Patel v Beecharaju - [2021] NZHC 964

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-000557

[2021] NZHC 964

BETWEEN
SURESH PATEL

Plaintiff

AND

MURALIKRISHNA BEECHARAJU

First Defendant

SANTOSH REDDY SONTIREDDY
Second Defendant

YAKASAI ASSOCIATES LIMITED

Third Defendant

Hearing: 27 April 2021

Appearances:

D Purusram for Plaintiff S Young for Defendants

Judgment:

4 May 2021

Reissued:

6 May 2021

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 4 May 2021 at 3.00 pm and re-issued on 6 May 2021 pursuant to r 11.5 of the High Court Rules

Registrar / Deputy Registrar Date……………………..

SURESH PATEL v MURALIKRISHNA BEECHARAJU [2021] NZHC 964 [6 May 2021]

Introduction

[1] Mr Patel seeks orders for particular discovery (High Court Rules 2016, r 8.19) and non-party discovery (r 8.21) in proceedings brought under s 174 of the Companies Act 1993. His third statement of claim also includes causes of action for breaches of contract and misrepresentation in relation to loan advances made to the defendants and his investment in Yakasai Associates Ltd (YAL).

[2] Mr Patel alleges that his fellow directors and shareholders, Mr Beecharaju and Mr Sontireddy, have mismanaged the financial affairs of YAL, have misappropriated company funds and property, and have operated parallel businesses through other entities. He contends that they diverted profit belonging to YAL to those other businesses.

[3] Since my minute of 19 October 2020 adjourning the original discovery hearing, the parties have, to their credit, made significant progress in narrowing the categories of document at issue.

[4] The principal remaining category of documents at issue is the personal bank statements of Mr Beechraju and Mr Sontireddy, which they contend are not relevant to the proceedings.

Factual background

[5] Mr Patel is a director of YAL and holds 33 per cent of the shares in that company. The other two shareholders and directors are the defendants, Mr Beecharaju and Mr Sontireddy.

[6] YAL was incorporated in May 2016 to acquire the timber flooring business of Hystand Flooring Ltd.

[7] Mr Beecharaju and Mr Sontireddy were previously employed by Mr Patel in a liquor store business owned and operated by Mr Patel.

[8] In March 2018, Mr Beecharaju and Mr Sontireddy formed a new timber flooring company, Flooring Mechanics Ltd. Both Mr Beecharaju and Mr Sontireddy are directors of Floor Mechanics Ltd and each holds a 50 per cent shareholding interest in the company.

[9] Mr Patel alleges that Mr Beecharaju and Mr Sontireddy set up Flooring Mechanics Ltd to operate in parallel with YAL and to hide income and/or profits in that business that properly belong to YAL.

[10] Mr Patel further alleges that he invested $50,000 in the acquisition of shares in YAL and that as a shareholder he has been deprived of his right to profit and income that rightly belongs to YAL. He says that he has been deprived of that income as a result of the oppressive and unfairly prejudicial conduct of Mr Beecharaju and…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2021] NZHC 964
Decision Date: 4 May 2021

CaseChat Overview and Summary

The case of Suresh Patel v Muralikrishna Beecharaju involves proceedings brought under Section 174 of the Companies Act 1993, wherein Mr. Patel seeks orders for particular discovery and non-party discovery. He contends that his fellow directors and shareholders, Mr. Beecharaju and Mr. Sontireddy, have mismanaged the financial affairs of Yakasai Associates Ltd (YAL), misappropriated company funds and property, and operated parallel businesses through other entities. He claims that they diverted profits belonging to YAL to these other businesses and that he has been deprived of his right to profit and income that rightly belongs to YAL. The defendants argue that the personal bank statements are not relevant and that providing such substantial personal information would be fundamentally disproportionate.

The court was required to decide whether the documents sought by Mr. Patel were relevant and important, whether there were grounds for belief that the documents existed, whether discovery was proportionate, and whether, in the court's discretion, an order was appropriate. The court also needed to determine whether there were grounds for belief that a non-party had documents that would be discoverable if the person was a party, and whether the relevance and proportionality considerations applied.

The court found that the documents sought were relevant and of some importance, and that there was a proper basis for the non-party orders as sought against the trading banks. The personal bank account statements would be in digital form, and it would be for Mr. Patel, in the first instance, to meet the reasonable costs of the non-party trading banks in providing discovery. The court rejected the submission that the defendants should be able to provide redacted personal bank statements if the application were to be granted, and instead opted for the non-party banks to provide unredacted disclosure, with the affidavits of documents provided to counsel only. Mr. Patel would then need further leave of the Court if he or any of his witnesses wished to see the document themselves.

The court found that Mr. Patel's amended applications for particular discovery and non-party discovery should be granted and ordered the defendants to file and serve further affidavits of documents within 15 working days. The court also ordered the non-party trading banks to file and serve affidavits of documents within 20 working days. The reasonable costs of the non-party trading bank entities were to be met in the first instance by the plaintiff, Mr. Patel, with leave reserved to the non-parties to seek further directions, including directions in relation to costs, from the Court. The defendants, as the losing parties, were to pay costs to the plaintiff, Mr. Patel, on a 2B basis.

Orders