TaxTMI 
TaxTMI 
2020 (2) TMI 1753
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....e Award Holder in the above Execution Application seeking leave of this Court to amend the Execution Application in accordance with the draft amendments set out in the Schedule annexed to this Chamber Summons. The Award Holder has by way of the amendment sought enforcement and execution of the Foreign Award dated 2nd February 2009 that was passed against the Respondent, against the third parties/entities mentioned therein as the "Associate Companies" (being Additional Respondent Nos. 1 to 4) and "the Jalalis" (Additional Respondent Nos. 5 to 8) in their personal capacity as being jointly and severally liable to pay the awarded dues under the said Foreign Award to the Applicant/Award Holder. Further, the Award Holder has sought for incidental and consequential relief in the Chamber Summons. 2. The Award Holder is in the shipping business and operates vessels/ocean liners. The Respondent/Judgment Debtor is a company registered under the Companies Act, 1956 and is in the business of shipping agency and other businesses related to water transport and ocean transportation. The Award Holder had entered into an agency agreement dated 1st April 1964 under which the Respondent was appoin....
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.... and Conciliation Act, 1996 and in which an order of status quo had been passed by this Court in respect of the immovable properties of the Respondent. A similar order dated 4th February 2010 was passed by this Court in Arbitration Petition No. 842 of 2009. The Award Holder has referred to the immovable properties of the Respondent which were listed in Exh.M to Arbitration Petition No. 842 of 2009 and in respect of which the status quo order had been passed. These immovable properties of the Respondent included (i) premises at Udyog Bhavan, Ground Floor, Ballard Pier, Mumbai - 400 038 (admeasuring 3800 sq.ft.) ("the U Bhavan premises"); (ii) premises at Nav Vyapar Bhavan, Unit No. 226, P. D'Mello Road, Carnac Bunder, Mumbai - 400 009 ("N.V. Bhavan premises"); (iii) premises at Orient House, 4th Floor, Ballard Estate, Mumbai. 5. The Award Holder has stated in the Affidavit in Support of the Chamber Summons that the Respondent did not disclose to this Court either in the Arbitration Petitions filed in 2003 and/or in 2009 that U. Bhavan premises and N.V. Bhavan premises had been mortgaged or that the banks concerned had enforced the mortgage by selling the premises under SARFAESI A....
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....isclosure Affidavits disclosing all the assets, effects and properties of the Respondent. Since the Jalalis failed to file Disclosure Affidavits within the stipulated period of four weeks, an order dated 9th September 2014 came to be passed by this Court directing issuance of bailable warrants against the Jalalis. It is thereafter stated that more than 20 weeks after the order dated 9th April 2014 that the Jalalis filed Affidavit dated 17th September 2014 purporting to make disclosure of the assets and properties of the Respondent Company. Since the Disclosure Affidavit had not completely disclosed the particulars or details of the Respondent's assets and properties and had only annexed the Respondent's annual accounts for financial year 2012-13 and not for financial year 2013-14; further orders came to be passed by this Court by which the Jalalis were required to file further Affidavits and documents including copies of the Respondent's Income Tax Returns, Annual Accounts, Bank Statements, etc. These were thereafter, filed from time to time by the Jalalis till October, 2015. A total of eight Affidavits were filed by the Jalalis in the Chamber Summons No. 292 of 2014. 9. The Awa....
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....on records that the bank was in need of additional office space. Hence, the proposal for the purchase of the N.V. Bhavan premises. The Board Resolution mentioned the seller as "ORNATE" and not the Respondent. 10. The Award Holder in the said Affidavit in Support has also referred to the Auditors Report and qualifications of the auditors therein, in particular, to show that the transactions of the Respondent with Companies/entities listed in the register maintained under Section 301 of the Companies Act, 1956 which are referred to therein. The Auditor's Report does not have the Auditors opinion on the bonafides of the purported transactions with related parties and Associate Companies contemplated by the said Section 301 of the Companies Act, 1956. 11. Thereafter, the Award Holder has in the said Affidavit in Support referred to the transactions with the related parties. These included salary/remuneration drawn by the Additional Respondent's Directors (being the Jalalis). It is mentioned that for last 15 years the Jalalis have drawn/taken away from the Respondent Company and I.K.M. Limited amounts of Rs. 8.37 Crores and Rs. 3.13 Crores respectively, by way of salary/remunerati....
