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Issues: (i) Whether, in exercise of writ jurisdiction, directions could be issued for inquiry, search, seizure and attachment of properties to protect depositors where the affairs of a company were alleged to have been used to defraud the public. (ii) Whether the corporate veil could be lifted and the properties of directors, associated entities and diverted assets be brought within the sweep of such directions.
Issue (i): Whether, in exercise of writ jurisdiction, directions could be issued for inquiry, search, seizure and attachment of properties to protect depositors where the affairs of a company were alleged to have been used to defraud the public.
Analysis: The material before the Court disclosed prima facie that large deposits had been mobilised from the public, that the company's affairs were in an unsatisfactory condition, and that there were serious indications of fraud, cheating and siphoning of funds. In such circumstances, the Court held that its writ jurisdiction under Article 226 extended beyond enforcement of Part III rights and could be invoked for any other public purpose, including protection of investors. The Court also relied on the principle that property acquired by fraud or cheating can be traced and seized wherever it is found.
Conclusion: Yes. Appropriate directions for inquiry, tracing, seizure and attachment of properties were held to be permissible in aid of protecting the public and depositors.
Issue (ii): Whether the corporate veil could be lifted and the properties of directors, associated entities and diverted assets be brought within the sweep of such directions.
Analysis: The Court found prima facie material that new companies and allied concerns had been floated by persons connected with the company to continue its business and to divert assets and liabilities. Applying the doctrine that the corporate personality will be ignored where incorporation is used as a cloak for illegality or fraud, the Court treated the related entities and persons as potentially part of the same fraudulent arrangement for the limited purpose of inquiry and attachment.
Conclusion: Yes. The corporate veil could be pierced, and the assets of directors, associated companies and diverted property could be subjected to investigation and attachment.
Final Conclusion: The petition succeeded and wide protective directions were issued to investigate the affairs of the company, trace diverted assets and secure properties to safeguard the interests of depositors.
Ratio Decidendi: Where prima facie material shows that corporate entities are being used to defraud the public and divert assets, the High Court may, in exercise of Article 226, issue public-interest directions to investigate, trace and attach properties and may lift the corporate veil to reach the controlling persons and diverted assets.
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