1 IN THE GRAND COURT OF THE CAYMAN ISLANDS 2 3 FINANCIAL SERVICES DIVISION 4 5 6 7 Cause No. FSD 18 of2012 (AJJ) 8 The Honourable Mr. Justice Andrew J. Jones QC 9 In Open Court, 7th -11 th, 18th and 31 st January to 2013 10 11 12 IN THE MATTER OF THE COMP ANIES LAW (2012 REVISION) 13 14 AND IN THE MATTER OF TRIKONA ADVISORS LIMITED 15 16 17 BETWEEN: 18 19 20 21 22 23 24 25 26 Appearances: 27 (1) (2) ARC CAPITAL LLC HAIDA INVESTMENTS LTD -And- ASIA PACIFIC LIMITED Petitioners Respondent 28 Mr. Ross McDonough and Mr. Guy Cowan of Campbells on behalf of the Petitioners 29 30 Mr. Anthony Akiwumi of Stuarts Walker Hersant on behalf of the Respondent 31 32 33 34 35 JUDGMENT 36 37 Introduction and the Parties 38
This is a contributories' winding up petition presented on 13th February 2012 in respect 39 of Trikona Advisors Limited ("Trikona") by ARC Capital LLC and Haida Investments 40 Ltd (referred to individually as "ARC" and "Haida" and collectively as "the 41 Petitioners"). At the initial hearing for directions heard on 8th March 2012, Quin J. 42 detetmined pursuant to Order 3, rule 11(2) of the Companies Winding Up Rules that 43 Trikona should be treated as the subject-matter of this proceeding in which it will take lof17 1 2 3 4 no further part. He directed that the petition should continue as an inter partes proceeding between ARC amd Haida as petitioners and Asia Pacific Limited ("APL") as respondent. 5
The evidence before Quin J. comprised affidavits sworn on behalf of the Petitioners by 6 Messrs Rakshitt Chugh ("Mr Chugh") and Lokesh Chugh on loth and 13th February 7 respectively and an affidavit sworn by Mr Aashish Kalra ("Mr Kalra") on 7'h March. On 8 the basis of this evidence Quin J. reached the following conclusions - 9 10 " ... I find that [Trikona] is simply the subject matter of these proceedings which are, in reality, a 11 dispute between the Petitioners on the one hand, and [APL] on the other hand - each holding 50% 12 of the [Trikona's] shares. Alternatively, they are the representatives of the quasi pattners - Mr 13 Chugh and Mr Kah'a - who have made serious allegations and counter allegations against each 14 other. Consequently, I find that there has been a complete cessation of trust and confidence 15 between the quasi partners" 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Both Messrs Chugh and Kalra were born in India, but they were educated and have pursued their careers in the United States. After graduating from Middlebury College, Vermont in 1991, Mr Chugh's career began as an analyst with Prudential Securities in New York. In 1996 he joined Lehman Brothers as head of its asset backed structuring group. In 2000 he started his own financial research business named Byte Consulting, Inc ("Byte"), of which Lehman Brothers was a client. Mr Chugh became a US citizen in
Mr Kalra was educated at St. Stephen's College in Delhi, where he obtained a degree in economics in 1993. He later attended Brandeis University in Massachusetts, where he obtained a master's degree in economics and international finance in 1996. He then became a partner at Cambridge Technology Enterprises, a venture capital company based in Cambridge, Massachusetts which specialized in promoting companies engaged in the infOlmation technology industry. He also became a US citizen in November last year. In 2000 Mr Kalra was introduced (or re-introduced) to Mr Chugh by Mr Chugh's brother as someone who might be able to contribute to Byte's business. In 2002 Mr Kalra was retained as a consultant to Byte. 33
The event which led Messrs Chugh and Kalra to go into business together was the 34 announcement by the Government of India that foreigners would be allowed pat1icipate 35 in real estate development in India with effect from 2004. They took advantage of this 36 opportunity by promoting a closed ended investment fund called Trinity Capital Plc 37 ("Trinity"),l whose shares were listed on the Alternative Investment Market of the 38 London Stock Exchange. They established Trikona simultaneously, as the company 39 through which Trinity would be managed. They treated each other as equal partners in i.V'/i' 1/ 1 It was originally called Trikona Trinity Capital Pic, but subsequently changed its name to Trinity Capital Plein recognition ofthe fact that is no longer managed by Trikona. 20117 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Trikona and acted as its joint managing directors. For present purposes I characterize Trikona as a "quasi patinership" between Mr Chugh and Mr Kalra, although the actual ownership of the company's shat'es is more complex. Mr Chugh's unchallenged evidence is that Trikona's ownership was initially structured to take account of the fact that the applicable regulations in India required a degree of local participation which was provided by Messrs Chugh and Kalra's respective fathers who were and still are resident in India. Trikona's shares were originally issued as follows: APL (then wholly owned by Mr Kalra's father) owned 45%, Mr Kalra owned 5%, ARC (in which the RC Family Trust and Mr Chugh have 75% and 25% shareholdings respectively) owned 25% and Mr Chugh's father owned 25%. In other words, Kalra and Chugh family interests each owned 50% of Trikona. This split remains unchanged except that APL is now wholly owned by Mr Kalra and Mr Chugh's father transferred his shares to Haida, a company wholly owned by a discretionary trust of which Chugh family members are beneficiaries.2 Messrs Chugh and Kalra were paid salaries through Trikona Capital Advisers LLC, a company incorporated in Delaware whose shares are owned by them personally in equal half shares. 18
The re-amended petition pleads that Trikona should be treated as a quasi-patinership 19 between the Chugh family and the Kalra family and that the Chugh family had a 20 legitimate expectation that they would continue to fully patiicipate in the company's 21 management. By paragraph 12 of its amended defence, APL admits that Trikona "was 22 set up as a Quasi-Patinership between Chugh and Kalra, but not as a quasi patinership 23 between their respective families". It is also admitted (by paragraph 13) that Mr Chugh 24 and the Petitioners would have a legitimate expectation of being involved in the 25 management, but only so long as Mr Chugh was acting in good faith in the interests of 26 the company. A great deal of forensic effOli has been devoted to the question whether 27 Mr Chugh has acted in breach of fiduciary duty. 28 29
