



COURT OF APPEAL FOR ONTARIO

CITATION: Karia Estate v. Karia, 2022 ONCA
    256

DATE: 20220325

DOCKET: C69773

Pardu, Paciocco and Thorburn
    JJ.A.

In the Matter of the Bankruptcy
    of Aashish Karia, also known as Ash Karia of the City of Hamilton, in the
    Province of Ontario

BETWEEN

A.
    Farber & Partners Inc., trustee of the estate of Ash Karia, a bankrupt

Moving Party (Respondent)

and

Ash
    Karia

Respondent
    (Appellant)

Matthew R. Harris,
    for the appellant

Colby Linthwaite,
    for the respondent

Heard: March 21,
    2022 by video conference

On appeal from the
    order of Justice Laurence A. Pattillo of the Superior Court of Justice, dated
    August 4, 2021, with reasons reported at 2021 ONSC 5377
.

REASONS
    FOR DECISION

OVERVIEW

[1]

This is an appeal of the motion judges order (i)
    setting aside the appellant Ash Karia (Karia)s discharge from bankruptcy and
    (ii) declaring that all issued and outstanding shares of 2397043 Ontario Ltd.,
    operating as Bindaas Capital (Bindaas), be vested in the Trustee in
    bankruptcy.

[2]

The hearing below centred on the question of
    Karias involvement with Bindaas. The motion judge held that Bindaas was owned
    by Karia, the shares were after-acquired property of Karias estate, and Karia
    breached his duty under s. 158(a) of the
Bankruptcy and Insolvency Act
,
    R.S.C. 1985 c. B-3by failing to deliver the shares to the trustee after his
    discharge from bankruptcy. The court annulled Karias discharge from bankruptcy
    pursuant to s. 180(1) of the
BIA
.

[3]

The appellants raise the following issues on
    appeal:

a.

Whether the Trustee had legal authority to bring
    the application before the motion judge;

b.

Whether the motion judge considered his legal
    authority not to annul the discharge;

c.

Whether the motion judge gave too much weight to
    the endorsements of other judges;

d.

Whether the motion judge imputed a finding of
    fraud when material facts were in dispute and a trial of the issues should have
    been ordered; and

e.

Whether the motion judge failed to consider prejudice
    to Karia.

[4]

For the reasons that follow, the appeal is
    dismissed.

[5]

In order to address the issues, it is important
    to understand the actions of the parties after the appellant, Karia declared
    bankruptcy.


BACKGROUND FACTS

The Appellant, Karias Bankruptcy

[6]

On February 7, 2008, Karia filed an assignment
    in bankruptcy. In so doing, he swore that there were effectively no realizable
    assets and the total unsecured debt was $1,230,697. The proven unsecured claims
    were later determined to be $1,442,759.19. On May 6, 2009, the Registrar in
    Bankruptcy made an order granting Karia a discharge conditional upon his paying
    $24,000 to the estate within a period of 48 months. Karia did not make the
    payments within the 48-month period.

[7]

On March 14, 2018, almost nine years after the
    order for conditional discharge had been made, and a month after the
    disallowance, Karia satisfied the condition by paying the last of the $24,000
    plus interest to the Trustee, Paddon + Yorke Inc., in a lump sum of $4,661.33.
    The Trustees final statement of receipts and disbursements showed total
    receipts of $26,314.31. The Registrar in Bankruptcy granted Karia an absolute
    discharge on May 4, 2018.

The Incorporation of Bindaas in 2013

[8]

In November 2013, while Karia was still assigned
    into bankruptcy, Bindaas was incorporated. Bindaas was a mortgage lender, and
    within a few years, had extended loans of nearly $15 million.

Karias Brothers Bankruptcy in 2017 and
    Discovery of Karias Undisclosed Interest in Bindaas in 2018

[9]

On October 11, 2017, Karias brother, Amit Karia
    became bankrupt. Bindaas filed a proof of claim in the amount of $664,322.42,
    as a creditor of Karias brother. The claim was disallowed.

