FEDERAL COURT OF AUSTRALIA
Suzlon Energy Ltd v Bangad [2014] FCA 1105
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IN THE FEDERAL COURT OF AUSTRALIA |
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IN ADMIRALTY |
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SECOND CROSS CLAIM
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SUZLON ENERGY LTD AND OTHERS NAMED IN THE SCHEDULE Cross-Claimants | |
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AND: |
SANJEEV BANGAD AND OTHERS NAMED IN THE SCHEDULE Cross-Defendants |
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DATE OF ORDER: |
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WHERE MADE: |
THE COURT DIRECTS THAT:
1. On or before 29 October 2014, the first to sixth second cross-claimants file:
(a) any evidence as to interest rates for United States dollars and Euros on which they seek to rely;
(b) any submissions as to the appropriate rate of interest that the Court ought order for prejudgment interest and interest on judgment sums in United States dollars and Euros; and
(c) draft short minutes of order to reflect the final relief to which any of them respectively is entitled consistent with the reasons for judgment given today.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
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IN ADMIRALTY |
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NEW SOUTH WALES DISTRICT REGISTRY |
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GENERAL DIVISION |
NSD 1670 of 2008 |
SECOND CROSS CLAIM
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BETWEEN: |
SUZLON ENERGY LTD AND OTHERS NAMED IN THE SCHEDULE Cross-Claimants |
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AND: |
SANJEEV BANGAD AND OTHERS NAMED IN THE SCHEDULE Cross-Defendants |
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JUDGE: |
RARES J |
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DATE: |
15 october |
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PLACE: |
SYDNEY |
REASONS FOR JUDGMENT
1 These proceedings began by an interpleader by the shipowner, Beluga Shipping GmbH & Co KS “Beluga Fantastic”, in respect of a cargo carried to Port Kembla for delivery to Suzlon Energy Australia Pty Ltd, the third defendant and second claimant to the second cross-claim, as I described in Beluga Shipping GmbH v Headway Shipping Ltd [2008] FCA 1791. Suzlon Energy Ltd and its associated companies, Suzlon Australia, Suzlon Infrastructure Ltd (now known as Aspen Infrastructures Ltd), Suzlon Wind Energy Corporation USA, Suzlon Structures Ltd and SE Shipping Lines Pte Ltd (the Suzlon parties) are the second cross-claimants and only active parties in these proceedings.
2 On 15 May 2014, on the application of the Suzlon parties, I ordered that the proceedings be listed for final hearing. The only parties against whom the Suzlon parties now seek relief are three of Suzlon Energy’s former employees, Rajagopalan Sridhar, Sanjeev Bangad (and five companies one or both of them controlled), and S. Ramm Kummar, who are together some of the second cross-defendants (collectively the 8 defendants). The five companies are Genus Shipping Services Pvt Ltd, Bluewind Enterprises (UK) Ltd, Sunshine Trade Services Ltd (STS), BIP Holdings Ltd and Manning Ltd.
3 Essentially, the Suzlon parties claim that the 8 defendants, principally through Messrs Sridhar and Bangad, defrauded them of tens of millions of dollars through a series of complex maritime and other frauds.
4 As I will explain, Messrs Sridhar and Bangad did so principally by using their positions as senior executives controlling and managing the Suzlon parties’ shipping business in, first, earning secret commissions from companies that were suppliers to the Suzlon group, secondly, establishing accounts with a number of foreign shipbrokers through which ship charter payments and receipts passed, including fraudulent invoices raised by and paid to their companies, including the 5 corporations among the 8 defendants, that generated secret profits, thirdly, establishing Headway Shipping Ltd and Headway Chartering (Canada) Ltd (the Headway companies) as apparently arms-length shipping companies and causing the Suzlon companies to sub-charter to, and or guarantee the charterparty obligations of, a Headway company that then carried both Suzlon and other cargoes and earned secret profits for the ultimate benefit of Messrs Sridhar and Bangad and, fourthly, channelling the secret commissions and secret profits from those activities into, among others, Swiss bank accounts where some, but not all, of those moneys still remain.
5 On 31 March 2014, the Suzlon parties filed an interlocutory application that the Court give judgment pursuant to r 5.23(2)(c) and (d) of the Federal Court Rules 2011 (Cth) on the basis that each of the 8 defendants was in default. Immediately before the hearing of that interlocutory application, the Suzlon parties indicated that they no longer wished to pursue it because they had been advised that there may be difficulties in enforcing a judgment obtained by default under the law of the Republic of India, where Messrs Sridhar, Bangad and Kummar live and the international headquarters of the Suzlon group is located. This late change of position, in a matter that has been conducted largely ex parte by the Suzlon parties in this Court for more than five years, was most unsatisfactory.
6 Relevantly, apart from the possible difficulty in enforcing a judgment by default, there is no evidence to suggest that the law of any other jurisdiction, including that of India, is different to the law of Australia in respect of the substantive causes of action on which the Suzlon parties rely.
The litigation background
7 There is a very large body of affidavit and documentary evidence before me. I have considered that evidence to the extent that it is admissible at a final hearing, as it has been deployed over the years that the proceedings have been in my docket, including over 13 lever arch files that the Suzlon parties extracted as salient for the purposes of the argument on the final hearing. I am satisfied that the substance of the Suzlon parties’ claims against each of the 8 defendants and their associates has been established by that evidence. The evidentiary material is too large to summarise in detail in these reasons. I will refer to some salient examples of each of the principal types of activities on which the Suzlon parties relied to establish the liability of the 8 defendants. During the course of these reasons I will also refer to other judgments that I have given in these proceedings concerning the 8 defendants and the actions of Messrs Sridhar, Bangad and Kummar and companies and others associated with them based on evidence then before me, and I also adopt, without repeating, all of those findings, none of which have been contradicted.
8 For the reasons I have given previously in granting the Suzlon parties leave to serve each of the 8 defendants outside the jurisdiction, I am satisfied that the claims made against each defendant fall within the jurisdiction of the Court. The reasons for each of their joinders appear in the following judgments: Beluga Shipping GmbH & Co KS “Beluga Fantastic” v Headway Shipping Ltd (No 2) (2008) 251 ALR 620 (Beluga (No 2)) (as to Mr Bangad); Beluga Shipping GmbH & Co v Headway Shipping Ltd (No 3) [2008] FCA 1989 (Beluga (No 3)) (as to Genus); Beluga Shipping GmbH v Suzlon Energy Ltd [2009] FCA 1020 (Suzlon) (as to Mr Sridhar, Bluewind, STS and Mr Kummar); Beluga Shipping GmbH v Suzlon Energy Ltd (No 3) [2009] FCA 1347 (Suzlon (No 3)) (as to BIP); Beluga Shipping GmbH v Suzlon Energy Ltd (No 4) [2009] FCA 1568 (Suzlon (No 4)) (as to Manning). In those judgments, I made findings of a prima facie case justifying the joinder of the relevant new party and his or its association with the matters now in issue. The evidence on which I arrived at those findings has not been contradicted and I adopt, without repeating, all of those findings in respect of each such party for the purposes of these reasons.
9 Each of the 8 defendants had been served originally soon after he or it was joined between 2008 and 2009. Of the 8 defendants, only Mr Sridhar has ever appeared in the proceedings. That occurred in 2012 when he applied for a stay of the proceedings against him. Mr Sridhar appeared unconditionally when he sought the stay and did not challenge the jurisdiction of the Court in respect of the Suzlon parties’ claims for relief against him. I granted his application but only if he met certain conditions (Suzlon Energy Ltd v Bangad (No 5) [2012] FCA 1505) (Suzlon (No 5)) that he subsequently failed to satisfy (Suzlon Energy Ltd v Bangad (No 6) [2013] FCA 759).
