Gobind Mohan v. The Queen
Read the full judgment text of CACC 455/1980 on BabelCite. This Court of Appeal judgment.
1. The appellant was tried before the District Court upon eighteen charges taken under various sections of the Theft Ordinance and the Companies Ordinance. Three of the charges involve two other persons who were tried together with him but who were acquitted at the end of the case. The appellant was convicted upon all charges. He received sentences totalling five and a half years' imprisonment. He appealed against his convictions only on Charges 1 to 14 inclusive and against the sentences impose
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CACC000455/1980
----------------- Coram: McMullin & Li, JJ.A. & Silke, J. Date of Judgment: 5th December, 1980. ----------------- JUDGMENT ----------------- McMullin, J.A. : 1. The appellant was tried before the District Court upon eighteen charges taken under various sections of the Theft Ordinance and the Companies Ordinance. Three of the charges involve two other persons who were tried together with him but who were acquitted at the end of the case. The appellant was convicted upon all charges. He received sentences totalling five and a half years' imprisonment. He appealed against his convictions only on Charges 1 to 14 inclusive and against the sentences imposed upon all charges. At the conclusion of the hearing of the appeal we allowed the appeals against the convictions on the first six charges upon which sentences totalling one and a half years' imprisonment had been inposed and this left a total of three and a half years' imprisonment which following pleas in mitigation we have reduced drastically to nine months concurrent on all the subsisting charges. Brief reasons were given for the conclusions to which we have come and counsel were advised that we would give our reasons in extended form later. 2. The Mohan Family Business was founded by the appellant's father some fourteen years ago. It started as a modest tailoring business which became Mohan's Ltd. in 1954. The business prospered steadily and diversified into several associated private limited companies dealing in properties and investments usually though not invariably under the Mohan name. These included Mohan's Marketing Ltd., Mohan's Retails Ltd. and Mohan's Property and Investment Ltd. The latter company was incorporated in 1970. 3. In 1968 Mr. D.S. Mohan the founder of the family business handed over control to his only son, the appellant. Mr. Manu Chulani, who had joined Mohan's Ltd. in 1964 at the age of eighteen was promoted in 1969 to the position of General Manager. He was entrusted with the detail of the day to day running of the business and was in charge of accounts. He and the appellant had authority to sign cheques in relation to the business of the various companies. It is common ground however that neither the appellant nor Mr. Chulani had any professional knowledge of accountancy or company law. 4. About the year 1972 there developed a boom in the local stock market which induced a comparatively brief period of a quite remarkable financial euphoria in the business community generally and extending widely amongst the general public so that for many months each new issue of shares by public companies became at once the subject of a brisk trade in buying and selling, such sales being usually attended by a further buoyant rise in price of the shares. These somewhat frenetic conditions did not last and in 1973 the market generally cooled with a sharp down turn in share prices. 5. The Mohan Group of Companies was, by common assent, in a flourishing financial condition about this time and the appellant decided that the time was ripe for taking the shares of one of his companies to the public market. He sought the advice of Mr. B.S. McElney, the Senior Partner of Messrs. Johnson, Stokes & Master, who had acted for the Mohan's Group in previous years, and who thus became the legal adviser for the new scheme. Messrs. Peat, Marwick, Mitchell & Co. were engaged as auditors and the merchant bankers, wardley Ltd., as financial advisers and underwriters. Some fifteen meetings were held with these advisers during the three months prior to the floatation of the company which became a public company on 14th April 1973 Messrs. Peat, Marwick, Mitchell & Co. being represented by Mr. Osborne, a partner in that firm and Wardleys by Mr. King-Holford. The company chosen for this purpose was Mohan's Property and Investment Ltd. (M.P.I.L.) the intention being that all the other private companies would eventually be absorbed by the public company. 