FEDERAL COURT OF AUSTRALIA

Wollongong Coal Limited v Gujarat NRE India Pty Ltd [2015] FCA 221

THE COURT ORDERS THAT:

1.    The Creditor’s Statutory Demand for Payment of Debt dated 20 March 2014 served by the respondent upon the applicant on 24 March 2014 is set aside.

2.    The respondent is to pay the applicant’s costs as agreed or assessed.

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

REASONS FOR JUDGMENT

1    Wollongong Coal Limited (Wollongong Coal) is a publicly listed company which, as its name suggests, is involved in the business of mining coal in the Illawarra region of New South Wales. It was formally known as Gujarat NRE Coking Coal Limited. Until November 2013, it was a part of a large group of companies known as the Gujarat NRE Group, the parent company of which was an Indian company, Gujarat NRE Coke Limited (Gujarat NRE Coke). The Chairman and Managing Director of Gujarat NRE Coke, and the apparent controller of the Gujarat NRE Group, is Mr Arun Jagatramka.

2    On 20 March 2014, Gujarat NRE India Pty Ltd (Gujarat NRE India) caused a statutory demand (the Demand) to be served on Wollongong Coal, purportedly pursuant to s 459E of the Corporations Act 2001 (Cth) (the Act). The Demand claimed that Wollongong Coal owed Gujarat NRE India $6,570,398.06 (the Debt). The Debt was described in the Demand as arising from three loans made to Wollongong Coal in April and June 2013, less three repayments received in July and August 2013.

3    As its name suggests, Gujarat NRE India is a company in the Gujarat NRE Group. At the time the Debt was said to be incurred, Wollongong Coal was still a member of the Gujarat NRE Group and both Wollongong Coal and Gujarat NRE India were, it seems, effectively controlled by Mr Jagatramka.

4    On 11 April 2014, Wollongong Coal commenced these proceedings seeking an order that the Demand be set aside.

5    Wollongong Coal’s application to set aside the Demand has turned out to be regrettably complex, if not tortuous, particularly having regard to the evident purpose of the statutory scheme relating to statutory demands. That statutory scheme was plainly intended to simplify the procedures for statutory demands so that disputes in relation to the existence or amount of debts could be dealt with quickly and without undue technicality. As long ago as 2004, Finkelstein J queried whether the scheme had achieved its objective: Quadrant Constructions Pty Ltd v HSBC Bank Australia Ltd [2004] FCA 111 at [5]. This case demonstrates the prescience of his Honour’s observations.

6    Wollongong Coal’s grounds for setting aside the Demand have shifted and grown over time. In the circumstances more fully described later in these reasons, Wollongong Coal effectively abandoned some of its initial contentions relating to the existence of a dispute about the Debt and instead advanced many and varied contentions and arguments in support of its case that there was a genuine dispute about the Debt, or an offsetting claim against Gujurat NRE India. Some of the arguments or contentions put forward by Wollongong Coal could fairly be described as novel, if not ambitious, given the statutory context. New grounds concerning alleged defects in the Demand also emerged or were developed over time. Some of the alleged defects could also be fairly described as technical.

7     In all the circumstances, Gujarat NRE India’s description of Wollongong Coal’s challenge to the Demand as being “scatter-gun” is apt. More pejorative expressions could equally be used.

8    Wollongong Coal also filed voluminous evidence, consisting of multiple affidavits from a number of witnesses, together with bulky documentary exhibits. Much of the evidence turned out to be of doubtful relevance and admissibility and was, understandably, the subject of detailed objections. Wollongong Coal also attempted, ultimately unsuccessfully, to lead additional evidence at the hearing. Somewhat unusually, at least in the context of challenges to statutory demands, leave was sought and given to Gujarat NRE India to cross-examine two of Wollongong Coal’s witnesses, though ultimately only one witness was cross-examined. Cross-examination was considered to be warranted given the nature and scope of Wollongong Coal’s evidence and the existence of some documents (produced pursuant to a notice to produce) that were said to be inconsistent with the affidavit evidence of the witnesses.

9    Responsibility for the undue complexity and somewhat unsatisfactory state of the proceedings cannot, however, be sheeted-home entirely to Wollongong Coal. There can be little doubt that the facts and circumstances underlying the Debt and the Demand were unusually complex and convoluted. This may perhaps account for the length and complexity of some of Wollongong Coal’s evidence. It is fair to say, however, that many of the difficulties and complexities that ultimately arose in relation to this application emanated from the initial sparse description of the Debt in the Demand and Gujarat NRE India’s subsequent detailed explanation, in its evidence, of the genesis and nature of the Debt. The fairly obvious disjunct between the initial description of the Debt in the Demand, on the one hand, and the more expansive but convoluted, and in many respects strained or implausible, description of the origins and nature of the Debt in the evidence filed by Gujarat NRE India, on the other, resulted not only in voluminous further evidence from Wollongong Coal, but also a number of additional grounds of challenge to the Demand. Wollongong Coal’s additional evidence and grounds were met by further technical objections by Gujurat NRE India.

10    Given these complexities and difficulties, it must seriously be open to doubt whether it was ever appropriate to utilize the statutory demand procedures in the circumstances of this case. Certainly the proceedings were not, in all the circumstances, readily amenable to being dealt with expeditiously and without undue technicality.

11    In the end result, Wollongong Coal advanced ten reasons why the Demand should be set aside, though ultimately not all of these grounds were pressed, or at least pressed with any real vigour. As already indicated, some of the grounds relate to alleged defects in the Demand and verifying affidavit and rely on the power to set aside statutory demands in s 459J of the Act. Other grounds allege, in various different ways, that there is a genuine dispute about the existence of the Debt or an offsetting claim and rely on the power to set aside demands in s 459H of the Act. It is also contended that Gujarat NRE India’s reliance on the Demand constitutes, in all the circumstances, an abuse of process. Wollongong Coal’s written submissions ultimately extended to about forty pages and the submissions were accompanied by two lever-arch folders containing authorities supposedly relied on in support of the application. Gujurat NRE India’s written submissions in opposition were also detailed and lengthy.

Leave to Amend the Originating Process

12    Before turning to the substance and merits of the application, it is necessary to deal with a procedural issue that arose at the hearing concerning the originating process.

13    The originating process initially filed by Wollongong Coal specified that the application to set aside the Demand was made under s 459E, 459G and 459J of the Act. There was no reference to s 459H of the Act, being the power to set aside a statutory demand where there is a genuine dispute or offsetting claim. That would appear to have been an oversight. That is apparent from the fact that the detailed and voluminous affidavits filed together with the originating application contain evidence that could only be considered to be relevant to the claimed existence of a dispute about the Debt or an offsetting claim against Gujarat NRE India.

14    At the hearing of the application, Wollongong Coal sought to remedy this apparent oversight by seeking leave to file an amended originating process that specifically referred to s 459H of the Act. The proposed amended originating application also included an order, in the alternative to an order setting aside the Demand, that the Demand be varied to $5,411,872.06. That lesser figure apparently took into account the alleged offsetting claim.

15    The application for leave to amend was opposed by Gujarat NRE India. It submitted that leave should be refused because there was an absence of any explanation as to why the originating process as originally filed made no reference to s 459H. It was also submitted that the amendment was futile.

16    It is correct to say that there was no explanation for the need for the amendment. There plainly should have been. Nevertheless, in all the circumstances it was fairly obvious that the initial absence of any reference to s 459H was an oversight by Wollongong Coal’s lawyers. It must have been obvious to Gujarat NRE India from the affidavits initially filed in support of the originating process that Wollongong Coal was alleging a genuine dispute and offsetting claim. Wollongong Coal also put Gujarat NRE India on notice well before the hearing that it relied on s 459H, including by way of lengthy and detailed written submissions. Gujarat NRE India did not claim that it was prejudiced by the amendment. Nor could it realistically have made such a claim. It filed evidence that sought to meet Wollongong Coal’s case that there was a genuine dispute. The detailed written submissions filed by Gujarat NRE India also specifically addressed Wollongong Coal’s case based on an alleged genuine dispute.

17    As for the futility argument, at the time of the application for leave it was simply not possible to conclude that Wollongong Coal’s s 459H case was futile. The issues relating to the alleged debt were complex and the evidence voluminous. Whilst it may have been the case that Gujarat NRE India had a number of forceful arguments for why there was no genuine dispute, it did not follow that Wollongong Coal’s s 459H case, and therefore the amendment, was futile. As it turns out, the amendment was far from futile.

18    The Court has jurisdiction to permit an amendment which has the effect of adding a reference to relief under s 459H of the Act where the amendment brings the originating application into conformity with the contents of the supporting affidavits: Platinum Communications Pty Ltd v Computer Networks Pty Limited [2012] FCA 1260 at [20]. In all the circumstances, this was an appropriate case for the grant of such leave. Leave was accordingly granted.

The Demand and verifying affidavit

19    The Demand is dated 20 March 2014. It claims that Wollongong Coal owes Gujarat NRE India $6,570,398.06 “being the amount of the debt described in the Schedule”. The schedule in the Demand is in the following terms:

20    The affidavit that accompanied the Demand, as required by s 459E(3) of the Act, was affirmed by Mr Jagatramka. Critically, for the purposes of one of the grounds of challenge, it was affirmed in Kolkata in India on 19 March 2014, the day before the date of the Demand. As will be seen, Gujarat NRE India subsequently filed further evidence in an attempt to explain this apparent discrepancy, though this evidence was not filed until well after Wollongong Coal had commenced these proceedings. Like the Demand itself, Mr Jagatramka’s verifying affidavit described the alleged debt as “relating to monies loaned” by Gujarat NRE India to Wollongong Coal.

21    In his verifying affidavit, Mr Jagatramka deposes to the fact that he had “inspected the business records” of Gujarat NRE India in relation to Wollongong Coal’s “account” with Gujarat NRE India and that the Debt was due and payable. It is unclear exactly what business records Mr Jagatramka inspected. In a later affidavit affirmed by Mr Jagatramka and filed on behalf of Gujarat NRE India in answer to Wollongong Coal’s first tranche of evidence, Mr Jagatramka endeavours to explain how the Debt arose. He does not, however, exhibit or annex any document that could fairly be described as a contemporaneous business record of Gujarat NRE India in relation to Wollongong Coal’s supposed “account”. An affidavit sworn by Gujarat NRE India’s solicitor annexes a document described as a “General Ledger”, however the nature and provenance of that document is left entirely unexplained.

22    It should also be noted that there is nothing to suggest that the dollar figures referred to in the Demand are otherwise than in Australian dollars. As will be seen, later evidence from Mr Jagatramka suggests that the payments said to make up the loans were in US dollars. This apparent discrepancy was never explained.

Grounds of challenge to the Demand

23    It is possible to discern, in essence, six grounds of challenge to the Demand.

24    First, Wollongong Coal contends that there is a defect in the Demand because the verifying affidavit of Mr Jagatramka which accompanied the Demand predated the Demand. This defect is said to give rise to “some other reason” to set aside the Demand under s 459J(1)(b) of the Act.