10 Each of the 8 defendants was served between 21 to 24 January 2014 with the fifth further amended second cross application, the fourth further amended statement of second cross-claim both filed on 13 December 2013 and the orders made on the same day. Those orders provided for service of the amended documents to occur on or before 24 January 2014 and that the proceedings stand over to 28 February 2014 for directions. The Suzlon parties served each of the 8 defendants again between late May and early July 2014 with notice of the final hearing. Two of the defendant companies, Genus and Bluewind, no longer maintain a registered office, but documents were left, in Genus’ case, with Mr Bangad who remains one of its directors, and in Bluewind’s case, at its former (being its last) registered office. None of the 8 defendants appeared on 28 February 2014 or when the matter was called outside the Court on 18 September 2014. Accordingly, each was in default, within the meaning of r 5.22(c), because he or it failed to attend the directions hearing.
The factual background
11 Each of Messrs Sridhar, Bangad and Kummar was an employee of Suzlon Energy. Mr Sridhar was a member of the senior management of Suzlon Energy from 1 October 1999 and in April 2005 he was appointed as head of supply chain management for Suzlon Energy. There is no evidence of Mr Sridhar’s level of contractual remuneration as head of supply chain management. On 27 October 2005, Mr Bangad was employed by Suzlon Energy as general manager of logistics. Mr Bangad earned a salary of Rs1.25 million per annum including incentives (or about AUD22,000 at current exchange rates). Mr Bangad reported directly to Mr Sridhar. Mr Bangad, in turn, was Mr Kummar’s immediate supervisor in Suzlon’s shipping business. All three had responsibilities in relation to the procurement of supplies, shipping and logistical requirements for the Suzlon parties and their related companies.
12 As a senior manager, Mr Sridhar had to sign a yearly certificate of compliance with Suzlon Energy’s code of ethics for directors and senior management. One example of his doing so was on 31 March 2007. The code required officers to act with the highest integrity, maintain honest ethical conduct and avoid situations in which a conflict of interest might occur or appear to occur. The code also required officers involved in any relationships with suppliers to disclose immediately and fully the relevant circumstances to his immediate, or another, superior for a determination as to whether any such actual or potential conflict existed. Mr Sridhar reported variously to the chairman and managing director of the Suzlon group, Mr Tulsi Tanti, Messrs Andre Horbach or Toine van Megen, the chief executive officers of Suzlon Energy at various times and Mr Kirtikant Vagadia, its chief financial officer and head-corporate finance.
13 During the period, at least, between 2004 and the termination of his employment, each of Mr Sridhar and Mr Bangad owed duties to each of the Suzlon parties that, unless he had their fully informed consent, he would, first, not obtain any unauthorised benefit from their relationship (including secret commissions or other profits), and, secondly not put himself in a position in which his interests or duties conflicted, or there was a real and sensible possibility that they may have conflicted, with any of the Suzlon parties’ interests: Pilmer v Duke Group Ltd (In Liq) (2001) 207 CLR 165 at 196-197 [70]-[72] per McHugh, Gummow, Hayne and Callinan JJ.
14 In December 2005, the Suzlon parties were contemplating commencing a shipping business to be operated by Suzlon Infrastructure. Subsequently, in June 2007, the Suzlon parties promoted a Singaporean company, SE Shipping Lines Pte Ltd, to carry on that business.
15 In about late 2005 to early 2006, Suzlon Infrastructure began undertaking shipping activities for members of the Suzlon group’s third party shippers of some other cargoes (such as cargoes carried on specialised vessels time chartered by Suzlon Infrastructure on their return leg to India after delivering the wind turbine or other equipment manufactured or supplied by one of the Suzlon parties). Suzlon Infrastructure used Suzlon Energy’s staff for the purpose of conducting those shipping activities. As explained by a director of Suzlon Infrastructure, Harish Mehta, Mr Sridhar was given “total control of the shipping department” and Mr Bangad was in charge of its day to day operations. Mr Bangad role’s included approving payments of invoices, and he acted as general manager of logistics of SE Shipping until Gaurav Bansal commenced as its chief executive officer on 13 June 2008.
16 During 2006 and early 2007, as Mr Vagadia explained, the Suzlon parties considered whether to develop a “stand alone” shipping business that would carry other persons’ cargoes so as to make a profit on return journeys of vessels. The discussions considered whether that business could be conducted by a Suzlon party that could time, voyage or slot charter the specialised vessels that were necessary to carry cargoes manufactured or supplied by members of the Suzlon group. Mr Sridhar made written proposals to his superiors for the conduct of the Suzlon group shipping operations, including the establishment and functioning of SE Shipping as a member of the Suzlon group.
17 Ultimately, the Suzlon group decided to establish SE Shipping in Singapore and to use it to conduct a shipping business from there. Mr Vagadia said, for its first year of operation, SE Shipping operated as a vehicle for carrying on the Suzlon group’s increasing shipping business in Singapore which was more tax effective and closer to the international shipping market.
18 Over the period between 2004 and 2009, Mr Sridhar dealt with several Swiss Banks to hold and invest his and his companies’ secret gains from the Suzlon parties, including Frankfurter Bankgesellschaft (Schweiz) AG (previously known as LB Swiss), Merrill Lynch Bank (Suisse) SA and Credit Suisse AG (the 3 Swiss banks) who were the thirteenth, fourteenth and fifteenth second cross-defendants.
19 In Beluga Shipping GmbH & Co KS “Beluga Fantastic” v Suzlon Energy Ltd (No 5) (2011) 278 ALR 56 (Beluga (No 5)), I made orders joining the 3 Swiss banks as second cross-defendants. The Suzlon parties alleged that Mr Sridhar and companies that he controlled had opened accounts with those banks and deposited or invested funds. The Suzlon parties alleged that each of the 3 Swiss banks had assisted Mr Sridhar and companies that he controlled with knowledge of his dishonest and fraudulent design in breach of his fiduciary duties owed to the Suzlon parties. I explained in some detail, in that judgment, the evidential foundation for those allegations and, again, made findings that a prima facie case had been established.
20 After they had been served, the 3 Swiss banks applied for the proceedings against them to be stayed. I ordered a stay of the Suzlon parties’ cross-claims against the 3 banks because Swiss laws providing for banking secrecy effectively would have precluded them from being able to make out any substantive defence in the proceedings here. I imposed conditions on that stay that allowed the Suzlon parties to pursue whatever remedies they may be entitled to in Switzerland where Swiss Courts have a power to compel domestic banks and their employees to provide information that they could not provide lawfully in foreign proceedings: Suzlon Energy Ltd v Bangad (No 3) [2012] FCA 123 (Suzlon (No 3)); see too Suzlon Energy Ltd v Bangad (No 2) (2011) 198 FCR 1 and the reasons I gave for granting leave to serve the 3 Swiss banks out of the jurisdiction: Beluga (No 5) (2011) 278 ALR 56. For the purposes of these reasons, I adopt the findings against Mr Sridhar and the companies that he controlled based on the documentary and other admissible evidence that I made in those judgments. Those findings were based on evidence that is still unchallenged in these proceedings.
