Beluga Shipping GmbH v Suzlon Energy Ltd

general division NSD 1670 of 2008

BETWEEN: BELUGA SHIPPING GMBH & CO. KS "BELUGA FANTASTIC"

REASONS FOR JUDGMENT (REVISED FROM THE TRANSCRIPT) 1 Since my last judgment in these proceedings of 19 December 2008, Beluga Shipping GmbH & Co v Headway Shipping Limited (No 4) [2008] FCA 1990 the litigation landscape has altered radically in the Suzlon parties' proceedings by way of their second cross-claim.

The settlement with the headway parties 2 In March this year the Headway companies and Captain Malhotra settled their differences with the Suzlon parties. In the course of, or as part of that settlement, Captain Malhotra swore two affidavits on 13 March 2009 which withdrew a number of paragraphs of an earlier affidavit he had sworn. In the earlier affidavit he deposed that he had participated in the creation of Headway Shipping at the request of Mr Bangad. 3 In his first affidavit of 13 March 2009, Captain Malhotra deposed that Headway Chartering (Canada) Limited had been created at the request of Mr Bangad. Captain Malhotra said that he had treated Headway Chartering's bank account as an "interest" (scil: imprest) account, from which, effectively, he made disbursements in accordance with instructions from Headway Shipping. He swore that he understood those instructions had originated directly from Mr Bangad or on the latter's instructions from a Mr Raam, whom I infer is Raam Kumar, the proposed tenth second cross-defendant. 4 Captain Malhotra deposed that he was introduced by Mr Bangad and Rajagopan Sridhar, the proposed seventh second cross-defendant to Mr Palety, a director of Headway Shipping. Captain Malhotra swore that he understood that Mr Palety had been engaged as an officer of Headway Shipping pursuant to a decision made by Mr Bangad and Mr Sridhar. Mr Bangad requested Captain Malhotra to obtain Google email addresses through which Mr Bangad conducted, as Captain Malhotra understood it, Headway Shipping's business. 5 Captain Malhotra annexed to this affidavit an email to him from Mr Bangad of 23 December 2008. Captain Malhotra said this email referred to a proposed meeting in Hong Kong that later occurred on about 12 January 2009 between him, Mr Sridhar and Mr Bangad. Captain Malhotra referred to a paragraph in that email that said: "Boss and me will be in hK from around the 12th." 6 The email appears to be written with a certain amount of circumspection. The person who sent it is identified by a cryptic email address in letters and numbers at a gmail.com account. It was sent to "director(outside) and Director". The body of the email refers to the author saying: "As far as new discoveries are concerned, I don't think they will have much concerning Headway. U need to check whether all the vessels invoiced for have been covered in internal discussions. Asked bhoumick to plan for travel to france/paris around 6th/7th January. You also have to come along. Have the agenda ready for mit. This is the only link left, rest all is well covered." (emphasis added) 7 MIT appears to be a reference to a French company called MIT Chartering SAS. The Suzlon parties now allege that MIT was used as an innocent conduit in the frauds against them in the course of MIT conducting its ordinary, legitimate, chartering business on the Suzlon parties' behalf. This email was sent in the context that a trial of these proceedings against Mr Bangad, companies associated with him, the Headway parties and Capt Malhotra had been set down in February 2009. I infer that the reference in the email to "they will [not] have much concerning Headway" is a reference to the Suzlon parties' case for that trial. 8 In his second affidavit, also affirmed on 13 March 2009, Captain Malhotra attached a further email from Mr Bangad from a different gmail address dated much earlier on, 19 March 2008. This email commenced by referring to "our last visit to HK" and said: "the company we incorporated could not take off due to BVI Company as shareholder." 9 The email then referred to Mr Bangad having obtained a new company, Headway Shipping, which was being incorporated. It referred to another entity described as, "BIP", which the Suzlon companies have not been able to identify further. Captain Malhotra said that he understood the email to refer to a visit that he had made with Mr Bangad to Hong Kong in July or August 2008.

