Atkinson & Anor v Varma (aka Sanjeev Varma & Ors

The Joint Liquidators sought monetary judgments and delivery up/orders against various respondents arising from the liquidation of Grosvenor Property Developers Ltd. The principal legal issues were whether Mr Sanjiv (Sanjeev) Varma acted as a de facto and/or shadow director, whether company funds were misapplied in breach of fiduciary duties and/or trust, and whether Grosvenor Consultants FZE (GCFZE) was a knowing recipient or otherwise liable under the Insolvency Act remedies (including sections 212 and 238). The court treated the applications as a trial on the pleaded claims against respondents who had been debarred from defending.

The judge found that Mr Varma was a de facto director. On the evidence the Joint Liquidators proved misapplication of company monies by Mr Varma (including a payment of £925,000 into his personal account and a further portion of payments from the Casa account totalling £140,000 of company money). The court also concluded that GCFZE was owned/controlled by Mr Varma and was a knowing recipient of payments from the company totalling £3,122,841.75. The judge accepted various items of personal luxury spending traced to the Casa/company accounts as misapplications, but rejected numerous other asserted items where the Joint Liquidators failed to prove tracing or that the sums were company money.

The court ordered equitable compensation and entered judgment in favour of the Joint Liquidators in part, holding Mr Varma and GCFZE jointly and severally liable in respect of the sums transferred to GCFZE, awarded interest at 8% and exercised the equitable jurisdiction to award compound interest on the appropriate sums. The application against Mr Khadka for final judgment was adjourned to trial and costs were reserved.

This is a first‑instance hearing in the Insolvency and Companies List concerning Grosvenor Property Developers Ltd (in liquidation). The Joint Liquidators (the applicants) applied for judgment against several respondents alleging systematic misapplication of investor and company funds between February and October 2017. The applications were advanced largely on the basis of plea/evidence and were, in effect, a trial of the claims against respondents who had been debarred from defending for failure to comply with court directions.

• Nature of the claim / relief sought: the JLs sought judgments for equitable compensation and delivery up of company property, accounts and inquiries, interest and costs under the Insolvency Act 1986 (notably sections 212 and 238 were engaged), and general equitable relief including tracing and compound interest under the court's equitable jurisdiction (and reliance on s.35A Senior Courts Act 1981 as to interest).
• Procedural posture: the First Respondent (Mr Varma) and GCFZE had been debarred for failing to file Points of Defence in accordance with court orders; the matter proceeded over several hearing days with a mixture of witness statements, some deponents not called, and contested submissions about the effect of debarring orders on what a debarred party may properly rely upon at trial.
• Issues framed:
  • Whether Mr Varma acted as a de facto and/or shadow director of the company;
  • Whether specified sums paid out of the company's and Casa Investments Ltd accounts were company monies and were misapplied by Mr Varma (or passed to third parties) in breach of duty or trust;
  • Whether GCFZE received company monies with the requisite knowledge or, alternatively, whether transactions to it were at an undervalue;
  • Quantum of any equitable compensation and whether compound interest should be awarded;
  • Effect of debarring orders on the ability of respondents to adduce or rely on evidence.
• Court's reasoning and findings (concise):
  • The judge concluded that Mr Varma acted as a de facto director. Kennedys' file emails, the pattern of instructions, and contemporaneous dealings supported that conclusion rather than the limited scope of the written consultancy agreement.
  • The court accepted the effect of the debarring orders: debarred respondents cannot adduce or rely upon evidence to defend, although pleadings and documents remain relevant to show the ambit of dispute and any manifest errors may be pointed out by the debarred party.
  • On the tracing and misapplication issues the judge analysed the Casa and company bank statements and accepted that some identifiable payments into Casa were investor/company monies. The judge found that £925,000 was paid into Mr Varma's personal account (misapplied) and that, of the sums paid from Casa to Mr Varma totalling £450,500, the JLs proved misapplication of £140,000 on the balance of probabilities (other specific Casa payments were not proved as company monies at the relevant dates).
  • The court accepted that multiple personal luxury expenditures (examples included Harrods, Selfridges, restaurants, travel and overseas luxury spending) were misapplications traceable to the Casa/company accounts in respect of which Mr Varma was responsible; several other alleged payments were not proved and were rejected.
  • Documents and invoices relied on by Mr Varma to show that the company had acquired diamonds and jewellery from GCFZE were found unsatisfactory, there was no credible evidence of the claimed jewellery transaction or of the independent third party ("Maneet Singh") relied upon to explain the transfers, and the judge concluded GCFZE was owned/controlled by Mr Varma. On that basis GCFZE was a knowing recipient of £3,122,841.75 transferred from the company or company-controlled accounts.
  • The judge ordered equitable compensation, held GCFZE and Mr Varma jointly and severally liable in respect of the sums paid to GCFZE, and awarded interest at 8% compounded in equity on the sums for which liability was established. The application for judgment against Mr Khadka was adjourned to the main trial; costs reserved.

This is a first instance disposal. The court entered judgment in part for the Joint Liquidators. The judge held that Mr Varma was a de facto director and had misapplied company monies (including a payment of £925,000 into his personal account and proven misapplication of a further £140,000 traced from the Casa account). The court further held that Grosvenor Consultants FZE was owned/controlled by Mr Varma and was a knowing recipient of payments from the company totalling £3,122,841.75; the judge ordered equitable compensation and declared Mr Varma and GCFZE jointly and severally liable in respect of the sums transferred to GCFZE. The court awarded interest at 8% and exercised its equitable jurisdiction to order compound interest on the sums held payable. The application for judgment against Mr Khadka was adjourned to the trial and costs were reserved.