The evidence leads me to the conclusion that, for present purposes, Trikona should be 30 characterized as a quasi partnership between Messrs Chugh and Kalra. They founded the 31 company jointly. They managed it jointly. Although Trikona group companies employed 32 as many as 50 people at one time, its business was dependent upon the personal 33 involvement of Messrs Chugh and Kalra. Whilst Trikona's board of directors included 34 two so-called "independent directors", there is no evidence that they played any real role 35 at all in the management of the company's business and neither of them gave evidence 36 in connection with the trial of the petition.3 The fact that Mr Chugh contributed most of 37 his ownership interest in Trikona to the trustees of discretionary trusts for the benefit of 2 The trustees of the R.C Family Trust is Mr Chugh's wife and an unrelated person. The trustee of the trust w~i !l~;" owns Haida is a professional trust corporate based in Switzerland. /l!.~. /" 3 Mr Saubabh Killa did swear an affidavit at an early stage of the proceedings for the purpose of seeking an '/' extension of time, but it had no relevance to the issues raised at the trial. /" 3 of17 1 2 3 4 5 6 7 8 his family members has no relevance to the issues which I have to decide. A good deal of forensic eff01i has been devoted to the proposition that the Petitioners are in fact wholly owned and controlled by Mr Chugh personally, which is tantamount to asseliing that the tlUstees of the tlUStS are party to sham transactions. There is no evidence tending to support this allegation, which is being made by Mr Kalra for tactical purposes in connection with the related litigation pending before the Federal and State cOUlis in Connecticut. 9
Trinity's initial public offering took place in April 2006, with support from Lehman 10 Brothers and Wacovia Bank, and the fact that it raised £250 million of equity 11 represented a significant achievement for Messrs Chugh and Kalra. It was promoted to 12 invest in real estate and infrastlUcture projects in India on the basis that it would be 13 managed and advised by Trikona pursuant to a Portfolio Management Agreement dated 14 13th April 2006 which provided for Trikona to be paid an annual fee calculated at 2% of 15 NAV, plus a performance fee of 20% of realized gains (or 30% if celiain hurdles were 16 achieved). Trikona's role was advisory in the sense that all investment decisions were 17 made by Trinity's board of directors. Investment projects identified and recommended 18 by an investment committee were put by Trikona to Trinity's board of directors for a 19 final decision. Apmi from Mr Chugh, Trinity's board originally comprised a number of 20 independent directors who were well known figures in the UK property industry. Trinity 21 invested successfully in some 19 projects, but its shares traded at a discount to NAV 22 which presented Trikona with the difficult problem of trying to find ways in which to 23 realize value for its shareholders. At its height, the amount of Trikona's gross assets 24 under management is said to have been in the region ofUS$750 million but the whole of 25 this business was eventually lost, largely as a result of events beyond the control of 26 Messrs Chugh and Kalra. Their working relationship became increasingly strained 27 during 2008 and had completely broken down by broken down by the end of 2009, by 28 which time they were both setting up their own separate businesses and actively 29 discussing how to divide what remained of Trikona's business and assets. Mr Kalra's 30 subsequent attempt to accuse Mr Chugh of stealing Trikona' s assets and destroying a 31 lucrative business is completely at odds with the evidence of what actually happened at 32 the time. 33 34 35 The Loss of Trikona's Business 36 37
38 Having regard to the general economic climate at the time, it is not surprising that some 39 of Trinity's shareholders were looking for ways in which to realize the true value of 40 their shares. Trinity's board of directors was coming under pressure to sell assets and 4 of 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
distribute capital. The two shareholders most actively seeking ways of realizing their investment without having to sell their shares in the market were QVT Financial ("QVT") and Carrousel Capital Ltd ("Carrousel"). QVT is a well established alternative investment manager based in New York. Cal1'0usel is a hedge fund manager based in London. By 2008 the investment funds managed by QVT collectively owned 29% and those managed by Cal1'0usel owned about 14% of Trinity's equity. The conflicts of interest inherent in this situation are obvious and should be well understood by institutional investors and professional fund managers. Any realisation of assets and repayment of capital to Trinity's shareholders would have the long term effect of reducing Trikona's fee income (which was 2% of NAV), although it might have the short term benefit of triggering the payment of a performance fee (20% of net realized gains). However, the relevant decisions were made by Trinity's board of directors, not Trikona, which only had an advisory role. This situation exposed a philosophical difference between Messrs Chugh and Kalra. Mr Chugh's evidence is that he was conscious of the fiduciary duty which Trikona owed to Trinity and described himself as "investor friendly". He attempted to work with Trinity's shareholders, recognizing no doubt that it would be in the long term commercial interest of Trikona to maintain good relations with them. I accept Mr Chugh's evidence that Mr Kalra adopted a rather different, more confrontational attitude. He was more focused on the fact that, under the terms of the Portfolio Management Agreement, Trikona was appointed for a ten year term and could be removed only for cause. A partial solution to the conflict between the shareholders' desire to realize assets and the investment adviser's desire to maintain and, if