V.M. Kanade, J.
Appellant is challenging the order passed by the learned Single Judge who was pleased to extend the precept order which was passed under Section 46 of the Civil Procedure Code in execution proceedings taken out by the Respondent-Award Holder/Judgment Creditor.
2. The questions which fall for consideration in this Appeal are as under:
(i) In which cases corporate veil can be lifted by the Court and whether the concept of lifting of corporate veil is also available in execution proceedings?
(ii) Whether the learned Single Judge was justified in lifting the corporate veil in this case and whether the learned Single Judge was further justified in coming to the conclusion that BIIL and BIL was a single economic entity?
(iii) Whether any interference is called for in the order passed by the learned Single Judge?
3. Brief facts which are relevant for the purpose of deciding this appeal are as under:
4. An International Award came to be passed in favour of Respondent Vitol S.A. and against Bhatia International Limited ("BIL") on 17/01/2011. As a result of the Award, BIL was supposed to pay an amount of Rs. 443 crores along with interest to the Respondent Award Holder/Judgment Creditor.
5. An application was filed by Respondent Vitol S.A. for issuance of precept under section 46 of the Civil Procedure Code in respect of coal which belonged to the Appellant. In the application, it was contended that though Bhatia Industries and Infrastructure Limited was a Company established under the Companies Act, 1956 in 1993, it was a Group Company belonging to Bhatia Group and other Companies and it was under the control of Bhatia International Ltd ("BIL") and Shri S.S. Bhatia was the main person behind all those Companies and other Companies which were fraudulently siphoning off the funds from BIL to defeat execution of the International Award and therefore it was prayed that though the goods may be shown to be belonging to BIIL, in fact, they belonged to the Group Companies and therefore they were liable to be attached in execution of the International Award.
6. The learned Counsel appearing on behalf of the Respondent No. 2 produced material to show that if the corporate veil of two Companies was lifted, it would show that it was a single entity and therefore the order of attachment may be passed in respect of the goods owned by the Appellant.
7. The learned Single Judge accepted the contention of the Respondent No. 2 and issued an order of attachment and the precept was extended by further period of two months.
8. Mr. Mustafa Doctor the learned Senior Counsel appearing on behalf of the Appellant firstly submitted that Respondent No. 2 had misled the Court. He submitted that the precept order proceeded on the footing that the cargo of coal imported at Tuticorin Port belonged to BIL and on this basis asked for attachment of the coal. He further submitted that the learned Single Judge after coming to the conclusion that the coal was owned by BIIL, had yet issued precept order by holding that BIL was the owner of the coal which was imported at Tuticorin Port. Thirdly, it is submitted that the concept of lifting of corporate veil is not available in execution proceedings. He submitted that if the said concept is admitted, there are thousands of Companies which are formed by families and in all such cases the property of another Company would then be attached in execution of an Award. He submitted that the Respondent No. 2 Vitol S.A. were merely Creditors/Award Holders and as such the concept of limited liability of shareholding in Public/Private Limited Company could not be circumvented. He then submitted that finding recorded by the learned Single Judge in para 14 of the Order was not based on well recognised principles. He then submitted that the reliance which was placed by the learned Single Judge on certain judgments which were not cited by either parties was not correct since these judgments did not support the case of the Respondent No. 2 and were in fact in favour of the Appellant. He submitted that the two judgments cited by the Appellant, though they were referred to in the judgment, reason why these judgments were not considered by the learned Single Judge was not mentioned in the Judgment and order of the learned Single Judge.
9. On the other hand, Mr. Zal Andhyarujina, the learned Counsel appearing on behalf of Respondent No. 2 made four submissions. Firstly, he submitted that the concept of lifting of corporate veil is available even in execution proceedings. He relied on two judgments of the Delhi High Court in support of the said submission. Secondly, he submitted that the concept of lifting of corporate veil is expanded in several cases and it is not limited only to tax evasion. He then relied upon the judgment of the Apex Court in State of U.P. v. Renusagar Power Co., (1988) 4 SCC 59 : 1988 Supp (1) SCR 627. He then submitted that Respondent No. 2 had brought sufficient material on record to indicate that BIL was siphoning off monies to defeat execution of the Award passed in favour of Respondent No. 2.
10. Before we deal with the rival submission, it would be relevant to take into consideration the settled legal position.
11. The first question is, in which cases corporate veil can be lifted by the Court and whether the concept of lifting of corporate veil is also available in execution proceedings? This concept has undergone a drastic change after the first judgment was delivered in Salomon v. Salomon, 1897 AC 22. In order to trace the evolution of this doctrine, it would be profitable to refer to the judgments of the Apex Court viz State of U.P. v. Renusagar Power Co., (1988) 4 SCC 59 : 1988 Supp (1) SCR 627 in which the concept has been elaborately discussed. It is now well settled that doctrine of piercing the veil has been applied by the Court in various diverse circumstances. Though, initially, this concept was primarily applied in cases of tax evasion, the Courts have expanded this concept and had applied it to the cases
(A) where the Petitioner himself has invited the Court to look behind its own corporate personality. Reference can be made to the following judgments under this category:
(i) State of U.P. & Ors v. Renusagar Power Co. and Ors.,(1988) 4 SCC 59
(ii) New Horizons v. Union of India, (1995) 1 SCC 478
(iii) DHN Food Distributors v. Tower Hamlets London Borough Council, (1976) 1 WLR 852
(iv) Madras Bangalore Transport v. Inder Singh, (1986) 3 SCC 62
(B) where group companies/companies have been used to perpetuate a fraud or illegality. This can be seen from the following case:
(i) Delhi Development Authority v. Skipper Construction, (2000) 10 SCC 130
(C ) where interest of public/revenue/public policy is involved. Reference can be made to the following cases :
(i) Vodafone International Holdings v. Union of India, (2012) 6 SCC 613.
(ii) Juggilal Kamlapar v. Commissioner of Income-tax, (1969) 1 SCR 988.
(iii) DeBeers Consolidated Mines Ltd v. Howe Surveyor of Taxes, 1906 AC 455
(D) where residence of a company has to be determined for the purpose of ascertaining common law offence of trading with the enemy. Reference can be made to the following case :
(i) Daimler Co. Ltd. v. Continental Tyre and Rubber Co. Ltd., (1916) 2 AC 307
(E) where execution proceedings have been initiated. Reference can be made to the following cases :
(i) Formosa Plastic Corporation Ltd. v. Ashok Chauhan and Others, 1999 (1) AD (Delhi) 392 = 1998 (76) DLT 817
(ii) Sai Sounds Private Limited v. Kiran Contractors Private Limited, (2016) 1822 PLR 518
(F) where business realities of the situation require the veil to be pierced.
Reference can be made to the following cases:
(i) DHN Food Distributors v. Tower Hamlets London Borough Council, (1976) 1 WLR 852
(ii) Harold Holdsworth & Co. v. Caddies, (1955) 1 WLR 352
(iii) Scottish Cooperative Wholesale Society Ltd. v. Meyer, (1959) AC 324
(G) where there is an involvement of industrial law and human rights and also where the requirement of justice so require. Reference can be made to the following case :
(i) Kapila Hingorani v. State of Bihar, (2003) 6 SCC 1
(H) where associated companies are inextricably connected as to be in reality part of one concern. Reference can be made to the following case:
(i) Life Insurance Corporation v. Escorts, (1986) 1 SCC 264
12. It would be relevant if a reference is made to the judgment in State of U.P. & Ors v. Renusagar Power Co. and Ors. (1988) 4 SCC 59 This judgment noted the change in the concept of lifting of corporate veil. It has been observed in the said judgment that the concept of lifting of corporate veil is a changing concept and was permissible in the expanding horizon of modern jurisprudence. It will be relevant and useful to reproduce the relevant paragraphs of the said judgment in which evolution of this doctrine has been beautifully traced. Paras 51 to 72 of the said judgment are relevant and they read as under:
"51. This naturally brings us to the question of lifting the corporate veil or piercing the corporate veil as we often call it. On behalf of the appellants, however, it was very strongly urged that in this case there was no ground for lifting the corporate veil and Shri Trivedi, learned Additional Advocate General, State of U.P., who was assisted by Shri Gopal Subramaniam, submitted before us elaborate arguments and made available to us all the relevant documents, urged that there was no warrant either in law or in fact to lift the corporate veil and to treat Renusagar's plant as Hindalco's own source of generation. Shri Trivedi urged that facts in this case do not justify such a construction and the law does not warrant such an approach. We may say that Shri Trivedi mainly relied on the proposition that normally the court has disregarded the separate legal entity of a company only where the company was formed or used to facilitate evasion of legal obligations. He referred us to the observations of this Court in Western Coalfields Ltd. v. Special Area Development Authority, Korba [(1982) 1 SCC 125]. The facts of that case were, however, entirely different and it is useless to refer to them but at page 17 of the report, Chandrachud, C.J. speaking for the Court quoted the observations in APSRTC v. ITO [1964) 7 SCR 17], where this Court had held that though the Transport Corporation was wholly controlled by the State Government it had a separate entity and its income was not the income of the State Government. While delivering the judgment in that case Gajendragadkar, C.J. referred to the observations of Lord Denning in Tamlin v. Hannaford [(1950) 1 KB 18] where Lord Denning had observed that the Crown and the corporation were different and the servants of the corporation were not civil servants.
