2009 (1) TMI 494 - HC - Companies Law

Court permits amending plaint to lift corporate veil, holds defendants personally liable for fraud

The court allowed the plaintiff to amend the plaint to include the plea of lifting the corporate veil to hold defendant Nos. 2 and 3 personally liable for ... Lifting of corporate veil - application seeking amendment to the plaint for inclusion of pleading regarding lifting of corporate veil for holding defendant Nos. 2 and 3 personally liable for claim in the suit under the transactions made by them in the name of the defendant-company with the plaintiff, and also for making a typographical correction in the prayer clause in description of defendants with number '1 to 3' in place of '2 and 3 Held that:- Inclusion of the plea of piercing of the corporate veil will not change the nature and character of the case and the cause of the action, it is merely elaborative plea which can be allowed in view of the contradictory stands taken by defendant Nos. 2 and 3 in their written statements. Furthermore, the said amendment is necessary to decide the real controversy between the parties and will not prejudice the parties if allowed at this stage. Consequently, the plaintiff is allowed to amend the plaint and to include the plea of lifting of the corporate veil. Issues:- Amendment sought in the plaint for lifting the corporate veil to hold defendant Nos. 2 and 3 personally liable.- Application for deletion of defendant No. 2's name from the plaint.Amendment sought in the plaint for lifting the corporate veil to hold defendant Nos. 2 and 3 personally liable:The plaintiff filed a suit for recovery against the defendants, alleging fraudulent acts by defendant Nos. 2 and 3, who are the promoters/directors of the defendant-company. The plaintiff sought an amendment to include a plea regarding lifting the corporate veil to hold defendant Nos. 2 and 3 personally liable for the transactions made by them in the name of the defendant-company. The original suit already contained specific allegations against the directors, seeking their personal liability. The concept of piercing the corporate veil can be invoked in cases of fraud, misrepresentation, or diversion of funds. The amendment was deemed merely elaborative as fraud, a necessary element for piercing the corporate veil, was already present in the original pleadings.Application for deletion of defendant No. 2's name from the plaint:Defendant No. 2 filed an application for the deletion of his name from the plaint, arguing that there was no privity of contract between him and the plaintiff as he ceased to be a director of the defendant-company. The court dismissed this application as infructuous in light of the plaintiff's allowed amendment to lift the corporate veil. The court emphasized that the observations made would not affect the merits of the controversy, which would be examined during the trial proceedings.The court referenced legal precedents emphasizing that the power to allow amendments is wide and can be exercised at any stage of the proceedings in the interests of justice. The purpose of amending pleadings is to establish a party's case, and a liberal approach should generally be adopted, especially in pre-trial stages. The court highlighted that technicalities should not hinder the administration of justice, and amendments are permitted to avoid unnecessary litigation. It was established that the inclusion of the plea of piercing the corporate veil would not alter the nature of the case or cause of action but would help in deciding the real controversy between the parties without prejudicing either party.In conclusion, the court allowed the plaintiff to amend the plaint to include the plea of lifting the corporate veil, dismissed the application for deletion of defendant No. 2's name as infructuous, and scheduled further proceedings for completion of pleadings and pending applications.