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....d Maintenance; (b) Transportation Charges and (c) Administration Charges indicating the Respondent had availed of services from the Associate Companies on a regular basis. The Award Holder stated that there are no details/particulars of the contracts relating thereto between the Respondent and the concerned Associate Companies recorded in the register maintained under Section 301 of the Companies Act, 1956 nor were the contracts shown to the Respondent's Auditors. It is stated that this can lead to only one conclusion that the entries in the financial statements showing transactions with the Associate Companies are false, fraudulent and mere book entries in the Respondent's financial statement. The Award Holder has referred to a chart showing monies purported to have been paid by the Respondent to the related entity/Associate Company on account of alleged services rendered between the periods 2007-08 till 2015-16. It is stated that these transactions of a total amount of Rs. 11.21 Crores or thereabouts was transferred by the Jalalis out of the Respondent to the Associate Companies which are also fully controlled by them. 13. The Award Holder has also in the said Affidavit in Sup....
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....osure Affidavit i.e. 17th September 2014. By the said order dated 7th September 2015, the Jalalis were required to show cause why they should not be arrested for siphoning off funds of the Respondent Company after the order directing disclosure dated 9th April 2014 had been passed. The Award Holder has referred to the bank statements reflecting the transfers to IKM Ltd. (Additional Respondent No. 2) and self-withdrawals by the Jalalis from the Respondent's bank accounts as well as reflecting the transfers made from the Respondent's bank accounts to Pan Orient and Fulcrum. Reference is made to the bank statements with Ratnakar Bank and Saraswat Bank. These have been annexed to the Chamber Summons as Exh.J and Exh.K. The Award Holder has stated that the transfer of the monies to the Associate Companies was not pursuant to any contract or arrangement for sale of goods or rendering of services, but are merely accommodation/circular transactions structured by the Jalalis. 16. The Award Holder has also mentioned in the said Affidavit in Support that there are abnormally high amounts shown in the Respondent's financial statements towards expenditure not commensurate with the turnover/r....
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....hus, engineered huge losses in the financial statements of the Respondent and left the Respondent with negligible assets to thwart and defeat the enforcement of the Foreign Award against the Respondent. 18. The Award Holder has referred to the state of affairs of the related entities/Associate Companies as reflected from their Annual Accounts/Financial Statements. In relation to Additional Respondent No. 2, I.K. Marine Limited Agency Pvt. Ltd. (for short "IKM Ltd."). It is stated that the company was promoted in the 1972 with the main object to carry on business of shipping agents, ship managers, loading brokers, crewing-agents and to act as agents for ship-owners. It is stated that the Company is an Associate Company of the Respondent being under the same management and IKM Ltd.'s affairs are inextricably interlinked with the Respondent and other Associate Companies controlled by the Jalalis. The Company had an equity capital of Rs. 1 Lakh divided into 10,000 shares of Rs. 10/- each. The Jalalis through the Respondent/Judgment Debtor took over control and management of IKM Ltd. which became a fully owned subsidiary of the Respondent. The Award Holder has referred to and given p....
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....loans/secured loans were taken by IKM Ltd. against hypothecation of book debts, vehicles and against personal guarantees of the Jalalis increased to Rs. 8.72 Crores. IKM Ltd.'s fixed asset had also increased from Rs. 2.03 Crores (F.Y. 2009-10) to Rs. 7.10 Crores (F.Y. 2012-13). The fixed assets increased primarily on account of addition of office premises, vehicles trailers, etc. Pertinently, during the same period, the Respondent's fixed assets decreased from 29.49 Crores (in F.Y. 2005-06) and Rs. 18.86 Crores (in F.Y. 2006-07) to Rs. 1 Crore (in F.Y. 2015-16). The Award Holder has stated that this was due to the diversion of business as well as assets from the Respondent Company to IKM Ltd. by the Jalalis who sought to make IKM Ltd. as the flagship company. It is further stated that during this period, huge expenses were recorded in the financial statements on a regular basis towards, employees benefit expenses and which was slightly lesser than the turnover to show negligible profits in IKM Ltd.'s books. IKM Ltd. had also granted loans to the Associate Companies which included the loans advanced by the IKM Ltd. to Ornate shown in the Balance Sheet of 2013-14 of an amount of Rs. ....
