Securities and Exchange Board of India v MiiResorts Group 1 Pty Ltd

LEE J: 1 The unusual circumstances of this case are set out in detail in Kadam v MiiResorts Group 1 Pty Ltd (No 5) [2018] FCA 1086; (2018) 129 ACSR 74 (Principal Judgment). On 23 July 2018, I ordered that the monies held in the trust account of McCullough Robertson Lawyers and any interest accrued on those proceeds (Fund), be held on trust for persons who invested monies in the collective investment "Ponzi" scheme operated by PACL Limited (PACL Scheme) who have not been repaid the whole of the amount invested by them (Investors). Furthermore, in the Principal Judgment (at [149]), I foreshadowed that further submissions were required as to a proposed scheme that will maximise the return to Investors, in the most efficient way, of the amount contained in the Fund, which, as at 13 May 2020, is $73,212,716.47 including accrued interest (Fund Amount). 2 The Securities and Exchange Board of India (SEBI) has provided evidence as to the current status of a scheme, whereby the funds realised from the PACL Scheme are administered by a committee constituted by SEBI under the Honourable Mr Justice RM Lodha (Lodha Committee). This evidence details the asset realisation and refund distribution process, including the fact that the total value of claims up to INR 10,000 verified by SEBI amounts to $378,328,114.36. This evidence also demonstrates that to date, an amount of just over $42 million has already been paid to Investors, with priority being given to smaller claims. 3 I have been conscious during this process to ensure that any funds realised in Australia are not dissipated by costs and expenses, but are instead remitted to those who have been deprived of funds by reason of the operation of the PACL Scheme. In this regard, I note that an undertaking has been proffered on behalf of SEBI to ensure that out of the Fund Amount, only $1,500,000 will be expended on administration and legal costs. 4 Mrs Kadam, who was the applicant in the representative proceeding, has been grated leave to intervene in the current proceeding to act as a contradictor. While Mrs Kadam has sought a variety of relief, her principal submission is that the fund in Australia should be administered in Australia and that there should be some ongoing role by either a receiver or a referee to supervise the distribution of funds, working in parallel to, but not as a part of, the work of the Lodha Committee. If I had residual concerns that the fund amount was not going to be effectively distributed to Investors, I may well have contemplated such a course, notwithstanding its considerable logistical difficulties. Part of those difficulties would be how this Court, operating in Australia, could distribute funds in India or how a referee could execute their functions without the consent of the Government of India. However, as I am satisfied that the funds will be distributed effectively to Investors pursuant to the orders made, these considerations are no longer of significance. 5 In the usual course, the Court should not make an order or accept an undertaking if there is an inability for that order or undertaking to be enforced. The type of security that has historically been given to support undertakings is a form of conditional bond, which is forfeited in circumstances where the condition fails. I have no misgivings that SEBI has provided its undertaking to the Court conscientiously and intends to comply with it. Notwithstanding this, in order to secure compliance, it is appropriate to "hold back" the sum of $1,500,000 (Bond Amount) until the balance of the funds (save for a figure for costs dealt with below) has been distributed to Investors. Upon the distribution of the funds to Investors, the solicitor for SEBI located in Australia can swear an affidavit deposing to the fact that the funds have been so distributed. If such an affidavit is provided to the Court, the Bond Amount can then be released to SEBI. If (and I have no reason to believe that there is any present risk that this will be the case) the process miscarries, and the funds are not distributed in accordance with the undertaking, then the Bond Amount will be forfeited to the Court. Again, I stress that this form of security does not reflect any concern I have that the undertaking will not be the subject of compliance, but serves to vindicate the authority of the Court having some effective mechanism to secure compliance with its orders when performance is to occur outside Australia. 6 The only exception to the course outlined above concerns a modest amount of $10,000, which I order be paid out of the fund to the legal representatives for Mrs Kadam for their service to the Court in adducing evidence concerning some of the perceived difficulties with the current refund process and providing arguments as to why a different course should be adopted. Although a larger sum was sought, a lump sum figure of $10,000 appropriately reflects the contribution and assistance provided by Mrs Kadam's legal representatives. I will allow this sum to be paid before the further deduction of the Bond Amount, with the balance of the Fund Amount to be remitted to the bank account in India for distribution. 7 There does not seem to be any real question as to whether the Court has the power to make such an order. Indeed, this power can be derived from a combination of: r 9.12 of the Federal Court Rules 2011 (FCR) which provides that leave to intervene can be made with such rights, privileges and liabilities as may be determined by the Court; FCR 1.32 which allows the Court to make any order that it considers appropriate in the interests of justice; s 23 of the Federal Court of Australia Act 1976 (Cth) (Act) which allows the Court to make an order of such a kind as the Court thinks appropriate; and the implied power of the Court. Moreover, given that these are costs that have been incurred in seeking to secure and arrange for the effective distribution of trust funds to a beneficiary, I have no doubt that this Court, as a court of equity, has the power to make such an order in its equitable jurisdiction: see s 5(2) of the Act. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.