TaxTMI 
TaxTMI 
TaxTMI 
2014 (2) TMI 1382
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....t both are part of the same group and have common beneficial ownership, still at best they could be considered as vessels owned by sister companies and not sister ships and for the Court to conclude that these are sister ships, the Court has to pierce the corporate veil. It is submitted that the plaintiff has not made out any case to pierce corporate veil. 2. Further the plaintiff has no cause of action against the defendant no. 1 vessel and/or the applicant who is defendant no. 2 as there is no arbitration agreement between the plaintiff and the applicant. It is submitted by the counsel for the applicant that the plaintiff can seek security against the applicant only if the plaintiff can show there exists a binding arbitration agreement between the plaintiff and the applicant relating to management services rendered to M.V. Eastern Light. The purported management agreement relying on which the plaintiff has instituted the present suit has not been entered into with the applicant but is an agreement between the plaintiff and the defendant no. 3 and hence there is no arbitration agreement between the plaintiff and the applicant. Consequently, also the defendant no. 1 vessel cannot ....
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....t of claims against defendant no. 2 for management services rendered to defendant no. 1. That order of arrest was vacated following the applicant securing the plaintiff's claim in that suit. By the time, the applicant furnished security in that suit the plaintiff herein had filed a caveat against release of the defendant no. 1 vessel. The plaintiff wanted to obtain security for claims under a management agreement entered into with defendant no. 3 for a ship M.V. Eastern Light. The applicant, since defendant no. 1 was on her funeral voyage and had contractual obligations, without prejudice to its rights and contentions, secured the plaintiff's claim in this suit as well and hence the defendant no. 1 vessel was not re-arrested. It is the applicant's case that the test required to be applied is if the defendant no. 1 vessel had not been arrested in the other suit and if the caveat had not been filed and the plaintiff in this suit had simpliciter filed for the arrest of defendant no. 1 vessel, would the Court have passed an order of arrest on the basis of the facts and circumstances of the case as averred in the plaint. It is the applicant's case that the entire basis ....
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....1(b) Defendant No. 1 is a foreign flag motor vessel (hereinafter "defendant no. 1"), which is flying the flat of Belize and is registered at the Port of Belize City. A statement setting out the particulars of defendant no. 1 is annexed at Exhibit "A' hereto. Defendant no. 1 is presently lying in the port and harbor of Bhavnagar/Alang, within Indian territorial waters and is therefore, amenable to the admiralty jurisdiction of this Hon'ble Court. 1(e) It is the case of the plaintiff that defendant nos. 2 and 3 are alter-egos of one another, enjoy same ownership and functional integrality. Defendant Nos. 2 and 3, therefore, enjoy identity and commonality of interest and functional integrity, and are in law and effect, one entity. This is for the following reasons: (i) defendant nos. 2 and 3 enjoy the same shareholders and/or subscribers viz. Maria Del Rosario Rajoy Cerdeira and Miguel Mihalitsianos; and (ii) Defendant Nos. 2 and 3 operate out of the same office and/or business establishment viz. 47 Street, Bella Vista & Aquilino de la Guardian Bldg./Ocean Business Plaza, Panama City. (iii) Furthermore, the decision to purchase defendant no. 1 and the vessel by defenda....
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....endant no. 1 vessel and states that the registered owner is "Indian Breakers". Exh. 'B' which is the certificate of registration issued by Panama registry for defendant No. 3 shows: (a) the authorised capital of the company is US$ 10,000/-, (b) it was registered on 7th April 2011, (c) the subscribers are Maria Dell Rosario Rajoy Cerdeira and Miguel Mihalitsianos, (d) the Directors are Milciades Garcia, Yeneira Cedeno De Barahona, Luz Deli Suira and (e) the resident agents are Veleiro, Mihalitsianos and De La Esprielia. Exh. 'C' pertains to registration of defendant no. 2. All the details are identical to that of defendant no. 3 as mentioned Ex. B save the Directors are different. Exh. 'D' is a document in German language and I would not hazard a guess as to what it contains and no translation is provided. Exh. 'E' contains the minutes of meeting of Directors held on 21st April 2011 for both defendant no. 2 and defendant no. 3 in which one Christian Schulz, a German national is appointed as constituted attorney. The minutes as well as well as the power of attorney for both the companies are identical except that (a) the name of the vessel is diffe....
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....se, he further submitted, the documents at Exh. C says that both defendant no. 2 and defendant no. 3 have same resident agents and the applicant-defendant no. 2 simply state in its rejoinder that they are not aware of and hence denied, whereas such document at Exh. C. speaks otherwise. Even for allegation of commonality of interest, there is only blanket denial and no explanation has come forth from defendant no. 2. 12. Mr. Ramabhadran also relied on the apex court's judgment delivered in the matter of Delhi Development Authority Vs. Skipper Construction Co. (P) Ltd. & Anr.- (1996) 4 SCC 622, where the issue of lifting of corporate veil has been dealt with. He, in particular, relied upon paragraph 24, 26 and 27 which read as under: 24. Salomon v. Salomon & Company Limited (1897 Appeal Cases 22), the House of Lords had observed, the company is at law a different person altogether from the subscriber...; and though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands received the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the su....