The present application 10 As a result of the settlement between the Suzlon parties and the Headway parties, the latter are no longer involved in the proceedings. However, following that settlement and in the course of further investigating the alleged frauds involving Mr Bangad, the Suzlon parties now claim that they have discovered the involvement of Mr Sridhar and to a lesser extent, Mr Kumar, in two companies that appear to be connected to Mr Sridhar. The first is Bluewind Enterprises (UK) Limited incorporated in England. The second is a Marshall Islands company called Sunshine Trade Services Limited. The Suzlon parties wish to join those four persons as further cross-defendants to amend their cross‑claim and to seek Mareva or freezing orders under O 25A of the Federal Court Rules against Mr Sridhar, preventing him from disposing of assets. 11 The Suzlon parties seek leave, under O 8 r 3(2), to serve a further amended second cross application on Mr Sridhar and Mr Kumar in India, and on Bluewind in England and Sunshine in the Marshall Islands. They claim that, at least on the basis of those joinders, involves a cause of action connected to the maritime frauds, the subject of my previous judgments that permitted service of the Suzlon parties' previous cross-claims out of the jurisdiction. In addition to those allegations, the Suzlon parties allege that Mr Bangad and Mr Sridhar received secret commissions sourced from monies ultimately paid by one or more of the Suzlon parties. The amended cross-claim asserts that Mr Sridhar knowingly and dishonestly assisted Mr Bangad in his wrongdoing in the business of their former employers. 12 The Suzlon parties also claim that Bluewind and Sunshine were knowingly and dishonestly concerned, because of their connection to Mr Sridhar, in assisting Mr Sridhar and/or Mr Bangad in their activities against the Suzlon parties involving, among other things, their maritime business and that one or more of those three received property of the Suzlon parties that they hold on constructive trust. 13 I will come to Mr Kumar's role in these events a little later, but it is not, as I understand it, alleged at the moment that he received any financial benefit from his activities. However, the evidence referred to below suggested that Mr Kumar assisted in the apparently fictitious creation of documents that were used to carry out, what the Suzlon parties allege, is a significant maritime fraud against them. The Suzlon parties seek orders that Mr Sridhar, Bluewind and Sunshine pay compensation for breaches of fiduciary duty or knowing assistance in a dishonest design and/or the obtaining, or involvement in one or more of the others obtaining, secret commissions from transactions in which one or more of the Suzlon parties, to all appearances, were dealing with third parties at arm's length. For the purposes of the present application, I was taken to some of the voluminous evidence in the proceedings.

Mr Sridhar's position 14 Mr Sridhar was the immediate superior of Mr Bangad and the person in charge of the shipping business of Suzlon Infrastructure. He supervised both Mr Bangad and Mr Kumar. Mr Sridhar had authority in his position to authorise a number of the payments complained of. On about 20 March 2009 the Suzlon parties became aware of Mr Sridhar's potential involvement as a principal in the alleged frauds against them. In early May 2009 Mr Sridhar was arrested in the Republic of Germany for alleged involvement in possible tax avoidance transactions. He was released in early July. I was informed that his release occurred after he claimed to have told persons who had made commission payments to Sunshine that Tulsi Tanti, one of the founders of Suzlon Energy, was the ultimate beneficiary of those payments. Mr Tanti has sworn an affidavit denying any such involvement. 15 In his affidavit sworn on 11 December 2008, Jacob den Hartog, a director of a related company of the plaintiff, Beluga Chartering GmbH said that on 10 September 2008, he had met Mr Bangad, a Mr Gupta and Mr Sridhar briefly in Amsterdam, in a Starbucks Coffee Shop near Amsterdam Airport where Mr Sridhar was staying. I have been informed by counsel for the Suzlon parties that although the name is spelt Schrider in Mr den Hartog's affidavit he is, in fact, referring to Mr Sridhar. Mr den Hartog did not recall Mr Sridhar saying much in the conversation apart from thanking him for his assistance generally. Mr den Hartog said that he asked those present what was expected of him in an advisory role he had been offered with Headway Shipping by Mr Bangad. Mr Bangad told him that they saw his role essentially to assist and work with them in respect of various Suzlon shipping movements. Mr Bangad told Mr den Hartog that he was not expected to do more than a few hours work a month and that Mr Bangad would be in touch with him later to explain what he needed to do in connection with the chartering of vessels from Beluga. However, Mr den Hartog said there was no mention of his having any directorship of Headway Shipping or any Headway company during that meeting. Later it transpired that he had become a director of Headway in circumstances where he appears to have been misled. 16 Earlier last year, Mr Sridhar had sworn an affidavit in which said that he and Mr Bangad had signed the freight agreement (or contract of affreightment) between Suzlon Infrastructure and Headway Shipping. In that affidavit he asserted that he could not recall any discussion with Mr Bangad concerning the contract and believed that Headway was an arm's length entity, independent of Mr Bangad. Mr Sridhar claimed there that if he had believed Headway was controlled by Mr Bangad he would not have signed the freight agreement and would not have given Mr Bangad permission to sign it on behalf of Suzlon Infrastructure. He asserted that Mr Bangad had misled him about, first, his relationship with Headway and, secondly, a subsequent freight agreement with SE Shipping, the sixth second cross-claimant in the proceedings.