6. From the outset the appellant was anxious that the company should go upon the market with an issued share capital of $50,000,000.00 although it would appear that he was advised by Mr. McElney that a more modest figure in the region of $25,000,000.00 or $30,000,000.00 would be adequate for the purpose. However, since he adhered to his more ambitious aim he was advised to acquire certain properties, to improve the profile of the company's assets in the prospectus, and also to get rid of a large and valuable portfolio of shares held by the company in other public companies. These latter being subject to the fluctuation to the market were thought to be a less attractive asset than property of a more stable kind. 7. In accordance with this advice the appellant purchased a property known as Herald Luxim Building and another known as Tai Gardens. These properties were purchased with loans from the Hongkong & Shanghai Bank through the good offices of Mr. McElney who introduced the appellant to a Mr. Purves of that bank. These and some other properties purchased about the same time were injected into M.P.I.L. against the floatation of the shares in the public company. The debts thus incurred were set to the account of the appellant and of his father and of Mohan's Ltd. so that the new company would enter upon its life free from such liability. 8. The authorised share capital of M.P.I.L. was $75,000,000.00. It was the intention that three-quarters of the 50,000,00 issued shares would be taken up by various of the family members and directors of the Mohan family companies. This meant that 37.5 million would be subscribed by the Mohan interests and 12.5 million would be made available to the public upon the floatation. The Mohan family resources were extensively committed to this scheme, but even then there was a short-fall of approximately 1.05 million which was necessary for the purchase of the remainder of the 37.5 million shares, which in common with those to be made available to the public were to be floated at a par value of $1 per share. 9. To raise this amount Mr. Manu Chulani on behalf of the appellant entered into a curious arrangement with the United Commercial Bank. A sum of $1,055,000.00 was placed upon deposit by M.P.I.L. with that bank. The deposit receipt was pledged to the bank and retained by it and the bank then advanced a similar sum to Mohan's Ltd. by way of overdraft. From the overdraft thus guaranteed Mohan's Ltd. then paid by cheque a sum of $1,056,781.73 to Mohan's Property and Investment Ltd. for the allotment of M.P.I.L. shares to the appellant. All of these manoeuvres took place upon 23rd March 1973. Mr. Mathew for the appellant concedes that these were purely book transactions, no actual cash passed to the bank and the shares were purchased by means of a bank credit or loan guaranteed by the deposit of 1.055 million by M.P.I.L. with the bank. 10. A similar circular movement of cheques was employed in the disposal of the company's portfolio of shares. The appellant considered that this portfolio had a considerable potential and he was unwilling simply to dispose of it for money or other property to strangers. He wished that these shares should be retained in family hands. Mr. McElney advised the sale of these shares to a shelf company held by his own firm, Messrs. Johnson, Stokes & Master, a company of which the appellant's wife would be the sole shareholder and nominal proprietor. This company, Fenchurch Finance Ltd., had of course no capital or resources of its own. The shares in the portfolio were valued at that time at about $10 million. By two cheques, one on the 10th and one on the 11th March, M.P.I.L. then paid a sum totalling $8.7 million into the account of Fenchurch Finance with the United Commercial Bank. This still left Fenchurch some $2 million short of the funds necessary to purchase the portfolio. On the same day - the 11th April - M.P.I.L. paid a cheque to to the United Commercial Bank in the sum of $2,100,000.00 to be placed upon fixed deposit, this deposit being pledged in the same way as on the previous occasion to back overdraft facilities for an equal amount to Mohan's Ltd. Thus backed, Mohan's Ltd. drew upon that facility paying a cheque of $2,100,000.00 into the account of Fenchurch Finance upon the same day. Upon that very day Fenchurch Finance paid a cheque for $4,486,780.00 into the account of M.P.I.L. with the United Commercial Bank towards the purchase of the portfolio shares. 11. On the 17th April Mr. Chulani once again at the instance of the appellant placed the sum of $1,200,000.00 by way of cheque on fixed deposit terms with the United Commercial Bank, that sum being once more pledged against overdraft facilities to Mohan's Ltd. The sum thus deposited was part of a sum of $1,682,465.00 received from Messrs. Li and Fung Ltd. on the 14th April by M.P.I.L. Mohan's Ltd. drew against this overdraft facility in the sum of $964,809.00 in favour of the Pearl Stock Co. for the purchase of Hutchison shares. 12. These three fixed deposits with the United Commercial Bank constitute the substance of the first six charges. The most serious of these charges are the first, third and fifth taken under section 21(1) of the Theft Ordinance, Cap. 210. Charges 2, 4 and 6 are alternative charges taken under the Companies Ordinance. 