25    Second, it is contended that there is a defect in the Demand because the description of the Debt in the Demand is inadequate, if not inaccurate or wrong. The nature of the alleged inadequacy or misdescription of the Debt is described later in these reasons. It is said that because of the defect, substantial injustice will be caused to Wollongong Coal unless the Demand is set aside. Alternatively, it is said that the misdescription provides “some other reason” why the Demand should be set aside under s 459J(1)(b) of the Act.

26    Third, Wollongong Coal submits that the Debt referred to in the Demand is not a “debt” for the purposes of s 459E of the Act. This challenge is not based on the description of the Debt in the Demand and the verifying affidavit as arising from a loan or loans. Rather, it is based on Mr Jagatramka’s subsequent explanation, in his later affidavit evidence, of the circumstances in which the alleged debt arose.

27    Fourth, Wollongong Coal contends that there is a genuine dispute about the existence of the Debt for the purposes of s 459H of the Act. The nature of the alleged dispute is put in various different ways. It is difficult to describe, let alone fully comprehend, all of the various different ways in which the dispute is put without first considering the evidence of both Wollongong Coal and Gujarat NRE India in relation to the Debt.

28    Fifth, it is contended that the Demand should be set aside because it is an abuse of process. The abuse is said to arise as a result of the conduct of Mr Jagatramka and an allegation by Wollongong Coal that, as a result of Mr Jagatramka’s actions, other companies in the Gujarat NRE Group owe significant amounts of money to Wollongong Coal.

29    Sixth, Wollongong Coal claims that it has an offsetting claim or claims. The offsetting claims are said to arise as a result of breaches of fiduciary duties by Mr Jagatramka and a claim of equitable set-off, apparently again based on the contention that other companies in the Gujarat NRE Group owe money to Wollongong Coal. At the hearing, Wollongong Coal ultimately appeared to acknowledge that these contentions were better considered as part of its case that there was a dispute concerning the existence of the Debt, rather than as supporting the existence of an offsetting claim or claims. This acknowledgement or concession perhaps flowed from its recognition of some of the difficulties that it faced in making out the alleged offsetting claims.

Wollongong Coal’s initial evidence

30    Wollongong Coal’s evidence comprised affidavits from three of its senior officers: Mr Jasbir Singh, a current director and chairman of the board; Mr Andrew Firek, a non-executive director; and Mr Sanjay Sharma, the chief commercial officer and company secretary. Mr Singh’s affidavits exhibited a large volume of documentary exhibits. Each of these officers ultimately swore two affidavits.

31    Wollongong Coal’s affidavits were filed in two tranches. The first tranche of affidavits, the initial supporting affidavits, were filed contemporaneously with the originating application and well within 21 days of the service of the Demand as required by s 459G(3) of the Act. The second tranche of affidavits was filed following the filing of affidavits in opposition to the application by Gujarat NRE India. These further affidavits were, or at least purported to be, either responsive to Gujarat NRE India’s evidence, or supplementary to the evidence and grounds disclosed in the original supporting affidavits.

32    Wollongong Coal’s initial affidavits were the subject of lengthy and detailed objections by Gujurat NRE India. A number of the objections were upheld at the hearing. Some of the objections, however, were on the basis of relevance only. Those objections were not determined at the hearing. The parts of the affidavits subject to relevance objections were provisionally admitted subject to relevance. It is neither necessary nor desirable to deal with the individual relevance objections in these reasons. Where these reasons refer to evidence, or facts established by evidence, it is self-evident that any relevance objection in relation to that particular evidence has been overruled and the evidence admitted.

33    Wollongong Coal’s evidence in its first tranche of affidavits, so far as it is relevant to this application, may be summarised as follows.

34    Wollongong Coal was, until November 2013, a company within the Gujarat NRE Group, a coke manufacturing enterprise based in Kolkata, India. Other companies in the Gujarat NRE Group include: the group’s parent company and principal trading company, the Indian stock exchange listed Gujarat NRE Coke; Gujarat NRE India, an Australian registered proprietary company; Gujarat NRE Limited, an unlisted Australian public company, and Wonga Coal Pty Ltd (Wonga Coal), an Australian subsidiary of Gujarat NRE Coke. Each of these companies continue to hold shares in Wollongong Coal.

35    Wollongong Coal ceased to be a part of the Gujarat NRE Group in November 2013 following a takeover of Wollongong Coal by the Jindal Group, a large steel manufacturing and power generation enterprise also based in India. The Jindal Group owns or controls almost 70% of the shares in Wollongong Coal. The Gujarat NRE Group continues to own or control about 20% of the shares in Wollongong Coal.

36    It is readily apparent that Mr Jagatramka is a powerful officer within the Gujarat NRE Group. He is the son of the founder of the group and is a key executive officer in many of the companies in the group, including those relevant to these proceedings. He is the chairman and managing director of Gujarat NRE Coke. At the time of the transactions or dealings said to give rise to the Debt, Mr Jagatramka was a director of Gujarat NRE India. The other directors during this period were Mr Jagatramka’s wife (Mrs Mona Jagatramka) and Mr Sharma.

37    Importantly, whilst Wollongong Coal was a member of the Gujarat NRE Group, including when the relevant transactions and dealings between Wollongong Coal and Gujarat NRE India occurred in mid to late 2013, Mr Jagatramka was also the executive chairman of Wollongong Coal. His executive functions ceased in late October 2013, though he remained a director of Wollongong Coal until February 2014. At the time of the relevant transactions, the other directors of Wollongong Coal were Mrs Jagatramka, Mr Firek and Mr Maurice Anghie. Mr Singh was appointed a director of Wollongong Coal on 29 July 2013. He was appointed a chairman of the board on 27 October 2013.

38    The evidence of Mr Firek is that he was not made aware of any of the three alleged loans from Gujarat NRE India to Wollongong Coal that are said to constitute or make up the Debt described in the Demand. There is also evidence that Mr Anghie had no knowledge of or involvement in the alleged borrowings. As directors of Wollongong Coal, Mr Firek and Mr Anghie were not invited to consider the merits of any such loans or borrowings, or to participate in any discussions with other directors concerning them. They neither approved nor saw or signed any circular resolution of the directors approving any such loans. In the period during which the alleged loans and repayments described in the Demand were purportedly made, there were a number of board meetings. None of the minutes of the board meetings make any reference or allusion to the alleged loans and repayments.

39    Mr Singh first became aware of the payments alleged to constitute the loans in October 2013, presumably after he was appointed chairman. Upon becoming aware of the payments, Mr Singh caused a search of the books and records of Wollongong Coal to be conducted. This search did not locate any document or documents recording or evidencing the making or terms of any loan by Gujarat NRE India to Wollongong Coal. The only documents located by Mr Singh that appear to evidence the making of the payments said to constitute the loans are bank statements. Bank statements of Gujarat NRE Limited, Gujarat NRE India and Wollongong Coal appear to record that on 24 June 2013 “loan proceeds” of $9,506,000 were deposited into the account of Gujarat NRE Limited. On the same day, Gujarat NRE Limited transferred $7,962,974.88 to Gujarat NRE India, and Gujarat NRE India transferred the same amount to Wollongong Coal. These bank accounts all appear to be US dollar bank accounts. Mr Singh has not been able to locate any letters of instruction to the Gujarat NRE Group’s bank in relation to these payments.

40    Mr Singh’s evidence is that, as a result of his investigations in relation to these payments, he believes that the payments to Wollongong Coal were not approved or authorised by the directors of Wollongong Coal, that Mr Jagatramka unilaterally effected the payments, and that in doing so, Mr Jagatramka acted outside the scope of his authority. Mr Singh has been unable to determine why and on what terms or conditions the payments were made.

41    Wollongong Coal’s bank statements also contain evidence of other significant transfers of money between Wollongong Coal and other companies in the Gujarat NRE Group. Perhaps most significantly, in September and October 2013, it appears that amounts of US$7,550,000, US$145,000 and US$1,382,910 were transferred from Wollongong Coal’s bank account to the bank account of Gujarat NRE Coke.

42    It is unclear whether these payments were associated in any way with the payments the subject of the Demand. As with the earlier payments that are said to make up the Debt, it does not appear that there were any board discussions or resolutions concerning these payments. Mr Firek never approved these payments, or participated in any discussions with the other directors concerning them. Nor did he authorise Mr Jagatramka to make them on behalf of Wollongong Coal. Mr Singh’s search of the books and records of Wollongong Coal has located the letters of instruction to its bank in relation to these payments. Each of them is signed by Mr Jagatramka and the company secretary, Mr Sharma. Mr Sharma’s evidence is that his signature on one of the documents is an electronic signature which was affixed without his authority. In any event, it is tolerably clear that Mr Sharma’s signature was affixed at the behest of, if not on the instructions of, Mr Jagatramka.

43    The potential relevance of these payments will become apparent in due course. Suffice it to say at this stage that Wollongong Coal submits that they reveal a pattern of breaches of duty by Mr Jagatramka involving the shifting money between members of the Gujurat NRE Group. These payments also provide the basis for some of Wollongong Coal’s asserted offsetting claims.

Gujarat NRE India’s evidence

44    Gujarat NRE India relies primarily on an affidavit from Mr Jagatramka dated 26 May 2014 to rebut Wollongong Coal’s claim that there is a genuine dispute concerning the Debt. Mr Jagatramka’s evidence in this affidavit is unsatisfactory in a number of significant respects.

45    In summary, in his affidavit Mr Jagatramka seeks to characterise the Debt as arising from underwriting arrangements relating to a rights issue by Wollongong Coal in May 2013. Much of his evidence amounts to nothing more than bare assertion or argument. To the extent that Mr Jagatramka’s assertions are supported by contemporaneous business records, and even that is questionable, the documents tend to be self-serving documents (mainly emails) authored by Mr Jagatramka himself.

46    What appears to be clear from Mr Jagatramka’s evidence is that Wollongong Coal (at a time when it was still known as Gujarat NRE Coking Coal Ltd and was still a part of the Gujarat NRE Group) entered into an underwriting agreement with Wonga Coal in relation to the rights issue. The date of the execution of the underwriting agreement is unclear, but the agreement itself bears the printed date “May 2013”. The agreement is executed by Mr Jagatramka both as a director of Wollongong Coal and as a director of Wonga Coal. Under the terms of the underwriting agreement, Wonga Coal is required to underwrite Wollongong Coal’s rights offer of one new share for every four shares to raise approximately $68,806,934. If there was a shortfall, Wonga Coal was obliged to subscribe for any shortfall shares up to the underwritten amount of $44,023,758. The agreement provided that Wonga Coal could appoint sub-underwriters to sub-underwrite the offer at its own cost.

47    On 22 June 2013, Wonga Coal and Gujarat NRE India entered into a sub-underwriting agreement. This agreement is evidenced by a letter signed by Mr Jagatramka, again as director of both companies. Under the terms of this agreement, Gujarat NRE India was obliged to commit to sub-underwrite up to 30% ($13,207,127) of any shortfall that Wonga Coal was obliged to take up under its underwriting agreement with Wollongong Coal.