Sunshine's position 17 Sunshine was incorporated in the Marshall Islands in January 2004. Mr Sridhar was its sole director and remained in that position apparently until 10 July 2008. On that day according to minutes of the annual general meeting of Sunshine's shareholders, apparently held at its office by what are described as "means of electronic communications over the internet through Fort Lauderdale in Florida", a Mr Dragojevic became the new director and secretary. Mr Dragojevic appeared to have taken up a shareholding interest in Sunshine from that time. 18 Earlier, on 18 July 2007, it appears that Reliance Bulk Carriers LLC, an American corporation paid Sunshine USD800,000 allegedly on behalf of Suzlon Infrastructure. Five days later, on 23 July, Reliance Bulk Carriers paid Sunshine a further USD200,000, again purportedly on behalf of Suzlon Infrastructure. Thus, in July 2007, a company with whom his employer or a related Suzlon party was dealing, paid Sunshine $USD1,000,000 in respect of Suzlon Infrastructure's business when it appears that Mr Sridhar was a, or the, shareholder of Sunshine. 19 The head of corporate finance of Suzlon Energy, Kirtikant Vagadia, swore an affidavit in which he asserted that these transactions had been made in this manner in order to disguise that the payments were made by one of the Suzlon parties to an entity connected to Mr Bangad and Mr Sridhar. That was a fair inference on the material at the moment.

BIP's position 20 The Suzlon parties have not been able to discover what entity is referred in a partially saved document dated 20 September 2007 on Mr Bangad's Suzlon work computer's hard drive referring to "BIP" or "BIP Holdings" and a role for Capt Gupta. Mr Kumar directed, on Suzlon Energy letterhead, MIT to transfer USD1,000,000 to BIP in October 2007. MIT appears to be an innocent party. MIT advised in its response to Mr Kumar's email that it could not receive such funds regularly in this way for legal reasons under French law. MIT required the Suzlon parties to have a formal agreement with it and to provide supporting vouchers identifying the fact that MIT would receive the funds, to whom and for what reasons they should be transferred and a letter from each payee or proposed payee confirming that it had received the funds. After MIT raised these matters, Mr Bangad and Mr Kumar had an email exchange in which they discussed how to deal with MIT's requests. Mr Kumar then addressed MIT's requests to enable it to process the transactions in a letter sent by Suzlon Energy signed by Mr Kumar. This asserted that MIT would receive funds for various disbursements being port charges, vessel hire, bunker charges and other miscellaneous expenses "as per Suzlon Energy's instructions". MIT was instructed to deal with the USD1,000,000 in respect of hire and fuel of a ship known as "SCL Thun". The payment was into an account in the name of a company identified as "BIP Holding Limited". Mr Vagadia said that neither Mr Bangad nor Mr Kumar had authority to authorise MIT to receive or disperse those funds.

Bluewind's position 21 Bluewind was a company that had been incorporated in the United Kingdom in October 2006. Mr Sridhar became a director of Bluewind apparently only on 29 April 2008. However, on 20 October 2007, Sunshine was the only shareholder of Bluewind, and on 31 March 2008 Mr Sridhar became Bluewind's only shareholder, holding those 10 shares.

