Singh v Aulakh [2025] FCA 1207

Singh v Aulakh [2025] FCA 1207 | Case summary | Zoe

[25]

By application dated 6 June 2025 Mr Damanjeet Singh sought leave under s 237 of the Corporations Act 2001 (Cth) (the Act) to bring proceedings on behalf of a company called Aulakh BS Pty Ltd (the Company). The Company is the trustee of the ABS Unit Trust, which owns and operates a green grocer business in Cairns, Queensland, with the registered trading name "Cairns Local Farmers Market".
There were originally three directors of the Company: Mr Damanjeet Singh (the Applicant or Mr D Singh), Mr Kulwinder Singh Aulakh (the First Respondent or Mr Aulakh), and Mr Ajit Singh (the Second Respondent or Mr A Singh). On 9 October 2024, the Second Respondent was removed as a director. There are six shareholders. The Applicant and First and Second Respondents are each shareholders, as are their wives: Ranjeet Kaur, Kuljit Kaur Aulakh (the Third Respondent), and Mandeep Kaur Mundi (the Fourth Respondent). All shareholders hold one ordinary share.
The Company commenced operations in 2021 following initial capital contributions by each of the directors. Mr D Singh's evidence is that he contributed $86,000, the First Respondent contributed $180,000, and the Second Respondent contributed $157,000. Mr Aulakh's evidence is that the Applicant contributed $70,000, the First Respondent contributed $180,798, the Second Respondent contributed $157,000 to the business, and they each contributed an additional $16,000 as a guarantee for the lease.
There were four bank accounts operated by the Company. Relevantly, one of those accounts was commonly used by the Company for its daily financial processes, held with the National Australia Bank (the NAB Account). Each director was a signatory on that account, and the evidence is that all withdrawals had to be approved by two out of three directors before the transaction would be authorised. After the removal of the Second Respondent as a director, approval of both remaining directors was required for any transactions.
An account was opened in or around July 2022 with ANZ Banking Group Ltd (the ANZ Account). The Applicant was not a signatory to that account. It is said that this account was in the name of the First and Second Respondents only, and that funds of the Company were directed to the ANZ Account instead of the NAB Account. The Applicant argues that there are no records showing any authorisation for the deposit of funds to the ANZ Account. The core of this issue is the allegation that there were funds misappropriated into the ANZ Account by the First and Second Respondents and that, in doing so, they acted in breach of their directors' duties.
In February 2025 matters came to a head. The Respondents argue that the Applicant had tried to withdraw funds of the Company for his own benefit, and refused to authorise payments to creditors and staff unless those withdrawals were approved by the First and Second Respondents. The Applicant argued that the First and Second Respondents had misappropriated Company funds into the ANZ Account. On 26 February 2025, the Respondents convened a shareholder meeting to consider a motion to remove the Applicant as a director. The Applicant, through his solicitor, demanded that the meeting be adjourned because insufficient notice had been given. The meeting was adjourned, and, on 28 February 2025, another meeting for the same purpose was scheduled for 24 March 2025.
The Applicant made an application to this Court for an injunction freezing the Company's accounts and preventing him from being removed as a director.
On 25 March 2025, Collier J made interim freezing orders restraining the First and Second Respondents from withdrawing, transferring or disposing of certain funds in specified bank accounts, or from opening or using a bank account in the name of the Company without the consent of the Applicant. The Respondents were further restrained from removing the Applicant as a director of the Company, and from taking any steps to diminish the value of the Company, among other matters.
On 2 April 2025, the Respondents sought to have the matter relisted before the duty judge. On 7 April 2025, Moshinsky J made orders continuing many of the orders made on an interim basis, as well as requiring that the Applicant file and serve a statement of claim in the proceeding, and for the filing of materials relevant to whether the freezing orders of 7 April 2025 should be maintained.
Before me on 22 May 2025, a hearing regarding the Applicant's application for an injunction took place. Ultimately, the parties consented to the freezing orders being vacated, but certain orders being in place requiring the Company to use certain bank accounts and restraining the removal of the Applicant as director. At the hearing, the solicitor for Mr D Singh accepted that his proposed statement of claim would need to be brought in the name of the Company, and that leave would be required to do so.
The proposed statement of claim was annexed to the affidavit of Mr Damanjeet Singh dated 6 June 2025. It is not in dispute that leave is required under s 237 of the Act to proceed with that claim.

