Gattani v Digital Edge Technologies Pty Ltd

1. The plaintiff, who does not reside in Australia, controls and is the chief executive officer of an international group of corporations and businesses which trade under the name "IDC Technologies" and which include IDC Technologies Inc (IDC USA).
2. The dispute the subject of this proceeding concerns the ownership of all of the issued shares in the first defendant, an Australian company. The records of the Australian Securities and Investments Commission (ASIC) record the second defendant as the owner of the shares. The plaintiff contends that the second defendant holds the shares on trust for the plaintiff and has failed to comply with an arrangement to re-transfer the shares to him.
3. By an interlocutory application filed on 25 February 2025, as modified at the commencement of the hearing, the plaintiff seeks:

(1) freezing and ancillary orders against the second defendant and her partner, Mr Arunjyoti Hazarika, and a company under his control namely Grug Consulting Pty Ltd; and

(2) an order under s 1324(2) of the Corporations Act 2001 (Cth) requiring the second defendant to provide to the plaintiff access to the books and records of the first defendant.

1. For the reasons developed below, the interlocutory application should be dismissed.

1. The plaintiff relied upon affidavits from the plaintiff affirmed 31 October 2024; Ms Ebony King, a law graduate in the employ of the solicitors for the plaintiff, affirmed 24 February 2025 and 5 March 2025; and Mr Shawn Sallesi, a process server, affirmed 4 March 2025. The second defendant relied upon some email correspondence and some documents which are apparently based upon extracts from electronic banking records. From that evidence, the salient background facts are as follows.
2. The first defendant was incorporated in August 2018, under the name IDC (Australia) Technologies Pty Ltd.
3. In about August 2019, the second defendant, who resides in Australia, commenced employment as the chief executive officer of the first defendant. The plaintiff's evidence is that: (1) the second defendant acted at his direction with respect to the affairs of the first defendant; and (2) IDC USA made loans to the first defendant.
4. On or about 10 February 2020, the second defendant was appointed as a director of the first defendant. She remains in that position.
5. Prior to the events described in the next paragraph the plaintiff was the legal and beneficial owner of the shares. Following those events, the second defendant was (at least) the legal owner of the shares.
6. The plaintiff contends that an arrangement was put in place in about February or March 2020 for the transfer from the plaintiff to the second defendant of the legal, but not the beneficial, ownership of the shares, with such beneficial ownership to remain with the plaintiff and the second defendant to hold the legal title to the shares on trust for the plaintiff. In this regard, there is evidence of:

(1) an instrument for the transfer from the plaintiff to the second defendant of the shares apparently dated 28 February 2020 and bearing the plaintiff's signature;

(2) a resolution of the directors of the first defendant apparently passed on 28 February 2020 for the approval of the transfer of the shares from the plaintiff to the second defendant, again bearing the plaintiff's signature;

(3) the shares being transferred from the plaintiff to the second defendant on 5 March 2020;

(4) an undated instrument of transfer for the re-transfer of the shares from the second defendant to the plaintiff, which apparently bears the signatures of the second defendant; and

(5) an undated resolution of the directors of the first defendant approving the re-transfer of the shares from the second defendant to the plaintiff, which also apparently bears the signature of the second defendant.

1. The second defendant disputes the authenticity of the signatures which are apparently hers on the documents described at [10(4) and (5)].
2. During September 2024, there was a series of communications between representatives of the plaintiff and IDC USA on the one hand, and the second defendant on the other, which are capable of being interpreted as recording requests on behalf of the plaintiff to the second defendant for the re-transfer of the shares; acknowledgements by the second defendant that the shares belong to the plaintiff; and obfuscation and delay on the part of the second defendant in arranging that re-transfer.
3. On 19 September 2024, the second defendant - without notice to the plaintiff and without his authorisation - filed forms with ASIC purporting to reflect the removal of the plaintiff as a director of the first defendant during a meeting of members of the first defendant held the previous day; and changing the name of the first defendant from IDC (Australia) to Digital Edge Technologies Pty Ltd (DET).
4. On 25 September 2024, IDC USA demanded repayment of loans made by it to the first defendant, totalling $608,570.70.
5. On 4 and 10 October 2024, funds totalling $864,485.01 were transferred from a bank account held by the first defendant in the name of IDC (Australia) (being an account number ending 3115) (IDC (Australia) account) to a bank account held by the first defendant in the name of DET (being an account number ending 3800) (DET account) (i.e. a transfer of funds between two accounts held by the first defendant).
6. Between 4 October 2024 and 25 November 2024, funds totalling $269,660.00 - representing part of the funds that had been transferred from the IDC (Australia) account to the DET account - were transferred from the DET account to an account in the name of the second defendant (being an account number ending 8962). Those funds were then transferred from the second defendant's account to various accounts including:

(1) other accounts held by the second defendant;

(2) Mr Hazarika, with the notation "Transfer To arunjyoti hazarika - CommBank App grug invoice payment";

(3) a real estate agency, apparently by way of the provision of a deposit for the purchase of a property jointly with Mr Hazarika; and

(4) a tradesman, apparently for work undertaken on that property.

