Re Raju v.s. Hiranandani

HCB 3738/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 3738 OF 2000

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BETWEEN

Re: Raju Vasu Hiranandani (“the Bankrupt”)

Ex parte: The Official Receiver

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Before: Master S. Kwang in Court

Date of Hearing: 31 May 2005  

Date of Judgment: 31 May 2005

Date of Handing Down Reasons for Decision: 30 July 2005

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REASONS  FOR  DECISION

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Background

1.Upon his own petition of bankruptcy, a bankruptcy order was made against the Bankrupt on 21 November 2000. Pursuant to Section 30A(1) and 2(a) of the Bankruptcy Ordinance (“the Ordinance”), if no objection was raised, the Bankrupt would have been discharged from bankruptcy on 21 November 2004. 

2.However, the Official Receiver as Trustee (“the Official Receiver) saw fit in this case to object the automatic discharge of the Bankrupt and advertised notice of objection on or about 28 June 2004.  A summons was later issued by the Official Receiver on 13 October 2004 against the Bankrupt seeking an order that the period for the discharge of the Bankrupt should cease to run. 

3.The application was first heard by Master Ho on10 November 2004.  The Bankrupt was legally represented at the hearing and had filed a Notice of Intention to Deny or Dispute the Statement of the Official Receiver and his opposing Affirmation.  In light of the opposition raised by the Bankrupt, directions were given for the Official Receiver to file and serve a further report in reply.  While adjourning the application for full arguments, an interim order was made suspending the automatic discharge pending the determination of the application (“the Interim Order”). 

4.The matter adjourned before me on 11 January 2005.  Shortly prior to the hearing, without leave of this Court, the Bankrupt filed and served a 2^nd Affirmation seeking to rely upon an opinion from an Indian lawyer in support of his opposition.  With no objection from the Official Receiver, I granted leave for the Bankrupt to file and serve his 2^nd Affirmation.  The Official Receiver initially indicated that while he did not accept the opinion of the Bankrupt’s Indian lawyer, he would not file any further report.  However, upon re-consideration, the Official Receiver eventually sought leave a file a further report in reply and I granted leave accordingly.  The hearing was further adjourned.  Since the hearing was adjourned because of the late filing of the 2^nd Affirmation of the Bankrupt, I ordered the Bankrupt to pay costs of the hearing to the Official Receiver assessed gross sum at $3,800 payable by the Bankrupt upon his discharge of his bankruptcy.

5.The matter came back to me for arguments on 31 May 2005. After hearing the submissions of both sides, I find that the Official Receiver had established his ground under Section 30A(4)(d) of the Ordinance for objecting the automatic discharge of the bankruptcy.  In exercise of my discretion, I made an order suspending the automatic discharge of the bankruptcy of the Bankrupt up to the date of the hearing (ie. 31 May 2005) and the Bankrupt be discharged from his bankruptcy on 1 June 2005.

6.The Official Receiver in this case applied for costs against the Bankrupt to be assessed gross sum by the Court.  Mr. Dissanayake on the other hand, sought costs of the hearing on 31 May 2005 against the Official Receiver. After considering the respective submission, I made no order as to costs of the application save the costs order that had been made before.

7.At the conclusion of the hearing, I indicated that I would give my reasons in writing later, which I now do.

Official Receiver’s Grounds of Objections

8.Initially, in the Report dated 13 October 2004, the Official Receiver relied upon 2 grounds in support of his objection: grounds (b) and (d) of Section 30A(4).   The Official Receiver argued that the discharge of the Bankrupt would prejudice the administration of his estate and that the conduct of the Bankrupt, either in respect of the period before or the period after the commencement of the bankruptcy, has been unsatisfactory.

9.The factual issues that the Official Receiver relied upon surrounding 2 matters: the alleged ownership by the Bankrupt in a property in India which was not disclosed in the Statement of Affairs filed by the Bankrupt and the alleged sale of the 2 shares of the Bankrupt in MDK Limited to his father-in-law before the presentation of the Petition at undervalue.

10.In respect of the purported undervalued sale of the shares of the Bankrupt in MDK Limited, at the outset of the hearing on 31 May 2005, Ms. Cheung of the Official Receiver indicated to this Court that she wished to adduce the audited account of the company for the year ended 31 March 2001 and her calculation of the alleged true value of the shares in question.  I raised my concern why these materials which would be relied upon by the Official Receiver as evidence were not filed by way of a supplemental report before the hearing.  Mr. Dissanayake for the Bankrupt also raised his objection to the calculation made by the Official Receiver.  As a result, Ms. Cheung decided to withdraw the complaint on the sale of the shares in MDK Limited at undervalue against the Bankrupt and would not adduce further evidence to prove the same as indicated.

