chairman, Ranjan Kanagasabai refused to comment on the details of the issues with Excise and the missing money alleged by the auditors. "At the end of the day it is the club that loses out when all these things are happening," he concluded.

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