Chalmers Holdings Ltd v Topaz Engineering Ltd

• Jurisdiction: Bermuda
• Judge: Hargun CJ
• Judgment Date: 28 April 2021
• Docket Number: CIVIL JURISDICTION
• Court: Supreme Court (Bermuda)

[2021] SC (Bda) 36 Civ

In The Supreme Court of Bermuda

Before:

Hon. Chief Justice Hargun CJ

CIVIL JURISDICTION

2019: No. 361

IN THE MATTER OF THE COMPANIES ACT 1981

AND IN THE MATTER OF TOPAZ ENGINEERING LIMITED

AND IN THE MATTER OF NICO INTERNATIONAL LIMITED

Between:

Chalmers Holdings Limited

Plaintiff

and

(1) Topaz Engineering Limited

(2) Nico International Limited

(3) Mr Mohan Kumar Durai Swami

(4) Mrs Ganga Chandran

(5) Mr Sandeep Uthran

Defendants

Appearances:

Mr. John McSweeney of Appleby (Bermuda) Limited, for the Plaintiff

Mr. Arthur Hodgson of Apex Law Group Ltd, for the 4 ^th and 5 ^th Defendants

Application to set aside a regularly obtained summary judgment; test to be applied upon the setting aside of a summary judgment; application for rectification of the share registers of Bermuda registered companies

Hargun CJ

Introduction

1 These proceedings commenced by Chalmers Holdings Limited (“ CHL” or “ the Company” or “ the Plaintiff”) relate to rectification of the share registers of Topaz Engineering Limited (“ Topaz” or “ the First Defendant”), its wholly owned subsidiary, and Nico International Limited (“ Nico International” or “ the Second Defendant”), wholly owned subsidiary of Topaz. Topaz and Nico International are joined as parties to these proceedings in a nominal capacity so that they can be bound by any order made by this Court.

2 By Order dated 4 December 2020 the Court entered summary judgment against Topaz, Nico International, Mr Mohan Kumar Durai Swami (“ Mr Swami” or “ the Third Defendant”), Mrs. Ganga Chandran (“ Mrs. Chandran” or “ the Fourth Defendant”) and Mr. Sandeep Uthran (“ Mr. Uthran” or “ the Fifth Defendant”) and declared that the following transfer of shares (“ the Transfers”) be set aside:

• (1) the transfer of 1,300 ordinary shares held by CHL in Topaz by way of a purported share transfer dated 14 September 2018 to Mr. Swami, was invalid and of no effect and be set aside;

• (2) the transfer of 7,700 ordinary shares held by CHL in Topaz by way of purported share transfer dated 14 September 2018 to Mrs. Chandran, was invalid and of no effect and be set aside;

• (3) the transfer of 1,000 ordinary shares held by CHL in Topaz by way of a purported share transfer dated 14 September 2018 to Mr. Uthran, was invalid and of no effect and be set aside;

• (4) the transfer of 1,300 ordinary shares held by Topaz in Nico International by way of purported share transfer dated 1 August 2019 To Mr. Swami, was invalid and of no effect and be set aside;

• (5) the transfer of 7,700 ordinary shares held by Topaz in Nico International by way of a purported share transfer dated 1 August 2019 two Mrs. Chandran, was invalid and of no effect and be set aside;

• (6) the transfer of 1,000 ordinary shares held by Topaz in Nico International by way of a purported share transfer dated 1 August 2019 to Mr. Uthran, was invalid and of no effect and be set aside;

• (7) the Register of Members of Topaz and Nico International be rectified pursuant to section 67 of the Companies Act 1981 to give effect to the above declarations.

3 By summons dated 4 January 2021, Mrs. Chandran and Mr. Uthran seek to set aside the summary judgment given by the Court on 4 December 2020. In relation to the application to set aside the parties rely upon the following affidavit evidence:

• (1) First Affidavit of Stuart Allan MacDonald Chalmers sworn on 8 September 2019;

• (2) First Affidavit of James Robert Alexander Chalmers filed with the Court with revenue stamps on 12 November 2020 in an unsworn but agreed form;

• (3) Second Affidavit of Stuart Allan MacDonald Chalmers sworn on 14 November 2019;

• (4) First Affidavit of Sandeep Uthran sworn on 28 January 2021; and

• (5) Second Affidavit of James Roberts Alexander Chalmers sworn on 16 February 2021.

Background

4 CHL is a company incorporated under the laws of the Isle of Man and is the parent company of the Chalmers group of companies (“ Chalmers Group”) which was founded by Mr. Stuart Chalmers in Dubai in 1977 as a small engineering company. The Chalmers Group is based in Dubai, United Arab Emirates, and now operates across the Arabian Gulf, and in other jurisdictions such as India and Korea. The Chalmers Group currently carries on business principally as providers of marine engineering and offshore outfitting services for the oil and gas industries. The Group currently has approximately 1,200 employees. Until the events in September/October 2018, Vallath Valeyundhran Chandran (“ Mr. Chandran”), husband of the Fourth Defendant, was the Chief Executive Officer of CHL, Mr. Swami (“ Mr. Swami”) the Chief Financial Officer of CHL and Mr. John Thomas was the Chief Operating Officer of CHL. Mr. Chandran and Mr. Swami were also shareholders of CHL.