The supplier secret commissions
21 In January 2004, Mr Sridhar caused STS to be incorporated and he became a director. In April 2004, he opened bank accounts with LB Swiss, in the names of STS and, under a pseudonym for himself, “Rodney Marsh”. He used this and other Swiss bank accounts for the purpose of banking secret commissions that he arranged with suppliers of goods to one or more of the Suzlon parties, including Bonfiglioli Gebtriebe GmbH, Lang Systemtechnik GmbH, August Friedberg GmbH, Svendborg Brakes S/A, Saint-Gobain Syncoglas BV and RS Randack Spezialschrauben GmbH.
22 Mr Vagadia said in his affidavit of 20 October 2010 that, in proceedings brought against Mr Sridhar by the public prosecutor of the City of Bochum, Germany, the prosecution alleged that Mr Sridhar had arranged for payment to him or his nominee companies of secret commissions totalling 10,312,262 and USD6,797,806 (or about USD21 million in total). As a result, the Suzlon parties pleaded that their suppliers had paid STS, Bluewind, BIP and Manning and Mr Sridhar over USD21 million in secret commissions (see par 16I, 16K and schedule 2 to the cross-claim). There is a wealth of evidence that Mr Sridhar obtained payment to himself and his companies for his benefit of a very large amount of money.
23 For example, on 14 April 2004, Mr Sridhar, using his Rodney Marsh pseudonym email account of sunshineintertrade@yahoo.com.au (i.e. STS), informed Mr Frehner of LB Swiss that he could expect three receipts to be credited to STS’ account. Mr Sridhar wrote that two of those receipts, 58,000 from Bonfiglioli and 7,500 from RS Randack, would come from German sources. The email was signed “sridhar”. Those two payments were made to STS’ LB Swiss account by companies that were suppliers of the Suzlon parties with whom Mr Sridhar dealt as head of supply chain management. Mr Frehner, in his email of 20 April 2004, confirmed receipt of those payments. Later, Mr Frehner wrote on 26 October 2004 that STS’ account had received another 26,782 from Bonfiglioli.
24 Again by way of further example, STS’ LB Swiss bank statement dated 13 May 2008, for the period 1 January 2008 to 13 May 2008, showed numerous receipts from Suzlon suppliers, such as Lang and Svendborg. In that period, a total of over 1.96 million was received in the account and Mr Sridhar caused two payments totalling 2 million to be paid to BIP in the same period. While not all of those receipts came from suppliers of the Suzlon parties, about 1.8 million or 92% did.
25 Mr Tanti said in his affidavit of 22 July 2009 that, until he was informed of the investigation by the German authorities, he was unaware of STS as an entity or of any transactions involving it. He said that none of those transactions occurred with his knowledge, authority or permission.
26 The statements for STS’ account with LB Swiss for the period 1 January 2004 to 3 December 2009 revealed that about 42.25 million passed through that STS bank account over the six year period, although some of that total involved investment and reinvestment of money previously received. Those LB Swiss bank statements disclosed many payments by suppliers to the Suzlon parties who were identified by Vagadia in his 20 October 2010 affidavit and by a recent review of their accounting by Siddharth Jhawar, an assistant general manager corporate finance of Suzlon Energy, in his 23 September 2014 affidavit. Mr Jhawar said that those payments totalled USD4,887,060 and 10,712,978 (totalling about AUD21 million at current exchange rates). Those are astonishingly large sums paid to or generated by another business owned by Mr Sridhar when he was a full-time senior employee of Suzlon Energy. On the evidence before me, I am satisfied that the latter sums were derived by Mr Sridhar and his companies on the basis explained in Mr Martin’s report as I summarised in Beluga (No 5) 278 ALR at 62-70 [28]-[67], 71-72 [73]-[79].
The ship brokerage accounts
27 In January 2006, Mr Bangad incorporated Genus and he and his wife, Rashmi, became directors of that company. In February 2007, Messrs Sridhar and Bangad incorporated another of the cross-defendants, SS Oceanwind Shipping Pte Ltd, became its directors and opened a bank account in its name. The Suzlon parties do not now seek relief against SS Oceanwind because it was deregistered on 8 July 2009. By late October 2007, Mr Sridhar caused STS to acquire 10 ordinary shares in Bluewind and he became a director of Bluewind in late April 2008. Also, by late September 2007, Messrs Sridhar and Bangad had incorporated BIP and become its directors and shareholders. In addition, both Mr Sridhar and Mr Bangad were beneficial owners of BIP’s bank account with Credit Suisse.
28 From about January 2006 to October 2008, Messrs Sridhar and Bangad represented to the Suzlon parties that they had not been able to procure sufficient ships to carry cargo for the Suzlon parties and that each of SS Oceanwind, Genus, Bluewind and BIP was an independent arm’s length third party. Their dealings with the Headway companies are further discrete examples of these frauds that I will discuss later in these reasons. Messrs Sridhar and Bangad also represented that they were not obtaining any indirect benefits or secret commissions from third parties in arranging for those parties to carry cargo on ships chartered by Suzlon Infrastructure. In Mr Sridhar’s report to Mr Tanti of 21 June 2008, he wrote that:
“We have been able to go beyond Beluga as owners [of specialised ships capable of lifting the wind turbines and other equipment made by the Suzlon group] and are close to finalizing charter agreements with other ship owners.”
29 From early 2007 until late August 2008, Mr Kummar prepared invoices addressed to various Suzlon parties, including Suzlon Energy, in respect of freight on the letterheads of the shipbrokers and agents AM International GmbH and MIT Chartering SAS. He also prepared and sent payment directions, authorised by Messrs Sridhar and Bangad, purporting to be given on behalf of Suzlon Infrastructure, but in fact, done without its knowledge, to each of AM International, MIT, Reliance Bulk Carriers LLC and Welkin International Logistics Inc (also shipbrokers or agents) in respect of accounts that Messrs Sridhar and Bangad had established with each of those shipbrokers or agents in the names of Suzlon Infrastructure or one of the other Suzlon parties, again without its knowledge (Suzlon [2009] FCA 1020 at [23]).
30 From no later than about May 2007, Mr Sridhar and Mr Bangad caused one of SS Oceanwind, STS, Genus, Bluewind or BIP to charge one or other of the Suzlon parties in respect of the charter of ships or carriage of cargo as if the former were independent third parties. In fact, Messrs Sridhar and Bangad, or one of them, owned and controlled those companies. They caused those companies to charge the contracting Suzlon party or a third party with which a Suzlon party dealt more than the charter hire or freight that would have been payable by that party had it contracted directly with the actual carrier. At the same time, Messrs Sridhar and or Bangad caused one of their companies to contract at a cheaper charter hire or freight with the carrier for the carriage of the Suzlon parties’ cargo. Accordingly, SS Oceanwind, STS, Genus, Bluewind or BIP profited from the difference between what the Suzlon party paid it (directly or indirectly through paying the third party) and what it paid the disponent owner or carrier.
31 Messrs Sridhar and Bangad caused the Suzlon parties regularly to make payments of moneys for both genuine commercial transactions and also for improper, self-dealing transactions with corporate entities controlled by Messrs Sridhar and or Bangad including BIP, STS, Bluewind and Genus. I described the way in which this typically occurred in Suzlon [2009] FCA 1020 at [18]-[25], [39]-[40] and Beluga (No 3) [2009] FCA 1347 at [2]-[9]. In this way, each of Mr Sridhar and Mr Bangad obtained secret commissions and made secret profits from arrangements they made for ships to carry cargoes, chartered by or for, Suzlon Infrastructure or one of the other Suzlon parties.
