1. The decree holder in O.S. No. 417 of 2011 on the file of the Subordinate Court, Ernakulam has come up with this appeal aggrieved by the order dated 30.08.2018 whereby allowing the claim petition filed under Order XXI Rule 58 of the Code of Civil Procedure as E.A. No. 288 of 2018, in E.P. No. 232 of 2017, and lifting the attachment effected by the execution Court.
2. The claim petitioner is M/s. Nippon Infra Project (P) Ltd. represented by its Director Sri.John George. The property scheduled in the petition is having an extent of 41.997 Ares comprised in Sy. Nos. 85/19/A/1 and 85/18 of Edappally south Village. It forms part of a larger extent of 83.06 Ares of Edappally south village. The property has been purchased by the claim petitioner as per sale deed bearing No.2892/2008 of SRO Edappally and it is being enjoyed by the company by effecting construction of a 16 storied commercial building. But it was attached in execution of the decree in the suit (O.S. No.417/2011). The claimant is not liable to compensate the Decree holder or to satisfy the decree debt and hence the petition was filed to lift the attachment and to allow the claim petition.
3. The decree holder resisted the petition inter alia contending that M/s. Nippon Infra Project (P) Ltd is one of the projects of the judgment debtor, namely, M/s. Infra Housing Project (P) Ltd. Both the companies have common Directors and investors. The property attached is in the joint ownership of the claim petitioner as well the judgment debtor and hence the claim petitioner has no exclusive right over the property under attachment.
4. Before the court below, the Director of the claim petitioner was examined as PW 1 and Exts. A1, A2 and A4 to A6 were marked. No oral or documentary evidence was adduced on the side of the respondent/decree holder. The court below, on appreciation of the evidence, allowed the claim petition and lifted the attachment of the property.
5. Heard Adv. K. Ramakumar, the learned Senior Counsel for the appellant/decree holder, Adv. Vinay V. Menon, the learned counsel for the first respondent/claim petitioner and Adv. George Cherian Karipparambil, the learned counsel for the 2nd respondent/Judgment debtor.
6. The appellant is the decree holder in the execution petition (herein after referred to as the appellant). M/s. Infra Housing Pvt. Ltd is the defendant in the suit as well the judgment debtor, represented by its Director Sri. George E. George. As per Ext.A2 Sale Deed No.2892/2008, the property attached was purchased along with a larger extent by M/s. Nippon Infra Project (P) Ltd, a company registered under the Companies Act,1956. Ext.AI is the certificate of incorporation of M/s. Nippon Infra Project (P) Ltd. As borne out from Ext.A2, Sri.George E. George, the Director of M/s. Infra Housing Pvt. Ltd is also a Director of M/s. Nippon Infra Project (P) Ltd, the claim petitioner. It is pertinent to note that the Memorandum and Articles of Association of both the companies have not been produced and therefore the entire details of the Directors of the Companies are not available. According to the appellant, both the companies, M/s. Infra Housing Pvt. Ltd and M/s. Nippon Infra Project (P) Ltd, have common Directors and investors. The said fact was fairly admitted by PW1, a Director of the claim petitioner when examined before the court below. He had also admitted that Sri.George E. George, the Director of the Judgment debtor company is a Director of M/s. Nippon Infra Project (P) Ltd, and the Directors have right over the assets of the company. PW1 has admitted before the court that he is one of the Directors of M/s. Infra Housing Pvt. Ltd, the judgment debtor, and George E. George its' Director is also a Director of the claim petitioner company. Admittedly, M/s Nippon Infra Project (P) Ltd, is constructing commercial buildings whereas M/s. Infra Housing Pvt. Ltd, is engaged in housing projects as admitted by PW1. It appears that the business run by both the companies is in fact a joint venture. Ext Ext.A2, the sale deed reveals that the property was purchased by M/s. Nippon Infra Project (P) Ltd, and that Sri. George. E. George who represents the judgment debtor company is also a Director of the claim petitioner company. M/s.Infra Housing Pvt. Ltd., the judgment debtor company is engaged with the project for construction of apartments and the decree holder is a customer who invested money to secure an apartment. M/s. Nippon Infra Project (P) Ltd., the claim petitioner, is engaged with construction of commercial buildings. From the available records, it is clear that the Directors of the judgment debtor company and the claim petitioner company are common. Ext.A2 also reveals that the assignees, successors etc. will derive title of the property from Sri. George E. George as he is one of the purchasers of the property. PW1 has also admitted that Sri. Geroge E.Geroge has e-mail accounts in both the companies. PW1, the claim petitioner, is also the Director of Infra housing Ltd and he, in definite terms, admitted that Sri. Geroge E.Geroge, the Director who represents the Judgment debtor company has right in the attached property. But, by the impugned order the claim petition was allowed by the Court below. The decree holder felt aggrieved, filed this appeal. The main question mooted for consideration in this appeal is whether the execution court was justified in holding that the claim petition filed by M/s. Nippon Infra Project (P) Ltd, is liable to be allowed.
7. The term 'corporate veil' has got significance in this issue as two companies are involved in the dispute. In Black's Law Dictionary, 'corporate veil' is defined as thus:
“corporate veil. The legal assumption that the acts of a corporation are not the actions of its shareholders, so that the shareholders are exempt from liability for the corporation's actions.”
Lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. When there is deliberate attempt to avoid a legal obligation or to avoid force of law, or when the formation of companies are merely to defy the law as well to defeat the rights of the customers dealing with them, the court will break through the corporate shell and apply the principle of lifting of corporate veil. Though, a company is a separate legal entity distinct from its members in fact, it is an association of persons that carry out the business on behalf of the incorporated corporation. Doubtless, that a court can lift the corporate veil in appropriate cases to reach the person behind the veil to reveal the true form, character, realities, real state of affairs etc of the company. The Directors or shareholders can not be allowed to take shelter or protection behind corporate personality when there is act of wrong doing, violation of law or injustice to the public, customers/third parties who approach them for their business.
8. The Apex Court in State of Rajasthan v. Gotan Lime Stone Khanij Udyog (P) Ltd., [(2016) 4 SCC 469), held as follows:
"24. The principle of lifting the corporate veil as an exception to the distinct corporate personality of a company or its members is well recognised not only to unravel tax evasion but also where protection of public interest is of paramount importance and the corporate entity is an attempt to evade legal obligations and lifting of veil is necessary to prevent a device to avoid welfare legislation.....''
9. The Apex Court in State of Karnataka v. J. Jayalalitha and others [(2017) 6 SCC 263] held in para 532 as follows:
"532. .........Referring to the decision on Salomon v. Salomon and Co.Ltd. in which a company, as a legal entity, is held to be distinct from its members, the court propounded that though as a corollary, its corporate veil normally is impervious, but when its corporate identity is applied to circumvent law, to defeat public policy, perpetuate fraud or illegality or is sought to be used as a cover or a facade to justify a wrong, defend crime, to lend a name to private dealing, law would cease to acknowledge it to be a corporate entity and afford such protection otherwise entitled to under the Companies Law. It concluded that when camouflaged transactions are carried on behind the legal front, the court may lift the veil and look behind the artificial personality of the company and identify the real personalities or natural persons operating behind the screen............"
10. In S.Sukumar v. Secretary, Institute of Chartered Accountants of India and others [(2018) 14 SCC 360], it was observed by the Apex Court as follows:
"50............... The principle of lifting the corporate veil has to apply when the law is sought to be circumvented. In expanding horizons of modern jurisprudence, it is certainly permissible. Its frontiers are unlimited. The horizon of the doctrine is expanding. While the company is a separate entity, the Court has come to recognise several exceptions to this rule. One exception is where corporate personality is used as a cloak for fraud or improper conduct or for violation of law. Protection of public interest being of paramount importance, if the corporate personality is to be used to evade obligations imposed by law, the real state of affairs needs to be seen........"
11. In State of U.P. v. Renusagar Power Co. [(1988) 4 SCC 59] the Apex Court observed in para 66 as follows:
“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.........'' . In para 67, it was held as follows:
“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.”
12. Each case must depend upon its own facts and it has to be decided on its own facts. Coming back to the facts of the case, it is significant to note that the suit was resisted before the trial court by M/s. Infra Housing Pvt. Ltd. represented by its Director Sri.George. E George. When it is evident that the Director of the judgment debtor company is also one of the Directors of the claim petitioner company having rights over the properties held by the company obviously, the principle of lifting the corporate veil is not only permissible but also is absolutely necessary to find out the real state of affairs to execute the decree legally obtained by the decree holder, who invested money to purchase an apartment. If the intention of the Directors who formed the Companies was to avoid legal consequences or to defeat the interests of public, or another person/customer or to cover the existence of liabilities or obligations imposed by law, the theory of lifting of corporate veil has to be made applicable, so as to protect the interests of the persons who approach the court seeking for a valid relief. Though a Company is a separate legal entity, the law laid down by the Apex Court in the above referred decisions have made it clear that the doctrine of lifting of veil is legally permissible when there is an attempt to evade legal obligations by using corporate personality. Here, the decree holder had invested considerable money to purchase an apartment constructed by the judgment debtor company. When there was failure to comply with the terms of the agreement entered into by the parties, the suit was filed and a favourable decree was obtained by the decree holder. So, the facts of the case would show that the intention of the judgment debtor company was to evade the reasonable or valuable right of one of its customers by hiding behind the veil and raising a contention that the claim petitioner is not liable to compensate its customer as it is a separate corporate entity. In Sukumar's case (supra) the Apex Court stressed that the horizon of the doctrine of lifting the corporate veil is expanding and its frontiers are unlimited. Needless to say that, the Directors of both the companies are common and they are brothers and they are doing the business as a joint venture though the projects are different. It has to be borne in mind that the Memorandum and Articles of Association of the aforesaid companies have been kept
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away by the claim petitioner. When the circumstances in entirety are appreciated, I am of the opinion that a case is made out by the decree holder to execute the decree by attachment sale of the assets of the claim petitioner, company and that the corporate personality cannot be used to evade or resist the obligation imposed by law. Therefore, applying the principle of lifting of corporate veil, the property owned by the claim petitioner company is definitely liable to be attached for realization of the decree debt legally obtained by the decree holder, a customer. Therefore, the finding of the court below that the corporate veil cannot be lifted as the judgment debtor is engaged in housing projects whereas the claim petitioner is engaged in construction of commercial buildings, a separate entity, is liable to be set aside and the attachment of the property effected earlier by the court below is to be restored for realization of the decree debt. The order of lifting the attachment and allowing the claim petition are definitely liable to be set aside and I do so. In the result, this appeal is allowed as prayed for and the attachment of the property effected in the execution petition is restored, for execution of the decree in O.S. No. 417 of 2011 on the file of the Subordinate Court, Ernakulam. Resultantly, the claim petition stands dismissed. Registry shall communicate the order to the SRO concerned.