52. Chandrachud, C.J. relied on the aforesaid observations and referred to Pennington's Company Law, 4th Edn., pages 5051, where it was stated that there were only two cases where the court had disregarded the separate legal entity of a company and that was done because the company was formed or used to facilitate the evasion of legal obligations.
53. The learned Editor of Pennington's Company Law, 5th Edn., at page 49 has recognised that this principle has been relaxed in subsequent cases. He states that the principle of company's separate legal entity has on the whole been fully applied by the courts since Salomon case [1897 AC 22]. Corporate veil has been lifted where the principal question before the court was one of company law, and in some situations where the corporate personality of the company involved was really of secondary importance and the application of the old principle has worked hardship and injustice. In England, there have been only a few cases where the court had disregarded the company's corporate entity and paid attention to where the real control and beneficial ownership of the company's undertaking lay. When it had done this, the court had relied either on a principle of public policy, or on the principle that devices used to perpetrate frauds or evade obligations will be treated as nullities, or on a presumption of agency or trusteeship which at first sight Salomon case [1897 AC 22] seems to prohibit. Again at page 36 of the same book, the learned author notes a few cases where the courts have disregarded separate legal entity of a company and investigated the personal qualities of the shareholders or the persons in control of it because there were overriding public interests to be served by doing so.
54. Indubitably, in this case there was no question of evasion of taxes but the manner of treatment of the power plant of Renusagar as the power plant of Hindalco and the Government taking full advantage of the same in the case of power cuts and denial of supply of 100 per cent power to Hindalco, in our opinion, underline the facts and, as such, imply acceptance and waiver of the position that Renusagar was a power plant owned by Hindalco. Shri Trivedi naturally relied on several decisions which we shall briefly note in aid of the submission that Renusagar's power plant could not be treated as Hindalco's power plant. He referred us to the well known case of Aron Salomon v. A. Salomon & Co. Ltd. [1897 AC 22] (at pp. 27, 3031, 43, 56) to emphasise the distinction between the shareholders and the company. This point of view was emphasised by this Court also by Chandrachud, C.J. in Western Coalfields Ltd case [(1982) 1 SCC 125] relying on Rustom Cavasjee Cooper v. Union of India [(1970 1 SCC 248] where this Court held that a company registered under the Companies Act was a legal person, separate and distinct from its individual members. Property of the company was not the property of the shareholders. These propositions, in our opinion, do not have any application to the facts of the instant case. Shri Trivedi also drew our attention to Bankvoor Handel en Schee pvaart N.V. v. Slatford [(1953) 1 QB 248] where in the context of the international law property belonging to or held on behalf of a Hungarian national came up for consideration and the distinction between a shareholder and a company was emphasised and highlighted.
55. In Kodak Ltd. v. Clark [(197) 1 SCC 248] the Court of appeal in England while dealing with an English company carrying on business in the U.K. owned 98 per cent of the shares in a foreign company, which gave it a preponderating influence in the control, election of directors etc. of the foreign company. The remaining shares in the foreign company were, however, held by independent persons, and there was no evidence that the English company had ever attempted to control or interfere with the management of the foreign company, or had any power to do so otherwise than by voting as shareholders. It was held that the foreign company was not carried on by the English company, nor was it the agent of the English company, and that the English company was not, therefore, assessable to income tax. Renusagar was not the alter ego of Hindalco, it was submitted. On the other hand these English cases have often pierced the veil to serve the real aim of the parties and for public purposes. See in this connection the observations of the Court of appeal in DHN Food Distributors Ltd. v. London Borough of Tower Hamlets [(1976) 3 ALL ER 462]. It is not necessary to take into account the facts of that case. We may, however, note that in that case the corporate veil was lifted to confer benefit upon a group of companies under the provisions of the Land Compensation Act, 1961 of England. Lord Denning at page 467 of the report has made certain interesting observations which are worth repeating in the context of the instant case. The Master of the Rolls said at page 467 as follows:
Third, lifting the corporate veil. A further very interesting point was raised by counsel for the claimants on company law. We all know that in many respects a group of companies are treated together for the purpose of general accounts, balance sheet and profit and loss account. They are treated as one concern. Professor Gower in his book on company law says: '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'. This is especially the case when a parent company owns all the shares of the subsidiaries, so much so that it can control every movement of the subsidiaries. These subsidiaries are bound hand and foot to the parent company and must do just what the parent company says. A striking instance is the decision of the House of Lords in Harold Holdsworth & Co. (Wakefield) Ltd. v. Caddies [(1955) 1 ALL ER 725]. So here. This group is virtually the same as a partnership in which all the three companies are partners. They should not be treated separately so as to be defeated on a technical point. They should not be deprived of the compensation which should justly be payable for disturbance. The three companies should, for present purposes, be treated as one, and the parent company, DHN, should be treated as that one. So that DHN are entitled to claim compensation accordingly. It was not necessary for them to go through a conveyancing device to get it.
I realise that the President of the Lands Tribunal, in view of previous cases, felt it necessary to decide as he did. But now that the matter has been fully discussed in this Court, we must decide differently from him. These companies as a group are entitled to compensation not only for the value of the land, but also compensation for disturbance. I would allow the appeal accordingly.
56. Lord Justice Goff proceeded with caution and observed as follows at pages 468 and 469 of the report:
Secondly, on the footing that is not in itself sufficient, still, in my judgment, this is a case in which one is entitled to look at the realities of the situation and to pierce the corporate veil. I wish to safeguard myself by saying that so far as this ground is concerned, I am relying on the facts of this particular case. I would not at this juncture accept that in every case where one has a group of companies one is entitled to pierce the veil, but in this case the two subsidiaries were both wholly owned; further, they had no separate business operations whatsoever; thirdly, in my judgment, the nature of the question involved is highly relevant, namely whether the owners of this business have been disturbed in their possession and enjoyment of it. I find support for this view in a number of cases, from which I would make a few brief citations, first from Harold Holdsworth & Co. (Wakefield) Ltd. v. Caddies [(1955) 1 ALL ER 725] where Lord Reid said: (All ER pp. 73738)
It was argued that the subsidiary companies were separate legal entities, each under the control of its own board of directors, that in law the board of the appellant company could not assign any duties to anyone in relation to the management of the subsidiary companies, and that, therefore, the agreement cannot be construed as entitling them to assign any such duties to the respondent.
My Lords, in my judgment, this is too technical an argument. This is an agreement in re mercatoria, and it must be construed in the light of the facts and realities of the situation. The appellant company owned the whole share capital of British Textile Mfg. Co. and, under the agreement of 1947, the directors of this company were to be the nominees of the appellant company. So, in fact, the appellant company could control the internal management of their subsidiary companies, and, in the unlikely event of there being any difficulty, it was only necessary to go through formal procedure in order to make the decision of the appellant company's board fully effective.
That particular passage, is I think, especially cogent having regard to the fact that counsel for the local authority was constrained to admit that in this case, if they had thought of it soon enough, DHN could, as it were, by moving the pieces on their chess board, have put themselves in a position in which the question would have been wholly unarguable.
I also refer to Scottish Cooperative Wholesale Society Ltd. v. Meyer [(1958) 3 ALL ER 66]. That was a case under Section 210 of the Companies Act, 1948 and Viscount Simonds said: (All ER p. 71)
'... I do not think that my own views could be stated better than in the late Lord President Cooper's words on the first hearing of this case. He said:
"In my view, the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view".'