32 Mr Sridhar and Mr Bangad had been indicted in Switzerland for money laundering conducted there between 2004 and 2009 while employed by Suzlon Energy. Mr Jhawar was present during examinations of Mr Sridhar and Mr Bangad by the Swiss public prosecutor in Pune, India, and received the French language minutes of those examinations together with official English translations. The Suzlon parties relied on a number of admissions by each of Mr Sridhar and Mr Bangad that Mr Jhawar affirmed having heard them make in English during the examinations. In those circumstances, those admissions are admissible under ss 81, 82 and 88 of the Evidence Act 1995 (Cth).
33 The examiner listed the relevant accounts through which he alleged the money laundering occurred as those of STS and Rodney Marsh with LB Swiss, Bluewind, STS and Manning with Merrill Lynch and BIP, Blue Ocean Consultants FZE and Manning with Credit Suisse. Mr Sridhar admitted opening each of those eight accounts. He said that he was once the beneficial owner of STS, but at the time of the examination he claimed that he no longer was. He confirmed, however, that he was still the beneficial owner of the STS account with LB Swiss. Mr Bangad admitted that he and Mr Sridhar were each 50% shareholders of BIP and that they had opened an account for BIP with Credit Suisse. Mr Bangad admitted that he was the beneficial owner of that BIP account.
34 MIT’s statements of account for “Suzlon” (being one of or more of the Suzlon parties) for the period 10 September 2007 to 18 December 2008 showed that MIT received USD1,439,978 from “Suzlon” on 10 September 2007 and a further USD2,018,000 on 24 September 2007. MIT made two payments, one to Reliance Bulk of USD789,978 on 13 September 2007 and the other to BIP of USD1,000,000 on 4 October 2007. MIT made a further payment to BIP of USD800,000 on 12 November 2007.
35 The transfer of the USD1,000,000 to BIP came about in the following way. On about 1 October 2007, Mr Kummar at the request of one or both of Mr Sridhar and Mr Bangad directed MIT to transfer USD1,000,000 to BIP towards the future hire and fuel charges due on a charter of SCL Thun. I described this dealing in Suzlon [2009] FCA 1020 at [20]. Accordingly, Mr Kummar knew, or had such notice as would put an honest and reasonable person in his position on enquiry, of the following. First, Suzlon Infrastructure had not authorised that payment to BIP, had no record or dealing relating to its being liable to BIP for such a payment in respect of SCL Thun and had no record of any charterparty or other dealing that evidenced that BIP was the owner, a charterer or agent of anyone in relation to that ship. Secondly, Mr Bangad later directed Mr Kummar to inform MIT that the vessel in respect of which the payment to BIP was due was MS Sea Wind II, in circumstances where that vessel was a passenger ferry, was unsuitable for the carriage of cargoes shipped to or by the Suzlon group and Suzlon Infrastructure had no record or other evidence of any possible hire by it of that ship. Thirdly, when Mr Kummar informed Mr Bangad that they had a previous representation purportedly on behalf of Suzlon Infrastructure to MIT in respect of this payment that concerned SCL Thun, Mr Bangad immediately changed his instruction to require Mr Kummar to maintain in his dealings with MIT that the relevant ship was SCL Thun. Fourthly, neither BIP nor anyone else had rendered Suzlon Infrastructure, or any other Suzlon entity, any invoice, payment request or direction directing or requesting that BIP be paid in relation to the hire or future hire of SCL Thun.
36 It follows that Mr Kummar was knowingly involved in the fraudulent transfer, caused by Messrs Sridhar and Bangad, of USD1,000,000 from MIT’s account in Suzlon’s name, being an account for Suzlon Infrastructure.
37 On 30 January 2008, MIT sent 1.25 million from the account to Bluewind and later on 10 April 2008 sent Bluewind a further 0.75 million (see too Suzlon [2009] FCA 1020 at [25]-[26]). Similar significant payments, on the evidence, were made by MIT, RBC, AM International and Welkin to various of the companies owned or controlled by Mr Sridhar and Mr Bangad.
38 There is no apparent innocent explanation as to why “Suzlon’s” account with MIT should have been used to remit large round figure sums to BIP and Bluewind, companies beneficially owned and controlled by both or one of its employees, Mr Sridhar and Mr Bangad. On 18 December 2008, in the last entry on the MIT statement, USD1,227,291 was transferred to “BIP Carriers” that resulted in a nil balance on the account.
39 Suzlon Infrastructure opened an account with Reliance Bulk by a payment of USD592,779.88 made on 27 June 2007. Reliance Bulk’s statement of account for Suzlon Infrastructure for the period 1 June 2007 to 6 August 2008 recorded further payments to Reliance Bulk which, in turn, paid various parties, including Beluga, out of the account. On 18 July 2007, Reliance Bulk paid USD800,000 from the account to STS. On 23 July 2007, Reliance Bulk paid STS another USD200,000 (see Suzlon [2009] FCA 1020 at [18]). Initially, in an email of 16 July 2007, Mr Bangad had directed Reliance Bulk to make the two payments totalling USD1 million to Rodney Marsh’s account with LB Swiss. However, Reliance Bulk queried this in its email in response. That email said that “such large transactions like these, esp to Swiss private acct raises red flags due to federal security regulations”. Reliance Bulk said that the payments should be made preferably to a company with proper documentation “plus an invoice or other supporting document from Suzlon”. Ultimately, Messrs Sridhar and Bangad caused Reliance Bulk to send the total of USD1 million to STS’ LB Swiss account. It is clear that these transactions were a fraud on Suzlon Infrastructure and caused it to pay the USD1 million to Mr Sridhar’s company, STS.
40 Another example of the use of shipbrokers is furnished by what Mr Bangad did in relation to SS Oceanwind and Genus which I described partly in Beluga (No 3) [2008] FCA 1989 at [10]-[19]. First, as I found there, Mr Bangad signed and approved two Suzlon Energy payment advices in May 2007 for a total payment to SS Oceanwind of USD1,126,089, and he and Mr Sridhar signed a letter dated 18 May 2007 on behalf of Suzlon Energy to its banker, IDBI Bank Ltd, authorising the payment of that sum. That bank acted on that authority and paid SS Oceanwind on the same day. Secondly, Mr Bangad forged, or put forward a forgery, of the signature of Jitendra Tanti as a director of Suzlon Infrastructure on a letter dated 27 September 2007 that was in identical terms to the letter dated 25 September 2007 that Mr Bangad had signed, that I described in that judgment at [12]. Both letters contemplated that Reliance Bulk would receive and disburse finds for Suzlon Infrastructure in respect of the “following vessels under our charter”, being Margaretha Green and Beluga Fusion. The letter purporting to be signed by Mr J Tanti was created on Mr Bangad’s computer. Mr J Tanti denied that he signed the letter or authorised it to be signed on his behalf and his signature on his affidavit of 2 December 2008 is very different to the forgery.
41 Reliance Bulk’s statement of account in evidence showed that it paid Genus USD59,200 on 27 June 2007 noted as “payment on behalf of SIL” (i.e. Suzlon Infrastructure). Genus had an account with Axis Bank Limited, in India. Genus’ Axis Bank statement recorded receipt of that sum on 29 June 2007.
42 That Axis Bank statement also recorded Genus’ receipt of a total of about USD920,000 in three payments of about USD350,000 on 13 March 2008, USD320,000 on 2 April 2008 and about USD250,000 on 12 May 2008. Emails recovered from Mr Bangad’s and Mr Kummar’s Suzlon work computers explain that how the latter two of those payments to Genus came to be made.