48    The practical operation of these agreements was that if there was a substantial shortfall in relation to the rights issue, Wonga Coal was obliged to subscribe for up to $44,023,758 of shares in Wollongong Coal, but it could then look to Gujarat NRE India to subscribe and pay for $13,207,127 of those shares. Importantly, the terms of the sub-underwriting agreement required Gujarat NRE India to forward its share application and application monies in respect of the sub-underwritten shares to Wonga Coal. There is no provision in the agreement for the payment of any monies directly from Gujarat NRE India to Wollongong Coal in relation to the take up of any shares.

49    In his affidavit, Mr Jagatramka asserts that the payments of US$7,962,974.88 and $690,549.18 made by Gujarat NRE India to Wollongong Coal on 24 June 2013:

… were substantially the proceeds of a loan of USD$10 million from Axis Bank, which loan was advanced to Gujarat NRE Ltd, which in turn advanced the sum of USD$7,962,974.88 (AUD$8,653,524.06) to the Respondent [Gujarat NRE India]. The Respondent [Gujarat NRE India] used USD$7,962,974.88 to partially meet its sub-underwriting commitment in respect of the rights issue.

50    It is difficult to understand this assertion. If Gujarat NRE India had commitments under the sub-underwriting agreement, it was required to submit applications for the sub-underwritten shares to Wonga Coal and pay the subscription monies to Wonga Coal. There is no evidence, and certainly no documentation, indicating that either of these things ever occurred. Nor is there any evidence that Gujarat NRE India ever submitted applications for shares directly to Wollongong Coal. Under the terms of the underwriting and sub-underwriting agreements, Gujarat NRE India had no “sub-underwriting commitment” to pay US$7,962,974.88, or any other amount to Wollongong Coal. There is, in short, nothing beyond Mr Jagatramka’s bare assertion to connect the payment of US$7,962,974.88 in any way to Wollongong Coal’s rights issue.

51    In his affidavit, Mr Jagatramka then points to a minute of a meeting of the board of Wollongong Coal held on 3 July 2013 at which it is resolved (in Mr Jagatramka’s absence) to agree with Wonga Coal to terminate the underwriting agreement between Wonga Coal and Wollongong Coal. The meeting was attended by Mr Jagatramka, his wife, Mr Anghie, Mr Firek and Mr Sharma as company secretary. Mr Jagatramka and his wife are recorded as having excused themselves from the meeting when the resolution concerning the termination of the underwriting agreement was put to and passed by the directors. That is presumably because, as directors of Wonga Coal, they had a conflict of interest. The minute of the meeting is signed by Mr Jagatramka.

52    It should be noted that there is no reference in the minute to there being any discussion concerning the effect that this termination would have in respect of any sub-underwriting agreement. Indeed, there is no reference at all to any sub-underwriting agreement. Nor is there any reference to any money supposedly received by Wollongong Coal from Gujarat NRE India referrable to any sub-underwriting agreement, or the underwriting agreement or, indeed, the rights issue. The minute records no discussion concerning the effect that the termination would have in relation to any money received by Wollongong Coal pursuant to any underwriting or sub-underwriting arrangements.

53    In his affidavit, Mr Jagatramka then seeks to explain how the payment of US$7,962,974.88 constituted or could be characterised as a loan. He says as follows:

The Applicant [Wollongong Coal] terminated the underwriting agreement with Wonga Coal Pty Ltd by resolution passed at a board meeting held on 3 July 2013 … but failed to repay the monies advanced by the Respondent [Gujarat NRE India] under the sub-underwriting agreement (or the other sum paid on 24 June 2013 in respect of current liabilities) and did not issue shares to the Respondent [Gujarat NRE India] in consideration for the said monies. At that point, the monies became a debt due on demand from the Applicant [Wollongong Coal] to the Respondent [Gujarat NRE India]. That is, they became loan monies.

54    This paragraph of Mr Jagatramka’s affidavit was objected to by Wollongong Coal and rejected. The reasons for rejecting it are fairly obvious. It amounts to nothing more than bare argument or assertion. The paragraph was nevertheless put forward by Gujarat NRE India as a submission justifying the description of the alleged Debt as arising from a loan or loans. Gujarat NRE India never sought to resile from this characterisation of the Debt. Whilst the evidence was rejected, it is necessary to have regard to this attempted characterisation of the Debt to understand Wollongong Coal’s reply evidence and submissions concerning defects in the Demand and the dispute concerning the Debt.

55    Mr Jagatramka’s affidavit contains other responses to Wollongong Coal’s affidavits, most of which are argumentative or ultimately of no real relevance. In relation to the payments made by Wollongong Coal to Gujarat NRE Coke in September and October 2013, Mr Jagatramka’s evidence is that they were unrelated to the payments the subject of the Demand and did not give rise to any indebtedness on the part of Gujarat NRE Coke to Wollongong Coal. Rather, they were “commission payments made by [Wollongong Coal] to [Gujarat NRE Coke] in consideration of the corporate guarantees provided by [Gujarat NRE Coke] on behalf of [Wollongong Coal] to [Wollongong Coal’s] lenders for the various loans advanced to [Wollongong Coal] by those lenders.”

56    Perhaps more significantly, Mr Jagatramka’s affidavit refers to and annexes a letter from Wollongong Coal to Gujarat NRE Coke dated 21 February 2014. That letter refers to earlier letters between the two companies, though Mr Jagatramka does not annex those letters. The letter contains a demand that Gujarat NRE Coke pay Wollongong Coal $62,946,426. It includes a table which purports to explain how the amount demanded was calculated. There is reference in the table to a “Loan from Gujarat NRE India Pty Ltd [of] $6,570,400.”

57    This line item in the table in the 21 February letter is important. It is fair to say that Gujarat NRE India places considerable reliance on this part of the letter. It contends that it is an admission by Wollongong Coal of the indebtedness described in the Demand. It relies, in this respect, on the plea or claim of “account stated”: cf. Bank of New South Wales v Brown (As Official Liquidator of Tom The Cheap (WA) Proprietary Limited (In Liquidation) (1983) 151 CLR 514 (Brown) at 535-536. This admission or “account stated” is said to be entirely inconsistent with there being any genuine dispute concerning the Debt. Indeed, it is a fair inference that it was this reference to a loan from Gujarat NRE India in the letter dated 21 February 2014 that most likely prompted Gujarat NRE India to serve the statutory demand. It almost certainly explains why the Debt is described in the Demand as being the outstanding balance of a loan or loans.

58    To understand this part of the letter, however, it is necessary to read it in context and together with the other letters referred to in the 21 February letter. These earlier letters are addressed later in these reasons in the context of Wollongong Coal’s reply evidence.

59    Gujarat NRE India also led evidence to explain the circumstances that resulted in Mr Jagatramka’s verifying affidavit predating the Demand. This evidence is considered later in the context of the first ground of challenge to the Demand.

60    Finally, Gujurat NRE India tendered documents which were said to show that Wollongong Coal was insolvent or at least in a parlous financial state. These documents included Wollongong Coal’s Annual Report dated 31 March 2014 and its audit report dated 23 June 2014. These documents showed, amongst other things, that Wollongong Coal made substantial losses in the 2013 and 2014 financial years, that Wollongong Coal had been served with other statutory demands, that the directors’ statement of going concern was heavily qualified and that Wollongong Coal’s auditor had pointed to the existence of a material uncertainty which might cast doubt upon Wollongong Coal’s ability to continue as a going concern.

Wollongong Coal’s reply evidence

61    Wollongong Coal’s second tranche of affidavits was also met by extensive objections, including relevance objections. It is again unnecessary to deal in these reasons with the relevance objections. Importantly, however, a number of paragraphs in these affidavits were also objected to on the basis of the principle in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 (Graywinter). These objections were also deferred to be dealt with in the final judgment if necessary.

62    It is unnecessary to deal individually with these so-called Graywinter objections. The passages objected to on the basis of the Graywinter principle have been admitted into evidence on one of two bases. First, a large number of the passages are admissible and have been admitted on the basis that they supplement evidence in the initial supporting affidavits that went to the existence of a genuine dispute concerning the Debt. That evidence, in general terms, included evidence concerning the absence of documentation of the alleged loans, the fact that the directors or officers of Wollongong Coal had no knowledge of the making or approval of any such loans and the role and authority of Mr Jagatramka in relation to the making of the relevant payments. It was open to Wollongong Coal to supplement this material in later affidavits: Graywinter at 460.

63    Second, a number of the passages subject to Graywinter objections are admissible and have been admitted on the limited basis that they are relevant to Wollongong Coal’s challenge to the Demand based on the description of the Debt in the Demand. These passages are the ones that respond to Mr Jagatramka’s evidence seeking to characterise the Debt as arising from a supposed sub-underwriting commitment on the part of Gujarat NRE India. This issue was not addressed at all in the original supporting affidavits. On that basis, the evidence was prone to be excluded by operation of the Graywinter principle. The passages are admitted, however, because they tend to show the prejudice suffered by Wollongong Coal arising from the description of the Debt in the Demand as a loan or loans. This is more fully explained later in these reasons in the context of Wollongong Coal’s challenge to the Demand on the basis that it incorrectly or inadequately describes the alleged Debt.

64    The essence of Wollongong Coal’s evidence in reply is that, prior to receipt of Mr Jagatramka’s affidavit, none of Messrs Singh, Firek or Sharma were aware of the sub-underwriting agreement; or that Gujarat NRE India had paid, or claimed to have paid, any money to Wollongong Coal in connection with, or purported compliance with, any sub-underwriting agreement; or that Gujarat NRE India had subscribed for, or paid for, any shares issued by Wollongong Coal pursuant to the rights issue; or that Gujarat NRE India had ever sought or demanded repayment of $7,962,974.88 or any other amount on the basis that this amount (or any other amount) had been paid pursuant to the sub-underwriting agreement, but no shares had been issued.

65    This evidence raises, or at least is capable of raising, real issues concerning Mr Jagatramka’s and Gujarat NRE India’s attempted explanation of the genesis and basis of the Debt. At the relevant time, including at the meeting of directors of Wollongong Coal on 3 July 2013, Mr Firek was a director of Wollongong Coal and Mr Sharma was a company secretary of Wollongong Coal and a director and the company secretary of Gujarat NRE India. Mr Singh was appointed a director only weeks after the 3 July 2013 meeting. If, as claimed by Mr Jagatramka, US$7,962,974.88 was paid by Gujurat NRE India to Wollongong Coal in connection with the rights issue, it beggers belief that none of Messrs Firek, Sharma and Singh knew anything about it.

66    Following receipt of Mr Jagatramka’s affidavit, Mr Singh searched Wollongong Coal’s books and records and failed to find a single contemporaneous business record evidencing or even hinting at the fact that Gujarat NRE India had paid any monies to Wollongong Coal, let alone the sum of $7,962,974.88, in purported compliance with any sub-underwriting agreement, or in relation to the rights issue or the subscription for shares pursuant to it. Mr Singh notes that Wollongong Coal had established a dedicated rights issue account with the Commonwealth Bank to receive any monies referrable to the rights issue. If any monies were in fact paid by Gujarat NRE India to Wollongong Coal in relation to the rights issue, they should have been paid into that dedicated account, not Wollongong Coal’s general bank account.