My third citation is from the judgment of Danckwerts, L.J. in Merchandise Transport Ltd. v. British Transport Commission [(1961) 3 ALL ER 495] where he said that the cases - (All ER p. 518)
'show that where the character of a company, or the nature of the persons who control it, is a relevant feature the court will go behind the mere status of the company as a legal entity, and will consider who are the persons as shareholders or even as agents who direct and control the activities of a company which is incapable of doing anything without human assistance.'
The third ground, which I place last because it is longest, but perhaps ought to come first, is that in my judgment, in truth, DHN were the equitable owners of the property. In order to resolve this matter, it will be necessary for me to refer in some detail to the facts."
57. Shaw, L.J. also observed at page 473 as follows:
"Even if this were not right, there is the further argument advanced on behalf of the claimants that there was so complete an identity of the different companies comprised in the so called group that they ought to be regarded for this purpose as a single entity. The completeness of that identity manifested itself in various ways. The directors of DHN were the same as the directors of Bronze; the shareholders of Bronze were the same as in DHN, the parent company, and they had a common interest in maintaining on the property concerned the business of the group. If anything were necessary to reinforce the complete identity of commercial interest and personality, clause 6, to which I have referred already, demonstrates it, for DHN undertook the obligation to procure their subsidiary company to make the payment which the bank required to be made.
If each member of the group is regarded as a company in isolation, nobody at all could have claimed compensation in a case which plainly calls for it. Bronze would have had the land but no business to disturb; DHN would have had the business but no interest in the land."
58. In this connection it would be useful to refer to Harold Holdsworth & Co. (Wakefield) Ltd. v. Caddies [(1955) 1 ALL ER 725], where Lord Morton of Henryton in England, at page 734 of the report observed as follows:
"My Lords, this clause refers to a group of companies consisting of the appellant company and their existing subsidiary companies. I cannot read the clause as compelling the board to assign duties to the respondent in relation to the business of every company in the group. Nor can I read it as compelling the board to assign him duties in relation to the business of the appellant company. That business is not treated as being on a different footing from the business of British Textile or of another subsidiary of the appellant company, Whalley & Appleyard, Ltd., which is mentioned in the respondent's condescendence 3. As I read the clause, it leaves the board of the appellant company free to assign to the respondent duties in relation to the business of one only, or two only or all of the companies in the group, and to vary the assignment and the duties from time to time. Further, I think the clause leaves the board free to appoint another person to be 'a managing director', and to divide the duties and powers referred to in the clause between the respondent and the other managing director in such manner as they think fit. It is true that each company in the group is, in law, a separate entity, the business whereof is to be carried on by its own directors and managing director, if any; but there is no doubt that the appellant company, by taking any necessary formal steps, could make any arrangements, they pleased in regard to the management of the business of (for instance) British Textile. They owned all the issued capital and the directors were their nominees."
59. Lord Reid at pages 73738 observed as follows:
"It was argued that the subsidiary companies were separate legal entities, each under the control of own board of directors, that in law the board of the appellant company could not assign any duties to anyone in relation to the management of the subsidiary companies, and that, therefore, the agreement cannot be construed as entitling them to assign any such duties to the respondent.
My Lords, in my judgment, this is too technical an argument. This is an agreement in re mercatoria, and it must be construed in the light of the facts and realities of the situation. The appellant company owned the whole share capital of British Textile Manufacturing Co. and, under the agreement of 1947, the directors of this company were to be the nominees of the appellant company. So, in fact, the appellant company could control the internal management of their subsidiary companies, and, in the unlikely event of there being any difficulty, it was only necessary to go through formal procedure in order to make the decision of the appellant company's board fully effective."
60. Our attention was drawn by Shri Sen to Scottish Cooperative Wholesale Society Ltd. v. Meyer [(1958) 3 ALL ER 66], where Viscount Simonds of House of Lords observed at pages 7172 as follows:
"My Lords, it may be that the acts of the society of which complaint is made could not be regarded as conduct of the affairs of the company if the society and the company were bodies wholly independent of each other, competitors in the rayon market, and using against each other such methods of trade warfare as custom permitted. But this is to pursue a false analogy. It is not possible to separate the transactions of the society from those of the company. Every step taken by the latter was determined by the policy of the former. It will give an example of this. I observed that, in the course of the argument before the House, it was suggested that the company had only itself to blame if, through its neglect to get a contract with the society, it failed in a crisis to obtain from the Falkland Mill the supply of cloth that it needed. The short answer is that it was the policy of the society that the affairs of the company should be so conducted, and the minority shareholders were content that it should be so. They relied - how unwisely the event provided - on the good faith of the society, and in any case they were impotent to impose their own views. It is just because the society could not only use the ordinary and legitimate weapons of commercial warfare but could also control from within the operations of the company that it is illegitimate to regard the conduct of the company's affairs as a matter for which it had no responsibility. After much consideration of this question, I do not think that my own views could be stated better than in the late Lord President, Lord Cooper's words on the first hearing of this case. He said (1954 SC at p. 391):
'In my view, the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view. The truth is that, whenever a subsidiary is formed as in this case with an independent minority of shareholders, the parent company must, if it is engaged in the same class of business, accept as a result of having formed such a subsidiary an obligation so to conduct what are in a sense its own affairs as to deal fairly with its subsidiary.'
At the opposite pole to this standard may be put the conduct of a parent company which says "our subsidiary company has served its purpose, which is our purpose. Therefore let it die" and, having thus pronounced sentence, is able to enforce it and does enforce it not only by attack from without but also by support from within. If this section is inept to cover such a case, it will be a dead letter indeed. I have expressed myself strongly in this case because it appears to me to be a glaring example of precisely the evil which Parliament intended to remedy."
61. Similarly, at page 84 of the report, Lord Keith's observations are also relevant to the facts of this case:
"My Lords, if the society could be regarded as an organisation independent of the company and in competition with it, no legal objection could be taken to the actions and policy of the society. Lord Carmont pointed this out in the Court of Session. But that is not the position. In law, the society and the company were, it is true, separate legal entities. But they were in the relation of parent and subsidiary companies, the company being formed to run a business for the society which the society could not at the outset have done for itself unless it could have persuaded the respondents to become servants of the society. This the respondents were not prepared to do. The company, through the knowledge, the experience, the connections, the business ability and the energies of the respondents, had built up a valuable goodwill in which the society shared and which there is no reason to think would have been maintained, if not increased, with the Cooperation of the society. The company was in substance, though not in law, a partnership consisting of the society and the respondents. Whatever may be the other different legal consequences following on one or other of these forms of combination one result, in my opinion, followed in the present case from the method adopted, which is common to partnership, that there should be the utmost good faith between the constituent members. In partnership the position is clear. As stated in Lindley on Partnership (11th Edn.), p. 401:
'A partner cannot, without the consent of his copartners, lawfully carry on for his own benefit, either openly or secretly, any business in rivalry with the firm to which he belongs.'
It may not be possible for the legal remedies that would follow in the case of a partnership to follow here, but the principle has, I think, valuable application to the circumstances of this case.
62. In Charterbridge Corpn. Ltd. v. Lloyds Bank Ltd [(1969) 2 ALL ER 1185] at page 1194 Justice Pennycuick emphasised that the reality of the situation must be looked in.
63. Shri Trivedi drew our attention to the decision in Marshall Richards Machine Co. Ltd. v. Jewilt [36 Tax Cases 511], where at page 525 of the report Lord Upjohn, J. observed that where you have a wholly owned subsidiary, and both the parent company and wholly owned subsidiary enter into trading relationships, there is, of course, a dual relation, but you cannot for the purposes of tax disregard the fact that there are, in fact, two entities and two trades, that is to say, the trade of each company. It is normally a question of fact whether the disbursement in question is laid out wholly and exclusively and for the purposes of the trade. In aid of this proposition and in furtherance Shri Trivedi drew our attention to the profits of the two companies which were separately computed and also referred to Vol. C, p. 641 where the profits of Renusagar were separately indicated and Vol. C at p. 642 where the profits of Hindalco were separately indicated.
