Court File and Parties

COURT FILE NUMBER: BK-33-2837554, BK-33-2837555 DATE: 2023/11/21

ONTARIO SUPERIOR COURT OF JUSTICE IN BANKRUPTCY AND INSOLVENCY

IN THE MATTER OF THE BANKRUPTCY OF GOVINDH JAYARAMAN AND STACEY JANE JAYARAMAN OF THE CITY OF OTTAWA, IN THE PROVINCE OF ONTARIO

RE: Pascal Tellier and Firstpower Investments Inc./Les Investissements Firstpower Inc., Plaintiffs AND Govindh Jayaraman, Defendant

BEFORE: Justice Stanley J. Kershman

COUNSEL: Gordon Douglas, counsel for the Plaintiffs, Moving Parties Eric Dwyer, counsel for the Defendant Bankrupt, Govindh Jayaraman

HEARD: August 16, 2023 in Ottawa

Decision to Lift the Stay of Proceedings

Introduction

[1] This motion is brought by Pascal Tellier and Firstpower Investments Inc./Les Investissements Firstpower Inc. (“Firstpower”) (collectively the “Moving Parties”) pursuant to s. 69.4 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, for an order declaring that ss. 69 to 69.31 of the BIA no longer apply with respect to the legal action of the Moving Parties against Govindh Jayaraman (“Bankrupt”) in Court File CV-22-89124.

[2] The Bankrupt, who is now discharged, opposes the relief sought by the Moving Parties.

Factual Background

[3] In or about 2017, Pascal Tellier met Govindh Jayaraman when he joined the Ottawa Chapter of Entrepreneurs Organization (“Organization”), a global non-profit organization for entrepreneurs. One of the requirements to join the organization was that an entrepreneur was required to have, and/or own a business that had gross revenues of a minimum of US $1,000,000 annually.

[4] Mr. Tellier and Mr. Jayaraman had discussions concerning Mr. Jayaraman’s business. Apparently, he told Mr. Tellier that he owned a successful and profitable biodiesel business that he was in the process of selling, and that this sale would generate enough funds to finance another one of his businesses, being IMBA Online Corporation (“IMBA”).

[5] In May 2018, Mr. Tellier agreed to lend Mr. Jayaraman monies that would be used as working capital for IMBA.

[6] Between May 18, 2018 and May 24, 2019, Mr. Tellier lent a total of $705,750 in the form of 12 advances by wire transfer, bank draft, and/or cheque.

[7] Another creditor, Firstpower, agreed to lend Asus Medical Corporation (“ASUS”), a company owned by Mr. Jayaraman, the sum of $50,000 on April 1, 2019. The interest rate was 20 percent per annum. The original term of the loan was two months, but the parties subsequently agreed to extend it indefinitely.

[8] Neither of the loans or advances were guaranteed by the Bankrupt.

Civil Action

[9] On April 29, 2022, the Moving Parties commenced an action against Mr. Jayaraman, ASUS, IMBA, and 1202525 Ontario Inc. (“1202525”). 1202525 is the registered owner of the real property at 23 Davidson Drive, Ottawa, Ontario (“Property”), where the Bankrupt and his family reside and which apparently is owned by the Bankrupt’s parents. The Moving Parties alleged that Mr. Jayaraman repeatedly told them that the Property was his asset.

[10] A statement of claim was issued and included details and allegations that the Bankrupt had provided incomplete, false, or misleading information about his business and personal circumstances that induced the Moving Parties to make the loans.

[11] As part of the statement of claim, it was pleaded that Mr. Jayaraman had obtained property and/or services by false pretences and/or fraudulent misrepresentation, relying on s. 178(1)(e) of the BIA.

Bankruptcy of Mr. Jayaraman

[12] On June 9, 2022, Mr. Jayaraman made an assignment in bankruptcy and Doyle Salewski Inc. was named as the Trustee in Bankruptcy.

[13] Pursuant to s. 69.3(1) of the BIA, the bankruptcy resulted in a stay of proceedings being imposed on any court actions, including the action commenced by the Moving Parties in CV-22-89124 against him. The action continues against the other named Defendants.

[14] Mr. Jayaraman was discharged from his bankruptcy on March 10, 2023.

Issue

[15] Should the stay of proceedings be lifted under s. 69.4 of the BIA as it relates to Mr. Jayaraman to allow the Moving Parties to continue the action against him?

Position of the Moving Parties

[16] The Moving Parties argue that they will be materially prejudiced by the stay of proceedings against the Bankrupt imposed by s. 69.3 of the BIA and it is also equitable on other grounds to make a declaration lifting the stay.