13. The prospectus for the new company was the product of discussions between the advisers and Chulani and the appellant during the many meetings in the three months prior to the floatation of the company. The production and wording, printing and distribution and advertising of the prospectus were in the hands of Wardley Ltd. and Messrs. Peat, Marwick & Mitchell were responsible for the preparation and auditing of the accounts which were an integral part of the contents. Mr. King-Holford of the former company and Mr. Osborne of the latter were the advisers particularly charged with these duties. Mr. McElney, who admitted to having a paternalistic interest in the fortune of the appellant for some years, was general adviser upon legal matters. Although the advisers had perforce to rely on Mr. Chulani or Mr. Mohan for information as to the company's assets and affairs it was left to them to compile the prospectus in accordance with such information and to see that its layout and contents conformed with legal requirements and normal commercial practice relevant to the publication of such documents. It was conceded that neither Mr. Chulani nor the appellant had any experience in such matters and Mr. McElney in cross-examination agreed that so far as the prospectus was concerned the appellant never challenged the advisers and left everything entirely to them. 14. The prospectus was eventually published on the 24th March 1973. On page 1 of the prospectus under the heading "Indebtedness" appears the following statement-
15. It is conceded by the defence that the three pledged deposits are nowhere revealed in the prospectus as the backing for loans to Mohan's Ltd. Indeed, it is conceded that the only item which roughly corresponds to the total of those loans appears on page ten of the prospectus described as "Cash at bank". It is not contested that that is an inaccurate and misleading representation or that the deposits should have been disclosed as to their true nature. 16. What the appellant and, also, Mr. Chulani have maintained adamantly throughout is that the advisers were told about and were aware of the existence of at least the first and second of those deposits, and that since no objection had been made to this manner of financing by these expert advisers, the appellant and his lieutenant had assumed that this manner of displaying the company's assets was in accordance with the usual practice and did not infringe the law. 17. The advisers, for their part, denied any knowledge of these deposits. They were unanimous that the first deposit which had been made prior to the 31st March at least should have been disclosed in such a way as to indicate its true nature. Mr. King-Holford and Mr. Grindey of the Registrar-General's Department took the view that all three deposits should have been disclosed. 18. The first charge concerns the deposit of 1.05 million made prior to the 31st March. In respect of that the appellant is charged with having concurred in issuing the prospectus with the statement which has been set out above knowing it to be false and for the purpose of inducing investors to purchase the shares. 19. The third charge relates to the $2,100,000.00 deposit made on the 11th March. In that charge, it is once more said that he intended to induce persons to become investors in M.P.I.L. but there is no reference to the specific statement which is said to have been false, since that statement only covers the period prior to the 31st March. In this charge it is said that the failure to disclose the later fixed deposits caused the prospectus to be misleading to that extent. 20. The fifth charge relates to the $1,200,000.00 deposit made on the 17th April with the same knowledge and intent as that stated in the third charge. 21. The second charge (alternate to the first) is taken under section 40A(1) of the Companies Ordinance and alleges simply that the appellant authorized the issue of the prospectus which included the untrue statement. 22. The fourth and sixth charges (alternates to the third and fifth) are laid under section 38(1) and (18) and Paragraph 3 of Part I of the Third Schedule of the Companies Ordinance. These charged the appellant with being knowingly a party to the issue of the prospectus when the same did not contain sufficient particulars and information to enable a reasonable person to form a valid and justifiable opinion of the shares and the financial condition and profitability of the company at the time of the issue of the prospectus. The alternate charges make no reference to the intention to induce or knowledge of untruth or falsity. 23. Mr. Hamilton sought to uphold primarily the convictions under the Theft Ordinance. He conceded that the judge was wrong to have convicted upon all the six counts and he says that if the convictions under the Theft Ordinance counts are upset those under the Companies Ordinance must at any rate remain. The trial judge found that the appellant, with intent to induce persons to invest in the company, had knowingly published false or misleading matter in the prospectus. The appellant's case was not only that he was in the hands of his advisers in respect of the contents of the prospectus and its propriety but also that he had consulted together with them as to the prospects of the shares upon the market and that none of the advisers had been less optimistic than to forecast that the shares floated at a par value of $1 each would rapidly reach a value of at least $3 per share. Had this in fact happened it is obvious that all the appellant's worries would have been over. The great volume of outstanding debt laid to his door and that of his private companies and his relatives could over a period of time have been fully liquidated leaving the family fortune