43 Mr Bangad had requested Coli Schiffahrt & Transport GmbH & Co KG of Hamburg, Germany, to make those payments respectively in respect of freight carried on Margaretha Green and Beluga Fusion respectively by emails on 28 March 2008 and on 2 May 2008. However, at the time of each of those requests, each ship was under time charter to Suzlon Infrastructure. Accordingly, any freight earned in respect of either ship was payable to Suzlon Infrastructure as charterer, not to Genus. The source of the USD350,088.53 that Genus received into its Axis Bank account on 13 March 2008 is not in evidence but I infer that it was also a payment that Mr Bangad fraudulently diverted from the Suzlon parties. The Axis Bank account is replete with entries recording payments to Mr Bangad and his family members.
44 Mr Sridhar and Mr Bangad also used other means to channel money out of the Suzlon parties involving the four shipbrokers. One example occurred in May and June 2008 when Suzlon Energy processed and paid two invoices on MIT letterhead for the same cargo, being 10 sets of rotor blades for carriage from Kandia, India to Freeport, USA on Aquilla Companion. Both invoices were dated 5 May 2008 and were identical, save for the freight rates and total amounts payable. Suzlon Energy processed the first MIT invoice, for a total of USD723,600, based on the signed authorisations of Messrs Bangad and Sridhar, and possibly Mr Kummar, as part of a freight payment of USD2,836,188.78 for a larger shipment that MIT received on 28 May 2008. About one week later, Suzlon Energy processed the second MIT invoice, for a total of USD1,005,000, and MIT received it on 4 June 2008. No signed authorisation for that payment within the Suzlon parties is in evidence, but it appeared to have been processed in the usual manner.
45 On 19 June 2008, MIT paid Headway Chartering USD10,000. Next, on 7 July 2008, MIT paid Genus USD400,000 and on 6 August 2008 it paid Headway Shipping USD500,000. I infer that those payments were not in discharge of bona fide debts due by Suzlon Infrastructure (which was the client of MIT) or any of the Suzlon parties. It is likely that those payments were a means by which most of the USD1,005,000 charged in the second MIT invoice of 5 May 2008 was siphoned from their employer by Messrs Sridhar and Bangad. Genus’ Axis Bank account recorded the receipt of the USD400,000 on 11 July 2008. As I have noted, on 18 December 2008, the MIT account was closed by the payment to BIP of the balance of USD1,227,291. That occurred within two weeks of Mr Sridhar’s suspension.
46 Mr Bangad caused Reliance Bulk to conduct an account in the name of SE Shipping which he closed in early August 2008 around the time that he ceased to be an employee of Suzlon Energy. This was when Mr Bansal was experiencing difficulties in obtaining information and co-operation from Mr Bangad in respect of SE Shipping’s operations. On 5 August 2008, Mr Bangad, using his Suzlon email account, instructed Reliance Bulk to transfer the balance of the funds in that account to Headway Shipping. On 6 August 2008, Reliance Bulk emailed Mr Bangad informing him that it had remitted USD339,166.29 to Headway Shipping as he had instructed.
47 In his affidavit of 19 September 2014, Mr Jhawar said that none of the four shipbrokers now holds any money in the account of the relevant Suzlon party used to effect the maritime frauds.
48 In summary, the evidence currently available to which I have referred established that Messrs Sridhar and Kummar defrauded Suzlon Energy and Suzlon Infrastructure through use of the various shipbrokers’ accounts through the following means:
(1) BIP received a total of USD 3,027,291 from the MIT account misappropriated from Suzlon Energy, being the following payments:
|
Paragraph |
Date |
USD |
|
[39] |
23 July 2007 |
1,000,000 |
|
[34] |
12 November 2007 |
800,000 |
|
[45] |
18 December 2008 |
1,227,291 |
(2) Bluewind received a total of 2 million from the MIT account misappropriated from Suzlon Energy as explained in [37] above.
(3) STS received a total of USD1,000,000 in July 2007 from the Reliance Bulk account, misappropriated from Suzlon Infrastructure, as explained in [39] above.
(4) Genus received a total of USD1,379,200 into its Axis Bank account misappropriated from Suzlon Infrastructure between June 2007 and July 2008, being the following payments:
|
Paragraph |
Date |
USD |
|
[41] |
27 June 2007 |
59,200 |
|
[42] |
13 March 2008 |
350,000 |
|
[42] |
2 April 2008 |
320,000 |
|
[42] |
12 May 2008 |
250,000 |
|
[45] |
11 July 2008 |
400,000 |
(5) MIT received USD1,005,000 on 4 June 2008 that Mr Sridhar and Mr Bangad misappropriated from Suzlon Energy by use of the false invoice that I described in [44] above, and MIT subsequently paid that sum as Mr Sridhar and Mr Bangad directed. I found that USD400,000 of that receipt was paid to Genus and have included it in the finding at (4) above. I found also that from that receipt, MIT paid USD10,000 to Headway Chartering and USD500,000 to Headway Shipping. Messrs Sridhar and Bangad are also liable to Suzlon Energy for the balance of the payment made pursuant to the false MIT invoice of USD605,000.
(6) Mr Bangad directed Reliance Bulk on 5 August 2008 to pay the balance of the money in the SE Shipping account, being USD339,166.29, to Headway Shipping. Messrs Sridhar and Bangad are liable to Suzlon Infrastructure for that sum (see [46] above).
(7) Mr Sridhar and Mr Bangad are liable to Suzlon Energy for the sum of USD1,126,089 paid to SS Oceanwind on 18 May 2007 (see [40] above).
The accounts with the 3 Swiss banks
49 Mr Sridhar caused at least a substantial part of the secret commissions and other profits generated through SS Oceanwind, STS, Genus, Bluewind, BIP and through the Headway companies, referred to in my earlier judgments, to be paid into and transferred among various accounts or investments that he opened or made in those companies’ individual names, in STS’ or Manning’s name or the name, or under his alias, of Rodney Marsh. Manning was owned by, or held its interests beneficially for, the MSRS family trust that had been established for the benefit of Mr Sridhar and his relatives.
50 In any event, substantial sums of money that Mr Sridhar or his companies derived through the above activities came to be held by Bluewind in an account with Merrill Lynch, by STS, in accounts with each of the 3 Banks, by BIP in accounts with Credit Suisse, by Manning in its own capacity or as trustee of the MSRS family trust with Merrill Lynch and Credit Suisse and by Mr Sridhar, under his pseudonym of Rodney Marsh, with LB Swiss as I described in Suzlon (No 4) [2009] FCA 1568 at [2]-[12], as supplemented and reinforced by the evidence that has subsequently come to light. There is no clear evidence of the amounts now standing to the credit of the Swiss bank accounts that are currently frozen by reason of the Swiss criminal proceedings.
The Headway Shipping dealings
51 In early 2008, Messrs Sridhar and Bangad caused Headway Shipping to be incorporated in Hong Kong. They also caused Headway Chartering to be incorporated in Canada so that it was operating in June 2008. Messrs Sridhar and Bangad controlled and beneficially owned both Headway companies. Both men promoted to the Suzlon parties the use of ships chartered from one of the Headway companies on the bases that, first, the Suzlon party, SE Shipping, could not carry all the cargo required on ships it had under charter and, secondly, there was a lack of suitable ships on the market (see too at [38] above). Messrs Sridhar and Bangad caused one or other of the Suzlon parties first, to contract with one or other of the Headway companies to carry cargo and, secondly, to execute, in favour of the ship’s disponent owner, a guarantee of the carrying Headway company’s obligations under its charterparty of the ship. At times, Messrs Sridhar and Bangad also arranged for the Headway company to enter into the charterparty or contract of carriage with the ship’s disponent owner at a lesser rate of hire or freight than the Headway company on-charged to the contracting Suzlon party.