Mr Kumar's Position 22 Mr Kumar was sought to be joined because he became involved in some of the dealings, the subject of the Suzlon parties' suspicions. On 8 June 2008, he signed a letter of indemnity on the letterhead of Headway Shipping in favour of the owners of the M/S "S Fighter". The letter described Mr Kumar as general manager, business operations of Headway Shipping. Mr Bangad had also engaged in similar activity by signing letters of indemnity from Headway Shipping in a capacity of general manager. 23 Significantly, Mr Kumar appeared to have created invoices for MIT, using his work computer at one of the Suzlon parties. A number of those invoices were in evidence, including two from MIT addressed to: (a) Suzlon Energy, the first second cross-claimant, dated 9 June 2008 claiming USD242,562.75 for ocean freight charges in respect of wind turbine parts from Mumbai; (b) Suzlon Energy A/S, (which is not one of the Suzlon parties to these proceedings but appears to be a related company operating in Denmark), dated 9 June 2008 which is for ocean freight charges in respect of 12 sets of wind turbines and shipment of Suzlon project cargoes from Mumbai for a total of USD424,618.88. This invoice is apparently an elaborate fraud. There was evidence that this invoice was created by Mr Kumar on 29 November 2007 during 29 minutes of editing on his work computer. The document, or its template, was first created on 29 November 2007. The invoice was last saved on 12 June 2008 and printed on 7 July 2008. 24 There were other examples in evidence of invoices of a similar character allegedly rendered by MIT. These all had a diagonal print of "original" in bold block letters across them. Prima facie it is an odd thing for an employee to create on his work computer and then issue invoices by a third party, known to be a French chartering company, apparently claiming payments for freight charges on a regular basis addressed to his Indian employer or its related companies. 25 The evidence also included a statement of account dated 31 December 2008 issued by MIT to Suzlon Infrastructure claiming remuneration from Suzlon Infrastructure, commission of just over USD31,000. A subsequent MIT statement of account to Suzlon Infrastructure for the period ended 31 March 2008 contains a record of a payment to Bluewind of 1,250,000 euros on 30 January 2008. That is, MIT claimed that it had paid that sum to Bluewind, a company associated with Sunshine, and hence Mr Sridhar, on behalf of a Suzlon company. 26 Subsequently, MIT's statement of account to Suzlon for the period 4 April 2008 to 30 June 2008, recorded payments of: (a) almost USD1.5 million by a Suzlon company to MIT on 4 April 2008; (b) 750,000 euros (or roughly USD1,200,000) on 10 April 2008 to Bluewind. Thus it appeared that, once again, a Suzlon company had paid MIT a very large sum of money which was then paid on to Bluewind at a time when Mr Sridhar or his company, Sunshine, had been a shareholder of Bluewind.

