Singh v Aulakh

Case [2025] FCA 1207

FEDERAL COURT OF AUSTRALIA

Singh v Aulakh [2025] FCA 1207  

File number(s): VID 368 of 2024
Judgment of: BENNETT J
Date of judgment: 2 October 2025
Catchwords: CORPORATIONS – application for leave to bring a derivative action on behalf of a company under s 237 of the Corporations Act 2001 (Cth) – criteria of good faith, best interests of the company and whether there is a serious question to be tried – appropriateness of leave in the face of deficient proposed pleading – leave granted
Legislation: Corporations Act 2001 (Cth) ss 180, 181, 182, 183, 232, 236, 237, 288, 1317H, 1324
Cases cited:

ASIC v Drake (No 2) [2016] FCA 1552; 118 ACSR 189

Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; 226 CLR 507

Carr v Finance Corp of Australia Ltd (1981) 147 CLR 246

Cemcon Constructions Pty Ltd v Hall Concrete Constructions (Vic) Pty Ltd [2009] FCA 696

Chahwan v Euphoric Pty Ltd (t/as Clay & Michel) [2008] NSWCA 52; 65 ACSR 661

Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; 53 ACSR 732

Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640; 42 ACSR 534

Griffiths & Beerens Pty Ltd v Duggan [2008] VSC 201; 66 ACSR 472

Hannon v Doyle [2011] NSWSC 10; 82 ACSR 259

Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307; 117 ACSR 408

Herbert & Ors v Redemption Investments Ltd [2002] QSC 340

HM&O v Ingram [2012] NSWSC 684

Maher v Honeysett and Maher Electrical Contractors [2005] NSWSC 859

Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; 86 ACSR 432

Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; 58 ACSR 705

Re Wonga Pastoral Development Co Pty Ltd [2023] NSWSC 133

Re Woodbine Project Pty Ltd [2021] VSC 617

South Johnstone Mill Ltd v Dennis [2007] FCA 1448; 163 FCR 343

Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583; 42 ACSR 313

Tydeman v Asgard Group Pty Ltd, in the matter of Asgard Group Pty Ltd [2023] FCA 486
Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations 
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 129
Date of hearing: 11 September 2025
Solicitor for the Applicant: I Finch
Solicitor for the Respondent: J Auld of Harding Property Law

ORDERS

VID 368 of 2024
BETWEEN:

DAMANJEET SINGH

Applicant
AND:

KULWINDER SINGH AULAKH

First Respondent

AJIT SINGH

Second Respondent

KULJIT KAUR AULAKH (and another named in the Schedule)

Third Respondent

ORDER MADE BY:

BENNETT J

DATE OF ORDER:

2 OCTOBER 2025

THE COURT ORDERS THAT:

1.The Second Respondent is granted leave to rely upon the affidavit dated 12 September 2025.

2.The Applicant be granted leave pursuant to s 237 of the Corporations Act 2001 (Cth) (the Act) to bring proceedings on behalf of Aulakh BS Pty Ltd against the First and Second Respondents under ss 180 and 181 of the Act identified in the affidavit…

Continue reading Singh v Aulakh

Sign in free to access the full text

Details
AGLC
Singh v Aulakh [2025] FCA 1207
Case
[2025] FCA 1207
Decision Date

CaseChat Overview and Summary

In Singh v Aulakh, the applicant, Mr Damanjeet Singh, sought leave to bring a derivative action on behalf of Aulakh BS Pty Ltd against the first and second respondents, Mr Aulakh and others. The dispute centred around allegations of breaches of directors' duties under sections 180 and 181 of the Corporations Act 2001 (Cth), including failures in corporate governance and employment practices. The court had to determine whether Mr Singh was acting in good faith, in the best interests of the company, and whether there was a serious question to be tried. Additionally, the court needed to decide if the proposed pleading was sufficiently clear to meet the prima facie threshold required under section 237 of the Act.

The court found that the claims relating to breaches of sections 180 and 181 were articulated with enough clarity and were based on sufficient evidence to meet the prima facie threshold. However, the other claims were not sufficiently clear or substantiated to meet the same standard. Consequently, the court granted leave to proceed with the derivative action, but limited it to the allegations of breaches of sections 180 and 181. The court emphasised that any subsequent pleading must comply with the rules of pleading, and warned that failure to do so could result in the pleading being struck out. The court also granted leave for the second respondent to file additional evidence and permitted the applicant to file a further affidavit that corrected omissions and provided relevant information about the company's transactions and record-keeping practices.