52 Once again this breach of their fiduciary duties enabled Messrs Sridhar and Bangad to earn secret profits through the difference between what the Suzlon party paid the Headway company and what hire or freight it paid to the ship’s disponent owner. The twist here was that Messrs Sridhar and Bangad also had a Suzlon party guarantee, for the benefit of the disponent owner, the performance of the Headway company under its charter or contract of carriage that they had represented to the Suzlon parties could not be effected directly by the Suzlon parties. These dealings caused Suzlon Energy to enter into freight agreements, first, on about 3 April 2008 with Headway Shipping and, secondly, on about 17 June 2008 with Headway Chartering. Messrs Sridhar and Bangad used these freight agreements to divert, from one or other of Suzlon Infrastructure and SE Shipping, a series of opportunities to charter ships so that instead one of the Headway companies became the charterer, generating profits to Messrs Sridhar and Bangad or for their benefit through their beneficial interest in the Headway companies.
53 For example, on 7 December 2007, Suzlon Infrastructure entered into a time charter of the ship S Fighter on the NYPE 93 form, for 24 months, 30 days more or less at charterer’s option, with a German company, Scanscot Logistic Services GmbH. Significantly, the time charter named the charterer as Suzlon Infrastructure or its nominee, but with the proviso that Suzlon Infrastructure would always remain liable for the performance of the charterparty. The hire was USD18,250 per day. As will become clear presently, Messrs Sridhar and Bangad used Suzlon Infrastructure’s power of nomination for their own purposes and benefit.
54 In about February 2008, Mr Sridhar and Mr Bangad represented to Capt Anil Gupta of Marcotrans Shipping (Pvt) Ltd, who acted for Scanscot, as disponent owner of S Fighter, that Headway Shipping was an entity within the Suzlon group of companies. Mr Bangad, purporting to act on behalf of Suzlon Infrastructure, nominated Headway Shipping to Capt Gupta as the charterer of S Fighter under the original charterparty. A sub-charterparty was then prepared in which Suzlon Infrastructure sub-chartered the ship on back-to-back terms to Headway Shipping. Remarkably, the hire for sub-charter was also USD18,250 per day.
55 Towards the end of May 2008, Mr Bangad represented to Jacob den Hartog, Beluga Chartering’s director of chartering, that Headway Shipping and Headway Canada were related or associated entities of the Suzlon parties and had their authority to carry cargoes for them.
56 Subsequently, Messrs Sridhar and Bangad caused Headway Shipping to enter into charterparties with the disponent owners of a number of ships. In each of those charterparties, although Headway Shipping was the charterer, Suzlon Infrastructure gave a guarantee of its performance to the disponent owner. The Suzlon parties received no benefit from the charterparty and Headway Shipping made, or was in the position to make, a profit for itself and, so, Messrs Sridhar and Bangad, from the performance of those charters.
57 Mr Sridhar and Mr Bangad used their positions to benefit Headway Shipping and divert from the Suzlon parties the opportunity of profiting from charterparties for which Suzlon Infrastructure bore the commercial risk so that the Headway companies could exploit the charters for profit without accounting to the Suzlon parties. They did not make any full and frank, or any, disclosure to, or receive the fully informed consent of, the Suzlon parties for the nomination of Headway Shipping as charterer of S Fighter or the other ships in respect of the charterparties of which one of the Suzlon parties was guarantor.
58 For example, on 8 March 2007, Suzlon Infrastructure had entered into a three year time charter of Beluga Fusion. In about August 2008, Messrs Sridhar and Bangad negotiated with her disponent owner, Beluga Chartering, to terminate that time charter and replace it with a time charter to Headway Shipping guaranteed by Suzlon Infrastructure. On 28 August 2008, that arrangement came about and Headway Shipping time chartered Beluga Fusion for the balance of the original three year fixture, with Suzlon Infrastructure guaranteeing Headway Shipping’s performance. Self-evidently, there was no bona fide commercial purpose for Suzlon Infrastructure in it, first, terminating the time charter and then, secondly, entering into a guarantee of a charter of the same ship for the balance of a term of the cancelled charter by Headway Shipping, an apparently independent third party. This was another plain fraud on Suzlon Infrastructure and illustrative of the resourceful duplicity of Messrs Sridhar and Bangad.
59 On 3 November 2008, very soon after these proceedings commenced, an Indian resident Bhoumik Sanghvi, Headway Shipping’s vice-president chartering and freight, made an affidavit that gave an account of the S Fighter sub-charter and other charterparties referred to in [57] above. He asserted that Headway Shipping was independent of the Suzlon parties. Mr Sanghvi asserted (when the Suzlon parties had only sued Mr Bangad and were unaware that Mr Sridhar was also involved in the frauds) that Mr Bangad had never worked for Headway Shipping. Mr Sanghvi’s affidavit demonstrated that Headway Shipping sub-chartered S Fighter and other ships to third parties to make the return voyages after delivery of Suzlon cargoes on the voyages outbound from India.
60 Mr Sridhar made an affidavit for the Suzlon parties on 2 December 2008. That was before his role in the frauds was exposed and while he was still a senior executive of Suzlon Energy. In that affidavit, Mr Sridhar falsely asserted that Mr Bangad had misled him about dealings with the Headway companies. Mr Sridhar said that he would not have approved those dealings if he had not “believed Headway as an arms-length and independent company. I was [sic] also not said fine if I was knowing the Headway [sic] was an entity of Mr Bangad”. Mr Sridhar also asserted that Mr Bangad never informed him that he was:
“taking the Beluga Fusion or the S Fighter off charter from Suzlon Infrastructure and to [sic] provide the vessels to Headway. I would not have agreed to Mr Bangad taking the Suzlon hired ships and providing them to Headway under the Headway freight agreement”.
61 Mr Sridhar also said that the nomination power in the charterparty for S Fighter and the guarantees executed on behalf of Suzlon Infrastructure of the Headway companies’ charters were contrary to the Suzlon parties’ policies that such dealings had to be approved by the board of directors. He acknowledged that neither he nor Mr Bangad had authority to sign guarantees or indemnities on behalf of the Suzlon parties. Tellingly, Mr Sridhar said in his 2 December 2008 affidavit:
“in my opinion there is no reason why Headway should be using a vessel which Suzlon has chartered and I would not have given the permission to Mr Bangad to do so without seeking reasons, if any.”
62 He asserted that he believed that Mr Bangad had incorporated SS Oceanwind in Singapore on behalf of the Suzlon parties and that “I regard that any shares in my name as held on trust for Suzlon”. Mr Sridhar added:
“I was not aware that Mr Bangad had personally been benefited from any operations in logistics department and I would not have knowingly approved payments from Suzlon or in relation to Suzlon shipping activities to Mr Bangad or entities controlled by Mr Bangad.”