64. We are, however, of the opinion that these tests are not conclusive tests by themselves. Our attention was also drawn to the decision of the Madras High Court in Spencer & Co. Ltd. Madras v. CWT [(AIR 1969 Mad 359] where Veeraswami, J. held that merely because a company purchases almost the entirety of the shares in another company, there was no extinction of corporate character for each company was a separate juristic entity for the tax purposes. Almost on similar facts, are the observations of P.B. Mukharji, J. in Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Ltd. [AIR 1969 Cal 238], where he held that holding company and subsidiaries are incorporated companies and in this context each has a separate legal entity. Each has a separate corporate veil but that does not mean that holding company and the subsidiary company within it, all constitute one company.
65. Mr. Justice O. Chinnappa Reddy speaking for this Court in LIC v. Escorts Ltd [(1986) 1 SCC 264] had emphasised that the corporate veil should be lifted where the associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected. After referring to several English and Indian cases, this Court observed that ever since A. Salomon & Co. Ltd. Case [1897 AC 22] a company has a legal independent existence distinct from individual members. It has since been held that the corporate veil may be lifted and corporate personality may be looked in. Reference was made to Pennington and Palmer's Company Laws.
66. It is high time to reiterate that in the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding. Here, indubitably, we are of the opinion that it is correct that Renusagar was brought into existence by Hindalco in order to fulfil the condition of industrial licence of Hindalco through production of aluminium. It is also manifest from the facts that the model of the setting up of power station through the agency of Renusagar was adopted by Hindalco to avoid complications in case of take over of the power station by the State or the Electricity Board. As the facts make it abundantly clear that all the steps for establishing and expanding the power station were taken by Hindalco, Renusagar is wholly owned subsidiary of Hindalco and is completely controlled by Hindalco. Even the day-to-day affairs of Renusagar are controlled by Hindalco. Renusagar has at no point of time indicated any independent volition. Whenever felt necessary, the State or the Board have themselves lifted the corporate veil and have treated Renusagar and Hindalco as one concern and the generation in Renusagar as the own source of generation of Hindalco. In the impugned order the profits of Renusagar have been treated as the profits of Hindalco.
67. In the aforesaid view of the matter we are of the opinion that the corporate veil should be lifted and Hindalco and Renusagar be treated as one concern and Renusagar's power plant must be treated as the own source of generation of Hindalco and should be liable to duty on that basis. In the premises the consumption of such energy by Hindalco will fall under Section 3(1)(c) of the Act. The learned Additional Advocate General for the State relied on several decisions, some of which have been noted.
68. The veil on corporate personality even though not lifted sometimes, is becoming more and more transparent in modern company jurisprudence. The ghost of Salomon case [1897 AC 22] still visits frequently the hounds of Company Law but the veil has been pierced in many cases. Some of these have been noted by Justice P.B. Mukharji in the New Jurisprudence [Tagore Law Lectures, p.183]
69. It appears to us, however, that as mentioned the concept of lifting the corporate veil is a changing concept and is of expanding horizons. We think that the appellant was in error in not treating Renusagar's power plant as the power plant of Hindalco and not treating it as the own source of energy. The respondent is liable to duty on the same and on that footing alone; this is evident in view of the principles enunciated and the doctrine now established by way of decision of this Court in Life Insurance Corpn. of India [(1986) 1 SCC 264] that in the facts of this case Sections 3(1)(c) and 4(1)(c) of the Act are to be interpreted accordingly. The persons generating and consuming energy were the same and the corporate veil should be lifted. In the facts of this case Hindalco and Renusagar were inextricably linked up together. Renusagar had in reality no separate and independent existence apart from and independent of Hindalco.
70. In the aforesaid view of the matter we are of the opinion that consumption of energy by Hindalco is clearly consumption by Hindalco from its own source of generation. Therefore, the rates of duty applicable to own source of generation have to be applied to such consumption, that is to say, 1 paisa per unit for the first two generating sets and nil rate in respect of third and fourth generating sets. It is appropriate to refer that having regard to the conduct of the State the power cuts matter and also the present proceedings the State should not be permitted to treat consumption of Renusagar's energy by Hindalco as anything other than (sic or) different from consumption of energy by Hindalco from its own source of generation. We are, therefore, of the opinion that in the facts of this case the corporate veil must be lifted and Hindalco and Renusagar should be treated as one concern and if that is taken the consumption of energy by Hindalco must be regarded as consumption by Hindalco from its own source of generation.
71. Inasmuch as the High Court upheld this contention of the respondent we are in respectful agreement of its views and the appeal directed against this finding of the High Court must, therefore, be rejected.
72. The electricity bill for arrears, subject to consideration of other aspects of the matter, that is to say, the validity of the order of rejection passed by the State on February 16, 1982 rejecting the claim for exemption would be treated hereinafter."13. Even after the said judgment was delivered, it has now been held that even in respect of execution proceedings, this doctrine can be adhered to. The Delhi High Court in Formosa Plastic Corporation Ltd. v. Ashok Chauhan and Others, 1999 (1) AD (Delhi) 392 : 1998 (76) DLT 817 and Punjab and Haryana High Court in Sai Sounds Private Limited v. Kiran Contractors Private Limited, (2016) 1822 PLR 518 have held that this doctrine can be applied even in execution proceedings.
14. The Delhi High Court in Formosa Plastic Corporation Ltd. (supra) has in terms held in para 45 as under:
"45. The question whether the assets and the properties in question are owned and/or possessed by Chauhan and/or the names in which they may have been acquired are fictitious or fraudulent or merely cloaks can be decided after parties have led evidence. The Court has always the power of lifting the corporate veil or mere cloaks where device is employed and the properties have been acquired fictitiously in others names for the purpose of committing illegalities or for defrauding others so as to enable it to pass appropriate orders to do justice between the parties concerned (See DDA v. Skipper Construction Co. (P) Ltd. AIR 1996 SC 2005."
15. Brief facts in the said case were 'Formosa' and 'KOA' entered into agreement for supply of Resin. As per the said agreement, Formosa began delivering Resin but no payment was made by KOA. One Chavan had signed individual guarantee in 1993 in which he personally vouched for the "existence and future qualified claims of Formosa". The suit was filed by Formosa in District Court of Texas, USA. Decree was passed in favour of Formosa. Appeal filed against it was dismissed. Application was filed in execution of the decree before High Court of Justice, London. Leave was granted by the High Court, London to enforce the decree in India. In the execution proceedings various objections were raised and in that context Delhi High Court held that it was open for the Court in execution proceedings to resort to the power of lifting the corporate veil.
16. Punjab and Haryana High Court in Sai Sounds Private Limited v. Kiran Contractors Private Limited, (2016) 1822 PLR 518 has also taken a view that in execution proceedings corporate veil can be lifted. In para 10 of the said judgment, it has been observed as under:
"10. The issue of competency of the decree-holder to proceed against the assets of the Managing Director could be taken only if it is a circumstance when it is possible to tear the corporate veil. There is no difficulty in understanding the fundamental proposition that a company registered under the Companies Act is an independent entity and the liability of the company cannot be understood as constituting a personal liability for the Managing Director, except to the extent provided under the Income Tax Act. The known exceptions are exceptions which courts have accepted through judicial interpretation when the corporate veil could be lifted. The decision are abundant, which I do not feel constrained to cite that if in the suit a Managing Director is sought to be made as party along with the company when the liability is contracted by the Company, the Court will examine whether there has bee any fraud committed by the Managing Director to use the corporate cloak only as a facade to secure personal immunity. In this case, admittedly the decree is only against the company and there is no reference to the Managing Director's personal liability. However, it must be noticed that when the execution petition was filed, the petitioner had made a specific reference to the fact of the admission made by the Managing Director of the Company offering to make the payment before the Company Court, while preferring the appeal, but failed to comply with the direction of the Company Court's order. A plea of undertaking and default persisted even before the Appellate Court against the decree when the Company was preferring an appeal through the Managing Director and seeking for stay. There was a direction for payment but he failed to comply with the direction. The decree-holder was, therefore, saying that the Managing Director of the Company had approached the Division Bench of the Calcutta High Court only with a motive to buy time and after the dismissal of appeals, the Managing Director was operating from House No. 703, Sector 3, Chandigarh, but evading all types of liabilities."
17. We concur with the view taken by the Delhi Court in Formosa Plastic Corporation Ltd. (supra) and of the Punjab and Haryana High Court in Sai Sounds Private Limited (supra) that the concept of lifting the corporate veil can be resorted to even in execution proceedings.
