Sharma v Mundath
[2019] NZHC 1263
•6 June 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-572
[2019] NZHC 1263
BETWEEN DATA RAM SHARMA and GANESH
DIXIT as Trustees of the Sharma Family Trust
First Plaintiffs
……………Plaintiffs continued over page
AND
MUJEEB RAHIMAN MUNDATH
First Defendant
……………Defendants continued over page
Hearing: 9 May 2019 Appearances:
B O’Callahan and J Ding for the Plaintiffs
Judgment:
6 June 2019
JUDGMENT OF MUIR J
This judgment was delivered by me on Thursday 6 June 2019 at 11.00 am pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:…………………………
Counsel
B O’Callahan, Barrister, Auckland
Solicitors
K3 Legal, Auckland
SHARMA v MUNDATH [2019] NZHC 1263 [6 June 2019]
Plaintiffs continued
BIKANER FOODS MT ROSKILL LIMITED
Second Plaintiff
JAYA INVESTMENTS LIMITED
Third PlaintiffWIANX SERVICES LIMITED
Fourth PlaintiffTRAVELLERS INN LIMITED
Fifth Plaintiff
V AND A LIMITED
Sixth PlaintiffVR ROTORUA LIMITED
Seventh PlaintiffV AND A 2012 LIMITED
Eighth PlaintiffVINOD KUMAR SHARMA
Ninth PlaintiffBIKANER FOODS 2010 LIMITED
Tenth PlaintiffBIKANER FOODS NZ LMITED
Eleventh PlaintiffCAMELOT HOTEL LIMITED
Twelfth PlaintiffGATEWAY MOTEL LIMITED
Thirteenth PlaintiffM AND RA LIMITED
Fourteenth PlaintiffRAKESH KUMAR SHARMA and
MADHU SHARMA as trustees of the Pachori Trust
Fifteenth Plaintiffs
RAKESH KUMAR SHARMA and
MADHU SHARMA as trustees of the Ram Family Trust
Sixteenth Plaintiffs
RAKESH KUMAR SHARMA and ROGER
CHI as Rchi Partnership Seventeenth Plaintiffs
SMARTBUY SOLUTIONS LIMITED
Eighteenth PlaintiffTRAVELLERS INN RECEIVERSHIP LIMITED
Nineteenth PlaintiffRAKESH KUMAR SHARMA
Twentieth Plaintiff
ASHOK KUMAR SHARMA and SUDHA
SHARMA as Trustees of the A K Sharma Trust
Twenty-First Plaintiffs
ANKUR ENTERPRISES LIMITED
Twenty-Second PlaintiffBIKANER FOODS METRO LIMITED
Twenty-Third PlaintiffNINETY FIVE NZ LIMITED
Twenty-Fourth Plaintiff
AMAZON NZ LIMITED
Twenty-Fifth PlaintiffM & A LIMITED
Twenty-Sixth PlaintiffTE ATATU DEVELOPMENTS LIMITED
Twenty-Seventh PlaintiffANKUR INVESTMENTS LIMITED
Twenty-Eighth PlaintiffMAXWELL’S LIMITED
Twenty-Ninth PlaintiffOMAX INTERNATIONAL LIMITED
Thirtieth PlaintiffQUADRANT MANAGEMENT SERVICES LIMITED
Thirty-First Plaintiff
UNIWORLD LIMITED
Thirty-Second Plaintiff
VR GROUP 2011 LIMITED
Thirty-Third PlaintiffPURE DAIRY PRODUCTS NZ LIMITED
Thirty-Fourth Plaintiff
Defendants continued
AFSHEEN MUJEEB
Second DefendantFULCRUM MANAGEMENT CONSTRUCTION LIMITED
Third Defendant
MUDRA INVESTMENTS NZ LIMITED
Fourth DefendantSUJIN HWANG
Fifth DefendantKOYAMA PTY LIMITED
Sixth Defendant
Introduction
[1] The plaintiffs seek judgment by way of formal proof against each of the third and fourth defendants, Fulcrum Management Construction Ltd (Fulcrum) and Mudra Investments Ltd (Mudra). Both were served on 27 August 2018 and neither has taken any steps in the proceedings.