1. Between 10 October 2024 and 20 December 2024 there were further payments made out of the IDC (Australia) account and the DET account, including from the DET Account to Grug.
2. On 11 October 2024 the solicitors for the plaintiff sent a letter of demand to the second defendant making various demands, including for the re-transfer of the shares and the repayment of the $608,570.70 owed by the first defendant to IDC USA.
3. On 16 October 2024, the second defendant responded, stating that an amount of $804,353.68 had been repaid to IDC USA.
4. On 17 October 2024, the solicitors for the plaintiff responded, stating that the plaintiff and IDC USA had no record of transactions constituting repayment of such an amount and requesting various undertakings from the second defendant. The documents tendered by the second defendant on this application appear to support her position that payments totalling $804,353.68 were made from the first defendant to IDC USA but it is not necessary to resolve this aspect of the dispute for the purposes of this application.
5. On 4 November 2024, the plaintiff commenced this proceeding by filing an originating process, pursuant to which the plaintiff seeks final relief in the form of a declaration that the shares are and have at all material times been held on trust by the second defendant for the plaintiff; and an order that the second defendant transfer the shares to the plaintiff.
6. The plaintiff also sought in the originating process interim relief in the form of an order, described as an order pursuant to s 198F(2) of the Act, requiring the defendants to deliver up to the plaintiff all books and records of the first defendant.
7. On 25 November 2024, at the first case management hearing, I asked the defendants' then solicitor whether the defendants intended to resist the interim order sought by the plaintiff. The defendants' solicitor indicated that the defendants would not resist such an order and I made an order that the defendants provide to the plaintiff within 14 days access to the books of the first defendant, including its financial records, so that the plaintiff could exercise his rights as a former director of the first defendant pursuant to s 198F(2) of the Act. The defendants did not comply with that order.
8. On 20 February 2025, at a further case management hearing, the plaintiff's solicitor foreshadowed the present application, and I listed it for hearing on 6 March 2025.
9. On 25 February 2025, the plaintiff filed the interlocutory process under consideration. On the same day the former solicitors for the defendant filed a notice of intention to cease to act.
10. On 28 February 2025, the plaintiff filed his concise statement.
11. On 5 March 2025, the former solicitors for the defendants lodged a notice of ceasing to act, and the Court and the plaintiff were notified that on 4 March 2025, the first defendant resolved to appoint Mr Ernie Chou as the administrator of the first defendant. This appointment, and the operation of s 440D of the Act, narrowed the scope of the interlocutory application as ultimately pressed.
12. Finally, I note that I am satisfied that the evidence establishes that Grug was served and that service should be deemed to have been effected upon Mr Hazarika.

1. At the commencement of the hearing of the application on 6 March 2025, the second defendant sought an adjournment of the hearing on various bases including that she was unrepresented, the venue of the hearing was inconvenient to her, and she had concerns as to her ability to recover costs from the plaintiff.
2. I refused the second defendant's application. I did so because of the urgent nature of the plaintiff's application, the fact that the plaintiff's application had been set down for hearing since 20 February 2025 and because it appeared that the second defendant was unrepresented as a result of a choice to terminate the retainer of the defendants' former solicitors.