18. In our view it is not necessary to refer to the judgment in DHN Food Distributors (supra), Juggilal Kamlapar (supra) since these judgments have already been referred to in the judgment in State of U.P. & Ors v. Renusagar Power Co. and Ors., (1988) 4 SCC 59
19. From the conspectus of the judgments which are referred to herein above, it is now quite well settled that the doctrine of piercing or removing corporate veil is applicable not only in the case of holding of subsidiary companies or in the case of tax evasion but can be equally applied in execution proceedings. It can be seen from these judgments that the doctrine has been referred to also in cases :
(i) where "two separate corporate entities are functioning as if they are in partnership with one company as an alter ego of the other company, where one company is bound hand and foot by the other"
(ii) where "parent company's management has steering influence on the subsidiary's core activities that the subsidiary can no longer be regarded to perform those activities on the authority of its own executive directors" and
(iii) where "the company is the creature of the group and the mask which is held before its face in an attempt to avoid recognition by the eye of equity or is a mere cloak or sham and in truth the business was being carried on by one person and not by the company as a separate entity".
(iv) where "two companies are inextricably interlinked corporate entities".
We therefore hold that the concept of lifting the corporate veil is also available in execution proceedings and answer the question No. 1 above accordingly.
20. We are therefore of the view that the corporate veil can be lifted in cases where the Court from the material on record comes to the conclusion that the Judgment Debtor is trying to defeat the execution of the Award which is passed against him. In our view, the learned Single Judge was justified in carrying out that exercise.
21. The second question which falls for consideration is : whether the learned Single Judge was justified in lifting the corporate veil in this case and whether the learned Single Judge was further justified in coming to the conclusion that BIIL and BIL was a single economic entity? In order to answer this question, it is necessary to refer to brief facts and chronology of events.
22. Respondent No. 2 Vitol S.A. ("Vitol") had obtained a London arbitral award on 17/01/2011 against Asian Natural Resources (India) Ltd. (Formerly Bhatia International Limited) ("BIL") for a sum of US$ 68,435,250.00 towards damages for breach of the Master Agreement together with interest thereon and legal costs. Respondent No. 2 filed execution proceedings in this Court and filed an application seeking an order of precept under section 46 of the Code of Civil Procedure, 1908, seeking attachment 54,300 MT of coal at the Tuticorin Port at Tamil Nadu. Application was made by Sharp Corporation Limited objecting to the attachment levied under the Judges Order 215 of 2014. The said application filed by Sharp Corporation Limited was heard by the learned Single Judge and by judgment dated 02/09/2015 in Judges Order 215 of 2014 the learned Single Judge held that 34,300 MT of coal was under the ownership of Sharp and the remaining cargo was under the ownership of the Appellants/BIIL and directed Respondent No. 2 Vitol to issue notice to BIIL inviting them to object to the attachment/extending the precept with respect to the remaining 34,300 MT of cargo. The learned Single Judge, after giving an opportunity to BIIL and BIL of being heard, came to the conclusion that BIIL and BIL was a single entity after going through the exercise of piercing veil of two companies and other group companies known as Bhatia Group.
23. In the application filed by Respondent No. 2 Vitol for attachment/extending the precept with respect to remaining coal, Respondent No. 2 narrated the circumstances and facts which, according to them, disclose that BILL and BIL was in fact a single entity. The learned Single Judge accepted the contention of Respondent No. 2 Vitol and has held that BIIL is indeed an alter-ego of BIL and they are one single unit and, therefore, though the property was in the name of BIIL, it was in fact the property of BIL and could be attached and sold in execution.
24. (A) The learned Single Judge has observed that the two companies viz. BILL and BIL were not two separate legal entities but were actually the same and were trading under different names through the same person in the same goods and businesses. The learned single Judge has firstly noted the website of the companies which indicated that BIIL and BIL were two of the companies in the group which was essentially trading under the name Bhatia. Secondly, she has noted that the Director of the group was Surinder Singh Bhatia. She has further noted that he was whole time Director of BIIL from 2009 and was originally appointed Director in BIIL on 08/07/1993. She has noted that he resigned on 22/09/2014, exactly a week after the award was allowed to be enforced as a decree by this Court and three weeks after the AGM of BIIL was held appointing him as the Managing Director of the Company for five years. She has noted that the explanatory note to the Resolution that was appended to the notice for convening AGM on 05/07/2014 showed that he was a top level corporate executive. It also showed his directorship in other Bhatia Group companies including BIL, the judgment debtor.
(B) The learned Single Judge has also noted that he was Director of BIL from 2004 and ceased to be a Director from 27/08/2014, few days before the execution application was being filed. She has also noted that he ceased to be the Director of other Bhatia Group companies viz. Bhatia Coke and Energy Ltd., Bhatia Washery Ltd.
(C) The learned Single Judge has then noted the Articles of Association of BIIL and BIL in which Surinder Singh Bhatia has been one of the first Directors and also the subscriber to the Memorandum of Association of the company. The learned Single Judge also noted that other members of his family viz his brothers Gurvinder Singh Bhatia and Manjeet Singh Bhatia were also Directors in both the companies and subscribers to the Memorandum of Association of the companies.
(D) The learned Single Judge has also noticed that the Bhatia Group companies were listed on the Bombay Stock Exchange. She has noted that the report was made by the Bombay Stock Exchange upon disclosure made by the BIIL which was one of the Bhatia Group companies as BIL. She has noted that the report makes a reference to BIIL as Bhatia Group Companies amongst others.
(E) The learned Single Judge has then relied on the report given by the Credit Rating Institute viz ICRA. She has noted that the report states that BIIL was a "part of the stronger promoter group i.e. BIL". She has further noted that the report stated on the basis of statistical data that BIIL has high dependence on BIL's management decision for its operation.
(F) The learned Single Judge has then relied upon the financial statement contained in balance-sheet of the two companies and has examined the coal purchased by BIL in the financial year 2013-14 and also inter-corporate deposits taken and given by BIIL and other related concerns of BIL. She has observed that the report was signed on 19/07/2014 by Surinder Singh Bhatia as Director of BIL. She has then considered the financial report of BIIL for the year 2013-14 which showed the related party disclosures. She has observed that the first name of the related party was Surinder Singh Bhatia as the key management personnel followed by the other brothers and other family members of Bhatia family. Then she has noted that registered office of both the companies was at BCC house at Indore. Further, she has noted that there was a common Email Id of all the companies. She has noted that there was a common logo of Bhatia Group and the Group was having common employees and common key personnel of their common relatives. She has further noted that Bhatia Group was also shown to be having huge property and assets interchangeably and which followed as a matter of corollary from their common post address and business office.
On the basis of this material the learned Single Judge has observed that BIIL and BIL was one single economic entity which was being managed by Surinder Singh Bhatia and his close relatives.
25. We concur with the view taken by the learned Single Judge. The learned Single Judge has considered all the circumstances which indicate that Mr. Surinder Singh Bhatia and his members of his family had created several corporate bodies and they were controlled by Mr. S.S. Bhatia and his family and therefore the learned Single Judge has rightly come to the conclusion that they had to be treated as one single entity as they were being used as cloaks behind which Mr. Surinder Singh Bhatia and his family were using the devise of incorporation as ploy adopted for preventing execution of the international award which was passed against BIL and in favour of Respondent No. 2 Vitol.
26. The Apex Court in Kapila Hingrorani v. State of Bihar, (2003) 6 SCC 1 also considered the circumstances under which the liability could be fastened both upon the owner and the operator of the company. The Apex Court in the said judgment in paras 26 and 27 has observed as under:
"26. The proposition that a company although may have only one shareholder will be a distinct juristic person as adumbrated in Salomon v. Salomon and Co. [1897 AC 22: (1895-99) ALL ER Rep 33: 66 LJ Ch 35 (HL)], has time and again been visited by the application of doctrine of lifting the corporate veil in revenue and taxation matters (See Dal Chand and Sons v. CIT [(1944) 12 ITR 458 (Lah)] and Juggilal Kamlapat v. CIT [AIR 1969 SC 932 : (1969) 1 SCR 988 : (1969) 73 ITR 702]".