[27]

The Second, Third and Fourth Respondents did not file any affidavit material prior to the hearing.
It is appropriate to briefly summarise relevant parts of that evidence. Some of the affidavits were filed prior to the present issue, and were (at least partially) relevant to predecessor issues related to the interim injunctions previously in place. They were, nevertheless, all read into evidence in the hearing of this application. Much of the evidence is repetitive and contradictory. No party sought to cross examine any deponent on any aspect of the evidence.
At the hearing, the solicitor for the Respondents said that the Second Respondent sought to adopt as his own evidence, the evidence given by the First Respondent. The basis for doing so was not clear, given that the Second Respondent had not filed any evidence of that adoption. Consequently, after the hearing, the Second Respondent filed an application to reopen the hearing for the limited purpose of filing an affidavit, which substantially stated that the Second Respondent "support[s], agree[s with] and rel[ies] on the evidence put forward by the First Respondent". Although the practice of filing evidence following a hearing should be discouraged (see generally Carr v Finance Corp of Australia Ltd [1981] HCA 20; (1981) 147 CLR 246 at 257-258 (Mason J); HM&O v Ingram [2012] NSWSC 684 at [29]- [30] (McDougall J)), in this circumstance I am content to grant leave for that affidavit to be filed, given that it appears to be the basis on which the parties proceeded, and nothing substantially turns on it.
On the day before the hearing (10 September 2025), the Applicant sought to file a further affidavit without leave. The affidavit sought to do two things. First, it annexed copies of documents referred to in Mr D Singh's affidavit of 4 July 2025, which were mistakenly not attached to that affidavit. Second, it provided evidence about a software platform which recorded point-of-sale transactions for the business. It also included correspondence with an external accountant (External Accountant) that was the subject of submission and not the subject of dispute. Save for the correspondence with the External Accountant, I do not consider the additional affidavit particularly relevant. I said that I would address the question of leave to rely upon that affidavit in these reasons. Given I have permitted the Second Respondent to file additional evidence, and given its confined relevance, it is appropriate that the additional affidavit be admitted.

[51]

The evidence makes clear that the governance of the Company was poor. The use of WhatsApp messages is hardly a system conducive to clear record keeping, and its limitations are evident in this proceeding where it is near-impossible to reconcile amounts of receivables, authorisation for payments, and employee and tax provisions. Given the large array of electronic options available for management of accounts and recording expenses, it is difficult to understand why such poor processes were adopted.
That the Applicant may have been aware of these poor governance arrangements is relevant to, but not determinative of, the issues in this application. It does not appear to be in dispute between the parties that the Company was, at times, run in a manner that was inconsistent with taxation and employment obligations.
Taken together, the way in which the Company has been operated by the Applicant and Respondents created circumstances giving rise to an opportunity for misappropriation.
Mr Aulakh's assertion that the ANZ Account was opened with the full knowledge and consent of the parties, and for the purposes of the business, is disputed. There is some evidence from the External Accountant that the ANZ Account was not provided to him as part of the accounting of the business: this somewhat undermines the proposition that the use of the ANZ Account was open and transparent, although I note that some of the evidence of the External Accountant was provided late, without the opportunity to respond to it.
Mr D Singh asserts that he has repeatedly sought access to the accounts of the Company and been denied. It seems that there has not been a full and frank sharing of information between the parties. There is clearly mistrust and animosity. I am not able to assess the extent to which there has not been full disclosure of relevant documents, but that is not a matter that I need to deal with at the present time.
There is a credible dispute about the existence and timing of Mr D Singh's knowledge of the ANZ Account. I do not accept that it is clear that the Applicant was aware of the ANZ Account from either of the screenshots proffered and relied upon, particularly when considered in the context of the informal nature of communications on WhatsApp, which are intended to be read over a phone and tend to be responded to quickly (making it unlikely that documents were carefully examined). In the circumstances of the test that I am applying, and the responsive evidence of the Applicant, it is not possible to reach a resolved position about the Applicant's awareness of the ANZ Account at this stage, nor is it appropriate to do so.
There are counter-allegations concerning the conduct of Mr D Singh, suggesting that he paid himself a director's fee, and sought to obtain a repayment of his initial loan, without authorisation. These are issues that are in dispute between the parties. I am not in a position to determine them, but note their existence as part of the overall analysis.
In that factual context, I turn to consider the operation of section 237 of the Act.