possible, grow Trinity's NAV appeared to have been found by the beginning of September 2008. Messrs Chugh and Kalra had come to the conclusion that they might be able to fund the acquisition of QVT's shares and a put/call option agreement was negotiated. The option period was two months. The option price was £2 million. The exercise price was 110 pence per share which equated to almost £69 million. Most importantly, the option agreement was conditional upon Trikona obtaining the necessary third paliy finance, for which purpose they intended to use the future cash flow generated by the Portfolio Management Agreement as collateral. In the event, the option agreement was not executed because QVT changed its mind at the eleventh hour. It still wanted to sell its shares but it did not want to make the market announcement which would have been required as a result of signing the option agreement. The paliies therefore concluded an alternative agreement contained in the Deed of Exclusivity executed on 23rd September 2008. Instead of agreeing to a two month put/call option in consideration of £2 million, QVT agreed not to sell or otherwise dispose of its shares for two months. The intention was that Trikona . .~0 would have two months m whICh to find the money to buy the shares, or at least buy/ i sufficient to be able to block a special resolution. Messrs Chugh and Kalra debated the 50f17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 merits of this revised proposal in e-mail exchanges on the 19 t11 and 20th September. They met Mr David Gold, the CEO of QVT, at its office on 23rd September. I have very limited evidence about what was actually said at this meeting, but Mr Kalra's evidence was that he came away from it believing that Trikona would in fact have the 0ppOltunity to buy QVT's shares, notwithstanding the absence of any enforceable option agreement. On this basis he signed the Deed of Exclusivity after the meeting on the same day. Trikona paid the £2 million fee to QVT. In the event QVT honoured its obligations under the deed and Trikona did have the 0PPOlWnity to buy QVT's shares, but was unable to do so because it could not raise the necessary finance. From Trikona's perspective, the credit market could hardly have been worse in the period following the bankruptcy of Lehman Brothers. With the benefit of hindsight, it has to be said that Messrs Chugh and Kalra were fortunate that QVT did change its mind, because Trikona would not have been able to perform its obligations had QVT been in a position to exercise a put option. Mr Kalra now accuses Mr Chugh of having acted in breach of fiduciary duty in connection with this transaction. His allegation is as follows - "During the course of 2008 and 2009, [Trinity) was subject to a hostile takeover by a London and New York based hedge fund, QVT Financial ("QVT") ...... Despite his position as Co-Managing Director of [Trikona), Mr Chugh actively suppOlted QVT's ultimately successful take-over of [Trinity), and otherwise worked in the interests of QVT at the expense of [Trikona]. One of the most egregious examples of this conduct was causing [Trikona] to pay £2 million to QVT to obtain covenants from QVT of extremely limited value, and then fiustrating all attempts to recover the money when QVT acted in flagrant breach of covenant." (2nd Affidavit, paragraph 57(a).) These assertions are wholly contradicted by the evidence. Ml' Kalra must know full well that QVT never in fact made any take-over bid for Trinity. Mr Chugh did not "cause" Trikona to pay £2 million to QVT. Whilst Mr Chugh took the lead on this negotiation, it is perfectly clear from the contemporaneous documentary evidence that he and Mr Kalra debated the merits of the transaction and made the decision jointly. They both signed the Deed of Exclusivity. Mr Kalra's later suggestion that he signed the deed under duress is not credible. Having observed both men in the witness box and listened to them giving evidence at some length, I find it impossible to imagine Mr Chugh being able to coerce his partner into doing anything. To the contrary, Ml' Kalra came across as the domineering character. Having failed to raise the finance necessary to buy QVT's shares, Mr Kalra then wanted to sue Trinity for the return of its £2 million, apparently on the basis of what Mr David Gold had said in the meeting immediately before the deed was e~ecuted. Mr Chugh.resisted. He consideI:ed that there was n~ le~itimate legal basf :. ·.WF for sumg QVT and that It made no commercIal sense to sue theIr bIggest sharehold ,Ii' They had access to legal advice from SJ Berwin, a well known firm of Lond solicitors. Mr Kalra accepted his pattner's point of view. It was only later that he mJci I - C"> /1 60f17 tJ: "~. ~(/ 1 the allegation that Mr Chugh "prevented" Trikona fi'om suing QVT because he was 2 motivated by some arrangement to the effect that QVT would invest in his new business, 3 which did not even exist at that time. This allegation is wholly unsupported by any 4 evidence. 5 6
Whilst Mr Chugh was taking the lead on the negotiations with QVT, Mr Kalra was 7 engaged in negotiations on behalf of Trinity with a leading German fund manager called 8 SachsenFonds Holdings GmbH ("SachsenFonds"). The business relationship with 9 SachsenFonds dated back to December 2007 when it established the first of two limited 10 patinerships for the purpose of buying minority stakes in celiain of Trinity's real estate 11 investments. These limited partnerships4 were managed by TSF Advisers Mauritius 12 Limited, a company incorporated in Mauritius and jointly owned by Trikona and 13 SachsenFonds. A third transaction between Trinity and SachsenFonds was disclosed to 14 the market on 9th September 2008. It was announced that a third limited patinership 15 established by SachsenF onds5 had agreed to buy stakes in three of Trinity's existing 16 investments for £45 million and to co-invest a fmiher £45 million with Trinity in five 17 proposed new investments. The sale was due to be closed on 30th September and the co- 18 investment was expected to be closed by 31 5t March 2009. The contracts were executed, 19 but SachsenFonds fell victim to the credit crunch and defaulted on its obligations. This 20 turned out to have serious adverse consequences for Trikona. 21 22