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....yable to the Award Holder under the Garnishee Decree. Along with the Disclosure Affidavits filed by the Ornate in Chamber Summons No. 13 of 2016, the Jalalis/Ornate had forwarded to the Award Holder's Advocates copies of the Annual Accounts/Financial Statements of Ornate for F.Y. 2013-14, 2014-15 and 2015-16. The Financial Statements of Ornate shows that there has been gradual decrease in the fixed assets of Ornate. It is stated that the Jalalis intentionally/consciously and deliberately removed the immovable properties from Ornate. The Financial Statements of Ornate indicate no reasons for disposal of the immovable properties. Further, the value of other fixed assets such as machinery/equipment (after depreciation) had reduced to a negligible amount which is apparent from the schedule annexed to Ornate's Balance Sheet (as of F.Y. 2016-17) when compared to the schedule annexed to the Balance Sheet (as of 31st March 2009). There has also been a decline in Ornate's revenue from operations/turnover from Rs. 11.27 Crore (in F.Y. 2001-08) to Rs.1.59 Crore (in F.Y. 2016-17). The Jalalis have used Ornate's staff, infrastructure and assets for rendering service which has been billed for by....
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....ributable only to the related transactions and are amounts received from the Respondent Company (as purported administrative charges) and from IKM Ltd. (as freight and forwarding charges). From the revenue from operations almost equal amounts are shown to have been expended towards expenditure for operating costs including employee benefit expenses. (e) The Financial Statements of Pan Orient shows that Pan Orient had been incorporated only for purpose of the diversion and transfer of certain amounts on a regular basis from the Respondent Company and the IKM Ltd. to itself. (f) In Form No. AOC-2 filed with F.Y. 2014-15 it had been stated that there was no board of Directors approval for the related party transactions with the Respondent Company or IKM Ltd. and that there was no contract/arrangement or agreement concerning these purported transactions. 25. The Award Holder has then referred to the state of affairs of the related entity/Associate Company being Additional Respondent No. 4 Fulcrum Shipping & Logistics Pvt. Ltd. (for short "Fulcrum") as reflected from its Annual Accounts/Financial Statements. It is stated that Fulcrum is a related entity and/or Assoc....
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....venue for Fulcrum during F.Y. 2012-13 is IKM Ltd. Fulcrum has shown net profit (after depreciation and tax) of Rs. 5,70,029/- in F.Y. 2012-13. 26. It is stated by the Award Holder that based on these Financial Statements, the Fulcrum is nothing but the another front of the Jalalis created to divert business and income of the other Associate Companies to itself. 27. Thereafter, in paragraph 17 of the said Affidavit in Support, it is stated thus:- "17. It is clear and evident from the above narration culled out from the financial statements of the Respondent and the Associate Companies that the affairs of all these Companies are interlinked and that all these Companies along with the Jalalis constitute one single economic entity as is also reflected by the following: (i) The Jalalis are common Shareholders and Directors of all these Companies and the Jalalis constitute the management thereof. (ii) The Jalalis are the Permanent Directors of all these Companies. (iii) Three of these Companies being the Respondent, Ornate and Pan Orient have common office premises and have their registered office at a common address. Ornate and Pan Orient have s....
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....unsecured loans advanced by the Respondent to the Associate Companies. This includes defaults on the part of the Ornate in making repayment of loan of Rs. 21.50 Crores advanced by the Respondent to Ornate several years ago so that the money never reached the Respondent. It is mentioned that the Jalalis could manage this only because these Companies were under their management and control and are group companies. 29. In paragraph 26 of the said Affidavit in Support, the Award Holder has stated that there has been regular and structured siphoning off, of the Respondent's funds and/or removal/reduction of the Respondent's assets. This has been stated to defeat and delay the Foreign Award passed against the Respondent. It is further stated that pursuant to this objective and taking aid of the corporate structure of the Associate Companies which are fully owned and controlled by the Jalalis, the Jalalis structured a regular siphoning off, of the Respondent's monies and funds and gradual reduction of the Respondent's assets by using methods and devices, which are stated as under:- (i) Repayment of the loans availed by the Associate Companies from Bankers/Lenders by sale of th....