[17] The Moving Parties rely on the circumstances to lift the stay of proceedings as set out in Advocate Mines Ltd., Re (1984), 52 C.B.R. (N.S.) 277 (Ont. S.C.), at p. 278.

[18] The Moving Parties argue that pursuant to Francisco, Re (1995), 32 C.B.R. (3d) 29 (Ont. Gen. Div.), at para. 12, aff’d (1996), 40 C.B.R. (3d) 77 (Ont. C.A.), the circumstances set out in Advocate Mines were not an exhaustive codification of the policy underlying the BIA.

[19] The Moving Parties also rely on the case of Laing v. French and French, 2004 BCSC 851, 33 B.C.L.R. (4th) 148. The court, at para. 20, said the following:

[20] For leave to be granted on this basis, the plaintiff need only plead sufficient facts to bring its claim within one of the subsections of s. 178. It is not for the court to inquire into the merits of the action at this stage. Rather, it must assess whether it is a claim of the nature that would survive a discharge, whether it is a claim that could not succeed, and whether if it did succeed it could not result in recovery against the defendants. [Citations omitted.]

Position of the Bankrupt

[20] The Bankrupt argues that the essential test for both “false pretences” and “fraudulent misrepresentation” under s. 178(1)(e) of the BIA is whether the Bankrupt was “deceitful” in obtaining the property: Cruise Connections Canada v. Szeto, 2015 BCCA 363, 78 B.C.L.R. (5th) 82, at para. 13.

[21] The Bankrupt also relies upon the case of Yigzaw v. Ashagrie, 2019 ONSC 2474, 70 C.B.R. (6th) 322, at paras. 11-12, in which Gomery J. summarizes the applicable considerations in the context of a Motion to Lift a Stay of Proceedings under s. 69.4 of the BIA.

[22] The Bankrupt acknowledges that a creditor does not need to make out a prima facie case at this stage: Ma (Bankrupt), Re (2001), 143 O.A.C. 52 (C.A.), at para. 3.

[23] At the same time, the creditor must demonstrate that there is at least some evidence that it can prove fraud, false pretences, or other “survival” grounds: Musat (Re), 2020 ABQB 215, at para. 21.

[24] The Bankrupt argues that the Moving Parties were not misled by the Bankrupt to believe that he was “successful”, “wealthy”, the “owner of multiple profitable businesses”, and had “gross revenues of a minimum of US $1,000,000.00 per annum”. The Bankrupt argues that the Moving Parties have no documentation to support this position prior to the advance of funds.

[25] The Bankrupt argues that the Moving Parties did not conduct any meaningful due diligence prior to the release of the funds. There is no evidence of any financial statements being given or net worth statements being provided nor is there security against any property or the placement of any restriction on funds. Furthermore, he argues that the transactions were with IMBA and ASUS and that these companies were in poor financial circumstances when the funds were lent.

[26] The Bankrupt argues that there is no evidence or particulars to support the Moving Parties’ allegations that they were deceived or misled by the Bankrupt or that his ownership of the Property, payment from the sale of the business, or him providing personal guarantees were ever material to either transaction. He argues that the only evidence that is provided are the WhatsApp conversations with the Bankrupt in January 2022 and February 2022 as well as the net worth calculator dated December 13, 2021, which was provided well after the release of the funds.

[27] The Bankrupt relies on the case of Pietrzak (Re) (2016), 39 C.B.R. (6th) 145 (Ont. S.C.), which is a consumer proposal under which the creditor sought leave to lift the stay of proceedings pursuant to s. 69.4 of the BIA to proceed to judgment.

[28] At para. 13, the court said as follows:

[13] On my reading of the Statement of Claim, as presently drafted, it is not apparent that the loans were advanced based on any representations allegedly made by the Proponent with respect to the safety of the funds or as to his intention to repay the entire amount owed. There is no causal connection between the representations and the creation of the debt. It may be that the representations, if made, caused the Creditor to delay in her enforcement efforts, but I am not persuaded from the pleadings or the Creditor’s affidavit evidence that the loans were advanced as a direct result of any such representations. The allegations of fraud and deceit in the Statement of Claim are bald assertions without any particularity and without any evidence of detrimental reliance by the Creditor in advancing the loans.

[29] In addition, the Bankrupt argues that during cross-examination, Mr. Nutik on behalf of Firstpower claimed that he had evidence to support his claim and that it was, “not available right now”. Furthermore, Mr. Tellier confirmed during his cross-examination that the only evidence the Moving Parties had to support their claims against the Bankrupt and the Property was that the Bankrupt had mentioned doing some repairs to the Property and that a “trusted adviser”, whom Mr. Tellier refused to name, told them that the circumstances and timing around a mortgage transfer for the Property were suspicious.