[69]

While this statement is not in evidence, and no evidence of the Applicant's financial position has been led substantiating his financial position to make good the undertaking (cf Re Woodbine at [86] (Button J)), I consider that this matter tends in favour of good faith.
In South Johnstone, Middleton J was willing to accept that there the applicant was acting in good faith because there were other indicators, even in the absence of a positive statement of subjective belief. In that case, the existence of an indemnity by the Applicant assisted his Honour to conclude that there existed an honest belief in the cause of action with reasonable prospects (at [69]; see also Re Woodbine at [86]).
Similarly, here, the evidence of Mr D Singh satisfies me that he has an honest belief in a good cause of action with reasonable prospects. He outlines his long-held concerns as to the governance processes of the Company, and his attempts to raise them with the Respondents. It is clear that he considers that there has been wrongdoing. He has an interest in the financial health of the Company, and in ensuring that its assets are maximised, and not misappropriated.
The Respondents argue that there can be no honest belief in the existence of a good cause of action. That is because allegations are poorly articulated and, in many cases, contrary to the evidence disclosed in the affidavit material. The foundation of this argument is the Respondents' attempt to undermine the evidentiary basis for the allegation in the proposed statement of claim, that the ANZ Account was opened without the knowledge or authorisation of the Applicant. However, as I have outlined above, I do not consider the evidence on that issue to be clear.
I consider that the evidence does not disclose a single conclusion about this issue and that it remains contested. The evidentiary dispute does not foreclose a conclusion that the Applicant is acting in good faith.
The Respondents further rely on their assertion that the Applicant requested, and was granted, access to the ANZ Account on 16 November 2023. However, again, Mr D Singh's evidence is that the access was not complete and that in any event he has been hamstrung by a failure to provide him with access to other systems. In addition, the Company's record keeping was clearly poor, so that access to accounts would not necessarily permit a full understanding of the issues.
Further, it is clear from the affidavit of Mr Joshi, among other things, that there was concerningly little formality connected with the administration of the affairs of the Company. WhatsApp was used to exchange photographs of scraps of paper listing employees that would be paid in cash. Such conduct is ripe for concern as to the appropriateness of the corporate governance practices of the Company, and whether funds were being properly applied.
Overall, none of these matters persuade me that there is a lack of good faith. I accept, of course, that the onus is on the Applicant, and it is not necessary for the Respondents to establish bad faith (Chahwan v Euphoric Pty Ltd (t/as Clay & Michel) [2008] NSWCA 52; 65 ACSR 661 at [69] (Tobias JA; Beazley and Bell JJA agreeing)).
The Respondents also point to a lack of particulars in the proposed statement of claim, which is a matter that is of greater relevance to the question of whether there is a serious question to be tried and the best interests of the Company than to good faith.
I have some concern that there is a collateral purpose in this proceeding insofar as Mr D Singh may have a personal interest in obtaining funds (or even personal vindication) from the proceedings.
However, the proposed statement of claim seeks declarations and orders in favour of the Company alone, and the Applicant would not have standing to bring the proceeding in his own right (with the exception of the oppression claim discussed at [118]-[119] below); this is therefore a case that is in a different category to that in Tydeman, where a derivative action was sought to avoid the requirement that a company proceed by a solicitor.
Accordingly, I am satisfied that the proceeding is contemplated in good faith and that this requirement is satisfied.