11.The only remaining complaint is on the question of alleged ownership of a property in India by the Bankrupt.  According to the Official Receiver, he received information from a creditor that the Bankrupt signed an Indenture of Conveyance dated 26 March 1999 as purchaser of a property at 1^st Floor, Vinbhoj Bhavan, Bk. No. 184, Room No. 1, 2 & 3, Opp. Sadhubells High School, Ulhas-nagar-1, India (“the Indian Property”).  The Bankrupt failed to disclose that he was the registered owner of the Indian Property in his Statement of Affairs filed in his own Petition for bankruptcy.  When following up with the Bankrupt, he denied that he was the registered owner of the Indian Property.  The Official Receiver requested the Bankrupt to produce documents to prove his claims that he has no interests in the Indian Property but the Bankrupt failed to produce any until shortly before the hearing in January 2005 when the Bankrupt exhibited in his 2^nd Affirmation a search report and opinion of an Indian lawyer.

12.The opinion of the Indian lawyer retained by the Bankrupt confirmed that upon searching all relevant records for more than 30 years relating to the Indian Property, the Bankrupt does not possess any right, title, interest or share of any nature in respect of the Indian Property or any portion thereof.

13.The Court was told at the hearing that the Official Receiver had obtained an independent opinion from an Indian lawyer.  Apparently, such opinion did not contradict the evidence of the Bankrupt and the Official Receiver decided not to produce his own opinion evidence on this issue.  Since the Official Receiver accepted the evidence of the Bankrupt on the Indian Property, Ms. Cheung made the following concessions at the hearing:-

14.In light of the said concessions made, Ms. Cheung has sensibly withdrawn the objection under Section 30A(4)(b) of the Ordinance.

15.Ms. Cheung submitted that all along, the Bankrupt failed to give full information surrounding the execution of the Indenture of Conveyance.  While it appeared that the Indian Property was a joint family property, no explanation was made by the Bankrupt why he was asked by his father to sign the Indenture and why eventually, no consideration was paid. From a letter written by the Bankrupt dated 21 May 2001 to the Official Receiver, the Bankrupt stated that the top floor of the building was a temple which was running under a charitable organisation.  The Bankrupt further stated that his interest in the Indian Property was “void and unmovable”.  By a subsequent letter dated 10 December 2002 written by the Bankrupt in response to enquiries made by the Official Receiver, the Bankrupt replied that he believed that his uncle and sons paid rent to him as occupants of the Indian Property. According to Ms. Cheung, from the said information given by the Bankrupt, she suspected that there might be a trust arrangement or some kinds of interests in the land whereby the Bankrupt held on trust or a gift of the property by his father.  Further, Ms. Cheung submitted that the Bankrupt seemed to keep information closed to himself and such conducts were unsatisfactory.  The suspicious replies and conducts on part of the Bankrupt warranted further investigations by the Official Receiver.

The Bankrupt’s Case

16.In the 1^st Affirmation filed by the Bankrupt, he accepted that he failed to disclose the Indian Property in the Statement of Affairs.  He tried to explain that while he had signed the Indenture of Conveyance, he did not pay any money for the purchase and had not used the Indian Property.  The Indian Property was dealt with by the Bankrupt’s father and he had no interest in it.  The Bankrupt stated that he had completely forgotten that he had signed the Indenture and it was, according to him, a “completely innocent omission”.

17.The Bankrupt further explained that he was born and educated in Hong Kong and his family all along lived in Hong Kong.  Thus, he has no intention whatsoever to live in the Indian Property.

18.By the 2^nd Affirmation of the Bankrupt filed on 10 January 2005, after instructing an Indian lawyer to conduct land search on the Indian Property (I must say belatedly), he confirmed that the Indenture of Conveyance was never registered and he had no interest in the Indian Property.

19.Mr. Dissanayake in his submission advocated that the Bankrupt tried to cooperate and disclose all information he had to the Official Receiver.  There was no attempt on part of the Bankrupt to hide anything from the Official Receiver so as to hinder his investigation.  He queried what interest the Official Receiver alleged the Bankrupt had in the Indian Property in light of the opinion of the Indian lawyer and there was no evidence from the Official Receiver in support of his allegation.  In conclusion, Mr. Dissanayake submitted that it was wholly unfair to suspend the automatic discharge of the Bankrupt.

The Law

20.The legal principles applicable for suspension of automatic discharge of bankruptcy have been set out in details in various of my previous Judgments (see Re Yeung Kwok Lai [2003] 2HKLRD 45; Re Li Chiu Fun HCB 917/1999 and Re Tang Yu Hong, Eric HCB72/1999) and also Judgments of Mrs. Justice Le Pichon (as she then was) in Re Hui Hing Kwok [1993] 3 HKC 683 andRe Li Tat Kong [2000] 3HKC 360.  I do not repeat the same here. 