67    Wollongong Coal’s reply or supplementary evidence traverses a number of other issues and subject matters which it is not necessary to consider in any detail. Both Mr Firek and Mr Sharma maintain that they were unaware that the payments made by Wollongong Coal to Gujarat NRE Coke in September and October 2013 had ever been characterised as payments in respect of commission for corporate guarantees as claimed by Mr Jagatramka. Mr Singh’s further affidavit deals with a series of further transactions or payments that he asserts Mr Jagatramka caused Wollongong Coal to enter into, but which he suspects were not in the best interests of the company.

68    More importantly, Mr Singh’s further affidavit evidence explains the context in which he prepared and sent the letter dated 21 February 2014 to Gujarat NRE India that has turned out to be central to Gujarat NRE India’s case. The starting point for Mr Singh’s explanation is a letter of demand that Wollongong Coal sent to Mr Jagatramka and other companies in the Gujarat NRE Group, including Gujarat NRE India, on 8 January 2014. The letter states as follows:

Gujarat NRE Coking Coal Limited (GNM) and its subsidiary Gujarat NRE Wonga Pty Ltd (GNWPL entered into offtake agreements with Gujarat NRE Coke Limited (Gujarat) for the supply of coal. Gujarat has paid for some but not all of the coal which was supplied by GNM and GNWPL.

In addition, GNM and GNWPL Ltd have provided certain financial accommodation to the following entities in the Gujarat group of companies:

(a)    Gujarat;

(b)    NRE Resources Pty Ltd;

(c)    Gujarat NRE Limited; and

(d)    Wonga Coal Pty Ltd,

(Gujarat Borrowers).

The table below sets out the total net amount outstanding which is due and owing to GNM from the Gujarat Borrowers as at 30 September 2013.

As set out in the above table, as at 30 September 2013 the total net amount outstanding which is owed by the Gujarat Borrowers to GNM is AUD$63,086,327 (Outstanding Amount). This amount has been entered in GNM’s audited half yearly financial report as at 30 September 2013 as a receivable amount.

It is evident, based on:

(a)    the ownership structure of the Gujarat Group;

(b)    the Gujarat Group’s previous control over GNM and its financial arrangements;

(c)    the provision of undocumented and uncommercial financial accommodation to the Gujarat Borrowers by GNM without shareholder approval; and

(d)    the characterisation of monies advanced by Gujarat NRE India Pty Ltd as a “loan” repayable by GNM rather than a repayment, in part, of moneys owing to GNM by the Gujarat Borrowers,

that Mr Jagatramka and Gujarat, as controllers of the Gujarat Group (and previously GNM) have structured the various transactions in a manner that is beneficial to the Gujarat Borrowers and other members of the Gujarat Group (particularly Gujarat NRE India Pty Ltd) and, in turn, detrimental to the interests of GNM, GNM shareholders and GNWPL.

The inescapable conclusion is that the above transactions have been structured for the purposes of providing loan funds (and other financial accommodation) to the Gujarat Borrowers for no corresponding benefit to GNM and in turn avoiding the repayment obligations of those Gujarat Borrowers; in particular, Gujarat. Consequently GNM reserves any and all respective rights it has against Mr Jagatramka and each member of the Gujarat Group arising from this conduct and in general.

The non-interested members of the Board of GNM have met and have resolved that the Outstanding Amount must be paid. GNM hereby demands from each member of the Gujarat Group the payment of the Outstanding Amount within 7 days from the date of this letter.

(Emphasis added)

69    In his affidavit, Mr Singh says the following in relation to his state of mind at the time he wrote the letter:

In point (d) on the third page of this letter, I deliberately described the transaction between the Applicant [Wollongong Coal] and the Respondent [Gujarat NRE India] as a “loan” because I did not regard it as a genuine commercial loan between the two companies. Mr Jagatramka was in a position to manipulate the affairs of the Applicant [Wollongong Coal] and the companies in the Gujarat Group at the time of that transaction with virtual impunity and in whatever manner he saw fit. As I saw it, the books and records of the companies were merely a reflection of what he wanted them to be, rather than an accurate representation of the genuine underlying commercial transactions, and that is still my view.

70    By letter dated 17 January 2014 on the letterhead of Gujarat NRE Coke Ltd, Mr Jagatramka responded to the letter dated 8 January 2014. It is perhaps fair to say, however, that Mr Jagatramka’s letter does not directly respond to or engage with many of the statements or allegations made in the 8 January letter. It addresses issues relating to a so called “off-take” claim, the corporate guarantees allegedly provided in favour of Wollongong Coal and an issue concerning the seizure of security provided by Gujarat NRE India. It concludes in the following terms:

Your letter serves only to confuse the basis for the various claims it appears your company makes. It is unclear as to the basis for individual claims and ignores legitimate issues raised by this company and the other addressees. It appears to take advantage of that confusion to provide a cover for further unilateral steps which are otherwise without legal justification.

The allegations made against me are therefore clearly without any foundation. Unless your company takes steps to clarify the basis of its stated claims and the parties against which they are made, this company must conclude that the purpose of the correspondence is an ulterior one.

This company requires your company to enter into dispute resolution discussions by way of a proper statement of dispute addressed to it as an individual within seven days. This company would expect that your company will adopt the same approach with each other of the addresses within the same time frame.

71    The letter dated 21 February 2014 relied on by Gujarat NRE India responded to Mr Jagatramka’s letter by rejecting the claims in that letter and reiterating the demand for payment by Gujarat NRE India of $62,946,426.

72    Gujarat NRE India sought and was granted leave to cross-examine Mr Singh. The cross-examination was primarily directed to two documents: a document that appeared to be some sort of accounting record that was produced by Wollongong Coal in answer to a notice to produce and tendered by Gujarat NRE India (Exhibit D1); and the Wollongong Coal letter dated 21 February 2014.

73    Mr Singh's evidence concerning Exhibit D1 was, in some respects, somewhat confused and confusing. That appeared to be, to at least some extent, a product of both the nature of the questioning and some apparent language difficulties. Exhibit D1 is a document headed “Consolidated Amount chasing [sic] from NRE Group as on 31.03.2014.” It is comprised of a table which appears to contain details of amounts apparently owed to Wollongong Coal by members of the Gujarat NRE Group and amounts apparently owed by Wollongong Coal to members of the Gujarat NRE Group. It shows a balance owing to Wollongong Coal “as per Audit Report 31.03.2014” of $67,602,335.31.

74    The table also includes brief particulars of the amounts recorded as owing to or owed by Wollongong Coal. The particulars of these amounts include “accounts receivable”, “debtor-intercompany advance”, “debtors-others” and “loan”. Not surprising, the cross-examination of Mr Singh focused on a single line item in the table that states “Debtors- Intercompany- GN India Pty Ltd” and the amount $6,570,400.28 in parentheses.

75    Mr Singh agreed that the document was an accounting record of Wollongong Coal and that it showed a loan account between Wollongong Coal and Gujarat NRE India, the balance of which was $6,570,400.28 in favour of Gujarat NRE India. Mr Singh's explanation of Exhibit D1 and the critical line item, however, is important. The thrust of his explanation was that the document was an internal document which recorded Wollongong Coal's accountant’s attempt to reconcile a series of payments between Wollongong Coal and companies in the Gujarat NRE Group made at a time when Wollongong Coal was still in the Gujarat NRE Group (and therefore under the control of Mr Jagatramka) and before the Jindal Group and Mr Singh took control. Referring to the critical line item, he said that because money had been received by Wollongong Coal it had to be accounted for in some way. In effect, what he was saying was that, to the extent that the payment was characterised in the document as part of a loan account (though the document does not in fact record it as such), the account was in effect a type of suspense account, which accounted for the payment in a particular way pending further investigation and confirmation.

76    Mr Singh vigorously maintained that both he and Wollongong Coal at all times disputed that the amount shown as owing to Gujarat NRE India in this document was ever a loan and pointed out that the payment recorded in the document could not be looked at in isolation. It was, he said, but one of many questionable payments made between Wollongong Coal and companies in the Gujarat NRE Group when Wollongong Coal was still part of that group. Mr Singh maintained that the overall effect of the payments was that other companies in the Gujarat NRE Group owed Wollongong Coal over $67 Million.

77    In many respects, Mr Singh's explanation of Exhibit D1 and the amount shown to be owing to Gujarat NRE India was similar to the explanation in his affidavit concerning the reference to this amount in the demand letters of 8 January 2014 and 21 February 2014. Mr Singh was also cross-examined about that explanation. He maintained that whilst the table in the letter allowed Gujarat NRE India a credit of $6.5 million and characterised this amount as a loan, this was but part of an attempt to reconcile and consolidate a series of disputed payments, the net effect of which was that Wollongong Coal was owed a substantial sum of money by the Gujurat NRE Group. He maintained, in the face of vigorous questioning, that there was a genuine dispute that this payment was a loan repayable by Wollongong Coal.

78    Despite the somewhat confused and confusing nature of parts of Mr Singh's evidence, he impressed as an honest and forthright witness. His explanation of Exhibit D1 and the demand letters appeared to be both honest and plausible. It does not bear the hallmarks of a recent invention to explain away statements in Exhibit DI and the letter dated 21 February 2014 that might otherwise be seen to be inconsistent with his affidavit evidence.

79    Finally, it should be noted that Mr Singh was also cross-examined about the financial position of Wollongong Coal. It is unnecessary to refer in detail to Mr Singh’s evidence on this topic. Suffice it to say that Mr Singh denied that Wollongong Coal was in serious financial difficulty.

Ground 1 - is there a fatal defect in the verifying affidavit?

80    Wollongong Coal’s first ground of challenge to the Demand is that there is a defect because the affidavit of Mr Jagatramka which accompanied the Demand and purported to verify the Debt predates the Demand. Because it predates the Demand, it is said that the affidavit is defective and Gujurat NRE India has failed to comply with s 459E(3) of the Act. Wollongong Coal submits that this is a defect which is sufficient to constitute “some other reason” to set aside the Demand under s 459J(1)(b) of the Act and that it is therefore unnecessary for it to demonstrate any substantial injustice. It is also submitted that it is a defect that cannot be, or at least has not been, cured.

81    Section 459E(3) of the Act relevantly provides that, other than in cases where the relevant debt is a judgment debt, the statutory demand must be “accompanied” by an affidavit that “verifies that the debt … is due and payable by the company”. The short point is that an affidavit that pre-dates a demand cannot verify the demand because of the possibility that the debt has been repaid in the intervening period. Using the dates relevant here, the contention is that proof that a debt is owed on 19 March 2014 (the date of the verifying affidavit) is not proof that it was owed on 20 March 2014 (the date of the Demand). That is because the debt could have been repaid in the intervening day.

82    Whilst this might be said to be a highly technical point, particularly in the circumstances of this case, it is nevertheless a good point.