1. The plaintiff's application for freezing orders against the second defendant, Mr Hazarika and Grug was made in reliance upon s 1323 of the Act and Division 7.4 of the Federal Court Rules 2011 (Cth).
2. I am not persuaded that s 1323 is available to the plaintiff. The discretion conferred upon the Court by that section is enlivened only where one or more of s 1323(1)(a) to (c) is satisfied. In the present case, s 1323(1)(a) and (b) are clearly not satisfied in the absence of a relevant investigation or prosecution. Section 1323(1)(c) - which applies where a civil proceeding against a person (relevant person) has been begun under the Act and the Court considers it necessary or desirable for the protection of (relevantly) the plaintiff, being a person to whom the relevant person is liable, or may be or become liable, to pay money or to account for financial products or other property - is not satisfied because the only action that has been begun and which (on a view generous to the plaintiff) might be considered to expose any person to a liability to pay, or to account, to the plaintiff, is the action against the second defendant for the re-transfer by her of shares held in the first defendant, which action is not an action under the Act. Further, although the relief with respect to s 198F of the Act is sought against both defendants, it is relief only available against the first defendant, as the company holding the books: see ss 198F(4) and 1303 of the Act.
3. I turn now to consider whether a freezing order should be made under Division 7.4 of the Rules. The principles to be considered on an application for the making of a freezing order under Division 7.4 are well-established and need not be repeated.
4. The prospective judgment contemplated by the originating process as supplemented by the plaintiff's concise statement is a judgment pursuant to which the second defendant is ordered to transfer the shares to the plaintiff.
5. I am satisfied that the plaintiff has established a sufficiently arguable case that the shares in the first defendant held by the second defendant are held on trust for the plaintiff; and that the second defendant has breached an arrangement to re-transfer those shares to the plaintiff. I note that there is evidence to the contrary, including evidence that ASIC records the shares as beneficially owned by the second defendant. I also note the second defendant's contention that the signatures on the documents described at [10(4)] and (5)] above are not her signatures.
6. However, I am not satisfied that there is a risk of frustration of the Court's processes because of any future action or omission of the second defendant.
7. But for the appointment of the administrator, I may have been satisfied - on the basis that past transfers of funds from the first defendant had reduced the value of the shares in the first defendant - that there was a likelihood of future similar transactions and thus a risk that the judgment may have gone unsatisfied (taking a broad approach, favourable to the plaintiff, which takes into account the value of the shares transferred and not simply the fact of their transfer). However, the appointment of the administrator changes the calculus. The administrator now has control of the first defendant such that the second defendant will no longer be in a position to deal with the assets of the first defendant (see, e.g., s 437A and 437D of the Act).
8. I note that neither the relief sought in the originating process nor the case set out in the concise statement filed subsequent to the filing of the present interlocutory application contends that the second defendant, as a defaulting trustee, should provide equitable compensation or to account to the plaintiff for her defaults.
9. Similar considerations apply to the application for freezing orders against Mr Hazarika and Grug. The appointment of the administrator has removed the risk that the second defendant will transfer assets of the first defendant to Mr Hazarika or Grug. There is also no contention that Mr Hazarika or Grug are liable as accessories to conduct engaged in by the second defendant or are otherwise liable to account to the plaintiff.
10. For the reasons set out above, I decline to make the freezing orders sought. It follows that the ancillary orders sought should also not be made.

E. ORDER FOR THE PROVISION OF ACCESS TO DOCUMENTS

1. I turn now to consider the plaintiff's application for an order pursuant to s 1324(2) of the Act, requiring the second plaintiff to provide to the plaintiff access to the books of the first defendant since 1 July 2021. That section provides:

(2) Where a person has refused or failed, is refusing or failing, or is proposing to refuse or fail, to do an act or thing that the person is required by this Act to do, the Court may, on the application of:

(a) ASIC; or

(b) any person whose interests have been, are or would be affected by the refusal or failure to do that act or thing;

grant an injunction, on such terms as the Court thinks appropriate, requiring the first‑mentioned person to do that act or thing.

1. I am not persuaded that such an order should be made, for the following reasons.
2. First, I am not persuaded that the second defendant (as opposed to the first defendant) was required under the Act to provide to the plaintiff access to the books of the first defendant. The plaintiff relies upon ss 198F and 1303 of the Act, however it is clear that: (1) the obligation in s 198F to allow (relevantly) a former director to inspect the books of a company falls only upon the company (s 198F(4)); and (2) for the purposes of s 1303, the relevant contravention is a contravention of s 198F(4). Thus, the Court's discretion to make the order sought against the second defendant has not been enlivened.
3. Secondly, in any event, it would not be appropriate to exercise the discretion so as to require the second defendant to provide to the plaintiff access to the books of the first defendant when, following the appointment of the administrator, the administrator is to have control of the first defendant's books; and the second defendant is required to deliver all such books in her possession to the administrator (see, ss 437A, 437D, 438B and 438C of the Act).

1. For the reasons set out above, the plaintiff's interlocutory application should be dismissed. Costs should be reserved. I will make orders accordingly.

I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Goodman.