Diva XL Pte Ltd v Goenka Mahesh Kumar

MPH Rubin J:

[1] This action, which was heard by me on 15 March and 12 May 2004, is a sequel to an earlier High Court action in Suit No 929 of 2002. The earlier action was heard and determined by Choo Han Teck J in favour of the plaintiff, Diva XL Pte Ltd (“Diva”), against a Singapore-incorporated company known as Lalasis Trading Pte Ltd (“Lalasis”), in April 2003: see [2003] SGHC 97.

[2] Both proceedings arose from the same set of circumstances and were instituted by the same plaintiff, Diva. The defendant in the earlier suit was Lalasis. In the action before me, the defendant is one Goenka Mahesh Kumar (“Goenka”) who is the managing director as well as the substantial shareholder of Lalasis. The records placed before me showed that he holds 999,999 out of the 1,167,200 shares issued by Lalasis and the remaining 167,201 shares are registered in his wife’s name.

[3] In the earlier suit, Diva’s claim against Lalasis was for the refund of moneys paid as deposits by Diva to Lalasis in respect of two contracts for the purchase of a product described as “Pentium P4 CPU” (“CPUs”) by Diva from Lalasis. There was also a claim by Diva against Lalasis for damages for breach of contract.

[4] In the event, Choo J awarded judgment in favour of Diva for a sum of $384,930 representing the deposits and damages in the sums of US$43,200 and $100. The facts that gave rise to the proceedings before Choo J are comprehensively set out in the judgment delivered by him on 25 April 2003. The background facts pertaining to both actions can be summarised as follows.

[5] Diva is a Singapore company engaged in the business of wholesale trading, importing and exporting of electronics and computer parts. Lalasis is a Singapore company engaged in the business of selling electronics and computer parts.

[6] Diva entered into two contracts to purchase CPUs from Lalasis. Diva paid $950,000 in respect of the first contract (in two tranches – $100,000 on 11 June 2002 and $850,000 on 12 June 2002) and another sum of $250,000 in respect of the second contract.

[7] Had Lalasis performed the two contracts, a balance of $87,204.85 would have been payable to Lalasis by Diva in connection with the first contract and a sum of $692,796.80 in relation to the second contract.

[8] Lalasis only delivered 2,000 CPUs out of the total of 3,000 CPUs on the first contract and delivered none of the 2,880 CPUs under the second contract. Lalasis, however, refunded $100,000 and US$15,000 (equivalent to S$26,400) to Diva, leaving a net balance of $382,130.10.

[10] Lalasis denied owing Diva the amounts claimed. Its defence was as follows:

(a) There was an inter-linked relationship between one Zirco International and Lalasis (both businesses were substantially owned and controlled by Goenka).

(b) Zirco International had done business with a Singapore company called Fifth Avenue Electronics Pte Ltd (“Fifth Avenue”). The principal person who ran the business for Fifth Avenue was one Rajesh Kumar Jain (“Kumar”).

(c) As a result of some business dealings, Kumar’s Fifth Avenue business owed Zirco International $348,988.20 as at 31 December 2000. Kumar agreed to pay off his debt in the near future.

(d) Later, Kumar approached Lalasis on a business deal to purchase CPUs. Goenka insisted that Kumar settle his debts (ie, the outstanding accounts with Zirco International) before Lalasis would agree to enter into fresh deals with Kumar. Kumar agreed to do so.

(e) Kumar paid $950,000 ($100,000 on 11 June 2002 and $850,000 on 12 June 2002) to Lalasis against which Lalasis set off $348,988.20 for the debt owed by Kumar. The remaining sum was taken as advance payment for the CPUs which Diva had contracted for as a result of which Diva had short paid Lalasis and was in breach of the two contracts.

[11] In the event, Choo J did not accept Lalasis’ account of the events or, for that matter, that of Goenka and gave judgment in favour of Diva in the sums of $384,930 and damages of US$43,200 and $100.

[12] Following the judgment, Diva’s attempts to receive payment on the judgment from Lalasis were to no avail. Having failed to obtain satisfaction through garnishee proceedings as well as judgment summons, Diva commenced the present action against Goenka.

[13] Diva’s present action against Goenka is founded in tort – conspiracy and alternatively conversion. After stating the background, Diva averred in paras 11 to 15 of its statement of claim as follows:

[14] Goenka denied Diva’s claim. After maintaining, contrary to the express findings by Choo J in the earlier action, that Lalasis was not in breach of any contract, he averred in paras 11 to 14 of his defence as follows:

[15] In so far as is relevant, Mirthipati Subramanyam, a director of Diva, who was the sole witness for Diva, said in his evidence-in-chief as follows:

[16] In so far as the evidence of the defendant, Goenka, is concerned, his averments in paras 5 to 8, the first sentence of para 10 and para 21 of his affidavit of evidence-in-chief bear reproduction and they read as follows:

[17] In cross-examination, Goenka claimed that although the records reflected the transfer of the deposit sums to his personal account, there was no actual remittance of the moneys to him. It was merely a journal entry and he had since then caused it to be reversed. With a view to substantiating his statements, Goenka referred to some printouts.[1] The actual account books or original documents were, however, not produced to the court. He claimed that the book entries transferring the subject moneys to him were made in several tranches on 12 June 2002 and the reverse entries were made sometime after Choo J awarded judgment against Lalasis in the earlier action. In this connection, his answers as to the date on which the reverse entry was made[2] were noticeably ambivalent. First he said it was in December 2002, but when his attention was directed to the fact that the judgment in the earlier action was handed down in April 2003 he back-footed and claimed that the reverse entries were made about one week after the judgment.