The third SachsenFonds transaction did not meet with the approval of Canousel, 23 Trinity's second largest shareholder. It wanted Trinity to realize assets and distribute 24 cash and objected to the fact that this transaction committed Trinity to reinvesting the 25 proceeds of the sales into five new projects. On 13th October 2008 Carrousel 26 requisitioned an extraordinary general meeting of Trinity's shareholders for the purpose 27 of resolving to reconstitute the board of directors and change the company's investment 28 policy. The requisition called for Mr Chugh and one of the 'independent directors to be 29 removed and replaced by Carrousel's nominees. Two weeks later, Trinity's board 30 announced that Mr Chugh and the independent director had resigned and been replaced 31 by two of Carrousel's executives. It was also announced that the board had committed 32 to undeliake a strategic review, which would include a review of the ongoing investment 33 policy and the strategy regarding distributions of capital. On this basis, the requisition 34 was withdrawn. 35 36
These events, and their timing, impacted adversely upon Trikona in a number of ways. 37 Firstly, Mr Chugh said that his removal from the Trinity's board led to a fundamental 7 of 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 change in the relationship with Trikona which, thereafter, exercised less and less influence over Trinity's affairs. However, there was no "takeover" of Trinity by QVT, as Mr Kalra has alleged. However, QVT did subsequently obtain representation on Trinity's board of directors when Mr Matiin Adams became its chahman in March
Secondly, Trinity's reconstituted board adopted an investment policy which emphasized the early realization of assets and return of capital to the shareholders. This inevitably meant a reduction in Trinity's NA V, with a consequential reduction in Trikona's fee income. It would also lead to a change in the role of the investment adviser, with the result that Trikona came under pressure to change the commercial terms of the Portfolio Management Agreement to its disadvantage. Thirdly, according to Messrs Chugh and Kalra, SachsenFonds attempted to avoid the consequences of its default by commencing proceedings against Trinity, Trikona and Messrs Chugh and Kalra personally, in which it claims damages of about El27 million on the basis that it was induced to enter into the two original transactions as a result of misrepresentation, deceit and fraudulent concealment. There is also a cross claim against SachsenF onds for damages arising out of its default in respect of the third transaction. Whilst Trinity's directors agree with Messrs Chugh and Kalra that SachsenF onds' allegations are unfounded, they inevitably take the position that Trikona, as Trinity's adviser, must bear responsibility if SachsenFonds should ultimately succeed. This litigation is still ongoing. Fourthly, Trinity's board subsequently relied upon Trikona's role in the SachsenFonds' transactions as a basis for alleging that it was in material breach of its obligations under the Portfolio Management Agreement, thereby giving rise to a right of termination. Its termination in December 2009 marked the end of Trikona's business ~ a result which had been anticipated by Messrs Chugh and Kalra and their staff since the first quarter of the year. Trikona responded by commencing an arbitration and the only issue was what, if any, compensation it was entitled to receive from Trinity. 28
The arbitration was eventually settled pursuant to the terms of Arbitration Settlement 29 Agreement and Ancillaty Settlement Agreement executed in February 2011. In brief 30 summaty, the parties agreed that Trinity would pay compensation to Trikona, having a 31 potential total value of about £14 million. This compensation package comprised cash of 32 £7.5 million, the transfer of Trinity's shares in a subsidiary which owns the Sankalp 33 project in India (having an attributed value of £2.5 million) and a share of any profit on 34 the sale of celiain assets during a specified period. The Ancillary Settlement Agreement 35 recognizes that the patiies (including Messrs Chugh and Kah-a personally) have a 36 common interest in defending the claims made against them by SachsenFonds. It 37 therefore comprises a mutual defence agreement whereby the patiies agree to co-operate 38 and assist each other in putting forward a common defence. Trinity agreed to indemnify 39 Messrs Chugh and Kalra against all liabilities etc (including legal fees) arising in 40 connection with the performance by Trikona of its services relating to the 8 of 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 SachsenFonds' transactions. Most importantly, by Clause 2.1 all the parties, including Messrs Chugh and Kalra, unconditionally and irrevocably waived and settled all claims of whatsoever nature which they had against any other party arising out of or in connection with the arbitration proceedings. Notwithstanding that Mr Kalra signed the Arbitration Settlement Agreement on behalf of Trikona and signed the Ancillary Settlement Agreement, both personally and on behalf Trikona, he is now suing Mr Chugh (originally derivatively, but now in the name of Trikona) for US$210 million in connection with the arbitration proceeding. He contends that, ifhe had not been "forced" to execute these settlement agreements by Mr Chugh, Trikona would have succeeded in the arbitration on all points and would have obtained an award wOlih US$210 million more than the amount for which they settled. The remedy sought is the forfeiture of all the Petitioners' shares in Trikona on the basis Mr Chugh should be treated as the true beneficial owner of the shares and that his family !lusts are a sham. There is not a shred of evidence tending to suggest that Mr Kalra was "forced" to enter into the settlement agreements. Having listened to his explanation for pursuing this claim in the Connecticut proceedings,6 I conclude that it is a thoroughly dishonest abuse of process. 19 The Petitioners' Case for Making a Winding Up Order 20 21