[2] By email dated 9 May 2019 at 12:06 am, Mr T Hall, the former (Australian- based) solicitor for the first defendant, Mr Mundath, wrote to the Deputy-Registrar advising that because a trustee in bankruptcy has been appointed in respect of Fulcrum’s sole director (Mr Mundath), and because Mr Mundath had, as a result, been suspended from his directorship of Fulcrum, Mr Mundath was unable to represent the company, and Mr Hall was unable to accept instructions on the company’s behalf. No similar representations were made in respect of Mudra, although Mr Mundath is likewise the sole director of that company.
[3] By emails dated 7 May 2019 at 1:59 am and 1:05 pm, Mr Mundath also wrote to the Deputy-Registrar, claiming that he was doing so on instructions from his trustee in bankruptcy, and referring to proceedings in the Federal Court of Australia (number NSD566/2018), which he said “concern the company Fulcrum Management”.
[4] For the plaintiffs, Mr O'Callahan advises that such reference is in error. He says that the Australian proceedings, (which seek to recover monies fraudulently obtained by Mr Mundath in New Zealand and then transferred offshore), are against Mr Mundath personally, and that they do not involve the New Zealand registered company Fulcrum.
[5] In any event, I regard the correspondence as irrelevant to the application now before me. The time for filing statements of defence by both Fulcrum and Mudra expired long before the appointment of Mr Mundath’s trustee in bankruptcy. Indeed, the application for formal proof was set down by Jagose J before such appointment.
[6] I am further satisfied that proceedings against Mr Mundath in Australia are not relevant to the formal proof applications against either company.
Background
[7] Mr Mundath is a former employee of the twenty-fifth plaintiff, Amazon New Zealand Ltd (Amazon). He was employed in 2006 as its bookkeeper. Amazon is one of multiple entities associated with the Sharma family. Over time, Mr Mundath was progressively engaged by other plaintiffs to similarly attend to their accounting requirements. In that capacity, it is alleged that Mr Mundath made improper payments to himself (or related entities) approximating $5.5 million over the course of approximately six years.
[8] Various fraudulent mechanisms were employed. In respect of some legitimate suppliers to group companies, Mr Mundath identified the suppliers as payees in the relevant bank transfers, but substituted his own or related parties’ account numbers. In their amended statement of claim dated 6 August 2018, the plaintiffs allege that
$3,136,875.53 was unlawfully obtained by him as a result. Secondly, they allege that within their usual course of business, funds would flow between entities within the Sharma group, and that Mr Mundath established various transfers with narratives that made it appear they were between group entities, when in fact they were to accounts under his control. The total amount involved is stated to be $1,512,814.63. Thirdly, it is said that he directed the Inland Revenue Department to make payment to accounts under his control of funds due to group companies. The total amount involved is said to be $146,003.57. Fourthly, the plaintiffs allege that he manipulated in his favour the payroll of relevant plaintiffs to the extent of $615,927.32.
[9] On 24 January 2019, Associate Judge Bell granted summary judgment in favour of various plaintiffs for sums totalling $4,696,758.31.1 In doing so, he was satisfied that Mr Mundath had breached his fiduciary duties in the particulars alleged. However, the Judge recognised that in respect of some of the claims (where, in particular, Mr Mundath had alleged payments to him were in reimbursement of costs incurred on behalf of the plaintiffs), a “full hearing on the merits”2 was required. These considerations do not apply to the claims against Fulcrum and Mudra.
1 Sharma v Mundath [2019] NZHC 24.
2 At 104.
[10] The formal proof claim against both Fulcrum and Mudra proceeds on alternative causes of action, in knowing receipt, and in money had and received. Against Mudra, the plaintiffs also plead a tracing claim.
[11] In each case, the plaintiffs rely on the extensive affidavit evidence filed in support of their summary judgment application which, by leave, I admitted in respect of the applications for judgment by way of formal proof.3 In particular, they rely on the several affidavits of Kare Johnstone, who is a chartered accountant and a partner of McGrathNicol. She was engaged to investigate the unauthorised payments by Mr Mundath and to trace the relevant money flows.