[18] The action by Diva in the present suit is founded on the premise that Goenka consciously and deliberately interfered with the contracts between Diva and Lalasis, diverted the deposits paid by Diva wrongfully to his credit and thereby caused Lalasis not to perform its obligations to Diva. Counsel for Diva submitted that such an action on the part of Goenka, the person who ostensibly controlled the will and the entire spectrum of Lalasis’ operations, read in the context of Goenka’s blatant boast that he did so as the alter ego of Lalasis, rendered him personally liable for the wrong caused and the loss suffered by Diva.

[19] Goenka’s counsel endeavoured to downplay the actions of his client. He contended that Goenka acted in good faith as a director of Lalasis and as a director he had to act cautiously and in the interests of Lalasis to ensure that full payment was received before goods were delivered to Diva. Another argument advanced by Goenka’s counsel was that what Goenka did was no more than a book transaction and he had since then caused the entries to be reversed in the books of Lalasis. In this connection, he made reference to DB-1 to 5, all of them dated 31 December 2002. I must say presently that despite the fact that these documents were not agreed documents, Goenka did not call the maker of the entries or call any evidence to substantiate the authenticity of the alleged transactions contained in those documents. If it was true that he gave instructions to his employees to reverse the book entries after Choo J handed down his decision in April 2003, in my opinion the documents reflecting the various entries could not have been dated 31 December 2002. Furthermore, when queried as to what happened to the sums paid by Diva if they were in fact not taken out, Goenka could only reply feebly that Lalasis was experiencing some cash flow problems. I should add here that I found his explanations in this regard to be false and insincere.

[20] The legal and factual ingredients necessary to establish the tort of inducing or procuring a breach of contract are adequately set out by the authors of Bullen & Leake & Jacob’s Precedents of Pleadings (14th Ed, 2001) at para 51-01 as follows:

[21] In respect of the first and fourth ingredients above, there was hardly any dispute over them. In any event, having regard to the evidence and pleadings, my finding was that Goenka was fully cognisant of the contracts as well as their terms and that there was indeed loss and damage occasioned to Diva. As regards the second and third elements, it was submitted on behalf of Goenka that Diva had not adduced any evidence of deliberate conduct on the part of Goenka to breach the contracts made between Diva and Lalasis. Counsel for Goenka contended that Goenka’s actions were carried out in good faith and that there was no evidence that Goenka had applied or used moneys paid or converted them to his use.

[22] In my determination, Goenka, who by his own admission is the alter ego of Lalasis, knowingly and deliberately interfered with the contracts referred to. His claim that he did it in good faith was found by me to be patently hypocritical, for the records clearly evince to the court that he was motivated by personal gain over legal consequences. As pointed out by Lord Macnaughten in Quinn v Leathem [1901] AC 495 at 510, “it is a violation of legal right to interfere with contractual relations recognised by law if there be no sufficient justification for the interference”. In Singapore, in Tribune Investment Trust Inc v Soosan Trading Co Ltd [2000] 3 SLR 405 at [17], the Court of Appeal held that to found a sustainable cause of action for the tort of inducing a breach of contract, a two- fold requirement needs to be satisfied: first, the plaintiff must show that the procurer acted with the requisite knowledge of the existence of the contract; and second, that the procurer intended to interfere with its performance. Intention to this end is to be determined objectively.

[23] The issue whether there was any contractual relationship between Diva and Lalasis had already been determined by Choo J in the earlier action. As to the issue whether there was sufficient justification for the interference by Goenka with the contractual relationship, I was unable to agree with the arguments of Goenka’s counsel that Goenka was acting in good faith, and that his intention was to protect the interests of Lalasis and nothing more. I found that Goenka was clearly interposing his personal interests and gain over the contractual obligations between Diva and Lalasis. The Court of Appeal in Gabriel Peter & Partners v Wee Chong Jin [1998] 1 SLR 374 at 387, [33] stated that “where directors order an act by the company which amounts to a tort by the company, they may be liable as joint tortfeasors on the ground that they have procured or directed the wrong to be done”. In the case at hand, Goenka, by deliberately causing Lalasis not to perform its obligations to Diva, is liable for the actionable wrongs committed by him.

[24] Goenka was seen to be twisting and turning in the witness box and I found his testimony substantially unreliable. Goenka’s claim that the transfer of the moneys from Lalasis was merely a book transaction and that the entries had since been reversed was not supported by any credible, let alone admissible, evidence. In my view, there was clear, deliberate and direct unjustified interference by Goenka with the contracts referred to. His claim that the moneys were still with Lalasis was not supported by any valid evidence. A compelling inference was that Goenka spirited the deposit sums from Lalasis, hence the inability of Lalasis to pay its creditors.

[1]Pages 195 to 199 of the bundle of affidavits as well as DB-1 to 5.

[2]Pages 80–82 of the Notes of Evidence.