Counsel for the Petitioners puts their case on the basis that there are a series of related 22 grounds on which the Couti should conclude that it is just and equitable to make a 23 winding up order. He says that it is oppressive for the Connecticut proceedings to be 24 pursued at the expense of the company, when its only purpose is to enable Mr Kalra to 25 seize ownership of the company. Mr Kalra has misused and misappropriated the 26 company's money and will continue to do so unless restrained by this Couti. There has 27 been a complete and irreversible loss of trust between Messrs Chugh and Kalra, such 28 that it has been wholly impossible for Trikona to be managed as a quasi patinership for 29 at least the past three years. There is deadlock at the shareholder level. Trikona has not 30 carried on any business since 2009, apati from managing the litigation resulting from the 31 termination of its business and there is no prospect of any new business being put into 32 the company by either party. Mr Kalra's seizure of managerial control was unjustifiable 33 and contrary to the Petitioners' legitimate expectation that there would be joint control at 34 board level. Mr Kalra's behavior since seizing control demonstrates that Trikona's 35 affairs will not be wound up properly in the absence of a winding up order and the 36 appointment of qualified insolvency practitioners. There is evidence to sUppOli each of 37 these grounds. Taken together, the case for making a winding up order is overwhelming. 6 I use the expression "the Connecticut proceedings" to mean the action (No.11-cv-2015-MRK) commenced on 2Sth December 2011 in the US District Court for the District of Connecticut entitled Trikona Advisers Limited et 01- v- Rakshitt Chugh et 01 and the action (No. X03-HHD-CV-12-6030347-S) commenced on 21" February 2012 in the Superior Court of Fairfield entitled Trikona Advisers Limited -v- Haida Investments Ltd et 01. /0" 90f17 1 2 3 Loss of substratum 4 5
The expression "loss of substratum" is used to describe, inter alia, the principle that a 6 winding up order will be made on the just and equitable ground, upon the petition of a 7 shareholder, where it is shown that it has become practically impossible for a company 8 to carryon the business for which it was established. See: In Re Heriot Aji'ican Trade 9 Finance Fund Limited [2011] (1) CILR 1. A combination of factors leads me to the 10 conclusion that it is now practically impossible for Trikona to carryon the business for 11 which it was established or, indeed, any other business. First, the company's original 12 business was lost during 2009 in the way in which I have described, largely as a result of 13 economic forces beyond the control of Messrs Chugh and Kalra. Second, the possibility 14 of creating a new business has never really existed, because the working relationship 15 between Mr Chugh and Mr Kalra has broken down completely. Managing the litigation 16 resulting from the termination of its business has been Trikona's only activity during the 17 past three years and it is wholly unrealistic to suggest that the company will ever do 18 anything else. 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
It is clear ii'om the contemporaneous documentary evidence that Messrs Chugh and Kalra both recognized, fi'om early 2009 onwards, that their business relationship was at an end and that they would set up their own separate businesses. They also recognized that, subject to resolving the litigation with SachsenFonds and Trinity, the assets and liabilities of Trikona needed to be divided between the shareholders and they did in fact engage in extensive negotiations, but unfortunately failed to reach any comprehensive agreement. By September 2009, Messrs Chugh and Kalra had set up their own businesses under the names Peak XV and Duranta respectively. However, Mr Kalra is now adopting an entirely different position. His written evidence is that Trikona "continues to be a viable business" which "has had a great past and can still have a very successful future". This statement is not merely euphoric. It is disingenuous. In an e- mail to Mr Chugh sent on 2nd November 2011, he said "Since March [2011] ... I've been trying to shut down as much as possible. [Trikona] does not have any operating business or revenue". Mr Kalra confirmed the accuracy of this statement in a deposition given on 4th August 2012 in connection with the Connecticut proceedings. He went on to confirm that the statement in his e-mail meant shutting down the whole of the Trikona group because "we didn't have Trinity and [SachsenFonds] anymore". Whilst I am sure that Mr Chugh and Mr Kalra are both perfectly capable of establishing new viable businesses of their own, they are not prepared to do so as "quasi partners" through Trikona. I do not think that Mr Kalra genuinely believes that Trikona has a potentially viable business. He admitted in evidence that he would not in fact put an new business 'Ij-~O C"'" 10 of 17 tt I n ~ ~"lN 1 2 3 4 5 6 into Trikona so long as it is jointly owned by the Petitioners. This is tantamount to admitting that Trikona's business is at an end and that it needs to be wound up, which is in fact the position adopted by "NIl' Kalra prior to the presentation of the winding up petition. 7 Mr Chugh's exclusion from the board of directors 8 9
It is admitted (in paragraphs 12 and 13 of the amended defence) that Trikona should be 10 characterized as a quasi partnership between Messrs Chugh and Kalra and that Mr 11 Chugh (and the Petitioners whom he represents) had a "legitimate expectation of being 12 involved in [Trikona's] management". Mr Kalra's case is that, fi'om 2009 onwards, there 13 could be no such expectation that Mr Chugh would continue to be involved in the 14 management as a director of the company because "he sought to sabotage the business 15 of [Trikona 1 and acted in egregious breach of his fiduciary duties." This allegation is 16 wholly unsuppOlied by any credible evidence. 17 18