"27 The corporate veil indisputably can be pierced when the corporate personality is found to be opposed to justice, convenience and interest of the revenue or workman or against public interest (See CIT v. Sri Meenakshi Mills Ltd. [AIR 1967 SC 819 : (1967) 1 SCR 934], Workmen v. Associated Rubber Industry Ltd. [(1985) 4 SCC 114 : 1985 SCC (L&S) 957, New Horizons Ltd. v. Union of India [(1995) 1 SCC 478], State of U.P. v. Renusagar Power Co. [(1988) 4 SCC 59], Hussainbhai v. Alath Factory Thezhilali Union [(1978) 4 SCC 257 : 1978 SCC (L&S) 506] and Secy. H.S.E.B. v. Suresh [(1999) 3 SCC 601 : 1999 SCC (L&S) 765."
27. Similarly, the Apex Court in Delhi Development Authority v. Skipper Construction Co. (P) Ltd and Another, (1996) 4 SCC 622 has observed in para 28 as under:
"28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people."
In this case also the facts were that one Tejwant Singh and members of his family had created corporate bodies and the Court, after lifting the veil, held that all of these was one entity belonging to and controlled by Tejwant Singh and family. It further observed that these corporate bodies were merely cloaks and masks behind which Tejwant Singh and his family members were hiding. We concur with the view taken by the learned Single Judge that BIIL and BIL was part of the group companies and though they were incorporated at different times, these Companies have now been used to defeat the execution of the award against BIL.
28. In the affidavit which was filed in judges order No. 215 of 2014, it was alleged that the Judgment Debtor BIL and BIIL was a single economic entity. It was submitted By the learned Senior Counsel appearing on behalf of the Appellant that there was no allegation in the affidavit to the effect that the cargo in question ever belonged to judgment debtor and/or that it was paid for by the judgment debtor and/or that the Appellant had acquired this cargo from the judgment debtor by any fraudulent means to defeat the award and/or claim of Vitol. It was further submitted that Vitol had made no attempt to explain why it had misled this Court in its previous affidavit by stating that the cargo in question belonged to judgment debtor. In short it was contended that in previous affidavit, it was stated that the cargo belonged to the judgment debtor whereas in the subsequent affidavit filed in judges order No. 215 of 2014, it was contended that the cargo belonged to BIIL but both BIIL and BIL was a single entity and therefore the cargo could be attached. It is not possible to accept this contention. Perusal of the affidavit clearly discloses that in para 4 it is clearly stated that Bhatia International and Bhatia Industries are part of Bhatia Global Trading Limited, Bhatia Coal and Energy Limited and Bhatia Coal Washeries Limited. Further various instances show that Bhatia International and Bhatia Industries is a single economic entity and it has been mentioned from paras 5 to para 12 of the said affidavit. There is therefore no substance in the submissions made by the learned Senior Counsel appearing on behalf of the Appellant that an attempt was made by Respondent No. 2 to mislead the Court. In our view, Respondent No. 2 had come out with a specific case that though the cargo at Tuticorin Port was in the name of BIIL, it could be attached since Bhatia International Limited (BIL) Award Debtor and BIIL was single economic entity. It is also not possible to accept the submission of the Appellant that Vitol had not pleaded any case to contend that the coal in question belonged to BIL.
29. It was then contended by the learned Senior Counsel appearing on behalf of the Appellant that the finding given by the learned Single Judge in para 34 of the impugned judgment was without any factual material being placed before the learned Single Judge by Vitol. The learned Senior Counsel for the Appellant took an exception to the finding recorded in para 34 of the judgment of the learned Single Judge. In our view, this observation has to be read in the context of whatever has been observed by the learned Single Judge before paragraph 34. The learned Single Judge had made those observations after arriving at a conclusion that BIIL and BIL was a single entity after lifting the corporate veil.
30. It was then contended that BIIL had established the ownership of the said goods which were purchased by entering into High Seas Sale Agreement. It was submitted that the Appellant had also produced High Seas Sale Invoice/Debit Note. It was submitted that the learned Single Judge had rejected the said evidence of ownership of BIIL by holding that BILL had not shown that payment, if any, was made by it to the seller of the cargo. It was submitted that Respondent No. 2 Vitol had never disputed the aforesaid agreement and invoice in any way and had not placed any material before this Court to show that High Seas Sale Agreement and High Seas Sale Invoice/Debit Note were either false or incorrect. It was submitted that the finding of the learned Single Judge was given firstly without giving an opportunity to the Appellant to produce proof of payment by BILL. It was submitted that the Appellant had prepared an additional affidavit to bring on record the proof of payment by BIIL. At this stage, the learned Counsel appearing on behalf of Respondent No. 2 took an objection to the production of the additional affidavit at the hearing of the appeal. The objection raised by the learned Counsel for Respondent No. 2 is sustained and the Appellant cannot be permitted now to produce this additional affidavit.
31. In our view, this submission also cannot be accepted. It has to be noted that the learned Single Judge proceeded to examine the material on record which indicated that the BILL and the BIL was a single entity and has come to the said conclusion after piercing the corporate veil of both the companies.
32. It was then vehemently urged that the finding of the learned Single Judge that BIIL is an alterego of BIL was contrary to law and facts of the case and it was submitted that in any case BIIL cold not be held liable for the debt of BIL. It was submitted that the BILL was incorporated in 1993 and is a registered Company on the Bombay Stock Exchange since 5/4/2001. It was further submitted that 34% of the equity shares of the Company were held by public at large. It was further contended that BILL, from the time of its incorporation, has been carrying on business with regard to coal. It was further submitted that the learned Single Judge had relied on the following judgments to arrive at a conclusion that BIIL is an alterego of BIL.
"a. Adams v. Cape Industries Plc (1990) Ch.433 CA.
b. D.H.N. Food Distributors Ltd. v. Tower Hamlets London Borough Council (1976) 1 W.L.R. 852.
c. New Horizon Limited v. Union of India (1997) Co. cases 785 (Del).
d. New Horizon Limited v. Union of India (1995) 1 SCC 478.
e. State of U.P. v. Renu Sagar Power Company (1988) 4 SCC 59.
f. Jones v. Lipman  1 All ER 442.
g. Gilford Motor Co. Ltd. v. Horn (1933) ALL ER REP 109."
It was submitted that none of the said judgments was an authority to support the proposition that the creditor was entitled to recover its dues from the sister company and/or from group company of the judgment debtor or that the same could be treated as single economic entity and/or an alter-ego of another company. It was then submitted that all cases cited by Respondent No. 2 Vitol were cases involving parent companies or subsidiary companies. Reliance was placed on para 27 of the judgment in New Horizons (supra). He then submitted that lifting of corporate veil was a matter that Courts resort to in exceptional cases and circumstances where corporate veil was used for the purposes of fraud, to perpetrate an injustice or to defeat revenue. It was submitted that it was not Vitol's contention that BIIL was incorporated with the fraudulent purpose and/or for the purpose of siphoning away the assets of BIL or for the purpose of perpetrating any fraud upon creditors of BIL. It was submitted that BILL was incorporated as far back in 1993 and was publicly listed company. It was submitted that the learned Single Judge wrongly relied on the case in Adam v. Cape where, in fact, it was held that the Court was not entitled to exercise its jurisdiction against U.K. Company merely because it was wholly owned subsidiary in the U.S. Capasco. It was further submitted that even reliance placed by the learned Single Judge on the ratio of the Judgment in DHN Food Distributors(supra) was incorrect. It was submitted that the observation made in DHN Food Distributors was in the context of a case where parent company owns all the shares of the subsidiaries so that it can control every movement of the subsidiaries and that the subsidiaries are bound hand and foot to the parent company. It was submitted that in the present case BILL was not a subsidiary company of BIL and no such case was either pleaded or made out in the present case.
33. We are of the view that the said submission cannot be accepted. It has to be noted that the learned Single Judge has taken into consideration the law as it has evolved over a period of years on the doctrine of lifting of corporate veil and in that context the observations in Adam v. Cape and in DHN Food have been noted by the learned Single Judge. As we have noted herein above, this concept of lifting of corporate veil has been expanded by the English, US and Indian Courts and it has now been held that even in execution proceedings, it is possible to examine whether two Companies or group companies is a single entity or not and it is no longer restricted to the cases where principle of corporate veil is used to evade taxes or opposed to justice, convenience.
34. It was then submitted by the learned Senior Counsel appearing on behalf of the Appellant that the impugned judgment is contrary to Division Bench Judgment of this Court dated 27/03/2015. It is necessary to mention brief background regarding the circumstances under which the said judgment was delivered by Division Bench.
