Piercing corporate veil for sham transfers: principals held liable, property treated as theirs, Rs.10 crore deposit required else sale

The SC held the successful bidder's default and sham transfers justified piercing the corporate veil, treating the contested property as belonging to the bidder's principals and continuing attachment. The lessee (foreign mission) was directed to deposit monthly rent in court; the principals must deposit Rs.10 crore within two months or the property will be sold. Existing attachments of related properties remain in force, subject to bona fide sale proposals conditioned on depositing proceeds in court. A one-man commission was appointed to identify post-cutoff purchasers and amounts paid. The orders aim to reimburse defrauded purchasers and prevent the contemnors benefitting from their fraud.

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Issues Involved:

1. Breach of Auction Terms by Skipper Construction Company
2. Repeated Extensions Granted by DDA
3. Skipper's Failure to Pay Balance and Subsequent Legal Actions
4. High Court and Supreme Court Orders
5. Contempt of Court Proceedings
6. Responsibility of DDA and Role of Its Officials
7. Claims of Pre- and Post-January 29, 1991 Purchasers
8. Lifting the Corporate Veil
9. Application of Article 142 of the Constitution
10. Directions for Complete Justice

Detailed Analysis:

1. Breach of Auction Terms by Skipper Construction Company:
A plot of land was auctioned by the Delhi Development Authority (DDA) in October 1980, with Skipper Construction Company (Skipper) offering the highest bid of Rs. 9.82 crores. According to the auction conditions, 25% of the amount was payable immediately, and the rest within ninety days. Skipper deposited the 25% but failed to pay the balance, requesting and receiving multiple extensions.

2. Repeated Extensions Granted by DDA:
Skipper was granted seven extensions between January 1981 and April 1982 but still failed to deposit the balance. The DDA initiated proceedings to cancel the bid, which Skipper contested in court, obtaining a stay of cancellation on May 29, 1982.

3. Skipper's Failure to Pay Balance and Subsequent Legal Actions:
Despite multiple extensions and a revised agreement in 1987 allowing Skipper to commence construction without full payment, Skipper failed to meet payment deadlines and provided defective bank guarantees. Skipper continued to sell space in the proposed building, collecting substantial amounts from various parties, even after being expressly prohibited by the court.

4. High Court and Supreme Court Orders:
The Delhi High Court directed Skipper to pay Rs. 8,12,88,798 within thirty days and stop construction until payment was made. Skipper failed to comply and approached the Supreme Court, which granted interim orders subject to certain deposits. Skipper violated these orders by continuing to sell space and was ultimately found in contempt.

5. Contempt of Court Proceedings:
The Supreme Court initiated suo motu contempt proceedings against Skipper's directors for defying court orders and entering into agreements for sale. The court sentenced the contemners to imprisonment and fines, attaching their properties and bank accounts.

6. Responsibility of DDA and Role of Its Officials:
The DDA was found to have colluded with Skipper, with several top officials acting in Skipper's favor. The court appointed a commission to investigate the role of DDA officials, leading to disciplinary actions against certain officers.

7. Claims of Pre- and Post-January 29, 1991 Purchasers:
The court distinguished between purchasers who bought space before and after January 29, 1991. The pre-January 29, 1991 purchasers were to be reimbursed first, with a sum of Rs. 16 crores set apart for them. A commission was appointed to determine the amounts paid by these purchasers. For post-January 29, 1991 purchasers, the court considered selling attached properties to reimburse them.

8. Lifting the Corporate Veil:
The court decided to lift the corporate veil, treating the various companies created by Skipper's directors as mere fronts to defraud purchasers. Properties held in the names of the directors' family members were also considered part of the assets to be used for reimbursement.

9. Application of Article 142 of the Constitution:
The Supreme Court exercised its powers under Article 142 to do complete justice, stating that this power is meant to supplement the existing legal framework and is necessary to address situations not effectively tackled by existing laws. The court emphasized that the contemners should not be allowed to enjoy the fruits of their contempt.

10. Directions for Complete Justice:
The court directed the attachment and possible sale of property at No. 3, Aurangzeb Road, New Delhi, to reimburse the defrauded purchasers. It also ordered the contemners to deposit Rs. 10 crores in court and continued the attachment of their properties. A commission was appointed to ascertain the claims of post-January 29, 1991 purchasers.

Conclusion:
The judgment underscores the court's commitment to ensuring justice by holding contemners accountable, lifting corporate veils to prevent fraud, and utilizing its constitutional powers to address complex legal issues effectively. The court's meticulous approach in distinguishing between different groups of purchasers and addressing the role of DDA officials highlights its comprehensive effort to rectify the wrongs committed.

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