83    Since at least the decision of the Full Court of the Supreme Court of Western Australia in Wildtown Holdings Pty Ltd v Rural Traders Co Ltd (2002) 172 FLR 35 (Wildtown), the following four principles or propositions can be considered to be well established: first, an accompanying affidavit that predates a demand does not or cannot verify the demand; second, such an affidavit does not satisfy the requirement in s 459E(3); third, the requirement in s 459E(3) is an important safeguard in the statutory scheme and is therefore mandatory; and fourth, except perhaps in one situation, non-compliance with s 459E(3) will justify, if not compel, the setting aside of the demand under s 459J(1)(b) of the Act. It is not necessary to point to any substantial injustice. The authorities that establish these principals include: Ambassador at Redcliffe Pty Ltd v Barreau Peninsula Property Pty Ltd [2007] 2 Qd R 199; (2006) 202 FLR 459 (Ambassador) at [18]-[20]; R2M Pty Limited v Gourlay [2011] FCA 168 (R2M) at [31]-[36]; Ri-Co Holdings (Australia) Pty Ltd v Allied Sandblasters Pty Ltd [2010] 1 Qd R 293 (Ri-Co Holdings) at [23]; Chadmar Enterprises Pty Ltd v IGA Distribution Pty Ltd (2005) 190 FLR 466 (Chadmar) at [54]-[56]; Technology Licensing Limited v Climit Pty Limited [2002] 1 Qd R 566 (Technology Licensing) [24]-[25].

84    The one circumstance where non-compliance with s 459E(3) of the Act arising from a defective accompanying affidavit might be cured, and therefore might not lead to the setting aside of the demand, is where an “updating affidavit” has been served: Wildtown at [58]. An updating affidavit is a later affidavit which verifies that the debt referred to in the demand remained due and payable on the date the demand was made: Chadmar at [52]. It is tolerably clear, however, that to relevantly cure the non-compliance with s 459E(3), the updating affidavit must be served either with the demand or within a reasonable time before the expiration of the 21 days available to the debtor to apply to set aside the demand: Chadmar at [52]; and Ambassador at [21].

85    Gujarat NRE India advances a number of arguments in support of its case that s 459E(3) was complied with in the circumstances of this case and that, if there was any non-compliance, that non-compliance has been cured.

86    First, it relies on the uncontested evidence of Mr Jagatramka (in his affidavit dated 11 July 2014) and Gujarat NRE India's solicitor, Mr Gillard, in relation to the sequence of events that led to the swearing of the supporting affidavit and the signing and dating of the Demand. That evidence establishes that on 24 February 2014, Mr Jagatramka met with Mr Gillard and approved a draft statutory demand in the same terms as the demand that was ultimately signed and served. At some time on 19 March 2014 (Mr Gillard says at 4.39pm Sydney time; Mr Jagatramka says 11.09am Australian Eastern Daylight Savings time), Mr Gillard emailed a draft verifying affidavit to Mr Jagatramka. He did not email the draft demand. Mr Jagatramka was in Kolkata at the time. He says that he affirmed the affidavit at 5.00pm Kolkata time, being 9.30pm Sydney time, on 19 March 2014. He then scanned the affidavit and emailed it to Mr Gillard. Mr Gillard says that he received the email the next day (20 March 2014) and at about 10.30am he caused the Demand to be “engrossed”. He then signed the Demand as Gujarat NRE India's solicitor. In his affidavit, Mr Jagatramka asserts that between 9.30pm on 19 March 2014 and 10.30am on 20 March 2014 the Debt referred to in the Demand remained due and payable.

87    Gujarat NRE India relies on this evidence in two ways. First, it points to the fact that the evidence establishes that the affidavit pre-dated the signing of the Demand by a mere thirteen hours (or, in Gujurat NRE India’s submission, three business hours). On this basis, it submits that the circumstances of the case are distinguishable from the circumstances in Wildtown, Ambassador, R2M, Ri-Co Holdings, Chadmar and Technology Licencing, all of which concerned affidavits that pre-dated demands by a day or more. It also contends that the evidence establishes that the Demand in fact pre-dates the affidavit. This contention appears to be based on the evidence that a draft of the Demand had been approved, although not signed, some weeks earlier, and that the signing of the Demand was a mere formality.

88    Second, Gujarat NRE India submits that Mr Jagatramka's affidavit dated 11 July 2014 is an updating affidavit that cures any defect in the original accompanying affidavit. It submits that there is no requirement that an updating affidavit be served within the 21 day time period and that the statement by Douglas J to the contrary in Ambassador is wrong in principle.

89    Both of these submissions are rejected.

90    In relation to the first submission, whilst the evidence does establish some factual differences between this case and earlier decided cases, the factual differences are of no moment or significance. At most they demonstrate the highly technical nature of this objection to the Demand. That itself is no answer to the challenge. In the present context, there is no reason in principle to distinguish between an affidavit that predates the demand by two days (as in Wildtown) or one day (as in Ri-Co Holdings) and an affidavit that pre-dates a demand by thirteen hours where the thirteen hour difference results in the documents being signed on different calendar days. The point remains that an affidavit sworn the day before the date of the demand cannot verify the debt in the demand because of the possibility that the debt was repaid in the intervening period, even if the intervening period was as short as thirteen hours.

91    In this regard, some reference should be made to two authorities relied on by Gujarat NRE India. The first case relied on by Gujurat NRE India is In the matter of Gemaveld Pty Limited [2012] NSWSC 582. In that case, Black J dealt with an argument that a verifying affidavit sworn on the same day as the demand was defective because it was sworn earlier that same day. His Honour resolved the matter on the basis that the plaintiff had not established the factual basis of that challenge. His Honour nevertheless went on to say that an affidavit sworn earlier, but on the same day, as a demand could verify the debt. His Honour said (at [14] - [16]):

There are, of course, a number of cases where affidavits sworn prior to a statutory demand have been held not to verify that statutory demand, and that has been held to give rise to a defect for the purposes of s 459J of the Corporations Act. However, those cases variously related to affidavits sworn between a day and several days prior to the date of the statutory demand: Wildtown Holdings Pty Ltd v Rural Traders Pty Ltd [2002] WASCA 196; Chadmar Enterprises Pty Ltd v IGA Distribution Pty Ltd [2005] ACTSC 39; Ri-Co Holdings (Aust) Pty Ltd v Allied Sandblaster Pty Ltd [2009] QSC 122 [2010] 1 Qd R 293; R2M Pty Ltd v Gourlay [2011] FCA 168. It is obvious enough that an affidavit sworn on, say, 14 or 18 October could not, in fact, verify a debt claimed to exist on 19 October, because that debt might well have been repaid in the intervening day or days.

By contrast, I would not accept that, as a matter of fact, an affidavit sworn at 11.55am or 11.59am on 19 October could not verify a debt asserted to be due and payable in a statutory demand signed at noon on that day. I do not consider that that such a construction of the section is required by the terms of s 459E(3) of the Corporations Act or by any of the authorities dealing with affidavits sworn prior to the day on which the statutory demand is signed. I can see no reason why the Court should adopt an approach which, first, will encourage arid inquires as to which of the signature of a statutory demand and the swearing or affirmation of the verifying affidavit occurred first within a short time frame on the same day and, second, is likely to have the consequence that statutory demands will fail for technical reasons.

That approach would, in my view, be inconsistent with Parliament's intent when introducing Pt 5.4 of the Corporations Act, namely to ensure that disputes in respect of statutory demands would be resolved on the basis of the “commercial justice” of the matter rather than on the basis of “technical deficiencies”: Explanatory Memorandum to the Corporate Law Reform Bill 1992 (Cth) para 688; F. Assaf, Statutory Demands: Law and Practice at [7.1]. That approach would also, in my view, be inconsistent with the general approach that the law does not take account of fractions of a day: Lester v Garland (1808) 15 Ves 248; 33 ER 748; Chadmar Enterprises Pty Ltd v IGA Distribution Pty Ltd above at [55].

92    These obiter observations do not assist Gujarat NRE India. It is clear that Black J was directing these remarks solely to the case at hand, that is where the affidavit and demand were made or signed on the same day.

93    Gujarat NRE India’s submission that the evidence shows that the Demand was in existence before it was signed and dated, and that the signing of the Demand was a mere formality, also has no merit. It is clear from s 459E(2)(f) that an unsigned demand is not a demand for the purposes of s 459E of the Act. It follows that the demand here was not in fact a demand for the purposes of s 459E(2)(f) until it was signed by Mr Gillard on 20 March 2014.

94    In relation to the submission that Mr Jagatramka's affidavit is an updating affidavit despite being served well outside the 21 day period, there is no good reason to find that Douglas J was wrong (let alone plainly wrong) to conclude that to cure non-compliance with s 459E(3), an updating affidavit must be served within that period. Gujurat NRE India advances no substantive argument for why Douglas J was wrong. It simply asserts that he was.

95    It should be noted that an even more restrictive approach was taken by Higgins CJ in Chadmar at [52] where his Honour said:

It is not clear what is meant by Templeman J, in Wildtown Holdings by the reference to the “updating affidavit”. I can see no objection to the serving of an affidavit that is sworn some days before the demand is made, along with the demand and a further affidavit verifying that the debt, remained due and payable on the date the demand is made. In other words, re-affirming, as at the date of the demand, the matters stated in the prior affidavit. I do not think, however, that such an affidavit could rectify a demand that might otherwise be liable to be set aside for non-verification simply by the later delivery, after the demand is made, of an updating affidavit. A debtor only has 21 days to apply to set aside the demand. If a later “updating affidavit” could be effective, a debtor could be deprived of its right to have the demand set aside save on the ground of “genuine dispute”. It could mean, if the debtor did not raise and support a genuine dispute, comforted by the failure to deliver a demand prima facie complying with s 459E(3), that the debtor might then be out of time to raise the issue. This is quite apart from the shortening of the time within which to marshal evidence to support the existence of a “genuine dispute or offsetting claim”.

96    Gujurat NRE India says nothing of substance concerning the reasoning of Higgins CJ and why his Honour was wrong: see also Ri-Co Holdings at [21]-[23].

97    Gujarat NRE India also relies on the decision of Black J in In the matter of Passion Projects (allyouneedislove) Pty Ltd [2014] NSWSC 345, though it is clear that in that case Black J was not dealing with an updating affidavit. Rather, his Honour was dealing with the situation where the accompanying affidavit was sworn after the date of the demand. Plainly an accompanying affidavit that is sworn after the date of the demand is capable of verifying that the debt was due and payable as at the date of the demand as required by s 459E(3).

98    In its written submissions, Gujarat NRE India appears to submit that Wildtown and the cases that have followed it were all wrongly decided. That submission, if made, is rejected. Wildtown is a decision of an intermediate appellant court in relation to national legislation. It should be followed unless plainly wrong: Ri-Co Holdings at [14]; R2M at [34]. There is no sound reason to conclude that Wildtown is wrong, let alone plainly wrong. It has been repeatedly followed by single judges in this Court and in numerous state courts.

99    It follows that Wollongong Coal's challenge to the Demand on the basis of this defect has been made out. The Demand is liable to be set aside under s 459J(1)(b) of the Act because the Demand was not accompanied by a valid verifying affidavit.

