Judge James C. Chalfant, Case Number: 24STCP02638, Date: 2025-01-28 Tentative Ruling

Rahul Chawla v. Surjit Multani, et al. 24STCP02638

Tentative decision on petition for a writ of mandate: granted

Petitioner Rahul Chawla (“Chawla”) seeks a writ of mandate compelling Respondents Surjit Multani (“Multani”) and Jam Grocery, Inc. d/b/a India Sweets and & Spices (“Jam Grocery”) to comply with Petitioner’s rights of inspection and audit.

The court has read and considered the moving papers (no opposition was filed) and renders the following tentative decision.

On August 19, 2024, Petitioner Chawla filed the Petition for traditional mandamus under Corporations Code sections 1603(a). against Respondents Multani and Jam Grocery. The Petition alleges in pertinent part as follows.

Petitioner Chawla and Respondent Multani are shareholders in Respondent Jam Grocery. Pet., ¶¶14-15. Respondent Multani is the majority shareholder and President of Jam Grocery. Pet., ¶¶5, 15. Respondent Jam Grocery’s corporate status is “FTB Suspended” and it is precluded from being able to defend in any action in a California court. Pet., ¶4.

Pursuant to Corporations Code sections 21, 1600(c) and 1601(b), Chawla sent Multani demand letters on January 23, February 1, and March 19, 2024 to inspect Jam Grocery’s corporate books and for payment of all unpaid distributions due Petitioner. Pet., ¶16, Ex. A. Before and after the demand letters, Chawla repeatedly contacted Respondents to request Jam Grocery’s bank records of Respondent Jam Grocery for the years 2022, 2023 and 2024. Pet., ¶17. Respondents did not respond to any of Chawla’s demands. Pet., ¶¶18, 19.

Petitioner Chawla seeks a writ of mandate ordering Respondents to comply with Petitioner’s rights of inspection and audit of Jam Grocery’s corporate annual reports, records, accounting books, and minutes. Pet., 6:3-5. Petitioner also asks that the court order an audit and appointment of a Receiver, if necessary, to get the aforesaid records. Pet., 6:6. Petitioner requests 50% of the past expenses and profits of Jam, special damages, general damages and injunctive relief. Petitioner also seeks attorney fees and costs.

On August 19, 2024, Petitioner Chawla filed the Petition. On September 3, 2024, Petitioner served Respondents Multani and Jam Grocery with the Petition by substituted service. Respondents have not filed any response.

A party may seek to set aside an agency decision by petitioning for either a writ of administrative mandamus (CCP §1094.5) or of traditional mandamus. CCP §1085.

“A writ of mandate may be issued by any court to any inferior tribunal, corporation, board, or person, to compel the performance of an act which the law specially enjoins, as a duty resulting from an office, trust, or station, or to compel the admission of a party to the use and enjoyment of a right or office to which the party is entitled, and from which the party is unlawfully precluded by such inferior tribunal, corporation, board, or person.” CCP §1085(a).

A traditional writ of mandate under CCP section 1085 is the method of compelling the performance of a legal, ministerial duty. Pomona Police Officers’ Assn. v. City of Pomona, (1997) 58 Cal.App.4th 578, 583-84. Generally, mandamus will lie when (1) there is no plain, speedy, and adequate alternative remedy, (2) the respondent has a duty to perform, and (3) the petitioner has a clear and beneficial right to performance. Id. at 584 (internal citations omitted). Whether a statute imposes a ministerial duty for which mandamus is available, or a mere obligation to perform a discretionary function, is a question of statutory interpretation. AIDS Healthcare Foundation v. Los Angeles County Dept. of Public Health, (2011) 197 Cal.App.4th 693, 701.

No administrative record is required for traditional mandamus to compel performance of a ministerial duty or as an abuse of discretion.

A corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, board and committees of the board. Corporations Code §1500.[1] It shall also keep at its principal office, or the office of its transfer agent or registrar, a record of the names and addresses of all shareholders and the number and class of shares each one holds. Id.

The board shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year. §1501(a)(1). The report shall contain a balance sheet as of the end of that fiscal year; an income statement and a statement of cashflows for that fiscal year; and any report thereon of independent accountants or, if there is none, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. Id.

The accounting books and records of a corporation and minutes of proceedings of the board of directors, committees of the board, and shareholders shall be open to inspection upon the written demand of any shareholder for a purpose reasonably related to such holder’s interests as a shareholder. §1601(a). A shareholder of more than five percent of the corporation also has a right to “inspection and copy the record of shareholders’ names, addresses, and percentage of ownership.” Id. The inspection may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. Id. The right of shareholders to inspect corporate records may not be limited by a corporation’s articles or bylaws. §1601(b). A corporation also must keep at its principal executive or business office in California the original or a copy of its bylaws, which shall be open for inspection by shareholders. §213.

A shareholder has only a limited right to access to corporate financial records. Thomas v. Gordon, (2000) 85 Cal.App.4th 113, 122. Shareholder status does not entitle and individual to unfettered access to corporate confidences and secrets. Id. (Citation omitted.) Section 1601 does not impose an affirmative duty on the corporation to respond to written requests falling outside the statute. Singhania v. Uttarwar, (“Singhania”) (2006) 136 Cal.App.4th 416, 431.

