Chuhan v. Soundrarajan is a recent decision of the Ontario Superior Court of Justice that offers essential guidance on the evidentiary burden in claims brought under the Fraudulent Conveyances Act and the Ontario Business Corporations Act. The case highlights the court’s careful approach to allegations of fraudulent intent. It underscores that plaintiffs bear a strict burden to prove such claims on a balance of probabilities, even in the absence of defence evidence.
The defendants were represented by Milosevic & Associates. This ruling ultimately affirmed the principle that speculation and inference are not substitutes for proof, particularly in cases where plaintiffs allege fraudulent transfers designed to defeat creditors.
The dispute arose from a series of loans advanced in 2012 by the plaintiffs to Sandwich Box Inc. (SBI), a company co-founded by Pooniah Soundrarajan. The loans, totalling $300,000, were secured by promissory notes personally guaranteed by Soundrarajan and another business associate, Abdi Ghotb. Following default, the plaintiffs obtained a 2015 judgment for approximately $658,000, which, with accrued interest, later exceeded $2 million.
Unable to collect on the judgment, the plaintiffs launched a new action in 2016, alleging that Soundrarajan had fraudulently transferred property, corporate shares, and the company’s trademark to members of his family to shield assets from creditors. The defendants included Soundrarajan’s wife, Mangalahowry, their adult children, and three corporate entities associated with the Sandwich Box business.
The plaintiffs claimed that the defendants had deliberately devised a scheme to frustrate collection efforts and conceal assets. Specifically, they pointed to several transactions: the 2006 transfer of the Soundrarajans’ matrimonial home to Mangalahowry for no consideration; the later use of sale proceeds to purchase new family residences; the 2014 transfer of the “Sandwich Box” trademark to Mangalahowry; and the transfer of shares in The Sandwich Box (388 Richmond Street West) Inc. and The Sandwich Box (1200 Bay Street) Inc. to the couple’s son, Thiluxan.
The plaintiffs argued that these transactions bore several “badges of fraud”, including transfers to close relatives, lack of documentation, and absence of consideration, and were therefore void under section 2 of the Fraudulent Conveyances Act. They also claimed oppression under the Ontario Business Corporations Act and unjust enrichment, arguing that the family members had received assets at the plaintiffs’ expense.
The defendants denied any fraudulent intent and moved for a non-suit after the plaintiffs closed their case. A motion for non-suit is granted where, assuming all of the plaintiff’s evidence to be true, there is still insufficient proof on an essential element of the claim to establish a prima facie case.
The defence emphasized that the plaintiffs had called only two witnesses (one of the plaintiffs and Mr. Ghotb), despite having listed seven. No independent financial records, creditor testimony, or expert valuation evidence was adduced to substantiate claims of insolvency or intent to defraud. The defendants argued that the alleged “badges of fraud” were speculative and unsupported by evidence linking any of the transfers to an intent to defeat creditors.
The court agreed that the motion required the court to assume all evidence favourable to the plaintiffs but to assess whether that evidence, even taken at its highest, could establish fraudulent intent on a balance of probabilities.
The court began its analysis with section 2 of the Fraudulent Conveyances Act, which voids any conveyance made “with intent to defeat, hinder, delay or defraud creditors.” Because intent is rarely proven directly, courts often rely on circumstantial indicators known as “badges of fraud.” These can include transfers to family members, lack of consideration, secrecy, continued possession by the transferor, or timing coinciding with financial distress.
However, as the court observed, the existence of such indicators does not automatically establish fraud. Citing FL Receivables Trust 2002-A v. Cobrand Foods Ltd., she emphasized that the burden of proving fraudulent intent remains with the plaintiff throughout the trial. Even when certain suspicious facts are present, the court is not obliged to infer intent to defraud. The plaintiff must show, on a balance of probabilities, that the transferor acted with an actual intent to defeat creditors at the time of the conveyance.
The plaintiffs’ central claim focused on the 2006 transfer of the family home from Pooniah to Mangalahowry Soundrarajan. They alleged that the conveyance, made for no consideration, was an attempt to shield assets from future creditors. The defendants countered that the transfer occurred six years before the plaintiffs’ loans and was part of ordinary family and business planning.
The evidence established that some consideration supported the transfer: Mangalahowry forgave a $50,000 debt owed by her husband and assumed his share of the mortgage, valued at approximately $90,000. At the time, the couple’s business ventures were flourishing, and there was no evidence that Soundrarajan had any outstanding debts or was contemplating insolvency.
The court accepted that while the transfer was between family members and therefore raised some suspicion, the plaintiffs had failed to prove that the consideration was inadequate or that the transfer was made with intent to defraud creditors. There was no proof that Soundrarajan was insolvent, facing legal claims, or anticipating financial trouble in 2006. Therefore, the non-suit motion was granted regarding the property transfer and any tracing of sale proceeds into later real estate purchases.