Application to amend and serve outside the jurisdiction 27 In Beluga Shipping GmbH & Co KS "Beluga Fantastic" v Headway Shipping Limited (No 2) (2008) 251 ALR 620 I summarised the principles relating to the jurisdiction of the court to permit joinder of certain matters in admiralty proceedings and for service out of the jurisdiction under O 8 of the Federal Court Rules. 28 I am satisfied by the affidavit of Amy Beaumont of 24 July 2009 that service on Bluewind can be effected in the United Kingdom by a private agent, based on the material from the Attorney-General's Department website. Ms Beaumont has updated the search of that website in respect of India and the position there remains that service through an agent will also not be in breach of any Indian law or otherwise a breach of its sovereignty: see Beluga (No 2) 251 ALR at 622. Thus, Mr Sridhar and Mr Kumar can be served by a private agent in India as the Suzlon parties propose. The Suzlon parties sought an order for service on Mr Kumar's Indian lawyer. At the moment, I see no reason why personal service should not be made on him. 29 Ms Beaumont said that there was no information on the website as to service being permitted in the Marshall Islands. She also made inquiries of an officer of the Department of Foreign Affairs and Trade and was informed that he also had no information on a method of service there. Ms Beaumont then used the PacLii website to search what appear to be the Rules of Civil Procedure for the Marshall Islands effective as 25 July 2007. These provide in r 4 that service upon corporations can be effected by delivering a copy of the document on its registered agent. I infer that the plaintiff proposes to proceed in this fashion. I am satisfied that, having regard to the state of evidence as to what is permissible in the Marshall Islands, that that would be an acceptable means of proceeding. 30 The Court has jurisdiction with respect to the present proceedings as I have already held: see Beluga (No. 2) 251 ALR at 622 [8]-[11]. I am satisfied that Mr Sridhar, Mr Kumar, Bluewind and Sunshine are proper and necessary parties to the proceedings so as to fall within O 8 r 2, item 18. The evidence suggests that at least Mr Sridhar, Bluewind and Sunshine fall within item 5 in O 8 r 2 by reason of Mr Sridhar's involvement in the contract of affreightment and his relationship with the Headway parties. While there was some evidence as to Mr Kumar's relationship with the Headway parties, at the moment, on the materials to which I was taken, I was not able to conclude that he was involved in the contract of a affreightment to Australia, although he signed other significant documents on behalf of Headway Shipping. He is someone who appeared to be involved in the overall claims of fraud made by the Suzlon parties. 31 The Suzlon parties have an outstanding application for judgment against Mr Bangad. He has not appeared in the proceedings after I ordered that he could be served last year. The claims which the Suzlon parties wish to bring against the proposed new defendants are obviously intricate and complex. 32 It is only necessary to establish a prima facie case on one aspect of the claims against each of the proposed new cross-defendants, for the Court to be able to permit service of the whole of the new cross-claim on each of them. This is because of the operation of O 8 r 3(2)(b) as I explained Beluga (No. 2) 251 ALR at 627-628 [32]-[34] based on the Full Court's decision in Ho v Akai Pty Limited (2006) 24 ACLC 1526 [10]. 33 The new claims also relate to matters of admiralty and maritime jurisdiction, in the associated jurisdiction of the Court under s 12 of the Admiralty Act 1988 (Cth). They concern the resolution of controversies relating to marine commerce and navigation, Owners of the Ship "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404 at 420-421 and 424; Beluga (No 2) 251 ALR at 623-624 [12]-[13]. The claims to which I have referred appear to be real and substantial. They arise from the apparently odd transactions that I have summarised above. The Suzlon parties have prepared detailed written submissions in support of the present application to which I may not have done great justice in these ex tempore reasons. 34 I am satisfied that the Court has jurisdiction in this matter. I have raised with counsel for the Suzlon parties that the venue of the proceedings at the present time appears to be curious, in that Indian incorporated companies are suing Indian residents in this jurisdiction. As well, the Suzlon parties are suing certain other companies that are incorporated in various other places in the world. None of the parties appears to have any particular connection with Australia apart from the facts that these proceedings commenced here, a very considerable amount of work has been done in them and the Court is already seized of them. However, the Court does have jurisdiction and the matter involves what appears, on the material before me, to involve a claim of a very large commercial fraud on the Suzlon parties. For that reason, at the moment, I am satisfied that it is appropriate that the Court exercise its jurisdiction to join parties outside Australia so that the proceedings can progress. 35 I am satisfied that the proposed amendments are proceedings of the kind mentioned in O 8 r 2, items 5 and, to the extent I have found, 18. I am satisfied that the Suzlon parties have a prima facie case for the relief claimed in the further amended second cross claim against the proposed new cross defendants. The transactions sometimes involved more than one of the Suzlon parties. I am also satisfied that the proposed methods of service are permitted. There is a lack of information on the Attorney-General's website as to how to serve persons in the Marshall Islands. However, a corporation may be served under what appear to be its rules allowing such service with apparent facility. To the extent that evidence in relation to the proposed method of service in the Marshall Islands given by Ms Beaumont might not comply with O 8 r 3(3), I consider that the evidence is sufficient to warrant dispensing with so much of that rule as is not satisfied by that evidence for the purposes of authorising that method of service. 36 For these reasons I am prepared to grant leave to the Suzlon parties to file in court the further amended second cross-application together with the amended statement of second cross-claim in the form handed up today. I will make orders in chambers to permit the effecting of service in the manner proposed in par 6 of the notice of motion and grant leave for the service of those documents out of the jurisdiction on Mr Sridhar, Mr Kumar, Bluewind and Sunshine. I will also grant Mareva orders against Mr Sridhar and make those orders in chambers.