63 Those acknowledgements by Mr Sridhar of the ordinary incidents of a senior employee’s fiduciary obligations and his or her duties of loyalty, honesty and full disclosure reinforce, first, the existence of the obligations and duties that the Suzlon parties have established that he owed them and, secondly, the venality of his and Mr Bangad’s breaches of those obligations and duties. Subsequently, Mr Sridhar made two affidavits in support of his application for a stay of the proceedings against him. In his affidavit of 19 March 2012, he affirmed:
“42. As a general response to the allegations made against me in these proceedings, I say that throughout the period of my employment by Suzlon, I acted on instructions from those senior to me within Suzlon and at all times in the interests of and for the benefit of Suzlon and not for my own personal gain or at the expense of the legitimate business interests of Suzlon.” (emphasis added)
64 When the significance of that admission in relation to the ownership of the moneys and assets in the accounts with the 3 Swiss banks was raised in the course of argument on 31 October 2012, Mr Sridhar affirmed an explanatory affidavit on 31 October 2012, saying that he had acted on instructions variously from Mr Tanti, Mr Horbach and Mr van Megen. But he said that, as to the latter two, “I would not report to him details such as the contractual counterpart who was providing shipping services (e.g. Beluga, Headway), as we did not discuss matters in this level of detail”. He did not descend to detail any conversation with any of those three men that justified any of his conduct complained of.
65 Mr Tanti affirmed an affidavit in reply that Mr Sridhar never answered. Mr Tanti referred to Mr Sridhar’s obligations under the code of ethics. Mr Tanti said that Mr Sridhar made no mention, of which he (Mr Tanti) was aware, of any information concerning Mr Sridhar’s interest in any third party charterer, including the Headway companies, or of the fact that Mr Bangad was executing guarantees of Headway’s charters on behalf of Suzlon Infrastructure. I accept Mr Tanti’s evidence.
66 The overall transactions for S Fighter and Beluga Fusion thus involved Suzlon Infrastructure sub-chartering the ship at cost and its own risk to an apparently arms-length company, Headway Shipping. No commercial explanation appeared in the evidence for the terms of either sub-charter, that left Suzlon Infrastructure at risk, for no reward, in respect of the performance of any non-Suzlon entity under it including Headway Shipping as its nominee. The same applies to the other charters made by the Headway companies for which Suzlon Infrastructure was guarantor.
67 The conduct of Messrs Sridhar and Bangad in arranging the charters of the various ships to the Headway companies and the guarantees of them given by Suzlon Infrastructure was in breach of their fiduciary duties to the Suzlon parties. That conduct diverted from the Suzlon parties the business opportunities presented, and any profits earned, by the charters while at the same time exposing Suzlon Infrastructure to potential loss under its guarantees. To the extent that the ships carried cargoes for the Suzlon parties, they lost the opportunity of fixing the charter of, or carriage of cargo on, each ship on better terms.
SE Shipping’s lost profits diverted to the Headway companies
68 The Suzlon parties contended that SE Shipping should have conducted 9 voyages that the Headway companies undertook and for which they charged one or more Suzlon companies. Mr Sanghvi made calculations as to the income and expenses of the Headway companies in performing the charterparties guaranteed by Suzlon Infrastructure for those 9 voyages.
69 Mr Bansal subsequently used those calculations and made adjustments to them. Mr Bansal used known bunker costs, port charges and ship speeds as specified in the charterparties, pilotage and other disbursements to arrive at a net lost profit figure for each voyage. Mr Bansal calculated the lost profit of SE Shipping based on the actual amounts charged for freight by the Headway companies on those 9 voyages, taking account of the charter hire and expenses of conducting each such voyage. That net profit calculation represented what SE Shipping would have earned from the counterpart Suzlon group company shipper, as opposed to the net profit that was diverted to one or other Headway company by the fraud. Mr Bansal assessed the lost profit to SE Shipping as USD8,146,907.71, as set out below:
|
Pre-June 2008 Voyages |
USD |
|
S Fighter Beluga Resolution SCL Thun |
1,695,684.50 1,250,043.00 1,602,877.00 |
|
Subtotal |
4,548,604.50 |
|
Post June 2008 Voyages |
|
|
S Fighter Beluga Revolution Beluga Foresight Beluga Fantastic Margaretha Green |
991,165.89 316,125.40 450,391.24 421,420.34 421,420.34 997,780.00 |
|
Subtotal |
3,598,303.21 |
|
TOTAL |
8,146,907.71 |
70 I accept that method of calculation and its outcome as reasonable. Had the Headway companies not been interposed by Messrs Sridhar and Bangad, not less than the net amount of about USD8.15 million would have been earned by SE Shipping performing those charters and, accordingly, that amount would have remained within the Suzlon parties.
71 Of course, that calculation did not take account of the profit or loss that was, or would have been, realised on the return voyages of the chartered ships, but that profit or loss is known only to Messrs Sridhar and Bangad. I see no reason to discount the loss of profit claimed by SE Shipping by making an assumption, for which there is no evidence, that the return voyages did or would have resulted in losses. Indeed, I consider that it is likely that the net profits (and hence, loss to the Suzlon parties) would have been greater because of the freights that the ships would have earned from third parties on their return voyages. There are significant sums for freight of this character in the shipbroker statements of account to which I have referred.
The Suzlon parties’ damages flowing from the interpleader and settlement with the Headway parties
72 In late 2008, the Suzlon parties incurred AUD100,966.07 in storage costs and associated expenses of the marshal that they had to pay to the Court as a result of the interpleader by Beluga Fantastic that initiated these proceedings.
73 On 26 March 2009, the Suzlon parties paid USD600,000 to the Headway companies and USD50,000 to Capt Malhotra in settlement of the Headway companies’ claim of USD12,900,000 in respect of unpaid freight that I had noted in Beluga (No 2) 251 ALR 620. This settlement occurred at a time that the Suzlon parties had only sued Mr Bangad. Mr Sridhar had been suspended on 5 December 2008. The Suzlon parties had only come to suspect Mr Sridhar as being involved on about 20 March 2009 (Suzlon [2009] FCA 1020 at [14]). Thus, although they knew that Mr Bangad was significantly involved with them, the Suzlon parties entered the settlement with the Headway companies without appreciating the full extent of the Headway companies’ involvement as an alter ego of Mr Sridhar.
What remedies should be granted?
74 A person comes under a fiduciary obligation if he or she has undertaken or agreed to act for, on behalf of, or in the interests of another in the exercise of a power or discretion that would affect the other’s interests in a legal or practical sense: John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 at 34-35 [87] per French CJ, Gummow, Hayne, Heydon and Kiefel JJ. Where money is stolen by a person in a fiduciary position, the true owner has a proprietary remedy in equity, based on a trust, over the money, including against a volunteer who has received it from the thief: Black v S. Freedman & Co (1910) 12 CLR 105 at 108-109 per Griffith CJ, with whom Barton and O’Connor JJ agreed; Creak v James Moore & Son Pty Ltd (1912) 15 CLR 426 at 432 per Griffith CJ.
75 An employee who receives a bribe or secret commission, thereupon becomes an equitable debtor to his or her employer for the amount of the benefit received: Ardlethan Options Ltd v Easdown (1915) 20 CLR 285 at 292 per Isaacs J, with whom Powers J and, in separate reasons, Gavan-Duffy J agreed. The bribe or secret commission is both an unauthorised benefit and the product of an opposition between the employee’s fiduciary obligation not to put himself or herself into a position of conflict: Pilmer 207 CLR at 196-197 [70]-[72]. The employer’s remedies are not confined to the equitable debt, but ordinarily will attract the discretionary imposition of a constructive trust over, or an obligation to account in specie for, the proceeds of the breach of the fiduciary obligation or the property into which it has been converted, as Finn, Stone and Perram JJ explained in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at 422 [582], 431 [618]. However, a constructive trust ought not be imposed if other orders are available that are capable of doing full justice: John Alexander’s Clubs 241 CLR at 45 [128].
