CL-2025-000062 - [2025] EWHC 1506 (Comm)

Fecha: 18-Jun-2025

Bare Trust

115.

In the light of the conclusions as to express trust and Quistclose trust, this argument becomes fairly insignificant.

116.

The starting point here is the Bondholders’ claims in misrepresentation. They contend that in the Offering Circular, Eraaya made a number of material representations: (1) a representation that Eraaya intended to execute a pledge over 100% of the shares in Ebix in favour of the bondholders by 21 November 2024 (being 90 days after the Issue Date); (2) a representation that it was lawful for Eraaya to create a pledge over the Ebix shares in favour of the bondholders; (3) a representation that Eraaya intended to ensure that it would put in place a Board of the relevant composition, being of no more than seven directors, four of whom were bondholder appointees including one executive director with operational oversight over the business (“Board Composition”), and would “take and procure the taking of all corporate action required” to do so; and/or (4) a representation that Eraaya was able to put into effect the Board Composition lawfully, alternatively without requiring shareholder approval.

117.

It was not in issue that there is an argument available to the Bondholders that any such representations were false given that:

118.

The Offering Circular was dated 23 August 2024, but the VLL Loan dated 16 August 2024 stated that Eraaya was “acquiring 100% of [Ebix but] … Melanie Lane Partners Series Fund and Watch Hill Capital LLC shall be allotted 2.42% equity in [Ebix] and the balance equity shall be allotted to [Eraaya].” Therefore, there is an appearance that Eraaya knew that it would not acquire 100% of the shares of Ebix and, thus, would not be able to grant a pledge over 100% of its shares by 21 November 2024;

Since 23 August 2024, Eraaya has taken no steps to put in place the Board Composition (such as by writing to the Bondholders to request that they nominate their directors). On the contrary, it has taken steps which have made it more difficult to put in place the Board Composition (e.g. by increasing the number of Eraaya’s directors from 6 to 10 directors, none of whom is one of the Bondholders’ nominees);

There are obvious issues as to Eraaya’s ability to comply with any representation as to Board Composition. This is spoken to in Eraaya’s evidence where it asserts that there are issues concerning “the nature and statutory requirements of [Board] nominations in India”, and that directors of Indian companies are “appointed and removed by votes of the shareholders”. Those assertions appear to find an echo in the Status Quo Order materials;

The Bondholders’ case is that while they currently hold a mere equity in relation to all or part of the Unutilised Proceeds , in due course, the Bondholders may elect to rescind the relevant contracts, which will result in a bare trust arising retrospectively from the date of payment.

119.

Eraaya submitted that the proprietary claim arising cannot exist until there is an election by reference to the judgment of Potter LJ in the Court of Appeal judgment in Twinsectra [1999] 1 Lloyd’s Rep Bank 438 , 461:

“whatever the legal distinctions between “theft” and “fraud” in other areas of the law, the distinction of importance here is that between non- consensual transfers and transfers pursuant to contracts which are voidable for misrepresentation. In the latter case, the transferor may elect whether to avoid or affirm the transaction and, until he elects to avoid it, there is no constructive (resulting) trust;…”

120.

That is true, and consequently there is now no bare trust. But that possibility plainly exists. One option open to the Bondholders is to seek specific performance of various of Eraaya’s obligations under the relevant contracts. Another is potentially to opt for rescission, alternatively damages in lieu (at their election), in respect of various misrepresentations.

121.

Although the point is contingent, the effects, were that contingency to arise, would be serious. If the Bondholders elect to rescind the relevant contracts in equity for misrepresentation, the equitable title to all or most of the Unutilised Proceeds would re-vest in the Bondholders, such that: (1) GLAS will be treated as having held the relevant funds on a bare constructive trust for the Bondholders “from the outset”, being the dates that each of the Bondholders paid their share of the Unutilised Proceeds and (2) the Bondholders will obtain an equitable proprietary interest enabling them to trace and to bring a proprietary claim to vindicate their rights to their assets. If the bare trust arises retrospectively from the date(s) of payment, but the Court had already ordered Elara to give the confirmation and GLAS has paid away the Unutilised Proceeds to VLL, then the Bondholders cannot sue Eraaya or VLL for knowing receipt, despite their having notice of the Bondholders’ current “mere equity”, as the Bondholders can have no “retrospective” claim against: (1) GLAS for breach of trust; or (2) Eraaya or VLL for knowing receipt.