[78]

In considering the best interests of the Company, it is important to consider the prospects of success of the action, the likely costs and the likely recovery if the action is successful, and the consequences if it is not.
In oral submissions, the Applicant asserted that the material already before the Court involved most of the material and argument that would need to be deployed, so that the costs of the proceeding would not be significant. No evidence about the likely costs was forthcoming. Nor were there any submissions as to the capacity of the Company to pay the costs of the proceeding, although evidence about the financial position of the Company was before me in terms of the bank statements across the ANZ Account and the NAB Account which show reasonably substantial returns. The Respondents did not argue that the funds were not available to fund the litigation. Their arguments focused on the asserted lack of prospects of the claim.
It is important to note that the quantum of approximately $350,000 appears to reflect the amount deposited into the ANZ Account in the relevant period on the basis of the theory that all of the funds deposited in that account were misappropriated or potentially misappropriated. While I consider the evidence as to payment of employees to be deficient, it appears clear that at least some of the funds were likely used for Company purposes. In the course of submissions, the solicitor appearing for the Respondents submitted that the asserted quantum of the claim, being $350,000, could ultimately be higher or lower.
There is therefore a degree of uncertainty over the quantum of the claim. Generally speaking, where there is uncertainty, that will tell against the party that bears the burden. However, in this instance, much of the uncertainty arises because of the way in which the Respondents have maintained the Company's accounts - asserting on their own affidavit material that they used WhatsApp chats as the means of accounting for employee entitlements. The evidence shows scraps of paper with scribbled hours sent between the three directors, apparently showing an entitlement to payment. Given the paucity of records is the main barrier to clearly identifying the quantum of the claim, and the Respondents have had the opportunity to, but have not, clarified their payment of employee entitlements to a sufficient degree, I am inclined to conclude that the quantum of the claim can properly be seen as being in the vicinity alleged - noting the Respondents' acceptance that it could be a greater or lesser figure.
In the course of oral submissions, the solicitor for the Applicant relied upon general governance failings as being a reason of itself to permit the derivative proceeding. I do not accept that submission: the Company is not necessarily well served by undertaking costly and time-consuming litigation to vindicate the theory of good governance which can in any event be enforced by a director using less drastic mechanisms than a derivative suit.
It is also relevant here that a counterclaim of over $70,000 is likely. The Respondents submit (with some force) that a claim for approximately $350,000 is not in the Company's interests given a potential and well-founded counterclaim for over $70,000, when considered in combination with the difficulties in pressing a claim of this size, and the complexity involved in proof that is evident from the filed materials.
In oral submissions, the Applicant argued that the factual substratum is common between the claim and the counterclaim so that no real prejudice would arise if the counterclaim proceeded. There is force in this argument, because the common elements concern the use of funds, and how they are accounted for. In order to establish the counterclaim, it would be necessary to show that the loans were made to the Company and that on their terms, they were due and payable by the Company. I accept that the potential counterclaim is likely, and that it will involve increased costs and complexity. However, overall, the irregularities in the conduct of the Company, which are conceded on the material, support the contention that the Company is well served by ventilating the issues, and seeking to recover funds paid inappropriately. If it is unsuccessful, then it will be liable for a costs order which may be substantial. However, the indemnity of Mr D Singh satisfies me that the risk to the Company is manageable.
There is no evidence about whether other remedies would be sufficient. This was noted as relevant in Re BCK Holdings Group Pty Ltd [2021] NSWSC 1400 at [36] (Rees J). The present application contemplates an oppression action (as noted below, it is contemplated as being commenced on behalf of the Company - an approach that is clearly not available). However, the entitlement to the funds in question is only said to be available to the Company itself and not to the Applicant.
The balance of the issue of the best interests of the Company travels with the question of whether there is a serious question to be tried. That issue is analysed below. For the reasons that I have given, there is a serious question in relation to some parts of the claim and not others. In relation to the confined portions of the claim that I have identified, there are reasonable prospects of success and it is in the best interests of the Company that the proceedings commence.
In respect of those parts of the claim which I consider to have prospects of success, it is apparent that the Applicant is the only person able or willing to bring the claim. Insofar as they concern directors' duties, it is not clear that there is any other person who is able to proceed with them.
However, in many respects, the conduct alleged (inappropriate attempts to avoid taxation liability, failure to account for funds) was due to exceptionally lax accounting and governance practices to which the Applicant was a party. While the Applicant disputes that he was aware of the ANZ Account, it is apparent that he was aware of the practice of cash payments, record-keeping and apparent attempts to avoid taxation obligations.
I am concerned that if the matter proceeds, the Applicant's conduct may be shielded from scrutiny. However, given the foreshadowed counterclaim, and the allegations already ventilated in the materials, it appears that this is an unlikely outcome.

