2006 (3) TMI 341 - HC - Companies Law

Court rules in favor of petitioner in recovery order challenge between separate companies

The court ruled in favor of the petitioner, a separate company, in a challenge against a recovery order for dues of Rs. 9,49,267 and interest of Rs. ... Company - Lifting of corporate veil Issues:Challenge to recovery order for dues between separate companies based on common directors and sister concern relationship.Analysis:The petition challenges an order to recover dues of Rs. 9,49,267 and interest of Rs. 3,23,802 from the petitioner, a company separate from the debtor company. Both companies are separate legal entities under the Companies Act, and recovery cannot be made from one company for the dues of another. The only basis for recovery is the common directors and a cheque issued by the petitioner when the debtor company's goods were seized. However, both companies are separately registered with the Provident Fund Office, and the petitioner's liability for the debtor's Provident Fund dues is disputed.The conduct of the respondent's advocate is criticized for seeking multiple adjournments. Despite repeated requests for time extensions, the respondent's counsel failed to appear on the scheduled dates. The court refused further adjournments due to the unsatisfactory conduct of the respondent's advocate, leading to a final hearing and disposal of the matter.The respondent sought to lift the corporate veil to hold the petitioners liable for the debtor company's dues. However, the argument lacks merit as both companies are distinct legal entities under the Companies Act. The Provident Fund Act does not provide for transferring liability from one company to another by lifting the corporate veil. Therefore, the defense raised by the respondent is baseless, and the demand for recovery is deemed unsustainable in law. Consequently, the impugned demand is quashed, and the petition is allowed with no costs imposed.