[30] Also, the Bankrupt argues that counsel for the Moving Parties did not ask the Bankrupt about the alleged transfers of the Property or 1202525 or about the alleged false pretences or fraudulent misrepresentations at the time of the transactions.

[31] The Bankrupt argues that this was not a complex matter as alleged by the Moving Parties. Furthermore, the Bankrupt argues that Mr. Jayaraman is not a necessary part of the action and that the Moving Parties have failed to establish why he should be a necessary part of the action.

The Law

[32] Section 69.3(1) of the BIA reads as follows:

Stays of proceedings — bankruptcies

69.3 (1) Subject to subsections (1.1) and (2) and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy.

[33] Section 69.4 of the BIA reads as follows:

Court may declare that stays, etc., cease

69.4 A creditor who is affected by the operation of sections 69 to 69.31 or any other person affected by the operation of section 69.31 may apply to the court for a declaration that those sections no longer operate in respect of that creditor or person, and the court may make such a declaration, subject to any qualifications that the court considers proper, if it is satisfied

(a) that the creditor or person is likely to be materially prejudiced by the continued operation of those sections; or

(b) that it is equitable on other grounds to make such a declaration.

[34] Section 178(1)(e) of the BIA reads as follows:

Debts not released by order of discharge

178 (1) An order of discharge does not release the bankrupt from

(e) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim.

Analysis

i. Elements of Fraudulent Misrepresentation under s. 178 of the BIA

[35] The elements of a fraudulent misrepresentation for the purposes of s. 178 of the BIA are: the existence of a representation; that the representation was false; that the Bankrupt knew that the representation was false, and intended the creditor to act on it, so as to enable to Bankrupt to obtain the credit sought, and the creditor did rely on the false representation and extended the credit: Re: Berger, 2010 ONSC 4376, 70 C.B.R. (5th) 225.

[36] The courts have held that fraudulent representation requires: the making of a representation; that it was false; that it was made knowingly, without belief in its truth, or recklessly indifferent whether it was true or false; and the creditor relied on the representation and turned over the property to the debtor: Canadian Imperial Bank of Commerce v. Aksoy (1989), 75 C.B.R. (N.S.) 248 (Ont. Dist. Ct.); Re Horwitz (1984), 52 C.B.R. (N.S.) 102 (Ont. H.C.), aff’d (1985), 53 C.B.R. (N.S.) 275 (Ont. C.A.).

[37] The test for both false pretences and fraudulent misrepresentation under s. 178(1)(e) is whether the Bankrupt was deceitful in obtaining the property: Cruise Connections Canada. In this case, the property is the funds lent by the Moving Parties.

ii. Net Worth Statement

[38] The Moving Parties argue that the Net Worth Statement provided by the Bankrupt is applicable in terms of the grounds under s. 178(1)(e) of the BIA.

[39] The court notes that the Net Worth Statement is dated December 31, 2021, which is approximately 2.5 to 3 years after the funds were lent by the Moving Parties to the Bankrupt.

[40] The court finds that the Net Worth Statement cannot be relied upon by the Moving Parties to bolster their claim in relation to this motion because the Moving Parties did not rely upon that Net Worth Statement prior to lending their funds to the Bankrupt.

iii. Entrepreneurs Organization

[41] Mr. Tellier stated that he met the Bankrupt through the Organization.

[42] As part of the evidence, a copy of the Policies and Procedures Manual was produced. Paragraph 2.1 of the Policy Manual discusses the membership in the Organization. Each member must satisfy the membership criteria in order to qualify as a member.

[43] Section 2.1.2 lists the membership qualifications.

[44] At s. 2.1.7, it says that the board has the power to waive any or all membership criteria from time to time for a limited period of time for the purpose of advancing the objectives of the Organization.

[45] Mr. Tellier argues that in order for Mr. Jayaraman to have been a member of the Organization, he had to satisfy the eligibility for membership, and that he was assumed to be a qualified member.

[46] Mr. Jayaraman took the position that he had fallen on hard times and that he made no intentional misrepresentations to induce the Moving Parties to advance funds.

[47] The court finds that there is nothing in Mr. Jayaraman’s affidavit that suggests that his membership requirements were waived. Therefore, the court finds that the membership requirements applied to Mr. Jayaraman and that he had satisfied the requirements of membership in the Organization as set out in the policy manual without any waiver of those requirements.

iv. Information provided by Mr. Jayaraman

[48] Mr. Jayaraman and Mr. Tellier exchanged a series of emails. In the first email from Mr. Jayaraman dated April 25, 2018 to Mr. Tellier, the email talks about an investment package mostly dealing with IMBA.

[49] The terms of the investment are set in the April 25, 2018 email.