Mareva Orders against Mr Sridhar 37 The Suzlon parties had applied for Mareva orders against Mr Sridhar restraining him from dealing with, effectively, all his assets unless he retained $26 million in Australian currency. The discretionary considerations relevant to making a Mareva order are well settled. Generally, the Court should grant the minimum relief necessary to do justice between the parties. First, an applicant should show a "reasonably arguable case" on legal as well as factual matters and secondly, a danger that satisfaction of any judgment obtained in its favour will be frustrated by the disposition of the respondent's available funds or assets: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 403-404 [50]-[53], 408-409 [68]-[70] per Gaudron, McHugh, Gummow and Callinan JJ; Jackson v Sterling Industries (1987) 162 CLR 612 at 622-623 per Deane J, with whom Mason CJ, Wilson and Dawson JJ as well as Brennan J agreed 38 The evidence satisfied me that there was a sufficient prima facie case that was reasonably arguable to warrant the grant of some Mareva order or relief against Mr Sridhar. However, the form of the orders proposed by the Suzlon parties in a number of respects were unsatisfactory and did not comply with the safeguards outlined in Cardile 198 CLR at 410 [75] per Gaudron, McHugh, Gummow and Callinan JJ. I considered their form in chambers. 39 The evidence established that there appeared to be fraudulent transfers of very large sums by one or more of the Suzlon parties to entities associated with or controlled by one or both of Mr Bangad or Mr Sridhar using third parties or means such as the MIT accounts to which I have referred that were then passed on to entities controlled by those two. They also appeared to have been involved in causing the Suzlon parties to make those transfers. The payments through MIT and Reliance Bulk Charterers included the payments to Bluewind that I have described above in addition to the USD1,000,000 paid to Sunshine in July 2007. 40 There was a reasonable inference, which I drew, to support a prima facie case, that Mr Sridhar and Mr Bangad were operating together to create a variety of false claims for payment on their employers in the Suzlon parties. The Suzlon parties' present claim seeks over USD27.5 million as the total amount that they were caused to pay in consequence of the alleged frauds. On the material before me, Mr Sridhar did not appear to be involved in every transaction of which the Suzlon parties complained. However, I was satisfied that there was a sufficiently strong prima facie case against Mr Sridhar. In particular I accepted the matters in Mr Vagadia's affidavit of 22 July 2009, although I have not referred to everything in it in these reasons. Mr Sridhar was apparently involved in establishing the Headway parties. On the evidence, his involvement with Bluewind and Sunshine appeared to be disguised to conceal his true position from his employers. Those companies alone received significant sums in circumstances that, at a prima facie (and, of course, presently, untested) level suggested that Mr Sridhar was financially very sophisticated and capable of taking calculated steps to hide assets for his own, as well as Mr Bangad's, gain. There was a strong prima facie case that Mr Sridhar would be jointly liable with Mr Bangad for most, if not all, of the individual complaints against each of them. 41 Obviously, the allegations in the material and evidence before me were untested and may well be answered if and when Mr Bangad, Mr Sridhar, Mr Kumar, Bluewind and Sunshine appear in the proceedings. I have not formed any final view of the merits but have acted on the basis of the apparent cogency of what, at this stage of the proceedings, is only one side of what may be a larger and currently either incomplete or inaccurate picture. 42 It was for these reasons that I agreed to make the orders on 31 July, but varied their form, after giving the Suzlon parties the opportunity to make submissions so as to provide more protection to Mr Sridhar. Accordingly, I made the orders on 13 August 2009.

I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Dated: 18 September 2009 Counsel for the First, Second, Third, Fourth and Fifth and Sixth Second Cross Claimants: AW Street SC and J Hogan-Doran

Solicitor for the First, Second, Third, Fourth and Fifth and Sixth Second Cross Claimants: HWL Ebsworth