100    Given the somewhat technical nature of this ground, and the fact that, at a practical level, the problem exposed by this ground could be cured by Gujarat NRE India simply serving a new demand, consideration should also be given to Wollongong Coal's more substantive grounds based on s 459J(1)(a) and s 459H of the Act.

Ground 2 - should the Demand be set aside because the description of the debt is defective or productive of prejudice?

101    Wollongong Coal contends that the Demand should be set aside under either s 459J(1)(a) or (b) because the description of the Debt in the Demand is either deficient or defective, or otherwise gives rise to prejudice. The nub of the argument is that the Demand simply describes the Debt as arising from loans made on three occasions, less repayments. The verifying affidavit of Mr Jagatramka provides no further details or particulars of the loans, their terms or conditions, or how they arose.

102    Gujarat NRE India apparently still maintains that the alleged debt is and can properly be characterised as a loan. Its evidence in opposition to Wollongong Coal's application, however, demonstrates that, if the Debt can be said to be a loan, it is, at the very least, a very unusual one. As has already been made clear, Gujarat NRE India’s evidence and submissions contend that the Debt (or at least most of it) arose because $7,962,974.88 was paid by Gujarat NRE India to Wollongong Coal purportedly pursuant to obligations arising under a sub-underwriting agreement. Because Wollongong Coal failed to repay this money or issue shares to Gujarat NRE India, the outstanding payment is said to have somehow become a loan. Another payment of $690,549.18, which is also said to make up the Debt, is said to be an amount paid “in respect of current liabilities.” It also appears to be claimed that this amount became a loan because it was not repaid.

103    Wollongong Coal argues that, in light of Gujurat NRE India’s evidence and submissions concerning the genesis and characterisation of the Debt, the description of the Debt in the Demand is either deficient, because in the circumstances it is vague and ambiguous, or constitutes a misdescription of the alleged debt and is therefore a defect in the Demand. It submits that the evidence indicates that its officers who swore affidavits did not know, and had no reason to believe, that the Debt described in the Demand had anything to do with any payments made under any sub-underwriting agreement. Nor could any reasonable person have discerned this from the description of the Debt in the Demand. Substantial injustice is said to arise because, amongst other things, Gujarat NRE India now objects to any evidence being led in relation to the alleged genesis of the loan by reason of the Graywinter principle.

104    Gujarat NRE India, on the other hand, maintains that the Demand contained sufficient information to enable Wollongong Coal to determine from its own records whether it owed the Debt as described in the Demand. It relies, in particular, on the fact that Wollongong Coal's letter of 21 February 2014 describes the amount owing to Gujarat NRE India as a loan. It submits, in addition, that there is no substantial prejudice or injustice and that, in any event, Wollongong Coal is precluded by the Graywinter principle from even raising this ground of challenge because it was not referred to in its initial affidavits.

105    There is substantial merit in Wollongong Coal’s submissions. There is no merit in Gujurat NRE India’s response.

106    Section 459J(1) of the Act provides as follows:

On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

(a)    because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or

(b)    there is some other reason why the demand should be set aside.

107    The first issue is whether the description of the Debt in the Demand can be said to be, or give rise to, a “defect in the demand” for the purposes of s 459J(1)(a). A “defect” is defined in s 9 of the Act in the following terms:

defect, in relation to a statutory demand, includes:

(a)    an irregularity; and

(b)    a misstatement of an amount or total; and

(c)    a misdescription of a debt or other matter; and

(d)    a misdescription of a person or entity.

108    Because the definition of “defect” is an inclusive definition, it is necessary first to consider the ordinary meaning of the word. A defect, according to ordinary meaning, means “a lack or absence of something necessary or essential for completeness; a shortcoming or deficiency; an imperfection”: Topfelt Pty Limited v State Bank of New South Wales Limited (1993) 47 FCR 226 (Topfelt) at 237.

109    The reference to “misdescription of a debt or other matter” in the s 9 definition is not to be susceptible of rigorous or narrow reading down: Topfelt at 237 - 238; Quitstar Pty Ltd v Cooline Pacific Pty Ltd [2002] NSWCA 329 at [15].

110    A statutory demand must be in the prescribed form: s 459E(2)(e) of the Act. The prescribed form for a statutory demand makes it clear that the demand must “describe” the debt: Form 509H, Corporations Regulations 2001 (Cth): LSI Australia v LSI Holdings; LSI Australia v LSI Consulting [2007] NSWSC 1406 (LSI) at [54]. If the demand “is so vague or ambiguous that it fails to identify, to a reasonable person in the shoes of a director of the debtor company, the general nature of the debt to a sufficient degree that the director can assess whether there is a genuine dispute as to the existence or amount of the debt, then there is a lack of something necessary for completeness, and therefore a defect in the demand”: LSI at [54].

111    On the face of it, there is nothing vague or ambiguous about the description of the Debt in the Demand. Nor, without more, could it be said that there is any misdescription. When served, it is clear that Gujarat NRE India claimed that the Debt arose as a result of a loan made on 16 April 2013 and two loans made on 24 June 2013. The issue concerning the sufficiency of the description, and whether it amounts to a misdescription, only really arises by reason of the evidence of Mr Jagatramka later led by Gujarat NRE India which sought to characterise the Debt (or most of it) as arising as a result of a payment made under a sub-underwriting agreement.

112    It is clear from Wollongong Coal's initial affidavits that the deponents took the description of the Debt in the Demand at face value and sought to address the claim that Gujarat NRE India had loaned Wollongong Coal money. The thrust of the initial evidence was that Messrs Singh, Firek and Sharma knew nothing about any such loan, never approved any such borrowings and were unable to locate any loan agreements or records of such loans. It is only when Wollongong Coal received Mr Jagatramka's second affidavit, containing the explanation that the alleged loans arose as a result of a payment made under a sub-underwriting agreement, that it attempted to address this issue in its evidence. That attempt was met with objections based on Graywinter.

113    The main difficulty for Gujarat NRE India is that, contrary to Mr Jagatramka’s assertion, even if it is ultimately accepted that the payment made by Gujarat NRE India to Wollongong Coal was made in the circumstances described by him, it could not reasonably be considered to constitute a loan. If, as appears to be suggested, the payment was consideration for shares subscribed for pursuant to Gujarat NRE India’s sub-underwriting commitments, and the shares were not issued, it does not follow that the payment could be described as a loan. That is the case unless, perhaps, the parties subsequently agreed that the outstanding monies should be treated as a loan until repaid. There is no suggestion, let alone evidence, that they did so agree. It is implicit in, or may be inferred from, Wollongong Coal’s evidence that there was no such agreement. If the money was subscription money for shares, not ultimately issued, Guijarat NRE India may have a restitutionary claim for return of the money arising from a total failure of consideration. Such a claim, however, cannot accurately be described as a loan or as giving rise to a loan.

114    It follows that the description of the Debt in the Demand is deficient, inadequate or simply wrong.

115    Two decisions of single judges of the New South Wales Supreme Court have considered applications to set aside statutory demands under s 459J of the Act in not entirely dissimilar circumstances to the circumstances of this case.

116    In LSI, Austin J considered two statutory demands which described the alleged debts in fairly generic terms. One demand described the debt as owing “in accordance with the Accounts.” The other described the debt as “moneys lent to the debtor”. The verifying affidavits that accompanied the demands added nothing to these descriptions. The debtor company applied to set aside the demands supported by an affidavit by its managing director that addressed the position as he understood it in relation to the claimed indebtedness. The creditor company then filed an affidavit which indicated that the claimed indebtedness arose in circumstances quite different to that addressed in the debtor company’s affidavit. A further affidavit from the director of the debtor company that sought to address this further evidence was objected to on the basis of the Graywinter principle.

117    Austin J held that both demands were defective on the basis that the descriptions of the debts in them were vague and ambiguous. That was because they failed to identify, to a reasonable person in the shoes of a director of the debtor company, the general nature of the debt to a sufficient degree that the director could assess whether there was or is a genuine dispute as to the existence of the debt. The demands did not identify to a reasonable observer the “true nature” of the alleged debt, as described in the creditor company’s later affidavits. At [57] his Honour said:

The vague and ambiguous statutory demands, neither of which identify to a reasonable observer the true nature of the alleged debts, have put LSIA’s director, Mr Hughes, in the position of not having realised the true claims asserted against his company and therefore not realising the potential relevance of the indemnity, and consequently have led to his failure to put forward the indemnity ground in the affidavits supporting the applications. Unless the court sets aside the statutory demands, LSIA will in those circumstances suffer the substantial injustice of having the presumption of insolvency raised against it in any subsequent winding up proceedings. Therefore there are reasons of “appropriate seriousness” for setting the statutory demands aside (cf Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746) and the statutory requirement is satisfied.

118    Whilst the descriptions of the debts in the demands in LSI were perhaps slightly more vague than in this case (for example, the date of the alleged loan was not specified), it is clear that the critical consideration for Austin J was the fact that the later affidavits filed by the creditor company put forward explanations of the debts (the “true nature” of the debts) which were not apparent from the descriptions in the demands themselves.

119    Austin J set aside the demands under s 459J(1)(a) of the Act on the basis of the substantial prejudice arising from the application of the Graywinter principle.

120    A similar, though slightly different, scenario was considered by Black J in Re Attard and Others (trading under the partnership name of Colin Biggers & Paisley) (2013) 96 ACSR 581; [2013] NSWSC 1579 (Attard). In that matter, a firm of solicitors served a demand on a company that described the debt as owing on the basis of a guarantee contained in a specified deed. The debtor company commenced proceedings to set aside the demand supported by an affidavit that raised a dispute about the indebtedness based on a construction of the specified deed. The solicitors then realised that there may have been a difficulty with the deed and sought to support the alleged debt on the basis of a guarantee provided in a separate letter.

121    Black J held that there was no defect in the demand because there was no misdescription of the debt in the demand. At the time the demand was served, the solicitors sought to rely upon a debt arising under the deed. In that sense, it accurately described the debt upon which the solicitors relied. It was only later that the solicitors sought to support the debt in a different way.

122    Nonetheless, his Honour held that the demand was liable to be set aside on the basis of “some other reason” in s 459J(1)(b) of the Act. At [42]-[43] his Honour said:

In my view, some other reason to set aside the demand would arise, if it were open to CBP [the solicitors] to serve the demand claiming a debt arising on one basis and to support the debt claimed on another basis, because that process would be inconsistent with allowing the company a proper opportunity to move to set aside the demand. That inconsistency arises…by reason of the operation of the Graywinter principle…

The consequence of the Graywinter principle, and more fundamentally s 459G(3) of the Act which that principle reflects, is that it would not now be open to the company to lead, in further affidavits, evidence as to the circumstances in which the 2010 letter was entered into or other evidence of its commercial context which may be relevant to its construction, because those matters were not raised in the original affidavit filed in support of the application to set aside the demand…

123    Black J referred to LSI and noted that Austin J’s reasoning was addressed to s 459J(1)(a) of the Act. His Honour said of this reasoning (at [46]):

However, the injustice noted by Austin J, arising from the situation where a party that receives a statutory demand moves to set it aside understanding that it is directed to a debt claimed on one basis and the debt is then sought to be supported on another basis, which the debtor will not have the opportunity to address by reason of the Graywinter principle, equally supports setting aside the demand under s 459J(1)(b) of the Act where that position arises, not from a defect that initially existed in the demand, but from a subsequent change in the creditor’s position.