From its inception Trikona's board of directors comprised Mr Chugh and Mr Kalra and 19 two so-called independent directors, namely Mr Ravindra Chitnis (nominated by the 20 Petitioners) and Mr Saurabh Killa (nominated by the Respondent). Messrs Chugh and 21 Kalra are described in various documents as "co-managing directors" and the evidence 22 is that they did in fact manage Trikona jointly. The two independent directors appear to 23 have played no role in Trikona's affairs at all. This situation changed following the 24 commencement of the Connecticut proceedings on 28th December 2011. Two weeks 25 later, on 10th January 2012 Mr Chitnis resigned as a director. He has not given evidence 26 and I do not know why he resigned at this time or whether Mr Chugh had any advance 27 warning of his intended resignation. In any event, on the following day Mr Kalra seized 28 the opportunity to sign a "unanimous" written resolution by which Mr Chugh was 29 removed as a director. Mr Killa signed it on the same day. Mr Kalra's US attorneys 30 wrote to Mr Chugh on l7'h January informing him that he had been removed from the 31 board of directors. I do not think that it is necessary for me to decide whether or not this 32 written resolution was legally effective or, if not, whether it is capable of being ratified 33 at a meeting of which Mr Chugh is given notice. For present purposes, what is relevant 34 is that Mr Kalra did in fact succeed in taking control of Trikona and proceeded to treat 35 the company and its remaining assets as his own. Notwithstanding the admission that 36 Trikona should be treated as a quasi patinership in which the Petitioners had a legitimate 37 expectation of being involved in the management - which must mean having equal 38 representation on the board of directors - Mr Kalra seeks to justifY his seizure of control 39 by reference to the baseless allegations asselied against Mr Chugh in the Connecticut 40 proceedings. Mr Kalra's seizure of control had serious adverse consequences for Mr ,'!Jl r , " ".'.") 11 of 17 1 2 3 4 Chugh and the Petitioners because it enabled him to misuse the company's money for his own benefit. 5 Misuse of the company's money 6 7
Immediately after having removed Mr Chugh from Trikona's board of directors, Mr 8 Kalra proceeded to sign a series of "unanimous" written resolutions (with the assistance 9 of his nominee, Mr Killa) by which he sought to justify using Trikona's remaining cash 10 for his sole benefit. On 141h January 2012 they signed a written resolution for the 11 purpose of converting the original Connecticut proceedings from a derivative action into 12 an action by the company itself. Then, on i h February 2012, they signed off on another 13 written resolution to the effect that Trikona would reimburse $80,061.00 which had been 14 incurred by APL in legal fees. For the reasons explained in Quin J's judgment delivered 15 on 91h March 2012 and in my own ruling delivered on 41h September 2012, the 16 Connecticut proceedings and the proceedings on this winding up petition must be treated 17 as "shareholder litigation", the cost of which should be bourne by the protagonists and 18 not the company. (See also Re Freerider Limited [2009] CILR 604). Between 31 sl 19 December 2011 and 30lh August 2012 a total of $785,000 of the company's money was 20 paid to Adler Pollock & Sheehan P.C., the attorneys instructed by Mr Kalra in 21 connection with the Connecticut proceedings.7 This was a misuse of Trikona's money 22 which continued notwithstanding the terms of Quin J's judgment. Of these sums, 23 $445,000 was paid after Mr Kalra was put on notice that this Court would not permit 24 shareholder litigation to be financed at the expense of the company. 25 26
The winding up petition was presented and served on 13tll Februmy 2012. Three days 27 later, on 161h February 2012, Mr Kalra caused Trikona to enter into a ten year 28 consultancy agreement with a company called Beachside LLC, which he had 29 incorporated solely for the purpose of receiving fees on his behalf. The agreement 30 provides for Beachside LLC to receive a fee of $20,000 per month, reimbursement of 31 expenses and a performance fee calculated at 20% of the receivables from prosecuting 32 litigation (against Mr Chugh et al) and the savings achieved by defending litigation 33 (against SachsenFonds). Mr Kalra sought to justify this transaction by signing another 34 written resolution which contains a lengthy, self-serving statement to the effect that he is 35 devoting substantial time and effort in connection with prosecuting the Connecticut 36 proceedings, defending the SachsenF onds proceedings and various other matters for 37 which it is agreed that he should be compensated. It was put to Mr Kalra that this was 7 Mr Michael C. Gilleran, a partner of Adler Pollock & Sheehan, P.c., swore an affidavit in which he said that his firm had billed Trikona a total of $745,804.02 between 27" January and 151h June 2012, of which $659,522.06 had been paid. The Barclays bank statements reflect that Trikona paid a total of $785,000 and £40,000 to his firm between 31 December 2011 and 30 August 2012. 12 of 17 1 2 3 4 5 6 7 8 blatantly improper self-dealing. His response is that professional managers are entitled to be paid for their services and that the amount payable is good value. He did not seek to explain why he should have the benefit of a ten year term, save to say that the terms were based upon the Portfolio Management Agreement between Trikona and Trinity. I regard this consultancy agreement, which was signed after the presentation of the winding up petition and without notice to Mr Chugh, as a means of misappropriating Trikona's money. 9