76 The actions of the eight defendants have resulted in very large sums of money being, in effect, stolen from one or more of the Suzlon parties. That occurred by the fraudulent conduct of Messrs Sridhar and Bangad. And, Mr Kummar caused MIT to transfer to BIP Suzlon Infrastructure’s USD1,000,000 in breach of his fiduciary obligations. Each of them was in breach of his fiduciary obligations owed to Suzlon Energy, and to the extent that each of those men dealt with money of other Suzlon parties, they also stood in a fiduciary position to that party. That was because, in acting on behalf of that Suzlon party in the relevant transaction, the one or more of Messrs Sridhar, Bangad and Kummar who participated became its fiduciary by reason of his employment with Suzlon Energy and, where relevant, its relationship in dealing, or placing him in the position of dealing, with the money and property of the other Suzlon party.
77 Here, one or more of the 8 defendants has failed to account to the Suzlon parties for, or return to them, the moneys that first, Mr Sridhar gained as secret commissions from the Suzlon parties’ suppliers, and secondly, each of Messrs Sridhar, Bangad and Kummar gained from the Suzlon parties by the frauds that I have summarised in [48], [67], [69], [72] and [73] above.
78 There is no suggestion that any of the corporate 8 defendants or “Rodney Marsh”, the alias of Mr Sridhar, gave any consideration for any of the very large sums it or he received to which I have referred earlier in these reasons. To the extent that each of SS Oceanwind, Genus, Bluewind BIP, STS and “Rodney Marsh” received any of those moneys, on the evidence, they did so as volunteers and hold the money in the bank accounts in their names on resulting trust: Black 12 CLR at 108-109; Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 at 363-364 per Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ.
79 Moreover, there is no effective remedy other than the imposition of a constructive trust in favour of Suzlon Energy over the accounts in the 3 Swiss banks to which I have referred in [50]. I am satisfied, on the substantial evidence of their fraudulent and dishonest conduct that is before me, that the credit balances of the above accounts in the 3 Swiss banks should be held by the account holder on constructive trust for Suzlon Energy as the employer of each of Messrs Sridhar and Bangad.
Conclusion
80 It is clear that the Suzlon parties have not been able to perform a full or comprehensive examination of the amounts that Messrs Sridhar and Bangad and the companies they controlled obtained by their frauds and the breaches of their fiduciary obligations and other duties owed to Suzlon Energy and the other Suzlon parties. In summary, I have found that the 8 defendants are liable as follows:
(1) Mr Sridhar and STS are liable to Suzlon Energy for USD4,887,060 and 10,712,978 as secret commissions received by them (see [26] above) and BIP is liable to Suzlon Energy for 2,000,000 that it received from those moneys (see [24] above).
(2) Mr Kummar is liable to Suzlon Energy for USD1,000,000 in respect of his direction to MIT to transfer that sum to BIP on 1 October 2007 and BIP, Mr Sridhar and Mr Bangad are liable to Suzlon Energy for 3,027,291 (including the USD1,000,000 also payable by Mr Kummar referred to [35]–[36] above) in respect of remittances to BIP (see [34], [38] above).
(3) Bluewind, Mr Sridhar and Mr Bangad are liable to Suzlon Energy in the sum of 2,000,000 in respect of the remittances to Bluewind from the MIT account (see [37] above).
(4) Genus, Mr Sridhar and Mr Bangad are liable to Suzlon Infrastructure in the sum of USD1,379,000 (see [41]-[43], [48] above).
(5) STS, Mr Sridhar and Mr Bangad are liable to Suzlon Infrastructure in the sum of USD1,000,000 (see [39] above).
(6) Mr Sridhar and Mr Bangad are liable to Suzlon Energy in the sums of USD605,000 (see [48] above) and USD1,126,089 (see [40] above).
(7) Mr Sridhar and Mr Bangad are liable to Suzlon Infrastructure in the sum of USD339,166.29 (see [46] above).
(8) Mr Sridhar and Mr Bangad are liable to SE Shipping for USD8,146,907.71 representing its lost profits (see [70] above).
(9) Mr Sridhar and Mr Bangad are liable to Suzlon Energy for the marshal’s and other costs and expenses associated with the interpleader in the sum of AUD100,966.07 and in the sum of USD650,000 for the amounts paid to the Headway companies and Capt Malhotra to settle their claims (see [73]-[74] above).
(10) each of Bluewind, STS, BIP, Manning (personally and in its capacity as trustee of the MSRS trust) and Mr Sridhar (including in respect of moneys held in the name of Rodney Marsh) is liable to Suzlon Energy in respect of all moneys standing to the credit of each account in its or his name with each of the 3 Swiss banks.
81 I will also make orders declaring that each of the accounts with each of the 3 Swiss banks is held by the respective account holder on constructive trust for Suzlon Energy absolutely and that the 8 defendants pay the Suzlon parties’ costs of the proceedings.
82 Interest will be payable on any amount in Australian dollars as calculated in accordance with practice note CM16. However, the Suzlon parties will need to establish by evidence what rates of interest should be used for amounts in United States dollars and Euros given the significant differences in interest rates for those currencies as compared with Australian dollars over the period of the frauds.
83 I will direct the Suzlon parties to prepare draft orders to give effect to these reasons.
|
I certify that the preceding eighty-three (83) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. |
Associate:
SCHEDULE
SECOND CROSS CLAIM
NSD 1670 of 2008
BETWEEN:
SUZLON ENERGY LTD
First Second Cross Claimant
SUZLON ENERGY AUSTRALIA PTY LTD
Second Second Cross Claimant
SUZLON INFRASTRUCTURE LIMITED (NOW KNOWN AS ASPEN INFRASTRUCTURES LIMITED)
Third Second Cross Claimant
SUZLON WIND ENERGY CORPORATION, USA
Fourth Second Cross Claimant
SUZLON STRUCTURES LTD
Fifth Second Cross Claimant
SE SHIPPING PTE LIMITED
Sixth Second Cross Claimant
AND:
SANJEEV BANGAD
Third Second Cross Defendant
SS OCEANWIND PTE LIMITED
Fifth Second Cross Defendant
GENUS SHIPPING SERVICES PVT LIMITED
Sixth Second Cross Defendant
RAJAGOPALAN SRIDHAR
Seventh Second Cross Defendant
BLUEWIND ENTERPRISES (UK) LTD
Eighth Second Cross Defendant
SUNSHINE TRADE SERVICES LIMITED
Ninth Second Cross Defendant
S RAAM KUMAR
Tenth Second Cross Defendant
BIP HOLDINGS LIMITED (BC# 1419807)
Eleventh Second Cross Defendant
MANNING LIMITED (BAHAMAS COMPANY NO 156337)
Twelfth Second Cross Defendant
FRANKFURTER BANKGESELLSCHAFT (SCHWEIZ) AG (A SWISS COMPANY)
Thirteenth Second Cross Defendant
MERRILL LYNCH BANK (SUISSE) SA (A SWISS COMPANY)
Fourteenth Second Cross Defendant
CREDIT SUISSE AG (A SWISS COMPANY)
Fifteenth Second Cross Defendant