124    It is unclear whether the circumstances of this matter are closer to the LSI situation or the Attard situation. It seems to be a fair inference that the Debt was described as a “loan” in the Demand simply because it was so described in the letter dated 21 February 2014. It is unclear whether, at the time of the service of the Demand, Gujarat NRE India sought to support the Debt on the basis that the loan arose as a result of the payment made in compliance with its supposed commitments under the sub-underwriting agreement. If so, the situation is perhaps closer to LSI. No reasonable person in the shoes of a director of Wollongong Coal could discern from the description of the Debt in the Demand that it somehow arose from payments or commitments under a sub-underwriting agreement. The description in the Demand would for that reason properly be considered to be vague and ambiguous and therefore defective.

125    It may be, on the other hand, that the explanation for the Debt based on the sub-underwriting commitments was only put forward as a result of Wollongong Coal’s first tranche of evidence, which exposed the total absence of any contemporaneous records of a loan or loan agreement having been made or entered into. That led Mr Jagatramka to characterise, or re-characterise, the Debt as arising as a result of Gujarat NRE India’s sub-underwriting commitments. In that case, the situation would be closer to that considered in Attard. That is, Gujarat NRE India now seeks to shift or change its position in relation to the genesis of the alleged Debt. In those circumstances, whilst there may have been no initial defect in the Demand because it accurately described Gujarat NRE India’s claim at the time it served the Demand, it is not now open to Gujarat NRE India to seek to support the Debt on a different basis.

126    Either way, the Demand should be set aside because of the unfairness of the position faced by Wollongong Coal. It was not entirely unreasonable for Wollongong Coal, based on the fairly generic description of the Debt in the Demand, to support its application to set aside the Demand on the basis of evidence that there was no loan agreement or business records evidencing or even referring to the approval or making of a loan or borrowing. The evidence of Messrs Singh, Firek and Sharma indicates that Wollongong Coal could not possibly have foreseen that Gujarat NRE India did, or would, seek to support the Debt on the basis of dealings concerning a sub-underwriting agreement. It is now effectively shut-out from addressing this asserted basis for the Debt by the invocation of the Graywinter principle. Either there is a defect in the Demand which gives rise to a substantial injustice for the purposes of s 459J(1)(a) of the Act, as was the case in LSI, or the unfairness and prejudice is such as to provide some other reason to set aside the Demand under s 459J(1)(b) of the Act, as was the position in Attard.

127    Gujarat NRE India’s submissions based on the letter dated 21 February 2014 are rejected. Whilst it is true that the 21 February letter refers to the existence of a loan, it is equally clear from the earlier correspondence (in particular the letter of 8 January 2014) and the context generally that this characterisation was disputed by Mr Singh and Wollongong Coal. Mr Singh was seeking to deal with a whole series of inter-group payments apparently instigated by Mr Jagatramka in the absence of proper documentation, justification or authorisation. It is clear that Mr Singh had no real idea about the nature of the payments or the basis or terms upon which they were made. That point was made clear in the letter dated 8 January 2014. Mr Jagatramka did not respond to it. It had plainly never before been suggested to Mr Singh by Mr Jagatramka or anyone else that the main payment that was said to give rise to the Debt was made under a sub-underwriting arrangement and that it was said to be a loan because Wollongong Coal had not issued the underwritten shares that the money was intended to pay for.

128    Whilst it may be accepted that the proposal in the letter dated 21 February 2014 allowed a credit to Gujarat NRE India in respect of the supposed loan, it is equally clear that this merely formed part of a larger settlement proposal involving a series of disputed payments. It does not, in all the circumstances, and when considered in context, amount to an admission of indebtedness, let alone an admission that there was or ever had been a loan. At the very least there is a plausible, if not cogent, argument available to Wollongong Coal that it does not constitute such an admission. To the extent that the 21 February 2014 letter (or, for that matter, Exhibit DI) could be said to constitute an admission by way of an “account stated”, Wollongong Coal has demonstrated (or at least raised a cogent argument) that any such admission was in error: Brown at 535-536.

129    The submission that Wollongong Coal is precluded from raising this alleged defect by reason of the Graywinter principle is also rejected. A similar argument was raised and rejected in analogous circumstances in LSI at [61]. As pointed out by Austin J in LSI, it may be that certain grounds can be relied on at the hearing even if they are not articulated at all in the initial supporting affidavit, provided that they are evident on the face of the documents annexed to the affidavit. Here, the critical document is the Demand itself, together with the accompanying affidavit, both of which were annexed to Mr Singh’s first affidavit. When considered along with the other evidence filed within the 21 day period, and Mr Jagatramka’s second affidavit, this ground of challenge was evident. That is because the disjunct between the description of the Debt in the Demand and Mr Jagatramka’s explanation in his second affidavit is evident.

130    This issue is also, in many respects, similar to the issue considered by Barrett J in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; [2007] NSWSC 1143. In that case, a debtor company sought to raise arguments which involved a defect arising from an omission from the creditor’s accompanying affidavit. Those arguments were able to be raised, notwithstanding that these arguments were not articulated in the debtor company’s affidavit, because they were evident from the face of the accompanying affidavit.

131    It must also, in any event, be highly doubtful that the principle in Graywinter could operate to prevent a plaintiff/applicant from raising an argument concerning a defect in a demand or accompanying affidavit in circumstances where the defect only became apparent upon service of the defendant/respondent’s affidavits. Were it otherwise, the plaintiff in Attard would similarly have been precluded from arguing that the demand should be set aside under s 459J(1)(b) of the Act.

132    It should perhaps also be noted that there are two additional potential misdescriptions of the Debt. The first is that the Debt in the Demand appears to be described in Australian dollars. It is clear, however, that the underlying payments were in US dollars. In his affidavit dated 26 May 2014, Mr Jagatramka also states that the payments (or at least one of them) were in US dollars. Neither of the parties addressed this apparent discrepancy in their evidence or submissions. The second possible misdescription relates to the payment of $690,549.18 made on 24 June 2013. The Demand describes this payment as a loan. In his 26 May affidavit, however, Mr Jagatramka describes this as a payment “in respect of current liabilities”. He says nothing about the terms upon which the money was paid. He appears to suggest, however, that it became a loan because it was not repaid. There is no explanation for the apparent discrepancy between the initial description of this payment as a loan, and the slightly more detailed account in Mr Jagatramka’s evidence. Because Wollongong Coal did not rely on these possible misdescriptions, they provide no basis for an order setting aside the Demand. These discrepancies do, however, tend to indicate just how dubious some of the evidence in this matter is.

133    If follows that Wollongong Coal has established that that there is a defect in the Demand which causes substantial injustice, or some other reason to set aside the Demand under s 459J of the Act.

134    Given that the Demand is liable to be set aside under s 459J of the Act, it is strictly unnecessary to consider Wollongong Coal’s other grounds of challenge. However, because Gujarat NRE India may decide to appeal this decision, or may decide to serve a new statutory demand and accompanying affidavit, Wollongong Coal’s challenge to the notice under s 459H should also be addressed and determined. Some observations should also be made in relation to the other grounds of challenge, though ultimately it is unnecessary to determine those other grounds.

Ground 3 – is the claim a “debt” for the purposes of s 459E

135    There is no merit in this ground.

136    The Debt is described in the Demand as a “loan”. An amount owed as a result of a loan or loan agreement is a debt for the purposes of s 459E of the Act. Wollongong Coal does not submit otherwise. Gujarat NRE India does not seek to support the alleged Debt on the basis that it is anything other than a loan.

137    Putting aside the description of the Debt as a loan or loans, if the main payment said to give rise to the Debt was made pursuant to commitments under the sub-underwriting agreement as Mr Jagatramka contends, Gujarat NRE India may have available to it a claim in restitution for return or repayment of moneys paid where there has been a total failure of consideration. Such a claim may constitute a debt for the purposes of s 459E of the Act: Arrow Asset Management Pty Ltd v Sportsworld Group Plc [1999] NSWSC 1207 at [22]-[23]; HL Diagnostics Pty Ltd v Psycadian Ltd [2005] WASC 234 at [30].

138    The real problem for Gujarat NRE India is that its claim, and the alleged debt, is not described in the Demand as being a restitutionary claim for money paid in circumstances where there has been a total failure of consideration. That provides a different ground of challenge for Wollongong Coal. That is the misdescription ground the subject of Ground 2. That ground is upheld.

139    The balance of Wollongong Coal’s submissions in respect of this ground are better considered as part of Wollongong Coal’s case that there is a genuine dispute about the existence of the Debt.

Ground 4 – is there a genuine dispute as to the existence of the Debt?

140    There is no dispute that on 24 June 2013, $7,962,974.88 was transferred from Gujarat NRE India’s bank account to Wollongong Coal’s bank account. As has been seen, however, it is unclear whether this amount was in Australian or US dollars. The Demand is drafted on the basis that it was in Australian dollars, whereas Mr Jagatramka now apparently claims that it was in US dollars. The bank statements also suggest that the payments were in US dollars. Wollongong Coal does not appear to dispute that the other amounts referred to in the Demand were paid to it, but there is a paucity of evidence concerning these payments.

141    Even accepting that these payments were made, and made in Australian dollars as the Demand suggests, it does not follow that they were loans or comprise amounts otherwise repayable by Wollongong Coal.

142    Mr Jagatramka, on behalf of Gujarat NRE India, contends that US$7,962,974.88 was used by Gujarat NRE India “to partially meet its sub-underwriting commitment in respect of the rights issue”. He also says that an amount of $690,549.18 paid on the same day was “in respect of current liabilities.” He says nothing about the other payment.

143    The critical question is whether there is a genuine dispute that the amounts referred to in the Demand were loaned or paid to Wollongong Coal on terms that required them to be repaid on or prior to the date of the Demand. Additionally, or perhaps alternatively, there is a question whether the $7,962,974.88 payment to Wollongong Coal on 24 June 2013 related to Gujarat NRE India’s commitments under its sub-underwriting agreement with Wollongong Coal and, if so, whether it follows that this amount (less any repayments) was for some reason a debt repayable to Gujarat NRE India as at the date of the Demand.

144    Wollongong Coal submits that there is a genuine dispute about these matters. It advances many and varied arguments, not all of which are readily comprehensible let alone maintainable. It is not necessary to refer to them all. Suffice it to say that the nub of Wollongong Coal’s case is as follows. At the time of the relevant payments, Mr Jagatramka controlled all the relevant companies in the Gujarat NRE Group, including both Gujarat NRE India and Wollongong Coal. He caused companies within the Gujarat NRE Group to enter into a number of inter-group transactions and caused a number of inter-group transfers to be made. In the case of payments or transfers to or by Wollongong Coal, it is contended that Mr Jagatramka caused these payments to be made without the knowledge, consent or authority of the other directors and without contemporaneous documentation recording the purpose or terms of the transactions or payments.