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....n a group, and to look instead at the economic entity of the whole group". The learned Master of Rolls observed that "this group is virtually the same as a partnership in which all the three companies are partners". He called it a case of "three-in-one"-and, alternatively, as "one-in-three. 13. The counsel for the plaintiff also relied upon a judgment of the United States Court of Appeals, Second Circuit, in the matter of Eastman Kodak Company and Atex INC decided on October 5, 1995 to submit that in United States there is a theory of alter-ego liability and as mentioned in the earlier judgment of Delhi Development Authority, the concept of piercing the corporate veil in United States is much more developed than in the UK. Under this theory of alter-ego, there is no requirement to show fraud and the plaintiff has to only show that the parent and subsidiary operated as a single economic entity and that an overall element of injustice or unfairness is present. He relied on another judgment of the United States Court of Appeals for the Sixth Circuit in the matter of United States Vs. Best Foods, decided on June 8, 1998 to support the same theory. He also relied on AIR 1965 SC 40 in ....
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....company continued to carry on business six months after the number of its members was reduced below the legal minimum; in certain matters pertaining to the law of taxes, death duties and stamps, particularly where the question of the "controlling interest" is in issue; in the law relating to exchange control; and in the law relating to trading with the enemy where the test of control is adopted (1). In some of these cases, judicial decisions have no doubt lifted the veil and considered the substance of the matter. 27. Gower has similarly summarised this position with the observation that in a number of important respects, the legislature has rent the veil woven by the Salomon case. Particularly is this so, 'says Gower, in the sphere of taxation and in the steps which have been taken towards the recognition of enterprise-entity rather than corporate-entity. It is significant, however, that according to Gower, the courts have only construed statutes as "cracking open the corporate shell" when compelled to do so by the clear words of the statute; indeed they have gone' out of their way to avoid this construction whenever possible. Thus, at present, the judicial approac....
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....there has to be an indication to defraud creditors or consumers. Moreover, the United States Court considered the theory of alter-ego liability only because the 'Delaware law permits' a Court to pierce the corporate veil of a company "where there is a fraud or where it is in fact a mere instrumentality or alter-ego of its owner". There the Delaware law permits the alter-ego theory and there is no requirement of showing of fraud. At the same time, to prevail on an alter-ego theory for piercing the corporate veil under Delaware Law, the plaintiff must show that the parent and the subsidiary operated as a single economic entity and that overall element of injustice or unfairness was present. The Court held that that the onus is upon the plaintiff to show that the two corporations operated as a single economic entity such that it would be inequitable to uphold a legal distinction between them and among the factors to be considered in determining whether a subsidiary and parent operated as a single economic entity are whether the corporation was adequately capitalized for the corporate undertaking or the dominant shareholders siphoned corporate funds or the corporation simply fu....
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....om those of its members; it can sue and be sued exclusively for its own purpose; its creditors cannot obtain satisfaction from the assets of its members; the liability of the members or shareholders is limited to the capital invested by them; similarly, the creditors of the members have no right to the assets of the corporation and unless fraud is asserted or at least alleged in the plaint, as required under Order VI Rule 4 and in such a way that it will be sustained at the time of trial, the question of lifting a corporate veil does not arise. To accept the plaintiff's submissions that there need not be any fraud or underlying element of dishonesty in formation of corporate entities would amount to violating and shaking these fundamental tenets of corporate law. 19. In my opinion, simply because the shareholders, the Directors (in this case were not common) the addresses of the two companies that own the two ships are common or the constituted attorney who was appointed to buy the vessel is the same or that both the ships were purchased pursuant to the board meeting on the same day does not mean that the efforts of the subscribers were to conceal that fact and does not automa....
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...., has given an undertaking to invoke the arbitration agreement and refer the dispute to arbitration within a period of one week from the date of institution of suit has not commenced arbitration. No extension has been even sought from this Court. Though the plaintiff made an attempt to show that they have commenced arbitration, in fact, in paragraph 5 of the affidavit in reply confessed "Unfortunately, this has meant that, as yet, no arbitration proceedings have been commenced". In fact, in the affidavit in reply, the plaintiff has stated that the plaintiff and defendant no. 3 were to appoint a sole arbitrator to commence arbitration proceedings, but could not reach an agreement on the identity of the sole arbitrator. The plaintiff has also filed an additional affidavit dated 7th February 2014 in which it is stated as under: ... I say that I have received instructions to state that on 15th November 2011, the plaintiff through its English Solicitors addressed a Notice to defendant No. 3 to join in the appointment of a sole arbitrator. Vide such notice the plaintiff suggested names of three arbitrators, calling upon defendant no. 3 to appoint one of three arbitrators so named....
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.... like a mask to cover the breach of undertaking. As per the English law, as it appears from the email dated 15th November 2011, if the defendant no. 3 did not accept the name of the arbitrators suggested, the plaintiff had no choice but to get an order from the court to appoint someone as a sole arbitrator. Admittedly, no such order had been obtained. It is also necessary to note that the sender of the email dated 6th February 2014, is one Christian Schulz and this is the same name that appears as the constituted attorney allegedly appointed by defendant no. 2 and defendant no. 3 in exhibit 'E' to the plaint. I am making this observation because the constituted attorney Christian Schulz is a German national and the plaintiff is also a German company. The forwarding email dated 6th February 2014 from Christian Schulz also curiously reads as under: Dear Sir, Please find attached the statement as executed by CONDOR on behalf of their Managing Director (Mr. Martens). I am just relaying this message to you as a matter of facilitating communications (and IT support). For further communication please refer to the parties in concern. With best regard....