[10]

In May 2018, Bindaas appealed the disallowance,
    and in support of the appeal, Karia (who was by then discharged from bankruptcy),
    swore two affidavits. In the first, he said, I am the sole officer and
    director of the moving party, 2397043 Ontario Inc. operating as Bindaas
    Capital. He also admitted in his affidavit that Bindaas, had loaned a total
    of $14,461,612.70 to a total of 88 borrowers. The Trustees representative,
    John Delo swore an affidavit in response to Karias First Affidavit in which he
    attested that:

At no time during the period from the date of
    the Ash Conditional Order until the date of said final payment did Ash Karia
    advise PYI [the Trustee] (i) of his incorporation of or his involvement in
    Bindaas Capital [] (ii) that he purported to be a director of Bindaas Capital
    (contrary to the provisions of section 118 of the
Business Corporations Act
(Ontario); or that (iii) Ash Karia as an undischarged bankrupt was through
    Bindaas Capital in carriage and control of $14,461,612.70 in mortgage
    financing.

[11]

Karia then swore a reply affidavit in which he attested
    that I am the sole officer and director of the moving party, 2397043 Ontario
    Inc. operating as Bindaas  On December 7, 2018, Karia was cross-examined on
    his affidavits. During cross-examination, Karia made the following admissions:

Q.
Okay. Are you a
    shareholder of Bindaas Capital?

A.
On this corporation
    yes.

Q. Youre one of the owners of the company?

A. Yes.

Q. Are you the only owner of the company?

A. Im the only owner.

Q. Youre the only owner, okay. Do you recall
    offhand how many shares have been issued?

A. No.



Q. At the time you incorporated Bindaas
    Capital, were you an undischarged bankrupt?

A. I recall, yes, I was.

Q. And on
    the Corporate Profile Report that weve marked as Exhibit A, youre indicated
    as being the only director of Bindaas Capital; is that correct?

A. Yes.

[12]

The corporation profile report for Bindaas shows
    that Karia was appointed the sole officer and director of Bindaas on the date
    of its incorporation. Karia had not told the Trustee of his own bankruptcy or told
    the Court that he was a director of Bindaas while he was an undischarged
    bankrupt. Section 118(1) of the
Business Corporations Act
(Ontario), R.S.O.
    1990, c. B.16 disqualifies an undischarged bankrupt from being a director of a
    corporation.

[13]

On February 22, 2019, the Trustee wrote Karia to
    say that [i]f you were a shareholder of [Bindaas] during the period [February
    7, 2008 through May 4, 2018, during which Karia was an undischarged bankrupt]
    then the value of the company must be paid into your estate. In April 2019,
    the Trustee wrote to demand that Karia deliver up the shares in Bindaas as
    after-acquired property, in accordance with subsection 67(1)(c) of the
BIA
.
    Karia did not do so.

[14]

In August 2019, the Trustee advised him that the
    shares formed part of his estate as a bankrupt and demanded that he deliver the
    shares to his estate as they were after acquired property that vested in the Trustee
    pursuant to s. 67(1)(c) of the
BIA
. Later that month, all bankrupt
    estates administered by the Trustee were transferred to the new trustee, A.
    Farber & Partners Inc. Karia claimed that while he was a director at the
    time of incorporation (in November 2013) he resigned the same day and therefore
    was not and was never a shareholder of Bindaas Capital. He claimed the shares
    belonged to his wife, Ella.

The Motion Judges Decision

[15]

On September 5, 2019, the Trustee brought a
    motion seeking to have the shares declared after-acquired property of the
    estate and to have Karias discharge from bankruptcy set aside. The sole issue
    was whether the shares of Bindaas were owned by Karia before his discharge
    thereby amounting to after-acquired property which should have been turned over
    to the Trustee for the benefit of creditors.

[16]

In support of the motion, Karia and his wife,
    Ella, each deposed that the shares of Bindaas had been owned exclusively by
    Ella since incorporation. Karia further deposed that while he was listed as a
    director at the time of incorporation, it was an accident which was immediately
    corrected. He submitted he was only ever a signing officer of Bindaas. He
    further argued that the Trustee was bringing the motion simply to enrich
    itself. In her affidavit, Ella claimed that she had been a director and the
    sole shareholder of Bindaas since its incorporation.

[17]

However, the record contains corporation profile
    reports for Bindaas as of March 27, 2014, May 12, 2016, October 23, 2017, and
    October 28, 2019. At no point prior to 2019 (well after the Trustee made its
    demand) was Ella registered as a director. The corporation profile reports before
    2019 list Karia as the companys only director and officer. On
    cross-examination, neither Karia nor Ella could recall anything of significance
    about Bindaas history or finances. Karia undertook to produce Bindaas tax
    returns, financial statements, and bank statements. Each of them undertook to
    produce the file of Bindaas accountant, after it had been vetted for privilege
    by his counsel. However, neither produced any financial statements, bank
    statement or the accountants file.