considerably enriched beyond what it had previously been. 24. On Charges 1, 3 and 5 the vital matter was whether or not the evidence disclosed that the appellant had permitted the issue of the prospectus in this form with a dishonest intent. The judge took the view that the appellant in concert with his lieutenant Chulani had imposed upon the advisers and kept from them knowledge necessary to make the prospectus an honest document. Earlier on in the judgment, and prior to dealing with the prospectus evidence in detail, he makes the unequivocal finding that the advisers had no knowledge of the facts relating to any of the charges against the appellant. Mr. Mathew complains that no reason is given for thus choosing parts of Mr. Chulani's evidence and rejecting those that favoured the appellant. It is a valid criticism but it would not be sufficient on its own to vitiate any of the findings for, as Mr. Hamilton points out, a judge may find himself in a position of simply having to decide which witness has told him the truth about a given matter, no judge is obliged to say that a witness has been truthful in all matters simply because he has found him truthful in some. 25. The real strength of the defence on these charges, however, rests in the manner in which the judge dealt with the question of intention. There are three findings which render his treatment of this vital matter unsatisfactory. The advisers were cross-examined closely as to their opinion of the prospects of the shares upon the market. Mr. McElney denied that he had ever given an opinion upon the subject and Mr. King-Holford merely said that he was cautiously optimistic. As against this was the appellant's story, that everybody had been optimistic, (Mr. McElney, he described as "bullish") and he said that $3 was the lowest figure that anybody suggested as a likely ceiling for the shares shortly after floatation. As to this the judge said that this evidence concerning the prospects of the floatation was wholly irrelevant to the charges. That was wrong because the whole purpose of the appellant supplying himself with experienced advisers was to assure himself of the wisdom of committing the whole family fortune to a venture which, however attractive the market may have been when the floatation was decided upon before the floatation, was nevertheless by the time of the actual floatation a highly speculative venture. There was therefore an issue to be resolved as to whether in fact he had been given advice encouraging him to commit the family finances in this way. 26. Secondly he said that although there were some discrepancies between Mr. Chulani's evidence and that of the advisers, these were matters of minor significance. That was wrong because Chulani and the advisers were wholly at odds as to whether the vital question of the deposits and their nature had been mentioned to the advisers. This touched the very core of the defence which was that the appellant did not regard what appeared in the prospectus as being dishonest or misleading since he believed himself to be in the hands of experts who were aware of what he had done and of how that was represented in the prospectus and he was thus led to believe that no impropriety had occurred. In saying what he did the judge was in effect saying that these discrepancies between Chulani and the advisers were also irrelevant. 27. Thirdly the judge found that the credibility of the advisers had not been dented. However at the hearing of the appeal Mr. Hamilton conceded that there were questionable matters in the advisers' evidence which could well have been pressed considerably further in cross-examination. He was referring especially in this regard to the entries which appeared at pp.4 and 16 of the prospectus where the disposal of the company's portfolio of shares to Fenchurch Finance is dealt with in a misleading way. Mr. Hamilton was not of course conceding that there had been any dishonesty on the part of the advisers and he contented himself with saying that perhaps they should have been more careful in their checking and presentation of the prospectus. The point here is not whether there was any impropriety in the conduct of any of the advisers but whether it was a reasonable possibility that their conduct had led the appellant to believe, as he claimed, that there was nothing improper in the manner in which the company's financial state had been disclosed in the prospectus. The statements in the prospectus which have occasioned Mr. Hamilton's comment are as follows. At p.4 it is said under the heading "History and Business":
At p. 16 paragraph (j) reads as follows :