A shareholder’s statutory right to inspect corporate records is supplemented by a common law right to inspect any corporate record or property if a proper and reasonable purpose is shown. Schnabel v. Superior Court, (“Schnabel”) (1993) 5 Cal.4th 704, 722-23. A court has discretion to limit this common law discovery. Id. A shareholder does not have expanded rights to demand access to corporate records for the purpose of deciding whether to exercise his or her dissenters’ right under section 1312 to require the corporation to purchase his or her shares when the corporation merges or undergoes reorganization. Singhania, supra, 136 Cal.App.4th at 427. Shareholder inspection demands should be denied when it appears the shareholder is merely on a fishing expedition. Dandini v. Superior Court, (1940) 38 Cal.App.2d 32, 35.

A shareholder has recourse to the courts if a corporation does not comply with a lawful demand for inspection of corporate records. §1603. Upon refusal of a lawful demand for inspection, the court may enforce the right of inspection with just and proper conditions. §1603(a); Singhania, supra, 136 Cal.App.4th at 431, 432 (citing §1603, CCP §1085); Johnson v. Langdon, (1902) 135 Cal. 624, 626 (mandamus is the appropriate remedy of a stockholder who is refused his statutory right to inspect corporate documents); Webster v. Bartlett Estate Co. (1917) 35 Cal.App. 283, 285 (stockholder’s right to inspect corporate books may be enforced by writ of mandate). A court may award reasonable expenses including attorneys’ fees against a corporation where a shareholder must resort to court action as a result of a corporation’s unjustified failure to comply with a proper demand. §1604.

Petitioner Chawla is a 25% shareholder of Jam Grocery. Chawla Decl., ¶2, Exs. A (share certificates) and B (2021 Tax Return and K-1). On information and belief, Jam Grocery is currently suspended by the Secretary of State for failure to pay taxes to the Franchise Tax Board. Chawla Decl., ¶5.

Jam Grocery owns and operates an Indian retail and grocery store at 22009 Sherman Way, Canoga Park, CA 91303 (“Retail Store”). Chawla Decl., ¶3. Chawla and Respondent Multani started Jam Grocery on or about February 2002. Chawla Decl., ¶3.

As a shareholder, Chawla is entitled to corporate distributions and received them on a quarterly basis until 2022. Chawla Decl., ¶7. Chawla was also employed by Jam Grocery as the Retail Store manager from its inception until June 2024, when he ceased working because he had not been paid since January 31, 2024. Chawla Decl., ¶8.

Chawla is concerned about the viability of the business. He was informed by two current employees of the Retail Store that since early 2023 sales have dropped nearly 50%, from approximately $270,000 per month to approximately $150,000 per month. Chawla Decl., ¶8. The employees also informed Chawla that Multani is not paying suppliers and vendors, and the Retail Store has not received any new inventory as a result. Chawla Decl., ¶8.

Multani moved Jam Grocery’s corporate banking from Hanmi Bank to HAB Bank in Los Angeles for a period of two to three years, and then he moved it again to Wallis Bank in Cerritos, CA over two years ago. Chawla Decl., ¶11.

Pursuant to Corporations Code sections 21, 1600(c) and 1601(b), Chawla sent Multani demand letters on January 23, February 1, and March 19, 2024 to inspect Respondent Jam Grocery’s corporate books and for payment of all unpaid distributions due him. Chawla Decl., ¶6, Ex. C. The demands included requests for (a) bank records for 2022, 2023 and 2024, (b) canceled checks and current accounts payable, and (c) annual reports, accounting books and shareholder meeting minutes. Chawla Decl., ¶6, Ex. C. Respondents have failed to honor Chawla’s inspection demands. Chawla Decl., ¶9. As a result, Chawla has been unable to verify his rightful share of profits and distributions. Chawla Decl., ¶7.

Petitioner Chawla seeks a writ of mandate compelling Respondents Multani and Jam Grocery to comply with his inspection rights, including five plus years of tax and bank records. Pet. Op. Br. at 5. Chawla’s declaration specifically seeks all bank records and statements, canceled checks, and credit card information for the past five years, including from accounts at Hanmi Bank, HAB Bank and Wallis Bank. See Chawla Decl., ¶14.

As a shareholder, Chawla would not necessarily be entitled to these records. A shareholder has only a limited right to access to corporate financial records. Thomas v. Gordon, supra, 85 Cal.App.4th at 122. Section 1601 does not impose an affirmative duty on the corporation to respond to written requests falling outside the statute. Singhania, supra, 136 Cal.App.4th at 431. However, a shareholder’s statutory right to inspect corporate records is supplemented by a common law right to inspect any corporate record or property if a proper and reasonable purpose is shown. Schnabel, supra, 5 Cal.4th at 722-23. Chawla’s purpose of evaluating whether he is owed profit distributions is reasonable.

Chawla also asks for a receiver or forensic accountant to audit Jam Grocery’s records, as well as monetary damages. Pet. Op. Br. at 5. Chawla fails to support the request for a receiver or forensic accountant with any analysis. Given Jam Grocery’s suspended status, he could only obtain such an appointment if he were willing to pay the expert’s costs. Chawla also fails to support his claim for damages with legal authority or evidence.

The unopposed Petition is granted. A judgment and writ shall issue compelling Respondents Multani and Jam Grocery to permit Chawla to inspect five years of Jam Grocery’s tax and bank records, including bank records and statements, canceled checks, and credit card information from accounts at Hanmi Bank, HAB Bank, and Wallis Bank.

Chawla’s counsel is ordered to prepare a proposed judgment and writ, serve it on Respondents for approval as to form, wait ten days after service for any objections, meet and confer if there are objections, and then submit the proposed judgment along with a declaration stating the existence/non-existence of any unresolved objections. An OSC re: judgment is set for February 25, 2024 at 9:30 a.m.

[1] All further statutory citations are to the Corporations Code unless otherwise stated.