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....d the Respondent of its assets, properties and monies, with intent to defeat and delay the claims of the Award Holder under the Foreign Award. 31. The Award Holder has also referred to the conduct of Jalalis, the Respondent and the Associate Companies during the pendency of the Execution Application. It is mentioned that due to this conduct which took place between March 2014 and May 2018, by way of execution, the Award Holder has managed to recover from the Respondent only a paltry sum of Rs. 1,39,24,210/- approximately, which is a small fraction of the awarded amount of Rs. 66/- Crores along with further interest. The Award Holder has thereafter narrated what it claims are instances of the conduct of the Jalalis/Respondent during the pendency of the execution proceedings in this Court over the past five years. This they claim demonstrated the obstructionist attitude of the Jalalis to defeat and delay the Execution proceeding and ensure that the Award Holder is not in a position to enjoy the fruits of the Foreign Award. The Award Holder has referred to the delay in filing of the Disclosure Affidavits for about five months to enable the Jalalis to allow themselves time to withdr....
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....oposed Additional Respondents and the Award Holder. The proposed Additional Respondents were not parties to the arbitral proceedings. An Execution Application can only be executed against parties against whom an Award is passed and not third parties who have no privity whatsoever with the Award Holder. Thereafter, they have raised the ground that the issues raised in the Chamber Summons is a matter of trial. It is stated that the Applicant is trying to fasten liability on the proposed Additional Respondents without substantial evidence against them. The allegations of siphoning off monies, fraud, lifting of Corporate Veil are a matter of trial and thus, such a trial cannot be ignored. These allegations in the said Affidavit in Support of the Chamber Summons i.e. of fraudulently siphoned off monies are nothing but bald allegations without any credible evidence attached to them. The allegations of fraud cannot be tested on mere Affidavits and unless fraud is established conclusively this Court cannot hold commonality of identity for lifting of Corporate Veil. Thereafter, they have raised the contention that the Executing Court cannot go beyond the merits of the award or behind what t....
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....posed Additional Respondent Nos. 4 and this is reflected in the bank statements for the relevant period which is annexed and marked in the compilation of documents as TAB 4. It is thereafter stated in the said Affidavit that the proposed Additional Respondent No. 6 is merely a Director holding a minuscule 1.54 percent shareholding in the proposed Additional Respondent No. 4. The proposed Additional Respondent No. 6 is only a Director and has no controlling interest in the proposed Additional Respondent No. 4. The Replies have thus, sought dismissal of the Chamber Summons. 35. The Affidavit in Rejoinder has been filed by the Award Holder which denies what is stated in the Affidavit in Reply of the Judgment Debtor as well as the Additional Respondents. 36. Mr. Kevic Setalvad, the learned Senior Counsel appearing on behalf of the Award Holder has submitted that the Award Holder has till date been able to satisfy the Foreign Award only to the extent of approximately Rs. 2 Crores. He has submitted that at the time when Arbitration Petition No. 842 of 2009 was filed by the Award Holder for enforcement of the Foreign Award, the status quo order dated 4th February, 2010 was passed in....
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....onal Respondents. 38. He has submitted that in support of the Chamber Summons, the Applicant has relied upon the Respondent / Additional Respondents own documents including their financial statements and filings with the Registrar of Companies. The Applicant has during the arguments tendered a compilation of documents viz. Volumes I to III. Volume I includes a note on the two premises at Nav Vyapar Premises and Udyog Bhavan premises and the documents in respect thereof. Volume II are the bank accounts and audited accounts disclosed by Respondent. Whereas in Volume III is a Note on Related party transactions inter-corporate loans. Another compilation in volume III are the Chamber Summons No. 13 of 2016 and Execution Application No.919 of 2016 filed by the Award Holder against the garnishee viz. Ornate. There are other Notes on nexus between Respondent and Related Companies, loans given by the Respondent to Additional Respondent No.1 and Preference Shares of Ornate subscribed to by the Respondent as well as Note on the Respondent's financial statements from F.Y. 2003-04 to F.Y. 2016-17 which are available on MCA Website. 39. He has submitted that in view of undisputed factual p....
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.... of the order under challenge. The Supreme Court has held that refusing special leave to appeal does not attract the doctrine of merger. 41. He has submitted that the Additional Respondent Nos. 1 to 8 are nothing but the Respondent / Judgment Debtor and all of them are one entity disguised as separate corporate entities. He has relied upon the decision of the Supreme Court in Gangabai Mohata Vs. Fulchand & Ors. [(1977) 10 Supreme Court Cases 387] which had occasion to consider who would be a "representative" of the Decree Holder under Section 47 of the Code of Civil Procedure, 1908 (for short "CPC"). He has submitted that the Supreme Court has held that where a person approaches the Executing Court claiming to be a representative of the decree holder's interest and the decree holder disputes it, the Executing Court has power to resolve the dispute. The Supreme Court held that the word "representative" used in Section 47 of the CPC is much wider than the words "legal representative" used in Section 50 of the CPC. The very object of Section 47 of the CPC is to avert another suit concerning the decree in execution. He has submitted that the Jalalis being the common directors (Addit....