[18]

Both Karia and Ella refused to appear for
    cross-examinations claiming their internet connection was insufficient to
    enable them to do so, nor did they answer undertakings to produce business
    records.

[19]

On February 8, 2021, the motion was therefore
    adjourned by Koehnen J. who directed that the accountant deliver his file to
    Karias lawyer, who was to vet it for privilege and pass it to the Trustee.
    Ultimately, the appellant provided Bindaas Minute Book and portions of tax
    returns to the Trustee in March 2021.

[20]

The motion was heard in May of 2021. The motion
    judge carefully reviewed the evidence and expressly rejected the evidence of
    Karia and his wife Ella. He did so for the following reasons:

It follows that I reject the evidence of both Karia
    and his wife in respect of the ownership of the shares of 239 during the period
    of the bankruptcy for a number of reasons. First, the Bankrupts [Karias] explanation
    for his evidence during his cross examination in the Amit bankruptcy that he
    owned the shares was to protect his wife but that answer makes no sense as
    there is no evidence to suggest there was anything to protect her from.

Further, I do not accept the documentation
    produced by the Bankrupt [Karia] purporting to show Ella as the sole shareholder
    and director of 239. In my view, it has been altered or created after the fact
    by the Bankrupt [Karia] to show that Ella was the sole shareholder and director
    of 239.

As noted, 239's tax returns were produced in
    two batches in February and March 2021. Schedule 50 of 2013 tax return, which
    was produced by the Bankrupt [Karia] on February 3, 2021, shows the Bankrupt [Karia]
    as owning 100% of the shares. In March 2021, the Bankrupt [Karia] also produced
    the 2013 tax return but this time Schedule 50 listed the shareholder as Ella.
    Further, the form used indicates at the bottom that it was the 2020 version. As
    a result, in the absence of producing the accountants file as directed by Justice
    Koehnen, I do not accept any of the financial information produced by the
    Bankrupt [Karia].

Further, the corporate profile reports filed
    with the province as at March 27, 2014, May 12, 2016 and on October 2, 2017
    show the Bankrupt [Karia] as the sole director of 239 since incorporation. It
    was not until a notice of change was filed with the province on May 22, 2019
    that Ella was first shown as a director of 239. Neither the Bankrupt [Karia] or
    Ella would or could say who filed the change notice.

With respect to 239's Minute Book, the
    Bankrupt [Karia] has had possession of it since 2013. On cross-examination, he
    admitted that he prepared the resolutions and documents in the Minute Book.
    Based on the altered corporate tax returns, I have no hesitation in concluding
    that the information in the Minute Book purporting to show Ella as the sole
    shareholder and director of 239 since incorporation, has also been fabricated
    by the Bankrupt [Karia] well after the fact.

I also do not accept Ellas evidence that she
    was the sole shareholder and the director of 239 from incorporation. In
    addition to my findings in respect to the documentary evidence, her evidence
    did not hold up during cross-examination.

Nor is there any evidence, beyond the Bankrupts
    [Karias] bald assertion, that the Trustee has brought its motion to enrich
    itself. In my view, the Trustee is doing nothing but its duty in pursuing the
    Bankrupts [Karias] after acquired property for the benefit of Bankrupts creditors.

[21]

He therefore concluded that the documentation was
    either altered or created after the fact by Karia to show that his wife was
    the sole shareholder and director of the corporation and that, at all material
    times, [Karia] owned the shares of 239 while a bankrupt. He therefore
    reject[ed] the evidence of both Karia and his wife in respect of the ownership
    of the shares during the bankruptcy.

[22]

In view of these findings, the motion judge was obliged
    by virtue of s. 67(1)(c) of
the
BIA
to declare the shares to be after-acquired property of the estate of Karia. Section
    67(1)(c) provides that the property of a bankrupt divisible among his
    creditors shall comprise (c) all property wherever situated of the bankrupt at
    the date of the bankruptcy or that may be acquired by or devolve on the
    bankrupt before their discharge. The motion judge then exercised his
    discretion under s. 180(1) to annul Karias discharge, on the basis that Karia
    had breached his statutory duty to deliver the shares to his trustee, even
    after a demand had been made.