Claims against Fulcrum
[12] The investigation undertaken by Ms Johnstone identifies that Fulcrum fraudulently received a total sum of $425,592.29 from 21 plaintiffs directly to its bank account at ASB Bank Ltd.4
[13]This sum includes amounts owing to the following three plaintiffs, all of whom
have been struck off as a result of non-compliance requirements: with the Company Office Maxwell’s Ltd
$9,684.50
Pure Dairy Products New Zealand Limited
$8,505.86
Smart Buy Solutions Limited
$4,019.46.
[14] Because it is intended that orders be sought restoring these companies to the Register, I adjourned their applications for formal proof to a further fixture on 7 August 2019.5 The current application, therefore, proceeds on total claims of
$403,382.47.
3 Minute dated 9 May 2019 at [4].
4 Her affidavit, dated 6 August 2018, identifies this sum as $417,603.93. By Minute dated 13 May 2019, I questioned the apparent discrepancy between this sum and the $425,593.29 referred to in counsel’s submissions and attached schedules. On 27 May 2019, Ms Johnstone filed a further affidavit identifying the reference to $417,603.93 as a text error, resulting from her failure to update an earlier draft.
5 Minute dated 9 May 2019 at [3].
[15] At the time of all relevant payments to Fulcrum, Mr Mundath was its sole director and shareholder.6 I am satisfied that as a result Mr Mundath’s actions, his state of mind can be attributed to the company, with the result that Fulcrum knew the payments received to its bank account were made in breach of the fiduciary duties which Mr Mundath owed to the plaintiffs.
[16] On the basis of Ms Johnstone’s evidence, I am therefore satisfied that equitable compensation in the amount of $403,382.47 is appropriately ordered, for knowing receipt of funds paid in breach of fiduciary duty. The individual plaintiff’s entitlements are identified in Schedule 1 to the attached draft order.
[17] I also find the alternative cause of action (seeking judgment for moneys had and received) made out. Such claim is in the same amount.
Claim against Mudra
[18] Mudra received one direct payment (from the twenty-fourth plaintiff, Ninety Five NZ Ltd) in the sum of $30,000. This occurred on 16 April 2015. The payment was fraudulently identified as a transaction within the Sharma Group. At that time (and all material times), Mr Mundath was the sole director and shareholder of Mudra. I am satisfied that the payment to its account was in breach of fiduciary duty and that the allegation of knowing receipt is made out. I similarly find the cause of action for moneys had and received established.
[19] In addition, Ms Johnstone deposes that Mudra was the beneficiary of fraudulent payments made through other entities. On 19 February 2019, for example, Mr Mundath opened a BNZ account (02-0208-0110153-00), into which he transferred all money from his Westpac and ANZ bank accounts. Ms Johnstone has traced the deposits into the BNZ and determined that $916,315.62 of the total deposits of
$1,078,262 represented moneys fraudulently obtained from the plaintiffs.
[20]On 9 April 2018, a payment of $50,000 was made from this account to Mudra.
6 The company was incorporated on 29 August 2012, with Mr Mundath as its shareholder. On 9 May 2013, he consented to become its director. The first of the unauthorised payments in favour of Fulcrum was made on 22 July 2013 and the last such payment on 18 January 2018.
[21] In addition, Ms Johnstone’s analysis identifies $448,945.29 of fraudulent payments to Mr Mundath’s ASB bank account (12-3061-0063711-00), from which Mudra received three payments totalling $21,000.7 And from fraudulent payments to Fulcrum totalling $417,603.93, a payment was made to Mudra of $3,000 on 23 March 2016.8
[22] The plaintiffs rely on the equitable tracing principle derived from Re Hallett’s Estate9 and referred to in Snells Equity as follows10:
The mixture of the claimant’s money and the trustee’s money commonly happens in a current bank account. The court considers the movement of money in and out of the bank account with the benefit of hindsight. It is presumed that in making any withdrawals or leaving money in the account his intention was to preserve the value contributed by the claimant and that any value which was dissipated from the account should represent his own contribution to the mixed fund. So in one case where the money which the trustee withdrew from the account was dissipated, it was presumed that the residue was attributable to the claimant. She was entitled to an equitable lien over the account for the money thus identified. In other case, where the money which the trustee withdrew from the account was successfully invested in stock and the residue in the account was dissipated, it was presumed that the claimant’s money could be traced into the stock. There is no rule that money first withdrawn from the account is treated as the trustee’s, unless it should turn out that the money was dissipated.