On 21 5t February 2012 Mr Kalra and Mr Killa signed another lengthy, self-serving 10 written resolution by which Trikona resolved that - 11 12 " .. the Company hereby authorizes payment to Mr Kalra of an additional twenty percent (20%) of 13 all assets of [Trikona] and any proceeds of litigation settlements paid or payable to [Trikona], over 14 and above any other compensation or fees [Trikona] has agreed to pay to Mr Kalra, including 15 payment to any company with which he is associated such as Beachside LLC." 16 17 The justification for this decision, stated in paragraph 16 of the resolution, is that it 18 constitutes the implementation of a decision allegedly made on 22nd June 2010 by the 19 Collegium of Advisers ("COA") set up by Messrs Chugh and Kalra pursuant to a 20 memorandum of understanding signed by them four days earlier on 16th June. The COA 21 comprised four members - two nominated by Mr Chugh and two nominated by Mr Kalra. 22 Its terms of reference were twofold. It was to assist in settling the issues then being 23 arbitrated/litigated against Trinity and SachsenFonds. It was also to assist in the 24 negotiations, then ongoing between Mr Chugh and Mr Kalra, to divide up the net assets of 25 Trikona between them or, more accurately, between the corporate shareholders whom they 26 represented. The memorandum of understanding reflected that Messrs Chugh and Kalra 27 had agreed that 40% of the NA V should be allocated to each of them and the remaining 28 balance of 20% was to be disbursed to either of them in any propOliion that the COA may 29 deem fit. The COA was to have sole discretion in this regard and its decision was to be 30 binding on the parties. This was a mechanism for dealing with Mr Kalra's argument that 31 the Petitioners should receive less than their nominal 50% share of Trikona's NAV 32 because "Mr Chugh had not pulled his weight" and that Mr Kalra had borne a greater 33 share of the burden of management. It is worth noting that the terms of reference do not 34 relate to arbitrating allegations of "sabotaging the business", "stealing the assets" or 35 "acting in egregious breach of fiduciary duty". These allegations came later, although 36 some of the matters now relied upon by Mr Kalra had already taken place and were known 37 to him at the time he signed this memorandum of understanding. 38 39
On 22nd June, less than a week after the memorandum of understanding had been signed, 40 the COA sent an e-mail to Messrs Chugh and Kalra entitled Minutes of First Meeting of 41 eOA. Paragraphs 2 and 3 of these minutes stated- 42 13 of 17 1 2 3 4 5 6 7 8 9 10 "2. In considering the incentive amount under paragraph h of the MoU, the CoA recognizes and will take into account the major contribution made by [Mr Kalra] in the growth of the business over the last two years while deciding on the incentive to be paid to [Mr Kalra]. Any of the incentive amount not disbursed will revert to [Trikona].
Dr. P.S. Rana will be Chairman of the CoA. While the CoA will normally act through consensus on all matters, if consensus cannot be achieved the CoA will take a vote in which case the matter will be decided by majority. In the case of deadlock the Chainnan shall have the casting vote. " 11 It must have been obvious to Mr Kalra that paragraph 2 of these minutes did not mean that 12 the COA had made any actual decision, let alone a decision to award to him the whole of 13 the 20% over which it was given a discretionary power. Neveliheless, in his written 14 resolution signed on 21st Feblumy 2012, this is exactly what Mr Kalra assClied. His 15 position is that he and Mr Killa signed the written resolution in order to implement the 16 decision of the COA (made 21 months earlier) because Mr Chugh had refused to do so. In 17 fact, Mr Chugh's objection related to the decision to appoint Mr Rana as chairman of the 18 COA with a casting vote. Not surprisingly, Mr Chugh believed that the decision to give 19 Mr Kalra's nominees voting control undermined the whole purpose of the COA. On 8th 20 March 2012, the very day on which Quin J heard the application for directions, Mr Kalra 21 paid himself £750,000 £i'om Trikona's bank account. This is said to represent his extra 22 20% share of the cash element of the money paid by Trinity pursuant to the Arbitration 23 Settlement Agreement. 24 25
None of these written resolutions were disclosed to Mr Chugh at the time they were 26 signed. They came to light in October 2012 when Mr Kalra disclosed Trikona's bank 27 statement in response to the order for discovery which I made on 23 rd August 2012. Mr 28 Chugh's attorneys wrote to all four members of the COA on 26th October 2012 asking 29 them to confirm whether or not they had ever decided to make any award. They responded 30 three days later stating that "There has been no formal declaration/decision under para (f) 31 of the MoU of 16 June 2010 till date." Mr Kalra must have known that the COA had not 32 in fact made ally decision to award 20% of Trikona's NAV to him and he must have 33 known that his interpretation of paragraph 2 of the minutes would not be accepted by the 34 COA, let alone Mr Chugh. He also knew that the payment of £750,000 would come to 35 light if he complied with my order for discovery. He therefore made a further attempt to 36 justifY having taken this money by signing off on another written resolution on 19th 37 October 2012. It contains another lengthy self serving narrative explaining that he 38 deserves an extra 20% of the economic benefits of Trikona's business (which effectively 39 means an extra 20% of its NA V) regardless of the fact that the COA never made any 40 award in his favour. The explanatory narrative ends (in paragraph 18) with the following 41 conclusion- 42 140f17 1 2 3 4 "Thus, the Board specifically finds and recognizes, regardless of the e~A's fmdings and actions, the substantial additional effort and contribution which Kalra made to [Trikona's] business and therefore that he is entitled to an additional 20% of the economic benefits of [Trikona's] business." 5 Having listened to Mr Kalra's oral explanation for these events, I have come to the 6 conclusion that he will do whatever it takes, no matter how dishonest, to ensure that Mr 7 Chugh and the Petitioners are excluded fi'om any share in Trikona's remaining NAV. In 8 these circumstances, the Petitioners are entitled to a winding up order. 9 10 11 The Respondent's Defence to the Winding Up Petition 12 13
Counsel for the Respondent focused the defence almost entirely upon the proposition that 14 Mr Chugh had acted in breach of fiduciary duty by "sabotaging" Trikona's business and 15 "stealing" its assets in the manner alleged in the Connecticut proceedings. Thus, 16 notwithstanding the admission that Trikona is properly characterized as a quasi 17 partnership, it was said that Mr Chugh's removal from the board of directors was a 18 legitimate response to his egregious breaches of duty. To the extent that Mr Kalra accepts 19 that Trikona has no business, he not only blames Mr Chugh for its loss but alleges that an 20 additional $210 million in compensation would have been recovered from Trinity if Mr 21 Chugh had not "forced" him to sign the settlement agreements. 22 23