Read together these passages suggest that there has been an out and out sale of the portfolio securities to some company or persons other than Fenchurch at a profit of $3,000,000.00 and a re-investment of part of the proceeds of that sale by way of a secured loan to Fenchurch Finance Ltd. Taxed with this matter at the trial Mr. McElney agreed that the passage on the history and business seemed to imply two transactions. He told the court that it was Wardleys who were responsible for the matter appearing at page 4 under the heading "History and Business" but that his firm were responsible for the passage which appeared at p. 16 under "Statutory and General Information". He himself had not drafted that passage, which had been done by a member of his firm, he being at the time absent in hospital. Mr. McElney did not concede that the information thus conveyed was in any way misleading. Nevertheless it is difficult to see how any prospective investor reading these passages together could readily have perceived how the company had in fact disposed of its share property, or could have been apprised of the fact that the security for the loan to Fenchurch consisted of that share property itself. Mr. Hamilton characterised these entries as strange and questionable. No such concession was made before the trial judge who did not advert to matters of this nature in considering the evidence of the advisers. Throughout their evidence was accepted unquestioningly in preference to that of the appellant even where his story was supported by that of Mr. Chulani, a witness described as convincing and truthful. 28. Mr. Osborne of Peat, Marwick & Mitchell was responsible for the parts of the prospectus dealing with the accounts of the company. He, too, gave evidence which seemed somewhat surprising. He recalled being present and taking part in the discussion which resulted in the sale of the portfolio shares to Fenchurch Finance Ltd. but said he was unaware of the financial condition of Fenchurch Finance. He was invited to comment on the accuracy of the statement at p. 4 of the prospectus and he said that he had no reason to believe that it was not accurate. He said that he was unaware of the financial condition of Fenchurch Finance. He pointed out that this statement was not in that part of the prospectus dealing with the accountant's report and said he was not concerned with the portion dealing with the history and business of the company. He said he was unaware that three deposits had been lodged as security for Mohan Ltd. overdrafts and had he known that he would have insisted that the information relevant to the first deposit of $1.05 m., made before the 31st March, be disclosed in the prospectus. He was then asked his opinion concerning the second and third deposits made after the 31st March and he replied that he did not think this would have been his concern. The matter was not taken any further with him as it might have been. It was a curious answer in view of what was contained in the accountant's report in the prospectus. At p. 10 there appears the figure of $4,380,678 described as "Cash at Bank". Upon the appeal it was conceded that this sum is roughly the total of the three fixed deposits. One must assume that if the accuracy of this item had been checked it would inevitably have led to the discovery of these deposits and to the fact that the deposit receipts were held by the bank and pledged against the advances to Mohan's Ltd. These matters do not seem to have been canvassed before the trial judge. In a judgment which was otherwise admirably careful and clear the possibility of an honest belief in the appellant that the nature of these deposits was known to his advisers and the prospectus nevertheless approved in the form in which it appeared was not considered - and this was the essence of the defence on these charges. His professed belief that there was nothing wrong in allowing the prospectus to show loans from the bank as cash in the bank rested on the certain estimate of himself and, he maintained, of his advisers, that these loans would rapidly be covered by the appreciation of his shares as soon as they hit the market. The honesty of that belief rested in its turn on the honesty of his belief that his advisers, men expert in such matters, knowing of the deposits had approved of the prospectus. Mr. McElney, himself a director of the company who took up 150,000 of its shares, had in common with the appellant and the other directors set his name to the prospectus in the knowledge that it was prefaced by a declaration to the following effect:
Dealing with his advisers principally through the mediacy of Chulani, who repeatedly said that he had never been told to hold anything back from the advisers, it may not have seemed at all unreasonable to the appellant to conclude that in putting his name to the prospectus his co-director and principal adviser had satisfied himself that all the information necessary had been obtained to justify the picture of the company and its resources as presented in the prospectus. 29. In the circumstances however it cannot be said that the defence was adequately considered and the convictions on these counts must therefore be set aside. 30. In view of what has been said already we do not think that the convictions on the alternate counts can be sustained. If there was the possibility of an honest belief that the prospectus disclosed all that the law required there were consequent possibilities of defence available to the defendant both in respect of the charges taken under section 38 and under section 40A(1) of the Companies Ordinance. Because of the view he took of the evidence as a whole none of the possible defences available under these sections were considered by the trial judge and the convictions on these counts also must be set aside. 