[23] In summary, the relevant principle is that where money is withdrawn and dissipated from a mixed account, the presumption is that it is the trustee’s own money which is dissipated first.
[24] I am satisfied that this principal has been appropriately applied in respect of each of the $50,000, (cumulatively) $21,000, and $3,000 payments, referred to in paragraphs 19, 20 and 21 above. I am therefore further satisfied that judgment is appropriately entered for those sums on the plaintiffs’ cause of action (tracing – knowing receipt). To the extent recovery of the same sums may be available against
Being: 29 July 2016 $6000
2 September 2016 $7,500
31 October 2016 $7,500
8 Ms Johnstone’s principal affidavit identified a further payment of $1,500 on 24 February 2017 (paragraph [140]) and the Amended Statement of Claim (paragraph [88(d)]) sought recovery of
$4,500 in total. As a result of questions raised in my Minute dated 13 May 2019 and subsequent review by Ms Johnstone of her evidence, the $1,500 claim was withdrawn.
9 Re Hallett’s Estate (1879) 13 ChD 696 at 709-711.
10 John McGhee Snell’s Equity (31st ed, Sweet and Maxwell, London, 2005) at 28-37.
other parties, I accept the plaintiffs’ invitation to identify the judgment as “joint” where appropriate. This is reflected in the attached draft orders.
[25] Initially, the plaintiffs also claimed a further sum of $51,500.19 against Mudra.11 This was significantly more than the quantum sought in the relevant paragraph of the pleading (88(c) of the Amended Statement of Claim). The amended claim was advised by Memorandum after the formal proof hearing, and further analysis by the plaintiffs’ forensic accountant and solicitors.
[26] By Minute dated 29 May 2019, I advised that I was not prepared to allow this aspect of the claim to proceed by way of formal proof at this stage. I indicated that if the plaintiffs wished to advance the claim further then they were required to file and serve an amended pleading. I did so for natural justice reasons – Mudra’s decision not to file a defence may have been premised on the significantly reduced quantum pleaded.
[27] As a result of this Minute, the plaintiffs advised that the claim in paragraph 88(c) of the Amended Statement of Claim was withdrawn. I dismiss it accordingly.
[28] In respect of the tracing claims I have allowed, Mr O’Callahan seeks a judgment jointly in favour of all plaintiffs, except those currently removed from the register. In addition to the three companies identified at [13] above, I am now advised that the 10th, 19th and 27th plaintiffs are likewise in this category.
[29] I accept that a joint judgment in favour of those plaintiffs which have not been struck off is appropriate, as it is not possible at this stage to establish (either economically or on a basis that is reasonably reliable) the ultimate beneficiary of the funds. Moreover, all such companies fall within the same group.
[30] I reserve leave to any reinstated company to seek to be added as a joint judgment creditor.
11 Again alleging that it had knowingly received funds which could be traced to it.
[31] Mr O’Callahan further advises that the Registrar of Companies has initiated action to remove Mudra from the Register, on account of non-compliance with reporting requirements. He initially sought an order that once the company was removed from the Register it be reinstated under s 329. However, that application was ultimately withdrawn, on the basis of my expressed concern that there does not appear to be any jurisdiction under the section to make a prospective order of the type sought. And as Mr O'Callahan concedes, nor is it appropriate for this Court to attempt to stop the current process. It will therefore be for the judgment creditors to seek reinstatement of Mudra to the Register after it is removed, if they regard that as appropriate.
