Khullar Family Investments Pty Ltd v The Artificial Intellect Group Pty Ltd
[2023] WASC 205
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: KHULLAR FAMILY INVESTMENTS PTY LTD -v- THE ARTIFICIAL INTELLECT GROUP PTY LTD [2023] WASC 205
CORAM: MASTER SANDERSON
HEARD: 20 APRIL 2023
DELIVERED : 13 JUNE 2023
PUBLISHED : 13 JUNE 2023
FILE NO/S: COR 222 of 2022
BETWEEN: KHULLAR FAMILY INVESTMENTS PTY LTD
Plaintiff
AND
THE ARTIFICIAL INTELLECT GROUP PTY LTD
Defendant
Catchwords:
Corporations law - Application to inspect companies records - Turns on own facts
Legislation:
Corporations Act 2001 (Cth)
Result:
Application dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | A Pieniazek |
| Defendant | : | K Robson |
Solicitors:
| Plaintiff | : | MLG Lawyers |
| Defendant | : | Evangel Legal |
Case(s) referred to in decision(s):
Enares Pty Ltd v Nimble Money Ltd [2021] FCA 1596; (2021) 158 ACSR 451
Mesa Minerals Ltd v Mighty River International Ltd (2016) 241 FCR 241
MASTER SANDERSON:
By originating process filed 13 December 2022, the plaintiff sought an order pursuant to s 247A of the Corporations Act 2001 (Cth) authorising the plaintiff and its advisers to inspect certain books of the defendant. The documents which the plaintiff wished to examine were detailed in annexure A of the originating process. They are:
1Bank statements of the defendant from incorporation to date;
2.Financial statements of the defendant from incorporation to date, including but not limited to:
(a)business activity statements;
(b)annual tax returns;
(c)director appointment forms;
(d)ASIC annual review statements;
(e)ABN and TFN application forms;
(f)minutes and declarations regarding solvency of the defendant;
3.Documents and records relating to the employment of Rachna Dhand including but not limited to:
(a)employment agreement;
(b)payslips;
(c)superannuation payments;
(d)details of any fringe benefits;
(e)any other payments, gifts or benefits provided to Rachna Dhand since incorporation;
4.Minutes, notes or any documents as may be relevant to the defendant's issue of shares to Neuro Fuzzy Analytics Pty Ltd;
5.Minutes, notes or any documents as may be relevant to the appointment of Rachna Dhand as a director of the defendant;
6.Any register of members of the defendant;
7.Documents and records relating to any agreements entered into by the defendant to transfer the defendant's assets to any other entity; and
8.Documents and records relating to or evidencing:
(a)the defendants attempts to generate revenue; and
(b)any revenue generated.
Section 247A of the Corporations Act is in the following terms:
(1)On application by a member of a company or registered scheme, the Court may make an order:
(a)authorising the applicant to inspect books of the company or scheme; or
(b)authorising another person (whether a member or not) to inspect books of the company or scheme on the applicant's behalf.
The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose.
(2)A person authorised to inspect books may make copies of the books unless the Court orders otherwise.
(3)A person who:
(a)is granted leave under section 237; or
(b)applies for leave under that section; or
(c)is eligible to apply for leave under that section;
may apply to the Court for an order under this section.
(4)On application, the Court may make an order authorising:
(a)the applicant to inspect books of the company; or
(b)another person to inspect books of the company on the applicant's behalf.
(5)The Court may make the order only if it is satisfied that:
(a)the applicant is acting in good faith; and
(b)the inspection is to be made for a purpose connected with:
(i)applying for leave under section 237; or
(ii)bringing or intervening in proceedings with leave under that section.
(6)A person authorised to inspect books may make copies of the books unless the Court orders otherwise.
It is important to note that an order can only be made if the two criteria set out in s 247A(5) are satisfied. In this case, it was the primary position of the defendant that the plaintiff was not acting in good faith. While the defendant did not concede the inspection was being undertaken for a purpose connected with s 237, that issue was very much a secondary consideration. Both parties accepted the relevant principles were as summarised by Katzmann J in Mesa Minerals Ltd v Mighty River International Ltd (2016) 241 FCR 241. Her Honour said at [22]:
There was no dispute below or on appeal as to the relevant principles. It is sufficient at this point to note the following matters drawn from the convenient summary given by Debelle J in Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344; (Acehill) at [29] and the additional principles identified by Gordon J in Hanks v Admiralty Resources NL (2011) 85 ACSR 101 (Hanks) at [32], both of which judgments were referred to by the primary judge at different points in his reasons:
(1)The stipulation that an application be made in good faith and for a proper purpose is a composite notion rather than two distinct requirements: Knightswood Nominees Pty Ltd v Sherwin Pastoral Company Ltd (1989) 15 ACLR 151 (Knightswood Nominees) at 155-157. That is to say, as Brooking J put it in Knightswood at 156:
[T]he reference to good faith colours and so reinforces the requirement of proper purpose. Acting in good faith and inspecting for a proper purpose means acting and inspecting for a bona fide proper purpose. It is as if the case was one of hendiadys.
(2)Good faith and proper purpose must be proved objectively: Acehill, citing Barrack Mines Ltd v Grants Patch Mining Ltd [1988] 1 Qd R 606 (Full Court) (Barrack Mines Appeal) and Knightswood. See also the discussion in Mantziaris C, 'The member's right to inspect the company books: Corporations Act, s 247A' (2009) 83 ALJ 621 at 628-629.
