Federal Court of Australia

Securities and Exchange Board of India v MiiResorts Group 1 Pty Ltd (No 2) [2021] FCA 1646

ORDERS

THE COURT ORDERS THAT:

1.    The interlocutory application dated 30 November 2021 be dismissed.

2.    Order 6 made on 3 June 2020 be varied such that if, on or by 21 December 2022, an affidavit is not filed by the solicitors for the applicant deposing to the complete distribution of the Residual Fund then, subject to further order, the Bond Amount be forfeited to the Court.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(Delivered ex tempore, revised from the transcript)

LEE J:

A    INTRODUCTION AND BACKGROUND

1    This judgment assumes a familiarity with my earlier judgments, including Kadam v MiiResorts Group 1 Pty Limited (No 5) [2018] FCA 1086; (2018) 129 ACSR 74 (principal judgment) and Securities and Exchange Board of India v MiiResorts Group 1 Pty Ltd [2020] FCA 824.

2    In short, 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 who have not been repaid the whole of the amount invested by them (Investors). In my first judgment (at 112 [149]), I also invited submissions as to a proposed scheme that would maximise the return to investors in the most efficient way of the amount contained in the Fund.

3    After some argument, I was persuaded not to adopt a means by which the Fund would be administered in Australia by either a receiver or referee to supervise the distribution of funds working in parallel to, but not as part of, the work of the committee constituted by the Securities and Exchange Board of India (SEBI) under the Honourable Mr Justice RM Lodha (Lodha Committee). This is because an undertaking had been given that only $1.5 million would be expended on administration and legal costs, and I was persuaded that the Fund would be distributed in some efficient way by the Lodha Committee.

4    I further noted that the Court would not usually make an order or accept an undertaking if there was an inability for that order or undertaking to be enforced, and noted that the type of security that has historically been given to support undertakings is a form of conditional bond, which is forfeited in the circumstances where the condition of the bond fails. Thus, in order to avoid imposing a duty of imperfect obligation, I decided it was appropriate to “hold back” the sum of $1.5 million (Bond Amount) to secure compliance with the undertaking until the balance of the funds had been distributed to Investors (save for a modest amount relating to costs).

5    Relevantly, I also made an order in the following terms:

4.     Within 18 months of this Order, the solicitors for the applicants are to file an affidavit as to the distribution of the Residual Fund in accordance with the undertaking provided pursuant to Order 2 above.

6    The evidence discloses that, notwithstanding almost 18 months has passed since the date of my orders, only around 65 per cent of the funds have been distributed.

B    THE INTERLOCUTORY APPLICATION

7    The interlocutory application before me today is essentially that I should abandon the course of holding security, send the $1.5 million to the SEBI account and dismiss the proceeding, thus preventing any residual control by way of security for the undertaking that had been given. I am wholly unpersuaded that this an appropriate course to adopt.

8    An alternative regime is proposed which, in effect, provides a further 18 months for the residual funds to be distributed. An affidavit of Mr Prescott, solicitor for SEBI, was filed in support of the interlocutory application. It is lengthy, deposes to a whole host of deficiencies at a very high level of generality, and points to delays partly occasioned by the COVID-19 pandemic. The suggestion that a further 18 months (that is, three years since the amounts were transferred to India) should be allowed for distribution of these monies to the economically disadvantaged persons who invested in this Ponzi scheme is not one that I am prepared to consider.

9    There must be steps that can be taken in India to arrange for these funds to be distributed as soon as is practicable, even if that involves, with respect to the Lodha Committee, thinking of other ways in which the verification process may be speeded up.

10    I raised with the solicitor acting for SEBI why the Bond Amount should not be forfeited now to the Commonwealth of Australia. He pointed to the fact that it appeared the solicitors for SEBI believed that the bond was security for the distribution of the quantum of the funds and did not relate to the time during which that course was to be completed. That was certainly not my intention in making the orders on 3 June 2021, including order 4, but I do not for a moment question that this view was genuinely held.

11    For these reasons, and the fact that the $1.5 million is probably better directed to the persons who suffered loss in India rather than the Commonwealth of Australia, I would not forfeit the Bond Amount today. Having said that, if the amount is not distributed within the next 12 months, then I will consider that the condition attaching to the bond has failed and that it will be necessary for the Court to consider what steps it should take in relation to the Bond Amount.

C    CONCLUSION AND ORDERS

12    The only orders I will make are as follows:

(1)    The interlocutory application dated 30 November 2021 be dismissed.

(2)    Order 6 made on 3 June 2020 be varied such that if, on or by 21 December 2022, an affidavit is not filed by the solicitors for the applicant deposing to the complete distribution of the Residual Fund then, subject to further order, the Bond Amount be forfeited to the Court.

Associate:

Dated:    24 December 2021