5 In his First Affidavit sworn on the 8 September 2019 Mr. Stuart Chalmers advised that that Mr. Chandran was at that time incarcerated in Dubai Central Prison in relation to financial crimes, which he understood related to certain bounced cheques (a serious matter under UAE law). Mrs. Chalmers states that he believes that Mr. Chandran would have been in prison on or about 14 September 2018 when the purported Transfers took place.

6 Topaz is incorporated under the laws of Bermuda as an exempted company and since 12 March 2015, and until the 27 September 2018, Topaz had been a wholly owned subsidiary of CHL. The total issued share capital of Topaz is 10,000 ordinary shares. Mr. Chandran and Mr. Swami act as the directors of Topaz.

7 CHL's holding in Topaz is one of its principal assets. Topaz is a holding company for its local operational branches in the Arabian Gulf, including Nico International Dubai Branch and Nico International Abu Dhabi (together: “ Nico”). Nico is an industrial engineering company which has a number of high-value partnerships with the original equipment manufacturers within the engineering industry and, according to the First Affidavit of Stuart Chalmers, it is a profitable business and holds assets and contracts of value.

8 Following the Transfers, which form the subject of these proceedings, Topaz's shareholding comprised: Mr. Swami 1,300 shares; Mrs. Chandran 7,700 shares and Mr. Uthran 1000 shares.

9 Nico International is incorporated in Bermuda as an exempted company and is a wholly owned subsidiary of Topaz. The business known as Nico was purchased for US $18.5 million from Topaz Energy & Marine Ltd, a non-group company. Nico is one of the leading marine industrial engineering companies in the Gulf and has operated in the region for more than 46 years. HSBC Bank Middle East Limited provided Chalmers Group with funding for the purchase of Nico. By a loan facility dated July 2015, HSBC lent AED 55,087,500 to support the acquisition.

10 According to Mr. Stuart Chalmers, given the legal systems in the jurisdictions in which CHL conducts business, from time to time, it was necessary for the Company to grant a Power of Attorney to certain individuals who manage the Company on a daily basis in order to ensure the smooth and efficient running of the Company's operations. For instance, he advises, when doing business in the UAE, it is necessary for the agent of a company to show that they have the authority to enter into contracts. Other entities in the Chalmers Group also granted similar Powers of Attorneys to certain directors. Accordingly, on 14 December 2011, CHL granted a Power of Attorney to Mr. Chandran to act in this way.

11 It is Mr. Stuart Chalmers' evidence that unbeknown to him, on or around 12 September 2018, Mr. Chandran, in association with Mr. Swami, took steps to transfer all of CHL's 10,000 ordinary shares in Topaz to Mr. Swami, Mrs. Chandran, his wife, and Mr. Uthran, his son-in-law. Mr. Chalmers signed the Transfers purportedly on behalf of CHL and Mr. Uthran's staff witnessed his signature. Mrs. Chandran and Mr. Uthran were never affiliated with nor did they ever hold an interest in CHL or any of its subsidiaries.

12 Mr. Stuart Chalmers contends that the above Transfers were made without first obtaining authorisation from CHL's Board of Directors. There was no Board resolution executed approving it. There was also no disclosure by Mr. Chandran of the clear and obvious conflict of interest that would arise from transferring such a substantial asset of CHL to his wife and son-in-law. Mr. Stuart Chalmers says that the entire transfer in this case was initiated and completed without his knowledge as a director of CHL. He says that he was not consulted as the largest shareholder of CHL with a 35.48% shareholding.

13 There is no share purchase agreement between the parties or similar document in CHL's records to evidence a bona fide sale.

14 Furthermore, Mr. Stuart Chalmers contends that, having instructed independent accountants to thoroughly review CHL's financial statements and records, CHL never received any consideration whatsoever for the Transfers. This was in respect of an asset purchased by CHL in 2015 for US $18.5 million, and which was the most profitable part of the Chalmers Group in 2018; a Group that overall was financially struggling. Mr. Stuart Chalmers believes that Mr. Chandran and Mr. Swami acted in a fraudulent and deceitful manner to take control of the more profitable part of the Chalmers Group.

15 On or about 1 August 2019, Topaz's shares in Nico International were likewise reported to have been transferred to Mr. Swami (1,300 shares), Mr. Chandran's wife (7,700 shares) and Mr. Chandran's son-in-law (1,000 shares) (“ Nico Transfers”).

The Pleaded case

16 CHL served its Originating Summons on 11 September 2019. By Order of the Court dated 14 November 2019, it was ordered that the proceedings continue “as if commenced by writ”, pursuant to Order 28, rule 8. The Statement of Claim was served on 21 November 2019, and the Third to Fifth Defendants' Defence was served on 13 December 2019. The...