[80]

Section 237 authorises the court to grant leave to permit a person to bring proceedings on behalf of a company. Part 2F.1A does not explain the word 'proceedings' or give any direct indication of the level of specificity of pleaded allegations and prayers for relief that the applicant for leave must achieve. Typically the applicant will provide the court with a draft statement of claim or (as here) points of claim, or some other document giving particulars of the derivative claims. But in my view it cannot be the case that a full statement of the derivative claims must be presented before the court can consider and determine a leave application. Were that to be required, any subsequent amendments to the pleaded case would need to be treated as a leave application under s 237 to which the criteria in s 237(2) would have to be applied. That, in my view, would be an unnecessary burden for case management.

In my opinion the applicant for leave must identify and describe the proposed proceedings with sufficient precision that the court can properly assess the application having regard to the criteria that it is required to consider under s 237(2), and the opponents can respond to the application in terms of those criteria. That may be achieved by presenting the court with a draft pleading, but it may be achieved in other ways such as by outlining the claims in affidavit evidence. It is not hard to envisage an application that falls so far short of identifying the derivative causes of action to be asserted that the court is left unable to assess, for example, whether it is in the best interests of the company that the applicant be granted leave, and whether there is a serious question to be tried. Here, however, Mrs Ehsman has done enough in her draft points of claim (defective though they are) and in the voluminous evidence that has been adduced, to permit me to identify the causes of action broadly described in paragraphs (A)-(F) above, of which paras (C) and (D) are derivative claims. I am able to consider the application for leave under s 237 as an application for leave to bring proceedings on behalf of Timentel by a statement of claim that would assert the causes of action identified in paras (C) and (D) and seek appropriate equitable and statutory relief.

[82]

Section 180(1) of the Act requires that a director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a corporation in that corporation's circumstances and occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. The obligation adopts an objective standard. The principles relevant to establishing a contravention of s 180 were summarised by Edelman J in ASIC v Drake (No 2) [2016] FCA 1552; 118 ACSR 189 at [394]- [401] and I do not repeat them here.
There is an allegation that the First and Second Respondents have failed to exercise due care and diligence under s 180(1) of the Act by opening a bank account without the knowledge or approval of one director, and allegedly diverting $343,780 of business income. Part of this allegation involves the proposition that the diverted income in the Company was not accounted for and accounts were not made available to the Applicant in his role as director.
The allegations are poorly pleaded, but are comprehensible.
Given what is conceded by the First and Second Respondents to be the inappropriate use of WhatsApp and handwritten notes as a method of keeping accounts of the Company, at the very least the allegations that there was not appropriate record-keeping appears well founded.
The Respondents argue that the allegation that funds were diverted is said to be not well particularised. Given the voluminous affidavit material that gives substance to the allegation, it is appropriate that if the matter proceeds, it be better particularised and pleaded. However, as noted above, given the paucity of accounting, the governance systems adopted were ripe for the kind of mismanagement that is alleged to have occurred. That contributes to my view that there is a prima facie case in relation to this allegation.
The Respondents appear to argue that the Applicant was aware of the use of the ANZ Account. For the reasons I have identified I consider that issue to be in dispute. In any event, if it is the case that the Respondents seek to argue that there has been some form of ratification, that will need to be considered in light of the comments in Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; 226 CLR 507 at [32] (Gleeson CJ and Heydon J).

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