Detailed Case Study: ASIC v Narain [2008] FCAFC 120 - Corporations Law

This case study analyzes the ASIC v Narain [2008] FCAFC 120 case, which involved a misleading and deceptive announcement made by Citrofresh International Limited (CIL) regarding its ability to cure HIV and the common cold. The Australian Securities and Investments Commission (ASIC) sued CIL and its managing director, Mr. Narain, alleging breaches of section 1041H and 180 of the Corporations Act 2001 (Cth). The court found Mr. Narain liable for his involvement in drafting and processing the announcement, which was deemed misleading. The judgment highlighted the importance of directors' duties to exercise care and diligence, emphasizing that the term "financial product" has a broad definition and includes a wide range of conduct. The court penalized Mr. Narain and disqualified him from acting as a director. This case serves as an important precedent, illustrating the consequences of failing to comply with directors' duties and making misleading announcements to the market, leading to civil liability.

Business and
Corporations
Law
ASIC v Narain [2008] FCAFC 120

Introduction
• In ASIC v Narain case, the ASIC claimed that
the corporation had made a misleading and
deceptive announcement to the ASX.
• ASIC claimed that along with the company,
its managing director and CEO, Mr Narain is
liable under section 1041H.
• The Full Federal Court provided a judgment
that the managing director is liable for
breaching section 1041H and 180 of the
Corporations Act 2001 (Cth).

Facts of the Case
• On 27th September 2005, Citrofresh International
Limited (CIL) announced on ASX through a letter
that it has found a way to cure and prevent HIV
and the common cold (ASIC, 2008).
• ASIC filed a suit against the corporation and Mr
Narain for making a misleading or deceptive
announcement.
• Mr Narain was involved in drafting and
processing of the letter even though the
company secretary issued it.

Infringement of Duties
• Section 1041H (1) held a person liable for involving in any
conduct relating to financial product or service which is
misleading or deceptive. Breach of this section creates a
civil liability.
• Subsection (2) provides that conduct include drafting,
dealing, publishing, applying, issuing, permitting or other.
• A director has to exercise his duties and take business
decisions by ensuring appropriate care and diligence
(section 180). The breaching parties are liable for civil
liability in case of breach of this section.
• Penalty for breach of this section provides under section
1317E.

Infringement of Duties
• Mr Narain was involved in drafting and processing
of the letter which includes the announcement
made by CIL to the ASX.
• He authorised and included all the information to
the letter, and he also authorised the information
which was not included as well.
• He authorised the company secretary to make the
announcement by sending the letter to the ASX.
• Based on these factors, Mr Narain breached section
180, and he also liable under section 1041H (Jade,
2008).

Decision of the Court
• The Full Federal Court provided a majority
judgement that the corporation and Mr Narain
have breached the provision provided under
section 1041H by making a misleading or
deceptive announcement.
• The court remitted the previous judgement to
provide that the announcement is included in the
definition of a financial product.
• The court provided that Mr Narain was personally
involved in the drafting and processing of the
letter.

Decision of the Court
• Mr Narain sought advice from external advisors however
he was not entitled to rely on them.
• Mr Narain authorised the company secretary to make the
announcement based on which the company secretary
cannot be held liable since he was only an agent of Mr
Narain.
• The court provided that Mr Narain breached his duties
under section 180, and he is liable for providing a
misleading or deceptive announcement under section
1041H.
• The court penalised him under section 1317G and
disqualified him from acting as a director under section
206C (1) (Austlii, 2008).

Relevance of the Case
• This case is relevant because it provided
that the term financial statement include a
wide range of factors.
• The reversing of judgement by the Full
Federal Court provided that the words “in
relation to” include a wide range of conduct
of directors.
• This case also shows that compliance with
directors’ duties is mandatory and it has
been cited in over 27 cases (Jade, 2008).

Conclusion
• The case deals with the misleading or
deceptive conduct of the director due to
failure to comply with section 1041H.
• Mr Narain was involved in drafting and
processing of the misleading and deceptive
announcement due to which he was held
liable for breaching section 180 and 1041H.
• The case shows the importance of directors’
duties and their compliance failure to which
resulted in civil liability.

References
• ASIC v Narain [2008] FCAFC 120
• ASIC. (2008) 08-146 ASIC appeal successful against former
Citrofresh International Limited director. [Online] ASIC. Available at:
http://asic.gov.au/about-asic/media-centre/find-a-media-release/200
8-releases/08-146-asic-appeal-successful-against-former-citrofresh-
international-limited-director/ [Accessed on 15th May 2018].
• Austlii. (2018) Corporations Act 2001 (Cth). [Online] Austlii. Available
at: http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/
[Accessed on 15th May 2018].
• Corporations Act 2001 (Cth)
• Jade. (2008) Australian Securities and Investments Commission v
Narain. [Online] Jade. Available at: https://jade.io/article/79960
[Accessed on 15th May 2018].