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.... submitted that both the judgments of the Single Judge and Division Bench are of no relevance to the present case as the facts in that matter were different. He has submitted that what is relevant is the observation made in Sai Sounds (Supra) that the Corporate Veil can be lifted even the execution proceedings particularly in cases of of a closely held company where the Court is satisfied about the need to follow such a course. He has submitted that this observation stands uncontroverted and squarely applies to the present case. He has submitted that the facts and circumstances in Sai Sounds (supra) are similar to the facts in the present case. In that case the justification for proceeding against the assets of the director was based on a plea that he had committed fraud by running away from the execution process by filing an appeal and neither complying with the condition of stay nor the directions for making payment as was directed to be done when the company court admitted the winding up petition. He has submitted that in the present case, the Jalalis had for a period of almost five years after the Award Holder had in its favour an order of status quo on certain immovable proper....
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....at the Supreme Court in Arcelormittal (supra) had adopted the principle stated in Gower's Company that:- "...there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group". 45. He has submitted that the judgment of the United Kingdom, Supreme Court in Prest (supra) has also been followed in Balwant Rai Saluja vs. Air India Ltd. [(2014) 9 SCC 407] He has submitted that the principles laid down in Prest (supra) which includes the concealment principle are applicable in Indian Law and to the facts of the present case. 46. He has submitted that if this Court comes to the conclusion that a trial is required, it would be imperative in the interregnum to safeguard the assets in hands of the Additional Respondents and direct disclosure for the benefit of the Applicant / Award Holder. This is more so required in the facts and circumstances of the present case where the record reflects that despite numerous proceedings, the Applicant / Award Holder has been unable to recover monies in satisfaction of the Foreign Award as the Judgment Debtor has been made into a sh....
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.... No.4. The only commonality that exists between the other two directors viz. Mr. Sadegh Jalali and Ali Jawad Jalali is that Mr. Jamil Jalali who is sought to be joined as Additional Respondent in the Execution Proceedings is the father of Mr. Sadegh Jalali and uncle of Mr. Ali Jawad Jalali and the Managing Director of the Judgment Debtor. He has submitted that merely being a relative of a director or a director being a director in another Company at the same time does not make the two separate companies one and the same. The two majority shareholders viz. Mr. Sadegh Jalali and Mr. Ali Jawad Jalali hold between them over 98.46% shareholding in proposed Additional Respondent No.4 are not even been made parties to the instant Chamber Summons. This would be fatal to the maintainability of the Chamber Summons viz-a-vis. proposed Additional Respondent No.4. 49. He has submitted that the proposed Additional Respondent No.4 had been incorporated after the filing of the Arbitration Petition seeking enforcement of the Foreign Award against the Judgment Debtor before this Court. Thus, the proposed Additional Respondent No.4 could not have been a party to the arbitration agreement or the ar....
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....to pierce the Corporate Veil the Judgment Creditor must satisfy the criteria laid down in Balwant Saluja (Supra) case. He has submitted that the allegations of siphoning off monies from the Judgment Debtor to the proposed Additional Respondent No.4 has no merit. He has placed reliance upon the Affidavit in Reply to the Chamber Summons which has dealt with the allegations of the Award Holder that proposed Additional Respondent No.4 had siphoned off Rs.4 Lakhs. He has submitted that money of Rs.4 Lakhs was actually advance monies paid by the Additional Respondent No. 4 for a service to be availed from the Judgment Debtor and the Judgment Debtor being unable to provide such service due to certain circumstances refunded the same to proposed Additional Respondent No.4. He has submitted that it is evident that no monies were paid by the Judgment Debtor to the proposed Additional Respondent No.4 as alleged. He has further submitted that the Judgment Creditor has attempted to create an impression that since the Judgment Debtor and proposed Additional Respondent No.4 shared the same office for a brief period, they are controlled by the same entity and are in fact a facade and sham company. ....