35. Initially, an application was made by Respondent No. 2 for issuance of precept under section 46 of the Code of Civil Procedure in respect of attachment of cargo at Tuticorin Port. An application was filed by Sharp Limited for opposing the order of issuance of precept and it was submitted by Sharp that the cargo belonged to them and not to BIL. The learned Single Judge, however, issued an order of precept, directing attachment of the cargo. Being aggrieved by the said order, Sharp Limited filed an appeal. The Division Bench by its order dated 27/3/2015 set aside the order of the learned Single Judge and remanded the matter to the learned Single Judge by giving direction that a fresh inquiry should be made and only after the learned Single Judge was satisfied that the cargo was owned by BIL, an order of precept could be issued under section 46 of the Code of Civil Procedure. The learned Single Judge accordingly examined the material on record and came to the conclusion that though the cargo was in the name of BIIL, it could be attached because BIIL and BIL is a single entity. Therefore, it cannot be said that the finding given by the learned Single Judge is contrary to the Division Bench Judgment dated 27/03/2015.
36. It was then submitted by the learned Senior Counsel for the Appellants that the two judgments cited by BIIL's Counsel were not considered or dealt with in the said judgment viz the judgment in Indowind Energy Limited v. Wescare (India) Ltd. [(2010) 5 SCC 306] and in K.K. Modi Investment & Financial Services Private Limited v. Apollo International Inc. [(2009) SCC Online Del. 1995 : 2009 2 Arb. L.R. 499]. It was submitted that both the judgments were authorities for the proposition that two independent companies incorporated under the Companies Act were separate and distinct legal entities and the mere fact that two companies have common shareholders or common Board of Directors would not make the two companies a single entity.
37. Again, there is no substance in the said submission made by the learned Senior Counsel appearing on behalf of the Appellant. It is well settled that the observations made in the judgment cannot be read as a statute and the ratio of the case applies with reference to facts of each case and even if there is slight difference in the facts of the case, ratio would not apply to the said case. The Apex Court in Zee Telefilms Ltd. and another v. Union of India and others, (2005) 4 SCC 649 has observed in paras 254, 255 & 256 as under:
254. Are we bound hands and feet by Pradeep Kumar Biswas (2002) 5 SCC 111? The answer to the question must be found in the law of precedent. A decision, it is trite, should not be read as a statute. A decision is an authority for the questions of law determined by it. Such a question is determined having regard to the fact situation obtaining therein. While applying the ratio, the court may not pick out a word or a sentence from the judgment divorced from the context in which the said question arose for consideration. A judgment, as is well known, must be read in its entirety and the observations made therein should receive consideration in the light of the questions raised before it. (See Punjab National Bank v. R.L. Vaid (2004) 7 SCC 698).
255. Although decisions are galore on this point, we may refer to a recent one in State of Gujarat v. Akhil Gujarat Pravasi V.S. Mahamandal (2004) 5 SCC 155 wherein this Court held : (SCC p. 172, para 19)
"It is trite that any observation made during the course of reasoning in a judgment should not be read divorced from the context in which it was used."
256. It is further well settled that a decision is not an authority for a proposition which did not fall for its consideration. It is also a trite law that a point not raised before a court would not be an authority on the said question. In A One Granites v. State of U.P. (2001) 3 SCC 537 it is stated as follows : (SCC p. 543, para 11)
"11. This question was considered by the Court of Appeal in Lancaster Motor Co. (London) Ltd. v. Bremith Ltd. (1941) 1 KB 675 and it was laid down that when non consideration was given to the question, the decision cannot be said to be binding and precedents sub silentio and without arguments are of no moment"
[See also State of U.P. v. Synthetics and Chemicals Ltd. (1991) 4 SCC 139, Arnit Das v. State of Bihar (2000) 5 SCC 488 (SCC para 20), Bhavnagar University v. Palitana Sugar Mills (P) Ltd. (2003) 2 SCC 111, Cement Corpn. of India Ltd. v. Purya (2004) 8 SCC 270, Bharat Forge Co. Ltd. v. Uttam Manohar Nakate (2005) 2 SCC 489 and Kalyan Chandra Sarkar v. Rajesh Ranjan (2005) 2 SCC 42, See para 42.]"
38. The observations made in Indowind Energy Limited (supra) and K.K. Modi Investment & Financial Services Private Limited (supra) are applicable in the facts of those cases but ratio of the said judgments will certainly not apply to the facts of this case. The learned Single Judge in her judgment has noted these two judgments. It is true that reasons why these two judgments have not been relied upon are not mentioned. Perusal of the facts of these two cases clearly indicate those observations have been made in the facts of those cases.
39. In Indowind Energy Ltd (supra), the facts have been narrated in paras 17 and 18 of the judgment. Briefly stated, one Subudhi and Indowind were two independent Companies incorporated under the Companies Act, 1956. Both were in the business of setting up and operating/managing windfarms and generation of power from wind electric generators. An agreement dated 24/02/2006 was entered into between Wescare and Subuthi. The Board of Directors of Wescare granted approval to the agreement. No such approval was however granted by the Board of Directors of Indowind. Certain transactions took place between the two companies pursuant to the said agreement and thereafter dispute arose between the Wescare on the one hand and Subuthi on the other hand. Wescare filed a Petition under section 11 of the Arbitration and Conciliation Act against Subuthi and Indowind for appointment of a sole arbitrator to arbitrate upon the dispute between them in respect of agreement dated 24/02/2006. Indowind and Subuthi resisted the said Petition and alleged that there was no transaction between the Wescare and Indowind and therefore there was no cause of action nor any arbitrable dispute between them. The learned Chief Justice of Madras High Court allowed the application under section 11 and appointed a sole arbitrator. The learned Chief Justice held that Indowind was prima facie a party to the arbitration agreement and was bound by it even though it was not a signatory to the agreement dated 24/2/2006. The Apex Court framed two issues which are found in para 10 of the said judgment which reads as under:" 10 On the contentions urged the following two questions arise for consideration:
(i) Whether an arbitration clause found in a document (agreement) between two parties, could be considered as a binding arbitration agreement on a person who is not a signatory to the agreement?
(ii) Whether a company could be said to be a party to a contract containing an arbitration agreement, even though it did not sign the agreement containing an arbitration clause, with reference to its subsequent conduct?"
In the context of these two questions, the Apex Court in para 17 has observed as under:
"17. It is not in dispute that Subuthi and Indowind are two independent companies incorporated under the Companies Act, 1956. Each company is a separate and distinct legal entity and the mere fact that the two Companies have common shareholders or common Board of Directors, will not make the two Companies a single entity. Nor will the existence of common shareholders or Directors lead to an inference that one company will be bound by the acts of the other. If the Director who signed on behalf of Subuthi was also a Director of Indowind and if the intention of the parties was that Indowind should be bound by the agreement, nothing prevented Wescare insisting that Indowind should be made a part to the agreement and requesting the Director who signed for Subuthi also to sign on behalf of Indowind."
40. It can be seen that in the context of the issue raised before the Apex Court in the said case, the Apex Court in para 17 has observed that each company is a separate and distinct legal entity and mere fact that two companies have common shareholders or common Board of Directors will not make the two companies single entity. These observations therefore have been made by the Apex Court in the facts of the said case. Therefore ratio of the said judgment will not apply to the present case, firstly because in Indowind Energy Limited (supra), the issue was : whether Indowind Energy Limited, though was not a signatory to the agreement dated 24/2/2006, was bound by the agreement executed by Subuthi Limited and in this context the above observations were made by the Apex Court.
41. The facts in the present case are entirely different. An application was made by Respondent No. 2, asking the Court to pierce the corporate veil on various grounds. The doctrine of lifting the corporate veil is an exception to the general rule of limited liability of shareholders to the extent of holding of their share in the company. Secondly, these observations have been made by the Apex Court in an application which was filed under section 11(6) of the Arbitration & Conciliation Act in which a request was made by Indowind to appoint a common sole arbitrator for dispute between Indowind, Subuthi. In our view the learned Single Judge has rightly not relied on the observations made by the Apex Court in the said case.
