2004 (8) TMI 386 - SC - Companies Law

Lifting of corporation veil - Held that - Appeal dismissed. It is not open to the company to ask for unveiling its own cloak and examine as to who are the directors and shareholders and who are in reality controlling the affairs of the company. This is not the case of the appellant nor could it possibly be that the corporate character is employed for the purpose of committing illegality or defrauding others. It is not open to the appellant to contend that for the purpose of FERA the American company has effaced itself and has ceased to exist but for the purpose of the Delhi Rent Control Act it is still in existence. Therefore it is not possible to hold that it is the American company which is still in existence and is in possession of the premises in question. On the contrary the inescapable conclusion is that it is the Indian company which is in occupation and is carrying on business in the premises in question rendering the appellant liable for eviction.

Issues Involved:
1. Whether the amalgamation of the American company with the Indian company constitutes sub-letting or parting with possession under Section 14(1)(b) of the Delhi Rent Control Act.
2. Whether the transfer of tenancy rights due to the amalgamation was voluntary or involuntary.
3. The applicability of the legal principle of lifting the corporate veil in this context.

Issue-wise Detailed Analysis:

1. Amalgamation and Sub-letting/Parting with Possession:
The primary issue was whether the amalgamation of the American company with the Indian company amounted to sub-letting or parting with possession under Section 14(1)(b) of the Delhi Rent Control Act. The court held that the amalgamation resulted in the American company ceasing to exist and the Indian company taking possession of the premises. The court referred to the scheme of amalgamation sanctioned by the Bombay High Court, which stated that all leases, rights of tenancy, and occupancy of the American company vested in the Indian company from the appointed day, January 1, 1982. The court concluded that this transfer of possession fell within the scope of Section 14(1)(b), which prohibits sub-letting, assigning, or otherwise parting with possession without the landlord's written consent.

2. Voluntary vs. Involuntary Transfer:
The appellant argued that the amalgamation was not a voluntary act but a compulsion under the Foreign Exchange Regulation Act (FERA). The court rejected this argument, stating that the direction from the Reserve Bank of India was only to reduce the equity capital of the American company to 40%, which could be achieved through various legal means. The American company voluntarily chose amalgamation with the Indian company, which resulted in the transfer of tenancy rights. The court emphasized that the applicability of Section 14(1)(b) depends on the factual occurrence of sub-letting, assignment, or parting with possession, regardless of whether the act was voluntary or involuntary.

3. Lifting the Corporate Veil:
The appellant contended that the court should lift the corporate veil to see that the American company, though amalgamated, essentially remained alive within the Indian company. The court dismissed this argument, stating that lifting the corporate veil is generally done to prevent fraud or improper conduct, not at the behest of the company itself. The court noted that the American company had ceased to exist for all practical purposes post-amalgamation, and it was the Indian company that was in possession of the premises. The court found no grounds to lift the corporate veil in this case, as there was no evidence of fraud or improper conduct.

Conclusion:
The Supreme Court dismissed the appeals, affirming the eviction order against the appellant. The court granted the appellant in Civil Appeal No. 387 of 2004 three months' time to vacate the premises, subject to filing the usual undertaking before the Rent Controller. The court held that the amalgamation constituted parting with possession under Section 14(1)(b) of the Delhi Rent Control Act, and the transfer of tenancy rights was voluntary. The court also found no justification for lifting the corporate veil in this context.

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