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....Oil and Natural Gas Corporation Ltd. vs. M/s. Discovery Enterprises Pvt. Ltd. & Anr. [Decided on 27th June, 2012 Arbitration Petition No.814 of 2011 (Bom. H.C.)] to contend that merely because in that case son and daughter-in-law of the Managing Director of JDIL were the Directors of the Discovery Enterprises Pvt. Ltd., the same cannot take ONGC's claim any further to pin down JDIL in respect of the contractual obligations between DEPL and ONGC. He has submitted that it is thus clear from these cases that mere commonality of directors, shareholdings, offices and email addresses does not establish a case where the Corporate Veil ought to be lifted. He has also relied upon Judgment of this Court in the case of Siva Bulk Vs. M.V. Aaodabao & Anr. [2016(4) Bom. C.R. 251] to contend that Corporate Veil cannot be lifted unless a compelling case is made out by the Applicant, since the doctrine of piercing the Corporate Veil stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders. Merely, because the directors and shareholders of two companies are common, it does not make them one and the same. The doctrine should be sparingly and....
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....ny impropriety as against the proposed Additional Respondent No.4. Nor is there any evidence produced to even remotely established that the Judgment Debtor has been instrumental in creating proposed Additional Respondent No. 4. He has submitted that the criteria laid down in Balwant Saluja (supra) for lifting of the Corporate Veil clearly not satisfied in the present case. 54. He has submitted that the case of Bhatia (supra), is clearly distinguishable from the present case. The Applicant Creditor in that case was not seeking to make another Company viz. 'B' liable to pay the amounts under the decree payable by 'A'. It was affecting the properties of another Company 'B' in execution of a decree against Company 'A'. It was when the company 'B' sought to vacate the attachment it was contended that both companies 'A' and 'B' are in effect the same and therefore, the attachment was in effect of the properties of company 'A'. He has submitted a factual comparison of the facts as transpired in the Bhatia (supra) case and in the present case, which evidences the fact that the ratio decendi in Bhatia (supra) case cannot be followed and applied to the present case. He has submitted that ....
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....e around in another avatar to take over the insolvent Company. He has submitted that the Judgment of the Supreme Court in Arcelormittal (Supra) has in paragraph 37 clearly held that the Court will disregard the veil in cases where it is either the point of public interest, or where the statute mandates it or where there is evasion of a legal imposition. In the instant case, the Judgment Creditor has failed to establish any of the above and therefore. Section 29A of the IBC is enacted to prevent abuse. The statute itself demands the disregarding of the Corporate Veil to protect the creditors of the Defaulting Company. 56. He has submitted that the Judgments relied upon by the Award Holder viz. Sai Sounds (Supra) or Formosa Plastic (Supra) are not applicable in the facts of the present case. In the Sai Sounds (Supra) the director of the Company (against whom the decree was passed) was held personally liable to satisfy the decree because he had given an undertaking to pay the amount. In the case of Formosa Plastic (supra) the action was commenced to restrain the wife, son, brother of the Judgment Debtor from transferring assets belonging to the Judgment Debtor though acquired in th....
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....thin those provisions. These case laws are not material to refer to as the position in law with regard to these provisions is well settled. He has submitted that the allegations of fraud is required to be both pleaded and proved. He has submitted that in the present case the Applicant has except bare assertions, allegations, surmises and conjectures failed to produce any concrete evidence of fraud warranting lifting of the Corporate Veil. In any event, the Applicant under the garb of lifting of the Corporate Veil, is seeking to make the unconnected Additional Respondents liable under the award. 59. He has submitted that the present Chamber Summons is based on facts already known to the Judgment Creditor and is nothing but a mere amplification of the earlier allegations made by the Judgment Creditor in earlier Chamber Summons No.292 of 2014, wherein most of the allegations have been dealt with by the Judgment Debtor in its Affidavits of Disclosure. He has submitted that Judgment Creditor has suppressed various orders of this Court in the Execution Proceedings and also tendered incomplete documents so as to cause prejudice against the Additional Respondents. He has accordingly sub....
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....tration agreement nor participant to the Foreign Award. The Foreign Award was made enforceable only against the Judgment Debtor and not against any of the Additional Respondents who are now sought to be made parties in the Execution Proceedings. He has thereafter made submissions dealing with the lifting of the Corporate Veil. 61. He has submitted that the Judgment Creditor by the present Application seeks to make all Additional Respondents liable for the Foreign Award which is only passed against the Judgment Debtor. Such imposition of the Foreign Award against Additional Respondents is even beyond the concept of lifting of Corporate Veil. He has submitted that in all the judgments relied upon by the parties, it is clear that the Courts whenever they have proceeded against a particular asset have on lifting of the Corporate Veil come to the conclusion whether or not the assets belonging to the person who is liable. The Judgment Debtor has not cited a single case where the Courts have imposed liabilities of a Company on other entities including Directors in their personal capacity. He has submitted that the judgment of the Division Bench of this Court in Bhatia Industries And In....