(3)"Proper purpose" means a purpose connected with the proper exercise of the rights of a shareholder as shareholder and not, for example, as a litigant in proceedings against the company or as a bidder under a takeover scheme: Cescastle Pty Ltd v Renak Holdings Ltd (1991) 6 ACSR 115 (Cescastle) at 117-118.
(4)The onus of proof is on the applicant: Quinlan v Vital Technology Australia Ltd (1987) 5 ACLC 389 (Quinlan) at 393.
(5)An applicant who has a significant holding and who has been a shareholder for ''some considerable time" will more easily discharge the onus than one who has recently acquired a token holding: Quinlan at 393.
(6)It is not necessary that the applicant show that its interests are different to those of other shareholders: Yara Australia Pty Ltd v Burrup Holdings Ltd (2010) 80 ACSR 641 at [116].
(7)Nor is it necessary that the applicant have sufficient evidence to bring or make out an action (Praetorin Pty Ltd v TZ Ltd (2009) 76 ACSR 236 (Praetorin) at [40]); it is enough that the issue raised by the applicant is "substantive and not fanciful", not "artificial, specious or contrived": Merim Pty Ltd v Style Ltd (2009) 255 ALR 63 (Style) at [66]-[67].
(8)Pursuing a reasonable suspicion of breach of duty is a proper purpose: McNeill v Hearing and BalanceCentre Pty Ltd [2007] NSWSC 942 at [17] citing Barrack Mines Ltd v Grants Patch Mining Ltd (1987) 12 ACLC 357 and the judgment on the unsuccessful appeal: Barrack Mines Appeal.
(9)Provided that the applicant's primary or dominant purpose is a proper one, it is not to the point that an inspection might benefit the applicant for some other purpose: Unity APA Ltd vHumes Ltd (No 2) [1987] VR 474 (Humes) at 480; Barrack Mines Appeal at 615; Cescastleat 117-118.
(10)Applicants do not necessarily lack a proper purpose merely because they are hostile to other directors: Humes at 480.
(11)Neither the fact that an applicant may have had sufficient information earlier nor the fact that an applicant may have other means of obtaining the information is detrimental to an application under the section: McNeill at [23]-[25].
(12)The procedure under s 247A is not intended to be as wide‑ranging as discovery so that the general rule is that inspection will be limited to such documents as evidence the results of board decisions, rather than all board papers leading to decisions, but there may be occasions when it is proper to permit inspection of board papers: Acehill at [31].
(13)The Court has a residual discretion whether to order inspection: Humes at 481.
In ascertaining whether the applicant is acting in good faith and for a proper purpose the court's task is to determine whether there is a 'case for investigation' - this concept emphasises the need for an objective basis for intervention: Enares Pty Ltd v Nimble Money Ltd [2021] FCA 1596; (2021) 158 ACSR 451 at [52]. Even if the court considers the applicant is acting in good faith and for a proper purpose the court has a discretion about whether to order inspection and if so, on what terms.
The relevant facts can be summarised as follows. The defendant (AIG) has two shareholders - the plaintiff (KFI) and Neuro Fuzzy Analytics Pty Ltd (Neuro Fuzzy). Priyanka Bhakoo is the sole director of KFI. Between August 2018 and March 2022, Amit Khullar, Priyanka Bhakoo's husband, represented KFI in discussions with Neuro Fuzzy. Amit Seth is the sole director of Neuro Fuzzy and, until May 2022, was the sole director of AIG. Rachna Dhand, Amit Seth's partner, is also a director of AIG.
In paragraphs 6 to 24 of the plaintiff's submissions, counsel set out the plaintiff's version of the history of the relationship between the various parties. The defendant did not agree with all aspects of this history and highlighted a number of particular aspects of the relationship which were not detailed in the plaintiff's history. But given the conclusions I have reached in relation to this matter, it is sufficient if I repeat these paragraphs while acknowledging the history is the version of events most favourable to the plaintiff.
The plaintiff's claim faces two initial difficulties. The first is that it is difficult to see how access to the documents sought by the plaintiff will facilitate an application for leave under s 237 of the Corporations Act. That section sets out when leave can be granted to certain persons including members of a company to take action on behalf of the company. The criteria for the grant of leave are set out in s 237(2), but in any application for leave it is necessary to identify the cause of action which the company is said to have against the prospective defendants. The only evidence in relation to this issue is found in paragraph 37 of Ms Bhakoo's first affidavit. It reads as follows:
I wish to obtain access to AIG's books to investigate whether KFI has a claim against AIG, Amit Seth and Rachna Dhand in relation to the validity of the Share Issue, validity of the appointment of Rachna Dhand as a director of AIG, and failure to date by AIG to generate or disclose any revenue.
This paragraph discloses a misunderstanding as to the purpose of s 247A. The issue is not whether KFI has a claim against any party. The issue is whether AIG has a claim against any party. The plaintiff has approached this matter from entirely the wrong perspective.
There is an additional fact which in my view would be an overwhelming consideration in the exercise of discretion. The plaintiff is a 0.03% shareholder in the defendant. To allow a party which has such a small shareholding to undertake what the defendant describes as a 'free ranging' enquiry would be at odds with established principles. It may well be the plaintiff believes the issue of shares by the company to various parties was improper or inappropriate. If that is the case then the plaintiff can take proceedings to unwind the share issue. But that is not a matter which can justify an order being made under s 247A.
The plaintiff's application will be dismissed. The plaintiff should pay the defendant's costs of the application including the reserved costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TM
Court Officer
13 JUNE 2023
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