A key theme throughout the judgment was the distinction between inference and speculation. The plaintiffs relied heavily on the familial nature of the transfers and the defendants’ decision not to call evidence. The court rejected the suggestion that an adverse inference should be drawn from the defence’s election not to call witnesses, noting that a non-suit motion expressly allows a defendant to rely on deficiencies in the plaintiff’s case.
Instead, the court emphasized the plaintiffs’ failure to call available witnesses who might have clarified the defendants’ financial position at the relevant times. The court concluded, “it is not possible to find any basis for a prima facie case to establish the existence of a sufficient number of badges of fraud to support an inference of fraud.” Without concrete evidence of financial distress or improper intent, the claim could not proceed.
The plaintiffs also challenged the 2014 transfer of corporate shares and the SBI trademark, alleging that both were executed to defeat creditors. The defence argued that these transactions occurred against the backdrop of a bitter shareholder dispute among Sandwich Box partners and were unrelated to any intent to defraud.
The court found that the share transfers occurred before the plaintiffs’ collection efforts and may have been part of a broader internal reorganization prompted by disputes between business partners. While she acknowledged that the timing could raise an inference of impropriety, the evidence also suggested alternative explanations. Nevertheless, applying the rule that all inferences must be drawn in favour of the plaintiffs at the non-suit stage, the court declined to dismiss the claims regarding the share and trademark transfers at that point.
At the conclusion of the full analysis, however, the court determined that there was no reliable evidence that these assets had any value or that the family members had been enriched by their transfer. While she found the transfers void as fraudulent conveyances in law, the absence of proof of monetary loss meant no damages could be awarded.
The plaintiffs also advanced alternative theories under the Ontario Business Corporations Act and the law of unjust enrichment, alleging that the defendants had benefitted from oppressive conduct and received assets without legal justification.
The court rejected these claims, noting that there was no evidence that Mangalahowry, Thiluxan, or Thivya Soundrarajan knew of the promissory notes or the plaintiffs’ status as creditors of SBI. Without knowledge of the alleged oppression, they could not be found to have knowingly received benefits from it. Similarly, there was no evidence that the transferred shares or trademark had any tangible value, precluding a finding of unjust enrichment.
The decision represents a significant victory for the defendants on the core claims. The court granted the non-suit motion in relation to the 2006 property transfer and the tracing of proceeds into subsequent homes, finding no prima facie case of fraud. Although the court formally declared the later share and trademark transfers void as fraudulent conveyances, it declined to award damages or costs, effectively leaving the parties in their existing positions.
Importantly, the court ordered that each side bear its own costs, citing the mixed outcome and the reasonableness of the positions taken by both parties. For the defendants, this meant no adverse cost exposure following a complex and multi-year litigation.
The court’s ruling provides several valuable insights for litigators and commercial clients alike.
Even when transfers to family members appear suspicious, courts will not infer fraudulent intent without concrete evidence linking the transaction to a purpose of defeating creditors.
The transfer of the matrimonial home occurred six years before the plaintiffs’ loans. Absent proof that the transferor anticipated future debts or engaged in the conveyance to shield assets from a “general class of potential future creditors,” a claim under the Fraudulent Conveyances Act will fail.
The court accepted that the assumption of mortgage debt and forgiveness of a personal loan constituted valid consideration, rejecting the plaintiffs’ argument that these arrangements were illusory.
By electing not to call evidence, the defendants successfully shifted the focus to the plaintiffs’ evidentiary deficiencies, compelling the court to apply the legal test strictly.
Allegations of fraudulent conveyance or unjust enrichment must be supported by proof that the transferred assets had actual value and that the plaintiff suffered corresponding deprivation.
The ruling in Chuhan v. Soundrarajan underscores that the Fraudulent Conveyances Act is not a blunt instrument for attacking every family or business transfer that coincides with financial difficulty. Courts require a clear causal connection between the transfer and an intent to hinder creditors. Business owners are entitled to reorganize their affairs, transfer assets within the family, or restructure ownership, provided they are not acting with the specific purpose of defeating legitimate claims.
For creditors, the decision illustrates the evidentiary hurdles of pursuing post-judgment collection through fraudulent conveyance actions. Such claims are difficult to sustain without documentation of insolvency, contemporaneous debts, or direct admissions of intent.
If you are facing allegations of fraudulent conveyance, shareholder oppression, or related commercial disputes, it is crucial to have experienced legal representation. The civil litigation lawyers at Milosevic & Associates provide strategic defence in complex litigation involving creditors’ remedies, corporate governance, and family-business conflicts. Contact us online or call (416) 916-1387 to book a consultation.
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