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....iness of the Judgment Debtor. He has further submitted that the Additional Respondents are not inextricably interlinked with the Judgment Debtor, because they all deal in different business than the Judgment Debtor. He has submitted that merely having common directors and common shareholders cannot be a ground to consider that the companies are inextricably interlinked. In the present case, the Judgment Debtor is not exercising influence and dominating the Associate Companies to be considered as the Companies being inextricably interlinked. In the case of Bhatia; BIL and BIIL were held to be inextricably interlinked after considering the documents on record and moreover, after considering the dealings between the Companies. He has submitted that the present case is thus, distinguishable from the Bhatia Industries And Infrastructure Ltd. (supra). He has submitted that the Supreme Court whilst dismissing the Special Leave application in Bhatia International has left the question of law open. 62. He has submitted that the Judgment Creditor has failed to establish any impropriety i.e. the misuse of a company by the wrongdoers as a device or facade to conceal their wrongdoers. He has....
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....pal Vs. M/s. Akhay International Pvt. Ltd. 21 which expressly states that the judgment in Jawahar Lal Nehru Hockey Tournament Society (supra) has been overruled and that the Division Bench in the case of V.K. Uppal (supra) refrains from commenting authoritatively on the aspect of lifting of the Corporate Veil in execution and the same would not come to the rescue on the Decree-holder. He has further placed reliance on the decision in Anirban Roy & Anr. Vs. Ram Kishan Gupta & Anr. [CM (M) 559/2017 & CM No. 19057/2016] which judgment considers the judgment of V.K. Uppal (supra) and Jawahar Lal Nehru Hockey Tournament Society (supra) and submitted that this decision has arrived at important findings, which are, that the Executing Court cannot go behind the decree and can execute the decree as per its form only; and if the decree is against the company, the Executing Court cannot execute the decree against anyone other than the Judgment Debtor company or against the assets and properties of anyone other than the Judgment Debtor company and that the identity of a director or a shareholder of a company is distinct from that of the company which is the very genesis of the company or a cor....
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....ums from these companies to the Jalalis as managerial remuneration/employees benefit expenses. This has been referred to in paragraph 26 of the said Affidavit in Support of the Chamber Summons which has been referred to above. This has been termed as regular siphoning off structured by the Jalalis of the Respondent's monies and gradual reduction of the Respondent's assets by methods and devices which have been set out in the said paragraph. 66. The Award Holder has also referred in this context to the status quo order dated 4th February 2010 passed in favour of the Award Holder in respect of three properties of the Judgment Debtor. It is stated that although the Award Holder was reasonably certain of recovering a substantial part of the award from the sale of these properties, it was not aware when this status quo order was passed that these properties had already been disposed of. This fact was not brought to the attention of the Applicant or to this Court by the Judgment Debtor till the year 2015 when the execution proceedings commenced. These properties were sold to clear the debts of the Additional Respondent No. 1 (Ornate). It appears that steps were taken by the Award Hold....
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....hat the Corporate Veil of the Judgment Debtor is not to be lifted, as the Judgment Debtor and the Associate Companies are not a single entity. There appears to be some merit in the contention of the Additional Respondents that in order to determine as to whether the Corporate Veil is to be lifted would be a matter of trial and cannot be done in the manner sought to be done i.e. by the present Chamber Summons seeking to join the Additional Respondents as parties to the Execution Application and making them personally liable. 69. The Chamber Summons appears on the face of it to be an attempt on the part of the Award Holder to trace monies in the hands of the Additional Respondents, particularly, since the Additional Respondents were not parties to the arbitration proceedings and/or the Foreign Award. Such personal liability sought to be imposed upon the Additional Respondents can only be determined in a substantial suit being filed by the Award Holder against the Additional Respondents. By allowing the Award Holder to execute the Foreign Award against the Additional Respondents by making them personally liable, the Executing Court would indeed be proceeding behind and/or beyond th....