The court concluded that the criteria for granting leave under section 237 of the Act were met, and granted leave with conditions. The leave was limited to the specific allegations of breaches of sections 180 and 181 identified in the applicant's affidavit dated 6 June 2025. The court also made an order that each party bear their own costs of the proceeding to date, subject to any contrary submissions within seven days. The court found that the applicant had been successful in this application, albeit in a limited sense, and that the unusual circumstances of the case warranted an order for each party to bear their own costs. The company was now permitted to commence the proposed proceeding in the limited manner identified by the court.

Orders

Orders of the court

1. The Second Respondent is granted leave to rely upon the affidavit dated 12 September 2025.

2. The Applicant be granted leave pursuant to s 237 of the Corporations Act 2001 (Cth) (the Act) to bring proceedings on behalf of Aulakh BS Pty Ltd against the First and Second Respondents under ss 180 and 181 of the Act identified in the affidavit of Mr Damanjeet Singh dated 6 June 2025.

3. Each party bears its own costs of the proceeding to date.

4. Order 3 be stayed for seven days, and if:

(a) the parties do not file submissions in relation to the order – the order is to take effect after that day; or

(b) the parties file submissions in relation to the order – the order be stayed until further order.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

The proposed statement of claim was annexed to the affidavit of Mr Damanjeet Singh dated 6 June 2025. It is not in dispute that leave is required under s 237 of the Act to proceed with that claim. EVIDENCE I have before me the following materials: (1)Affidavits of Mr D Singh dated 24 March 2025, 4 April 2025, 23 April 2025, 6 June 2025, 4 July 2025 and 10 September 2025. (2)Affidavits of Mr Aulakh dated 3 April 2025, 12 May 2025 and 22 July 2025. (3)An affidavit of Raj Kumar Joshi dated 22 July 2025. The Second, Third and Fourth Respondents did not file any affidavit material prior to the hearing. It is appropriate to briefly summarise relevant parts of that evidence. Some of the affidavits were filed prior to the present issue, and were (at least partially) relevant to predecessor issues related to the interim injunctions previously in place. They were, nevertheless, all read into evidence in the hearing of this application. Much of the evidence is repetitive and contradictory. No party sought to cross examine any deponent on any aspect of the evidence. At the hearing, the solicitor for the Respondents said that the Second Respondent sought to adopt as his own evidence, the evidence given by the First Respondent. The basis for doing so was not clear, given that the Second Respondent had not filed any evidence of that adoption. Consequently, after the hearing, the Second Respondent filed an application to reopen the hearing for the limited purpose of filing an affidavit, which substantially stated that the Second Respondent “support[s], agree[s with] and rel[ies] on the evidence put forward by the First Respondent”. Although the practice of filing evidence following a hearing should be discouraged (see generally Carr v Finance Corp of Australia Ltd (1981) 147 CLR 246 at 257-258 (Mason J); HM&O v Ingram [2012] NSWSC 684 at [29]-[30] (McDougall J)), in this circumstance I am content to grant leave for that affidavit to be filed, given that it appears to be the basis on which the parties proceeded, and nothing substantially turns on it. On the day before the hearing (10 September 2025), the Applicant sought to file a further affidavit without leave. The affidavit sought to do two things. First, it annexed copies of documents referred to in Mr D Singh’s affidavit of 4 July 2025, which were mistakenly not attached to that affidavit. Second, it provided evidence about a software platform which recorded point-of-sale transactions for the business. It also included correspondence with an external accountant (External Accountant) that was the subject of submission and not the subject of dispute. Save for the correspondence with the External Accountant, I do not consider the additional affidavit particularly relevant. I said that I would address the question of leave to rely upon that affidavit in these reasons. Given I have permitted the Second Respondent to file additional evidence, and given its confined relevance, it is appropriate that the additional affidavit be admitted. Opening and direction of funds to the ANZ Account