Interest
[32] In his judgment (No 2) dated 26 February 201912 Associate Judge Bell identified the relevant approach under the Interest on Money Claims Act 2016 (the Act) regarding the calculation of interest on the plaintiffs’ claims against Mr Mundath. I adopt as correct that approach and award interest accordingly. The relevant calculations appear as Schedule 3 to the Draft Order annexed hereto.13
Result
[33]I give judgment in accordance with the Draft Orders annexed hereto.
Costs
[34] The plaintiffs’ written submissions do not seek costs, nor was the issue raised in oral argument. I reserve the right to do so. I apprehend that given their reliance on previous affidavits, and what is in any event a likely significant shortfall in recovery, costs are moot.
Muir J
12 Sharma v Mundath [2019] NZHC 266.
13 I have sought and obtained counsel’s confirmation that such calculations in each case accord with the results obtained by using the Ministry of Justice online calculator as provided for in s 12 of the Act. Interest continues to accrue with a start date of 29 May 2019, as provided for in the draft orders.
ANNEXURE 1
[DRAFT] ORDERS FOR JUDGMENT AGAINST THE THIRD AND FOURTH DEFENDANTS
Before the Honourable Justice Muir, [date] [month] 2019
1.After reading the amended statement of claim dated 6 August 2018, the affidavits of Kare Johnstone of 6 August 2018, 6 September 2018 and 27 May 2019, the affidavits of Mayank Sharma of 6 August 2018 and 26 November 2018, the affidavits of Rakesh Kumar Sharma of 6 August 2018 and 21 November 2018, the affidavit of Vinod Sharma of 6 August 2018, the affidavits of Philip George Jones of 16 August 2018 and 31 August 2018, the submissions of counsel for the plaintiffs for formal proof hearing against the third and fourth defendants dated 9 May 2019, the memorandum of counsel for the plaintiffs of 28 May 2019 addressing issues raised in the Minute of Muir J dated 13 May 2019 and after hearing Brent O’Callahan and Jiayu Ding, counsel on behalf of the plaintiffs on 9 May 2019 this court orders by way of formal proof:
a)judgment is entered against the third defendant, in respect of the third and fourth causes of action in the amended statement of claim dated 6 August 2018 for knowing receipt and money had and received for each of the plaintiffs referred to in column 1 of Schedule 1 to this order in the amounts against each of their names in column 2 of that schedule.
b)judgment is entered in favour of the twenty-fourth plaintiff against the fourth defendant, in respect of the third and fourth causes of action in the amended statement of claim dated 6 August 2018 for knowing receipt and money had and received in the sum of $30,000.
c)judgment is entered against the fourth defendant in respect of the fifth cause of action at paragraph 88 (a), (b) and (d) in the amended statement of claim dated 6 August 2018 for knowing receipt following
tracing in the sum of $74,000 in favour of the plaintiffs listed in Schedule 2 to this order jointly.
d)In respect of order (c) above, that judgment is entered against the fourth defendant jointly with the third defendant, as to $3,000.
e)It is declared that the judgments for which the third and fourth defendants are liable under this order are for sums for which the first defendant is also liable as part of the judgment entered against him on 26 February 2019 in this proceeding. Satisfaction of the judgments entered against the third and fourth defendants will partly satisfy the judgments previously entered against the first defendant. Full satisfaction by the first defendant of the judgments entered against him will satisfy the judgments entered against the third and fourth defendants under this order. Partial satisfaction by the first defendant of the judgments previously entered against him is to be applied first to the portion of that judgment for which the third and fourth defendants are not liable under this order.
f)Interest is to run on each of the transactions that comprise the sums for which judgment has been entered under this order pursuant to the Interest on Money Claims 2016 from the date of those transactions down to 28 May 2019. The total amounts of interest accrued to each plaintiff as at 28 May 2019 are the sums referred to in column 4 of Schedule 3 to this order.
g)Further interest under the Interest on Monday Claims Act 2016 shall run on the sums in columns 2 and 3 of Schedule 3 with a start date of 29 May 2019.