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....l authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. (2) Enforcement of an arbitral award may also be refused if the court finds that- (a) The subject-matter of the difference is not capable of settlement by arbitration under the law of India; or (b) The enforcement of the award would be contrary to the public policy of India. Explanation. - Without prejudice to the generality of clause (b) of this section, it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption. (3) If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the court may, if it considers it proper, ....
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....as in the present case, the Additional Respondents are to be made personally liable to satisfy the decree passed against the Respondent/Judgment Debtor. In fact, the judgment relied upon by the Award Holder viz. Bhatia Industries And Infrastructure Ltd. (supra) is entirely distinguishable on facts as in that case, the attachment was alleged to be made in respect of coal which belonged to BIIL and not the Judgment Debtor (BIL). It was when the said BIIL sought to vacate the attachment, the Division Bench of this Court concluded that both BIL and BIIL are in fact, one and the same and therefore, the attachment was in effect of the properties of BIL the Judgment Debtor. In fact, it appears from the decision of the Single Judge in case of Bhatia Industries And Infrastructure Ltd. (supra) that, the claim made by the BIIL that the coal belonging to it, could not be attached as BIIL is not the Judgment Debtor was held to be false and a finding was arrived at that the coal in fact belonging to BIL who was the Judgment Debtor. In the present case, the Award Holder is not going against the Associate Companies who are the Additional Respondent Nos. 1 to 4 in respect of particular assets claim....
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....r the said company for the purposes of avoiding a liability. It has been held in the said decision at paragraphs 69 to 72 and 74 as under :- "69. Vodafone case further made reference to a decision of the US Supreme Court in United States v. Bestfoods 141 L Ed 2d 43: 524 US 51 (1998). In that case, the US Supreme Court explained that as a general principle of corporate law a parent corporation is not liable for the acts of its subsidiary. The US Supreme Court went on to explain that Corporate Veil can be pierced and the parent company can be held liable for the conduct of its subsidiary, only if it is shown that the corporal form is misused to accomplish certain wrongful purposes, and further that the parent company is directly a participant in the wrong complained of. Mere ownership, parental control, management, etc. of a subsidiary was held not to be sufficient to pierce the status of their relationship and, to hold parent company liable. 70. The doctrine of "piercing the Corporate Veil" stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with its own legal rights and obligations. It seeks to disre....
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....urces Ltd. (2013) UKSC 34, at para 64. Lord Sumption, in Prest case (supra), finally observed as follows: "35. I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The Court may then pierce the Corporate Veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the Corporate Veil." 73. ....... 74. Thus, on relying upon the aforesaid decisions, the doctrine of piercing the veil allows the Court to disregard the separate legal personality of a company and impose liability upon the persons exercising real control over the said comp....
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....sts independently of the company's involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement. Many cases will fall into both categories, but in some circumstances the difference between them may be critical." 78. It is clear from the decision in Prest (supra), that the concealment principle does not involve piercing the Corporate Veil at all. It applies where there is interposition of a company or perhaps several companies so as to conceal the identity of the real actors. This will not deter the courts from identifying them, assuming that their identity is legally relevant. It has been held that the Court is not disregarding the "facade", but only looking behind it to discover the facts which the corporate structure is concealing. This is in counter distinction with the evasion principle. The learned Senior Counsel appearing for the Award Holder has upon placing reliance on the judgment in Prest (supra), relied upon the decision of the Supreme Court in Arcelormittal India Private Ltd. (supra). 79. However, it is to be noted that the decision in Prest (supra) was not a case of an execut....
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....iled so that the same defaulter does not come around in another avataar to take over the company. It would be necessary to refer to Paragraph 37 of that decision which reads as follows:- "37. It is thus clear that, where a statute itself lifts the Corporate Veil, or where protection of public interest is of paramount importance, or where a company has been formed to evade obligations imposed by the law, the court will disregard the Corporate Veil. Further, this principle is applied even to group companies, so that one is able to look at the economic entity of the group as a whole." 82. It is thus clear that the context of that decision was in respect of the statute which itself required the Corporate Veil to be lifted. The principles have been set out in above paragraph for lifting of the Corporate Veil, which would arise where statute lifts the Corporate Veil or where protection of public interest is of paramount importance or where company has been formed to evade obligations imposed by the law, then the Court will disregard the Corporate Veil. The Judgment Creditor in the present case has not satisfied any of these principles and accordingly, the lifting of the Corpo....