21.The Court of Appeal in Re Li Tat Kong [2001] 1HKC 207 agreed with the findings of Mrs. Justice Le Pichon that failure to co-operate with the trustee by failing to respond promptly and timeously to queries raised would amount to unsatisfactory conduct.

22.I have borne in my mind all these applicable principles when I decide on this matter.

Should Automatic Discharge be suspended

23.It is not in dispute that the Bankrupt had signed the Indenture of Conveyance which purported to sell his father’s interest in the Indian Property to the Bankrupt in March 1999.  The Bankrupt accepted that he failed to disclose the same in the Statement of Affairs executed in September 2000 which he verified to contain a full, true and complete statement of the Bankrupt’s affairs as at the date of its execution.  Thus, the law must have imposed a positive duty on part of the Bankrupt to fully and frankly disclose all his assets and liabilities in such statement so that the trustee can carry out proper and thorough investigation in the administration of the estate.

24.The Bankrupt’s explanation for his failure to report such transaction in the Statement of Affairs is, in my view, not acceptable.  The Indenture was signed in March 1999 and the Statement of Affairs was affirmed in September 2000.  I doubt how the Bankrupt could just forget to report especially the Indenture was dealing with an oversea property originally owned by his father.  The Bankrupt should report such transaction in the Statement of Affairs in the first place.  It was up to the trustee to investigate whether the Indenture did in fact transfer any interest to the Bankrupt.

25.On the hand, the answers given by the Bankrupt to the queries raised by the Official Receiver in his 2 letters referred in paragraph 15 above were rather vague and confusing. They rather added doubts to the minds of the Official Receiver than clarifying the issues.  The Bankrupt should give more direct and unambiguous reply to the Official Receiver to clarify his interest and title to the Indian Property and be more proactive in getting evidence himself.   The Bankrupt should at that stage at least obtain a preliminary opinion from an Indian lawyer to justify his claim that he had no interest in the Indian Property instead of leaving this matter until very late stage shortly before the substantive hearing.  I find that the complaints of the Official Receiver against the Bankrupt are justifiable.  I am satisfied that on evidence the Official Receiver is able to establish that the conducts of the Bankrupt both before and after the commencement of the bankruptcy are unsatisfactory.

26.In considering the period of the suspension, I have taken into account of the severity of the unsatisfactory conducts proved by the Official Receiver and the subsequent explanation given by the Bankrupt in course of this proceeding.  In this case, I must say that the unsatisfactory conducts on part of the Bankrupt are only minor one.  The opinion of the Indian lawyer eventually proved that the Bankrupt does not have any right, title or interest in the Indian Property.  Although Ms. Cheung tried to argue that there may still be some kinds of trust or interest that the Bankrupt may have, her argument must fail in light of the said clear and uncontradicted opinion of the Indian lawyer.  As pointed out by the Bankrupt’s solicitors, there is simply no evidence on part of the Official Receiver to prove such alleged interest.  No further investigation is required concerning the Indian Property.  I am further satisfied that arising out of the unsatisfactory conducts on part of the Bankrupt, there is no material prejudice caused to the interest of his creditors.

27.Under the interim order granted by Master Ho on 10 November 2004, the automatic discharge of the bankruptcy of the Bankrupt was suspended until determination of the summons.  Therefore, up to the date of the hearing on 31 May 2005, his period of bankruptcy has been effectively extended for a little bit more than 6 months.   In light of the minor nature of the unsatisfactory conducts involved here after the Official Receiver withdrew part of his claims at the hearing, I am prepared to exercise my discretion in this case to suspend the automatic discharge of the period of bankruptcy of the Bankrupt up to the date of the hearing on 31 May 2005 so that the Bankrupt would be discharged on 1 June 2005.

Costs

28.While the usual costs order should follow event, they are matters which are within my unfettered discretion after considering the outcome of the application and the conduct of parties in course of the proceedings.  In this case, I am not so happy with the preparation of the case by both parties.  The Bankrupt’s solicitors only produced their opinion of Indian lawyer shortly before the hearing in January 2005 which necessitated an adjournment of the hearing so that the Official Receiver can seek his own expert evidence.   On the other hand, the Official Receiver sought to adduce the audited report and his calculation of the value of the shares in MDK Limited at the hearing in May 2005 when he should have ample opportunity to file and serve a supplemental report well in advance.  Meeting with objection from the Bankrupt’s solicitors, the Official Receiver has to withdraw part of his complaint.   In the final date, the Official Receiver could only prove a minor unsatisfactory conduct on part of the Bankrupt.

29.Taking the above matters into account, I think it is fair in this case to make no order as to costs of the application save the costs order that have been made before.

Ms Karen Cheung of the Official Receiver’s Office

Mr.  S. Dissanayake of Messrs. Dissanayake & Assoicates, solicitors for the Bankrupt