At the hearing of the Petitioners' application for the appointment of provisional liquidators 24 on 22nd and 23 rd August, I concluded that they had made out a prima facie case for a 25 winding up order. I came to this conclusion on the basis that the company had ceased to 26 carry on business in 2009 and that no new business will be introduced so long as it is 27 jointly owned. However, on the basis of the affidavit evidence then before the COUli, I felt 28 unable to express even a tentative conclusion about the relative merits of the claims and 29 counterclaims which Messrs Chugh and Kalra are making against each other. Having now 30 considered the underlying documentary evidence and listened to them being cross- 31 examined over a period of four days, I have come to the firm conclusion that there is no 32 merit whatsoever in the allegations made against Mr Chugh in both this proceeding and 33 the Connecticut proceedings. I consider Mr Kalra's evidence to be wholly umeliable. He 34 gave evidence in the manner of an advocate - apparently convinced of the merits of his 35 case, but wholly blind to the realities of what actually happened. His original complaint 36 was that Mr Chugh was "failing to pull his weight" in sharing the burden of managing the 37 litigation against Trinity and SachsenFonds. It seems to me that Mr Chugh responded to 38 this allegation by agreeing to establish the COA on the basis that, having conducted an 39 objective investigation, it would award up to 20% of the NA V to either of them based 40 upon their relative contributions. This did not work because the COA resolved to appoint 41 one of Mr Kalra's representatives as chairman with a casting vote. I think that Mr Kalra 42 became increasingly fiustrated with his inability to bring Trikona's affairs to a conclusion, 15 of 17 1 or establish an agreed mechanism for bringing them to a conclusion. I think that Mr 2 Chugh's analysis of his subsequent behavior is right. The allegations made in the 3 Connecticut proceedings have been contrived to pressurize Mr Chugh (and through him 4 the Petitioners) to abandon their interest in Trikona. 5 6
Both Mr Chugh and Mr Kalra started their own separate business in October 2009. This 7 was not done secretly. They were attempting to divide up both assets and liabilities 8 between them. It is not in dispute that Mr Kalra wanted to close Trikona's London office 9 whereas Mr Chugh wanted to use it for his new business. There may be some scope for 10 argument about the allocation of costs as between Peak VX and Trikona, but there is no 11 legitimate basis for convelting such a dispute into an allegation that Mr Chugh "stole" the 12 assets. Similarly, it is not in dispute that from October 2009 onwards Mr Chugh made use 13 of Trikona's computerized database for the purposes of his own business. I accept his 14 evidence that he provided a copy of the database, as it then existed, to Mr Kalra in the 15 expectation that Mr Kalra would use and build on his version for the purposes of his own 16 business. The allegation, made almost two years later, that Mr Kalra "stole" a valuable 17 asset belonging to Trikona is untrue. The allegations that Mr Chugh "sabotaged" 18 Trikona's business by supporting QVT and Carrousel in their moves to secure 19 representation on Trinity's board of directors and then change its investment strategy, is 20 patently untrue. It is inherently unlikely that Mr Chugh would act against his own interest 21 in this way and there is no evidence that he did so. The allegation that he "forced" Mr 22 Kalra to sign the Deed of Exclusivity and the subsequent settlement agreements is simply 23 a fabrication. 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41
Finally, I turn to Mr Kalra's revised purchase offer. On 1st August 2012 the RespondentIMr Kalra made a written offer to the effect that Trikona itself would buy back (or redeem) the Petitioner's 50% shareholding at a "fair value" price to be determined by an expert assessor. The proposed mechanism for determining the "fair value" of the shares was reproduced from that which was approved by the House of Lords in O'Neill )I. Phillips [1999] 1 WLR 1092, the factual circumstances of which were wholly different from the present case. For the reasons given in my Ruling dated 4th September 2012, I did not consider that this "buy-out offer" constituted a reasonable alternative remedy for the Petitioners. On 1ih December 2012, the respondent put forward another "buy-out offer", also based upon the proposition that the shares would be purchased at "fair value" to be assessed by an independent expert. I had previously concluded that this valuation methodology would be inappropriate. I am still of the same opinion. There is no business capable of being valued. Apart from the subsidiary which owns the Sankalp project in India (acquired from Trinity pursuant to the Arbitration Settlement) and whatever cash is left, Trikona's NAV depends upon the outcome of various claims which are not susceptible to a valuation exercise of the kind contemplated by the House of Lords in a 'Neill -)1- Phillips. I do not see how the Petitioners could reasonably ~~I rl,pected to take ',,', .I .. 16 of 17 1 this offer seriously. Having listened to Mr Kalra's evidence, it is impossible to avoid the 2 conclusion that he has no genuine intention of paying anything for the Petitioners' shares. 3 4 Conclusion 5 6
In my judgment there are overwhelming grounds for making a winding up order in this 7 case. Since there is no objection to the qualified insolvency practitioners nominated by the 8 Petitioners, I will therefore appoint Mr Mark Longbottom and Mr Jess Shakespear of 9 Kinetic Partners (Cayman) Limited as joint official liquidators. I will hear submissions 10 about what directions should be given to them. 11 12
Finally, I order that the Petitioners' costs shall be paid by the Respondents, such costs to 13 be taxed if not agreed. 14 15 16 17 18 19 20 21 The Honourable Mr. Justice Andrew J. Jones QC 22 JUDGE OF THE GRAND COURT 17 of 17