31. We dismissed the appeals against convictions on Counts 7 to 14. These convictions although taken also under the Theft Ordinance stand upon a very different ground. When the family fortune failed owing to the collapse of the market which coincided most unfortunately with the floatation of the public company the appellant as pilot of the family fortunes was apparently induced to embark upon a series of desperate endeavours to keep his business afloat. 32. All of these charges concern the presentation of bills of exchange drawn upon various companies to two banks for the purpose of having the bills discounted. These bills purported to cover the sale of various goods to such firms. It is conceded that there were no goods, that the deals were imaginary, the bills were bogus and were supported by the usual commercial documents, all of which were equally fictitious in nature. The only defence put forward by the appellant on these counts was that the banks in question were aware of the bogus nature of the documents and were nevertheless content to oblige the appellant by discounting the bills which, to use the appellant's own phrase, were merely exercises in "window dressing". Most of the monies thus realised were used to repay debts incurred through the collapse of the M.P.I.L. adventure, although one of these amounts was actually used to pay a final dividend of that company. In the end all these bills were retired though in the main not by the alleged acceptors but by the drawers, Mohan's Retails Ltd. 33. There was no dispute that the appellant authorised these transactions although they were in each case carried out by his lieutenant Chulani. The appellant's case was that he did not believe that the banks had been deceived and that Mr. Chulani had told him that the banks were not concerned whether there were any goods in existence or not. Mr. Chulani did not support the appellant in this however. Counsel for the appellant asked Chulani whether one of the bank witnesses with whom he had dealt on one of these occasions had made any enquiries when the documents were presented to him. Objection was taken to this question by counsel for one of the other defendants and there followed a series of exchanges of a somewhat confusing nature which it is said may have resulted in counsel for the appellant failing to put to Mr. Chulani the perfectly permissible question whether he, Chulani, had told the appellant that there was this special arrangement with the bank. It was then said that the two witnesses called from the two banks concerned were not in fact the people with whom Mr. Chulani had dealt on these various occasions. Each of those witnesses confidently asserted that his bank would never have advanced money on such bogus documents. It was alleged that the failure to call the specific witnesses with whom Chulani had dealt was fatal to the convictions since it might have been that those witnesses whether with the acquiescence of his bank or not had made such an arrangement. We did not find any substance in any of the points made on behalf of the appellant in respect of these charges. The possibility that two reputable banks (the Chase Manhattan Bank and the American Express Bank) would have entered into any such arrangements was in any event remote in the extreme. If the suggestion was that the two bank officials with whom Mr. Chulani had dealt had been in a conspiracy with him and with the appellant to misuse the bank's funds that would nonetheless be a fraud upon the bank and sufficient to constitute the offence under section 17(1) of the Theft Ordinance Cap. 210. We think Mr. Hamilton was right to conclude that the whole tenor of Mr. Chulani's evidence was rather against than in favour of the idea that the banks were consenting to deal in bogus documents. Thus for example in the case of the bills presented in connection with an alleged deal with the Ess Pee Trading Co. of Singapore Mr. Chulani said that he was asked for an explanation of the fact that there was no bill of lading and he told them that the goods were being delivered from Taiwan to Singapore and that they were satisfied with this explanation. Certain other items of evidence also tell against this defence as for example the letters from the American Express Bank which appear at p. 1108 and the following pages of the Exhibit file, the tone of which gives the lie to the idea that that bank was de-ling in bogus documents. 34. Although the particular officials who had dealt with Mr. Chulani were not called, we think the judge rightly relied upon R. v. Sullivan(1) as authority for the proposition that the operation of such a deception can be proved by inference from other facts. The judge said
He also found that there was not a shred of evidence to support the contention that some of the bank officials may have conspired with the first Defendant and Mr. Chulani to carry out these transactions. These were findings which were abundantly supported by the evidence and we therefore dismissed the appeals against conviction on these charges. Representation: John Mathew, Q.C. and N. Pirie, instructed by (Hampton Winter & Glynn) for the appellant. G. Hamilton, Q.C. and Sinclair for the Crown/respondent. (1) (1945) 30 Cr. App. R. 132. |