LAKSHMI ANIL SALGAOCAR suing as the Administratrix of the ESTATE OF ANIL VASSUDEVA SALGAOCAR, deceased & Anor v DARSAN JITENDRA JHAVERI & 13 Ors

Facts

Anil Vassudeva Salgaocar, whose family owned iron ore mines in India, sued his long-time friend Darsan Jitendra Jhaveri, a Hong Kong-based businessman, in Suit No 821 of 2015. After Mr Salgaocar died intestate on 1 January 2016, his widow Lakshmi Anil Salgaocar continued the suit as administratrix, alongside a second plaintiff, Winter Meadow Capital Inc. Eleven Singapore companies of which Mr Darsan was director and sole shareholder were also defendants, and Mr Darsan brought a third-party claim against Terence Kwan Ka Yu, who had worked on the iron ore sales.

The plaintiffs' case was that under an oral agreement in December 2003 Mr Darsan agreed to act as Mr Salgaocar's nominee shareholder and director in special purpose vehicles that Mr Salgaocar would fund and control. Six British Virgin Islands companies bought iron ore from Mr Salgaocar's companies and resold it to Chinese buyers, earning some US$690m between 2004 and 2012, and Singapore companies used the profits to buy vessels and property. The plaintiffs alleged that from 2011 Mr Darsan took control of these companies and moved money and assets to himself. Because of earlier caveat proceedings, the plaintiffs claimed only the shares in the companies, not their assets.

Mr Darsan denied any such agreement. He said the trading companies were his, that the two men ran a shipping venture under which Mr Salgaocar would underwrite his losses through a running account, and that any agreement was in any case illegal under Indian law. He counterclaimed for an account of the running account. Kannan Ramesh JAD heard the trial.

Issues

1. Whether the December 2003 agreement was made and created a valid express trust.
2. Whether the agreement and trust were unenforceable because they breached Indian law.
3. Whether Mr Darsan breached the trust.
4. Whether Mr Darsan could claim an indemnity or contribution from Mr Kwan.

Holding

The court allowed the claim in part. It declared that Mr Darsan and the corporate defendants held the shares in the companies, now ten surviving companies, on trust for the estate, and ordered an account on a wilful default basis, delivery up of the trust assets and their records, and an injunction against disposing of them, with damages to be assessed if no account is pursued. The corporate defendants were liable as constructive trustees to the extent they dealt with the trust assets. Mr Darsan's counterclaim and his third-party action were dismissed, as was Winter Meadow's claim. Costs were left for submissions.

Reasoning

Existence of the trust. The evidence of staff, a property agent and the documents showed that Mr Salgaocar made every significant decision for the trading companies and the Singapore companies, received daily reports, negotiated with Chinese buyers, chose and paid for properties and personally guaranteed a bank loan for a condominium development. Mr Darsan had little or no role. His account was not credible: he had no iron ore experience or Chinese buyer contacts, the credit risk he said he was taking on did not exist under the letter of credit arrangements, his story of an indemnity made little sense, and he transferred a shipping company to Mr Salgaocar in 2013 for nominal consideration. No shipping venture or running account existed. His transfers of assets back after Mr Salgaocar's 2014 demand also fitted a trust, although the settlement discussions themselves were privileged. Intention and subject matter were sufficiently certain, even though the assets came into existence later.

Indian law. The court preferred the plaintiffs' expert, whose tax expertise was greater. The benami, black money and anti-money laundering statutes did not apply, no breach of the income tax or customs legislation was proved, and under Vijay Karia v Prysmian Cavi E Sistemi S.R.L and others [2020] SCC Online SC 177 a rectifiable foreign exchange breach is not an illegality.

Breach. The reflective loss principle did not bar claims made as beneficiary rather than shareholder. Business ledgers were admitted despite Mr Darsan's objections. He was ordered to account for transfers of about US$270,372,938 from the trading companies, and was found to have shut Mr Salgaocar out and reorganised the companies, taken six condominium units and sold others, taken shares in two companies, altered accounts to redirect receivables to his own company, and moved vessels and equipment to companies he controlled. The claim of neglect of vessels was not proved.

Third party. The court found that the third-party action was brought to deter Mr Kwan from testifying. The disputed US$6.8m had been authorised, so Mr Kwan did not misappropriate it and Mr Darsan was not liable for it either.

From the judgment