[50] In the email exchange, Mr. Jayaraman indicates that the current valuation of IMBA is $20,000,000. According to him, this valuation is revenue-based and based on their pipeline and contracts. The emails set out a list of various client groups that IMBA is dealing with.

[51] The email also projects revenue of at least $5,000,000 in the next year. In that case, Mr. Jayaraman states that would put the value of IMBA at $30,000,000 minimum and should hit $20,000,000 in annual sales within three years.

[52] Unofficially, he goes onto say that he thinks these projections are very low.

[53] He goes on to further state that “[b]ecause I was expecting my partner to invest next week and they cannot, there is a short term opportunity. The company doesn’t need $500,000 – but that’s the opportunity limit.”

[54] He goes on to include some marketing materials and a copy of note documents for Mr. Tellier to look at.

[55] The court notes that this email exchange occurs before the first loan by Mr. Tellier in May 2018.

[56] Notwithstanding the email exchange in April 2018, at the motion Mr. Jayaraman’s current evidence is that in April 2018 both IMBA and possibly ASUS were in poor financial circumstances. The court finds that this statement is polar opposite to the representations that he made in the emails in April 2018.

[57] The court finds that Mr. Jayaraman made representations about IMBA to at least Mr. Tellier prior to the loan of any funds. The court finds that the representations do not reflect that IMBA was in financial difficulty at the time. The court finds that Mr. Jayaraman’s representations show this to be a profitable corporation with lots of potential.

[58] As stated in Re: Berger, the elements of a fraudulent misrepresentation for the purpose of s. 178 of the BIA are: existence of a representation; that the representation was false; that the Bankrupt knew that the representation was false and intended the creditor to act on it, so as to enable the Bankrupt to obtain the credit sought; and the creditor did rely on the false representation and extended the credit.

[59] In the present case, the court finds that Mr. Jayaraman made the representations in April 2018 at minimum in relation to IMBA.

[60] Following the decisions in CIBC v. Aksoy and Re Horwitz, and based on the evidence in this case, the court finds that Mr. Jayaraman made the representations in April 2018 that were falsely made either knowingly, without belief in their truth, or recklessly indifferent as to whether the representations were true or false.

[61] The court finds that Mr. Jayaraman intended those representations to induce at least Mr. Tellier to advance monies to IMBA.

[62] Furthermore, based on the facts of this case, at least Mr. Tellier relied on those false representations as the basis on which to extend credit.

[63] The court is aware that the representations in the email exchange were made in relation to an investment in IMBA, as opposed to loans or advances to the company. The court finds that, notwithstanding that the representations were made in relation to an investment in IMBA and possibly in ASUS, the same rationale in relation to representations under s. 178 of the BIA is applicable to an advance of credit by way of loans or advances of monies, as opposed to an investment.

[64] The court is satisfied that the Moving Parties did not need to make out a prima facie case at this stage of the proceedings: Ma.

[65] The court finds that the Moving Parties have demonstrated that there is some evidence that it can prove either fraud or false pretences: Muscat.

[66] The court follows the decision taken in the case of Laing v. French and French, at para. 20, which states in part that “[f]or leave to be granted on this basis, the plaintiff need only plead sufficient facts to bring the claim within one of the subsections of s. 178.” The court does not have to inquire into the merits of the action at this stage.

[67] Therefore, based on the aforesaid analysis, the court is satisfied that it is equitable on other grounds to lift the stay of proceedings as it relates to Mr. Jayaraman. The court has considered the possible impact of lifting the stay on other creditors and on the administration of the bankruptcy as set out at para. 12 of the Yigsaw case and still finds that it is equitable on other grounds to lift the stay.

Mr. Jayaraman Being a Party to the Proceedings

[68] Mr. Jayaraman argues that he is not required to be a party to these proceedings. The court has found that the stay of proceedings is lifted as against him and accordingly the court is satisfied that Mr. Jayaraman is an appropriate party to these proceedings, and not solely as a witness. Accordingly, the court finds that Mr. Jayaraman shall be a party to these proceedings.

Conclusion

[69] The court finds that the Moving Parties’ motion to lift the stay of proceedings is successful. The court orders that pursuant to s. 69.4 the BIA, ss. 69 to 69.31 no longer operate in respect of the Moving Parties’ actions against Mr. Jayaraman in court file number CV-22-89124.

Costs

[70] Both parties have submitted cost outlines. The Applicant was successful on the motion. If the parties are unable to resolve the issue of costs within the next 14 days, then they shall obtain a date and time from the Trial Coordinator to argue the issue of costs. Each party will be allowed 10 minutes to set out their position.

Mr. Justice Stanley J. Kershman Date: November 21, 2023