42. In K.K. Modi Investment & Financial Services Private Limited (supra), again an application was made by the Petitioner K.K. Modi under section 9 of the Arbitration & Conciliation Act with a prayer that Respondent No. 1 Apollo International Inc. and its affiliates viz Respondent Nos. 2, 3 and 4 be restrained from giving effect to the notice dated 22/04/2009 whereby the license agreement dated 06/09/2002 between Respondent Nos. 1 and 3 was terminated. The Petitioner in his application relied upon the arbitration clause contained in Article 11.14 of the shareholders agreement and pleaded that the agreement between Respondent Nos. 1 and 3 was a part of the contract entered into by the Petitioner with Respondent Nos. 1 to 4 by way of shareholders agreement. The Petitioner, obviously, was not a party to this license agreement which was revoked by notice dated 22/04/2009. It was in the context of these facts, Delhi High Court made the following observations.
"5. The first requirement of Section 7 is that there should be a contract between petitioner and respondent, if there is no contract between petitioner and respondent the arbitration clause between them cannot be inferred. In the present case, the contract is there only between petitioner and respondent no.1 in the form of a Shareholder's Agreement. There is no contract between petitioner and respondents no.2, 3 & 4. Can such a contract be inferred between petitioner and respondents no.2, 3 & 4 merely on the ground of economic unity of respondents 1 to 4? Every company which is incorporated under relevant law of a country is a separate legal entity/person having right to enter into contracts with other legal entities or persons independent of the holding company or the parent company of which it is subsidiary. Unless the law provides that all companies having common management or subsidiary companies or holding Companies shall be considered one legal entity for the purpose of contracts, the Court cannot presume that all subsidiary companies and the holding or parent company shall be considered as one legal person and a contract with one company shall be considered as a contract with every other company of that group. If it is so, then the registration of separate companies as subsidiary companies or wholly owned companies would have no meaning and the Court would be effectively merging all subsidiary companies wholly or partly owned companies into one company. That is not the position under company law or any other law that a subsidiary company practically has no legal existence and it is only the main company which has legal existence. A contract with respondent no.1 cannot be considered as a contract with respondent Nos. 2, 3 and 4. If respondent no. 2, 3 & 4 were to be considered one and the same person then there was no reason for the petitioner to enter into contract with only a subsidiary company. The petitioner should have entered into a contract with main company. The very fact that the petitioner entered into a contract with subsidiary company on the basis of an agreement of respondent no.1 with respondent no.3, shows that the petitioner knew that respondents no. 1 & 3 were two different legal persons and he was entering into contract with respondent no.1 or not with respondents no.2, 3 or 4. The contract between respondent no.1 & 3 cannot be considered as contract between the petitioner and respondents no.1 & 3 on the ground of economic unity of respondents no.1 & 3. By t
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he notice dated 22.4.2009 the respondent no.3 had terminated the license, which it granted to respondent no.1 under a separate contract which was entered into between respondents no.1 & 3. The person aggrieved can only be respondent no.1 who could have invoked arbitration clause contained in the license agreement against respondent no.3." 43. Again, facts in the said case were entirely different and in the context of the facts of that case, observations in para 5 have to be considered. Once it is held that it is open for the Court to lift the corporate veil and the Court has after examining the facts and circumstances on record has come to the conclusion that two companies are single entity then general rule of limited liability and separate entity of companies would not apply in such case. Reliance was also placed on the Judgment in Vodafone International Holdings (supra) and more particularly paras 101, 102 and 103 in which the Apex Court has observed as under: "101. A company is a separate legal persona and the fact that all its shares are owned by one person or by the parent company has nothing to do with its separate legal existence. If the owned company is wound up, the liquidator, and not its parent company, would get hold of the assets of the subsidiary. In none of the authorities have the assets of the subsidiary been held to be those of the parent unless it is acting as an agent. Thus, even though a subsidiary may normally comply with the request of a parent company it is not just a puppet of the parent company. The difference is between having power or having persuasive position. Though it may be advantageous for parent and subsidiary companies to work as group, each subsidiary will look to see whether there are separate commercial interests which should be guarded." "102 When there is a parent company with subsidiaries, is it or is it not the law that the parent company has the "power" over the subsidiary. It depends on the facts of each case. For instance, take the case of a one man company, where only one man is the shareholder perhaps holding 99% of the shares, his wife holding 1%. In those circumstances, his control over the company may be complete that it is his alter ego. But, in case of multinationals it is important to realise that their subsidiaries have a great deal of autonomy in the country concerned except where the subsidiaries are created or used as a sham. Of course, in many cases the courts do lift up a corner of the veil but that does not mean that they alter the legal position between the companies.""103. The Directors of the subsidiary under their articles are the managers of the companies. If new Directors are appointed even at the request of the parent company and even if such Directors were removable by the parent company, such Directors of the subsidiary will owe their duty to their companies (subsidiaries). They are not to be dictated by the parent company if it is not in the interests of those companies (subsidiaries). The fact that the parent company exercises shareholders' influence on its subsidiaries cannot obliterate the decision-making power or authority of its (subsidiary's) Directors. They cannot be reduced to be puppets. The decisive criterion is whether the parent company's management has such steering interference with the subsidiary's core activities that the subsidiary can no longer be regarded to perform those activities on the authority of its own executive Directors." What has to be noted is that in the last line of para 103, the Apex Court has observed as under: ".......The decisive criterion is whether the parent company's management has such steering interference with the subsidiary's core activities that the subsidiary can no longer be regarded to perform those activities on the authority of its own executive Directors." The Apex Court therefore has clearly accepted the exception to the general rule of separate, legal existence of company even though it is a subsidiary company. It however has noted that if the former management has steering influence on the subsidiary's core activities then that would be an exception to the general rule. 44. Lastly, it needs to be seen whether there was sufficient material on record to come to the conclusion that the there were several cases which showed that the Appellant was in fact a single entity. The learned Single Judge, after examining the record as rightly come to the conclusion that BIIL and BIL was a one single economic entity We therefore answer the question No. 2 in the affirmative. Scope for interference by the Division Bench while exercising its jurisdiction in Letters Patent Appeal under Clause 15 of the Letters Patent. 45. It is well settled that the scope of interference with the finding given by the learned Single Judge in appeal filed under Letters Patent is limited and this Court, as an appellate Court, is not expected to substitute its own view to the view taken by the learned Single Judge and if this Court comes to the conclusion that the finding given by the learned Single Judge is not perverse or contrary to the law, it should not interfere with the said order. The Apex Court in Wander Ltd and Another v. Antox India P. Ltd. 1990 (Supp) SCC 727 has observed in para 14 as under: "14. The appeals before the Division Bench were against the exercise of discretion by the Single Judge. In such appeals, the appellate court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions. An appeal against exercise of discretion is said to be an appeal on principle. Appellate court will not reassess the material and seek to reach a conclusion different from the one reached by the court below if the one reached by that court was reasonably possible on the material. The appellate court would normally not be justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion. If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court's exercise of discretion. After referring to these principles Gajendragadkar, J. in Printers (Mysore) Private Ltd v. Pothan Joseph (1960) 3 SCR 713 : AIR 1960 SC 1156 : (SCR 721). "...... These principles are well established, but as has been observed by Viscount Simon in Charles Osenton & Co. v. Jhanaton [1942 AC 130) '......the law as to the reversal by a court of appeal of an order made by a judge below in the exercise of his discretion is well established, and any difficulty that arises is due only to the application of well settled principles in an individual case." The appellate judgment does not seem to defer to this principle." 46. We have given our careful consideration to the observations made by the learned Single Judge and also to the material which is brought on record by the Respondents. We are satisfied that the finding given by the learned Single Judge that BIIL and BIL is a part of a single entity is neither perverse nor illegal. We concur with the findings given by the learned Single Judge and do not see any reason to interfere with the order passed by the learned Single Judge. We answer the questions framed in para 2 of this judgment as under: Questions Findings. (i) In which cases corporate veil can be lifted by the Court and whether the concept of lifting of corporate veil is also available in execution proceedings? The concept of removing corporate veil is applicable not only in the cases of holding of subsidiary companies or in the case of tax evasion but can be equally applied in execution proceedings. (ii) Whether the learned Single Judge was justified in lifting the corporate veil in this case and whether the learned Single Judge was further justified in coming to the conclusion that BILL and BIL was a single economic entity? In the affirmative. (iii) Whether any interference is called for in the order passed by the learned Single Judge? In the negative. 47. We are of the view that therefore no case is made out for interfering with the judgment and order passed by the learned Single Judge. Appeal is therefore dismissed.