Decision

Reasons for decision

I consider that the claims articulated in the context of the alleged breach of s 180(1) (a breach of the duty to act in accordance with the obligation of care and diligence) and s 181(1) (an alleged breach of the duty to act in good faith and in accordance with the best interests of the company and for a proper purpose) have been articulated with enough clarity, and are based on sufficient evidence, to meet the prima facie threshold. The balance of the claims, however, have not been articulated with sufficient clarity or do not otherwise meet the prima facie threshold. They ought not proceed. CONCLUSION I am persuaded that the criteria in s 237 are met, and so I must grant leave. That leave can be attended by conditions. In this instance, the leave that is granted is limited to allegations of breaches of s 180 and s 181 of the Act identified in the affidavit of Mr D Singh dated 6 June 2025. In attaching this condition, I emphasise that any subsequent pleading must comply with the rules of pleading. This grant of leave is not provided on the basis that the draft statement of claim is appropriately pleaded – merely that it has been a means by which the statutory threshold has been met for the purposes of the s 237 application. Any pleading filed in accordance with this grant of leave will be amenable to any appropriate application to be struck out, if it does not properly comply with the rules of pleading. The Applicant otherwise sought orders that the Respondents pay the costs of the proceeding and otherwise deliver up documents identified. None of those orders are appropriate at this stage. The Company can commence the proposed proceeding in the limited manner that I have identified. In conducting the litigation, the Applicant is bound by the same obligations arising under s 180 and 181 which he seeks to deploy against the Respondents. The Applicant has been successful in this application, albeit in a limited sense. It follows from a series of steps that were taken in the proceeding without having in place the necessary leave to proceed. In the unusual circumstances in which the case has evolved, I propose to make an order that each party bear their own costs of the proceeding to date, subject to consideration of any contrary submission received within seven days of the date of this decision.

Ratio Decidendi

Legal Principle Established

Mr D Singh states that the Respondents have refused to provide him with access to the Company’s accounting software or financial records since the subject-matter of this dispute arose.Other deficiencies in the operation of the Company Record keeping Mr D Singh deposes to irregularities in the payment of employees, and in the record keeping of the Company, including that the use of WhatsApp messages to record cash takings and payments to employees does not satisfy the Company’s governance obligations. Mr Aulakh accepts that running a Company via WhatsApp messages was not “a proper system of financial accounting”, but asserts that the Applicant was aware of these practices. He relies on the evidence of Mr Joshi for that proposition. Mr Joshi is a friend and former workmate of Mr D Singh, and says that he used to assist in the business. Mr Joshi says that he was present at two meetings between the parties, on 13 May 2023 and in March 2024, to discuss the business. He says that Mr D Singh documented the meeting in March 2024 between the parties in handwritten notes. Mr Joshi exhibits a copy of those handwritten notes. Part of the notes appear to state decisions about how to pay employees including that “Family members will get normal pay on public holidays” and, further, the following statement “How to pay employees … cash, half tax half cash”. Employment of individuals lacking the right to work Mr D Singh deposes that the Respondents “have employed family members in the business, despite some of those individuals not holding visas that permit them to work in Australia”. Mr Aulakh deposes that during periods of “severe understaffing” he sought assistance from some family members for a few days each week, and that none of those people were paid for their time. I interpolate that it is said that the individuals were not paid because they had no right to be paid for work. On its face, these appear to be irregularities in both workplace and immigration matters. It is not clear how evidence of this kind assists the Respondent: it appears to be a concession that the Company was engaging in conduct which could expose it to a liability or penalty by failing to comply with relevant laws and to make provision for appropriate taxation. The awareness (or potential awareness) of the Applicant does not necessarily alter that proposition. Previous dispute between the parties Mr D Singh gives evidence of correspondence from a time when the Applicant and First Respondent accused the Second Respondent of inappropriate conduct in relation to the Company, including: (1)the employment of individuals who lack the right to work in Australia; (2)unaccountable financial withdrawals; and (3)other irregularities in the conduct of the Company. It is not clear how these allegations relate to the present allegations, save to illustrate that there has, in the recent past, been bad blood between the First Respondent and Second Respondent and that allegations of misconduct have been made by others in the past, including allegations by the First Respondent that the Second Respondent had misappropriated funds of the Company in the past. Foreshadowed counterclaim