ANALYSIS OF THE ISSUES AND CONCLUSION

The Standard of Review

[23]

Making a factual conclusion, of any kind, is
    inextricably linked with assigning weight to evidence, and thus attracts a
    deferential standard of review of palpable and overriding error:
Housen v.
    Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 24-25. An
    appellate court will not interfere with the trial judge's findings of fact
    unless it can plainly identify the imputed error, and that error is shown to
    have affected the result.:
L. (H.) v. Canada (Attorney General)
, 2005
    SCC 25, [2005] 1 S.C.R. 401, at para. 55. Similarly, [a]n appellate court is
    only justified in interfering with a lower court judges exercise of discretion
    if that judge misdirected himself or if his decision is so clearly wrong as to
    amount to an injustice:
Sattva Capital Corp. v. Creston Moly Corp.
,
    2014 SCC 53, [2014] 2 S.C.R. 633, at para. 95.

Analysis of the Issues Raised by the
    Appellant, Karia

[24]

Assuming without deciding that leave to appeal
    is not required and that this appeal is therefore properly before this court, for
    the reasons that follow, the appeal is dismissed.

[25]

First, contrary to the appellants submission,
    the Trustee was never discharged and could properly bring the motion. Karias
    estates were administered by the Trustee Paddon + Yorke Inc. (who was the Trustee
    when Karia declared bankruptcy) and later transferred to A. Farber &
    Partners Inc. As there were no inspectors appointed, the Trustee could institute
    or defend a legal proceeding relating to Karias property: ss. 30(1)(d),
BIA
.

[26]

Second, contrary to Karias submission, the
    motion judge did not believe that he was required to annul Karias discharge
    from bankruptcy after finding that the shares were after-acquired property. He noted
    that the decision was discretionary by writing: the court
may
annul a
    discharge where a bankrupt fails to perform the duties imposed on him under the
BIA

after the discharge,

pursuant to s. 180(1) of the
BIA
. He elected to exercise his discretion to do so, given his
    conclusion that Karia had fabricated documents to suggest he did not have an
    ownership interest in Bindaas when he did. There is no basis on which to
    interfere with the motion judges exercise of discretion, as he neither
    misdirected himself nor did he render a decision that was clearly wrong:
Sattva
, at para.

95.

[27]

Third, the motion judge did not allow the
    endorsements in prior orders to colour his decision as the appellant suggests.
    He properly outlined the history of this matter, and in so doing, set out the
    prior orders leading to the motion before him. Importantly, the issue of fraud
    was not addressed in any of the prior orders.

[28]

Fourth, the appellants have not directly
    challenged any of the above-described findings of fact. They have simply suggested
    that the motion judge should have weighed the evidence differently, or that the
    matter should have proceeded to trial. Moreover, Karias assertion that he did
    not breach his duty to the Trustee to deliver all property under his possession
    and control as the shares belonged to his wife, is belied by the fact that the
    motion judge found that the only documents he relied on to support his
    assertion, were altered or created after the fact by Karia. The motion judge therefore
    annulled Karias discharge on the basis that Karia failed to perform his duties
    pursuant to s. 180(1), not on the basis that he committed fraud.

[29]

Karia has not challenged the finding that he
    fabricated evidence, or suggested another reason for doing what he did. Nor
    were any other material facts adduced. There was no palpable and overriding
    error in the motion judges reasoning; the only point at issue was the
    interpretation of the evidence as a whole. There is therefore no basis to set
    aside the order:
Jaegli Enterprises Ltd. v. Taylor
, [1981] 2 S.C.R. 2,
    at p. 4, cited in
Housen
at para. 29.

[30]

Fifth, Karias discharge was annulled pursuant
    to
s.180(1)

of the
BIA
after Karia was found to have failed to perform the duties imposed on him by the
    Act.

There is no legal requirement that prejudice caused by the
    annulment be a major consideration as the appellants suggest.

[31]

Once a breach of Karias duty has been found,
    the decision to annul is discretionary. In any event, there is no evidence of
    unfair prejudice caused by the Order.

[32]

For these reasons, the appeal is dismissed. Costs
    of this appeal are awarded to the respondent in the amount of $ 12,000 as
    agreed by the parties.

G.
    Pardu J.A.

David
    M. Paciocco J.A.

J.A.
    Thorburn J.A.