145    In relation to the transactions or payments the subject of the Demand, at least two other directors were unaware of the payments and unaware why they were made by Gujarat NRE India or received by Wollongong Coal. They did not know of, authorise or approve any loans or borrowings by Wollongong Coal referrable to these payments. There are no contemporaneous business records (or indeed any documents) that record why these payments were made or the terms upon which the money was paid. There is nothing to suggest that these payments were made as loans or on terms that required repayment. Nor are there any contemporaneous business records which provide evidence that the payment of $7,962,974.88 was referrable in any way to Wollongong Coal’s rights issue or the sub-underwriting agreement to which Wollongong Coal was not a party. All that there is is the bare assertion by Mr Jagatramka.

146    Ultimately, Wollongong Coal contends that the relevant payments were but part of a large series of undocumented payments and receipts that Mr Jagatramka unilaterally caused to be made without authority and in breach of his fiduciary duties to Wollongong Coal. Wollongong Coal contends that it cannot be concluded from the mere receipt of the funds by Wollongong Coal that the money was repayable as a loan or otherwise. The payments could equally have been repayments of other amounts Mr Jagatramka had caused Wollongong Coal to transfer to other companies in the group, a point adverted to by Mr Singh in the letter dated 8 January 2014. Alternatively, amounts that Mr Jagatramka later caused Wollongong Coal to pay other companies in the group could have effectively repaid any liability arising from the payments. According to Mr Singh, Mr Jagatramka was able to manipulate the affairs of Wollongong Coal and other companies in the Gujurat NRE Group such that the books and records of Wollongong Coal and the other companies could not be considered to contain a fair or accurate representation of the underlying transactions.

147    Additionally, or perhaps alternatively, Wollongong Coal also contends that it has offsetting claims against Mr Jagatramka (for breach of fiduciary duty) and other companies in the Gujarat NRE Group arising from the other unauthorised and improper payments made by Wollongong Coal. Wollongong Coal contends that these claims cannot be ignored simply because they relate to parties other than Gujarat NRE India. That is because they may give rise to an equitable set-off.

148    For its part, Gujarat NRE India’s case that there is no genuine dispute may be summarised in three propositions. First, the payments were made to Wollongong Coal. Second, there were no repayments (beyond the repayments taken into account in calculating the amount of the Debt that are specifically referred to in the Demand). Third, Wollongong Coal’s own records (Exhibit D1 and the letter of 21 February 2014) record that the payments were or are loans.

149    Gujarat NRE India also submits that there is no basis for Wollongong Coal’s contentions of lack of authority or breach of fiduciary duty on the part of Mr Jagatramka. It submits, in any event, that lack of authority or breach of fiduciary duty can only give rise to a ground for avoiding or setting aside the “loan agreement.” Until set aside by a court, the loan agreement remains on foot. Gujarat NRE India also submits that there is evidence that Wollongong Coal is insolvent, or at least in a parlous financial state. This is said to support the inference that the claimed dispute is simply a desperate attempt to stave off winding up.

150    The principles to be applied in determining whether a genuine dispute as to the existence of a debt exists for the purposes of s 459H of the Act are well settled. In approaching this issue, the Court is required only to determine if there is a dispute and, if so, whether it is genuine. It is not expected that the Court will decide contentious facts or issues or weigh or determine the merits of the alleged dispute: Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290 at 295; Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605; Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601 at [47].

151    Various verbal formulations have been put forward to describe or explain what may constitute a genuine dispute. They include “a plausible contention requiring investigation” (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787); a dispute which is “bona fide and truly exist[s] in fact”, the grounds for alleging the existence of which are “real and not spurious, hypothetical, illusory or misconceived” (Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464); and “a sufficient degree of cogency to be arguable” (Panel Tech Industries v Australian Skyreach (No 2) [2003] NSWSC 896 at [18]. The dispute should have “a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile”: TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd [2008] VSCA 70; (2008) 66 ACSR 67 at [71]. These various formulations of the meaning of the statutory phrase can be helpful, provided that they do not become a substitute for the terms of the statute: Viva Olives Pty Ltd v Origin Olives Australasia Pty Ltd [2012] FCA 545 at [7].

152    The question whether there is a genuine dispute is not easy to resolve in the present case. The issue has been clouded and complicated by what has turned out to be a deficient, defective or potentially misleading description of the Debt in the Demand, the complexity of the underlying facts and circumstances, unsatisfactory evidence tendered by both parties and a somewhat “scattergun” approach adopted by Wollongong Coal.

153    Nevertheless, putting to one side for the moment the alleged offsetting claim and equitable set-off, the contentions and evidence advanced by Wollongong Coal are sufficient to establish both that there is a dispute concerning the existence of the alleged Debt and that the dispute is genuine. Wollongong Coal’s contentions concerning the alleged Debt, summarised earlier, are at the very least plausible and raise matters that warrant further investigation. They are not plainly vexatious or frivolous or so devoid of substance that no further investigation is warranted.

154    Whilst there appears to be no dispute that the payments that are said to make up the Debt were made, there is a real dispute as to the nature and basis of the payments and the terms upon which they were made. The main dispute centres around the basis or terms upon which the payment of $7,962,974.88 was made. There is a real dispute as to whether this payment could, in any sense, be described (as it is in the Demand) as a “loan” or whether it was otherwise made on terms that it was repayable on demand. The dispute exists in circumstances where there is a complete absence of any contemporaneous documentation recording the reasons, basis or terms upon which the payment was made and received, where the other directors did not know of and did not authorise the payment or receipt of the money and where there is, at the very least, a real issue concerning Mr Jagatramka’s ex post facto explanation. These are matters which, at the very least, warrant further investigation.

155    The dispute also exists in the context of a much broader dispute, which also cannot be said to be otherwise than genuine, between Wollongong Coal, Mr Jagatramka and the Gujarat NRE Group, concerning a large number of payments which Mr Jagatramka appears to have unilaterally caused Wollongong Coal to make to other companies in the group. The genuineness of this broader dispute is demonstrated amply by the terms of Wollongong Coal’s letter of 8 January 2014. Whilst it may be doubtful that these claims, most of which are against other companies in the Gujurat NRE Group, can constitute offsetting claims for the purpose of s 459H, or that equitable set-off can assist Wollongong Coal in that regard, the claims are nonetheless contextually very important. They provide support for Wollongong Coal’s claim that it cannot simply be inferred that the payments said to make up the Debt were loans, or were made on terms that otherwise required them to be repaid on demand.

156    For the reasons already given, Gujarat NRE India’s submission that the letter dated 21 February 2014 and Exhibit D1 constitute an admission that the Debt is owed is rejected. The characterisation of the payment as a loan was disputed by Wollongong Coal in the earlier correspondence. To the extent that these documents characterise the payment as a loan, or allowed a credit to Gujarat NRE India, that was done in the context of Wollongong Coal’s new management investigating and trying to reconcile a large number of inter-group payments which were apparently unilaterally made by Mr Jagatramka. These documents were plainly made or communicated in an attempt to ascertain or investigate the nature of the payments and in an attempt to settle or resolve an ongoing dispute with the Gujarat NRE Group in respect of these and many other payments.

157    Gujarat NRE India’s submission that the financial position of Wollongong Coal reveals that Wollongong Coal is insolvent or near insolvent, and that this points to the alleged dispute being a disingenuous attempt to stave-off winding up, is also rejected. The evidence concerning Wollongong Coal’s financial position, such as it is, certainly reveals that Wollongong Coal’s financial position was or is at best uncertain and at worst quite poor. Nevertheless, it does not reveal that Wollongong Coal was or is insolvent, or on the verge of insolvency. It appeared to have the benefit of the support of its parent company. Mr Singh strenuously denied that Wollongong Coal was in serious financial difficulty and referred to steps that had been taken to sure-up its financial position. The evidence, in short, does not suggest that Wollongong Coal had manufactured a false dispute in a desperate attempt to stave-off insolvency. It does not suggest that Wollongong Coal’s contentions concerning the existence of a dispute are other than at least plausible and worthy of investigation. It does not show that the contentions are spurious or mere bluster or assertion.

158    Gujarat NRE India’s submissions concerning the allegations of lack of authority and breach of fiduciary duty also provide no answer to Wollongong Coal’s case that there is a genuine dispute. These submissions presuppose that there is, or was, a loan agreement in existence. But that is one of the very matters that warrants further investigation. In any event, for the reasons already given, these claims are contextually important in assessing whether there is a genuine dispute.

159    For these reasons, the Demand can and should be set aside pursuant to s 459H of the Act on the basis that there is a genuine dispute about the existence of the Debt to which the Demand relates.

Grounds 5 and 6 – abuse of process and offsetting claims

160    Having found that the Demand is liable to be set aside under both s 459J of the Act (both because of the absence of an accompanying verifying affidavit and a deficiency or defect in the description of the Debt in the Demand) and under s 459H (on the basis of a genuine dispute) it is unnecessary to consider or determine Wollongong Coal’s remaining grounds of challenge. The remaining grounds rely on evidence and submissions which are better considered, and have been considered, as part of Wollongong Coal’s case that there is a genuine dispute as to the existence of the Debt.

161    It is perhaps sufficient to note that the fundamental difficulty for Wollongong Coal in relation to its alleged offsetting claims is that they are all claims against persons or companies other than Gujarat NRE India. It is difficult to see how, in these circumstances, they could be offsetting claims for the purposes of s 459H. It is also difficult to see how equitable set-off could assist Wollongong Coal in the context of the strict statutory regime for setting aside statutory demands. In any event, given that the other payments involved different parties and were made at different times, it is highly doubtful that the mutuality required for equitable set-off exists: cf. Hawes v Dean [2014] NSWCA 380 at [58] - [67]. As has already been made clear, however, the facts and circumstances that are said to give rise to the alleged offsetting claims are contextually important and have been considered as part of Wollongong Coal’s case that there is a genuine dispute.

Costs

162    In its amended originating process, Wollongong Coal seeks an order that Gujarat NRE India pay Wollongong Coal’s costs of the application on an indemnity basis. In its written submissions, Wollongong Coal submits that it “was so inappropriate for the respondent [Gujarat NRE India] to put the applicant [Wollongong Coal] to the significant cost of a contested hearing, an indemnity costs order ought to be made in its favour.” There was no elaboration of this argument in Wollongong Coal’s oral submission. The submission has no merit and is rejected. It was not “inappropriate” for Gujarat NRE India to oppose the application to set aside the Demand. In all the circumstances opposition to the application was reasonable and not entirely lacking in merit, particularly given Wollongong Coal’s conduct of the proceedings. There is no proper basis for an indemnity costs order. Given Wollongong Coal’s scattergun and, in many respects unsatisfactory, approach to this application as earlier described, it would not, in any event, be appropriate to exercise the discretion to award it indemnity costs.

Disposition

163    The Demand is set aside. Gujarat NRE India should pay Wollongong Coal’s costs as agreed or assessed.

Associate:

Dated:    16 March 2015