Schedule 1
Plaintiff
Judgment against
Fulcrum
AK Sharma Trust (Twenty-First plaintiff) 1,800.00 Amazon NZ Limited (Twenty-Fifth plaintiff) 37,687.09 Ankur Enterprises Limited (Twenty-Second plaintiff) 3,242.50 Bikaner Foods Mt Roskill Limited (Second plaintiff) 1,101.13 Bikaner Foods NZ Limited (Eleventh plaintiff) 19,896.65 Camelot Hotel Limited (Twelfth plaintiff) 5,151.13 Dr Vinod Sharma (Ninth plaintiff) 23,184.66 Gateway Motel Limited (Thirteenth plaintiff) 9,010.72 Ninety Five NZ Limited (Twenty-Fourth plaintiff) 71,767.98 Quadrant Management Services Limited (Thirty-First plaintiff)
18,320.00
Rakesh Kumar Sharma (Twentieth plaintiff) 6,634.99 Sharma Family Trust (First plaintiff) 53,104.68 Travellers Inn Limited (Fifth plaintiff) 5,635.22 V And A 2012 Limited (Eighth plaintiff) 9,723.56 V And A Limited (Sixth plaintiff) 14,612.30 VR Group 2011 Limited (Thirty-Third plaintiff) 3,548.70 VR Rotorua Limited (Seventh plaintiff) 6,464.25 Wianx Services Limited (Fourth plaintiff) 112,496.91
Schedule 2
Plaintiff no Name of plaintiff 1 Sharma Family Trust 2 Bikaner Foods Mt Roskill Limited 3 Jaya Investments Limited 4 Wianx Services Limited 5 Travellers Inn Limited 6 V and A Limited 7 VR Rotorua Limited 8 V and A 2012 Limited 9 Vinod Kumar Sharma 11 Bikaner Foods NZ Limited 12 Camelot Hotel Limited 13 Gateway Motel Limited 14 M and RA Limited 15 Pachori Trust 16 Ram Family Trust 17 Rchi Partnership 20 Rakesh Kumar Sharma 21 A K Sharma Trust 22 Ankur Enterprises Limited 23 Bikaner Foods Metro Limited 24 Ninety Five NZ Limited 25 Amazon NZ Limited 26 M and A Limited 28 Ankur Investments Limited 30 Omax International Limited 31 Quadrant Management Services Limited 32 Uniworld Limited 33 VR Group 2011 Limited
Schedule 3
Plaintiff Fulcrum
Mudra
Interest accrued to 28 May 2019 AK Sharma Trust (Twenty-First plaintiff)
1,800.00
198.78
Amazon NZ Limited (Twenty-Fifth plaintiff)
37,687.09
5,104.79
Ankur Enterprises Limited (Twenty-Second plaintiff)
3,242.50
367.04
Bikaner Foods Mt Roskill Limited (Second plaintiff)
1,101.13
123.42
Bikaner Foods NZ Limited (Eleventh plaintiff)
19,896.65
2,799.27
Camelot Hotel Limited (Twelfth plaintiff)
5,151.13
580.07
Dr Vinod Sharma (Ninth plaintiff) 23,184.66 4,054.61 Gateway Motel Limited (Thirteenth plaintiff)
9,010.72
919.53
Ninety Five NZ Limited (Twenty- Fourth plaintiff)
71,767.98
5,890.79
Ninety Five NZ Limited (Twenty- Fourth plaintiff)
30,000.00
4,600.38
Quadrant Management Services Limited (Thirty-First plaintiff)
18,320.00
4,194.87
Rakesh Kumar Sharma (Twentieth plaintiff)
6,634.99
1,030.19
Sharma Family Trust (First plaintiff)
53,104.68
6,688.07
Travellers Inn Limited (Fifth plaintiff)
5,635.22
647.87
V And A 2012 Limited (Eighth plaintiff)
9,723.56
1,249.96
V And A Limited (Sixth plaintiff) 14,612.30 1,714.63 VR Group 2011 Limited (Thirty- Third plaintiff)
3,548.70
455.01
VR Rotorua Limited (Seventh plaintiff)
6,464.25
1,079.64
Wianx Services Limited (Fourth plaintiff)
112,496.91
17,624.74
Plaintiffs in Schedule 2 74,000.00 4,276.22
Date: May 2019
Deputy Registrar
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