2016 (1) TMI 1322 - HC - Companies Law

Execution of a money decree obtained under Order 37 CPC - lifting the corporate veil - non-enforcement against the Director of the Company - decree enforced against the Managing Director - Held that - The scope for lifting the veil will be available even at the execution stage if a fraud was being committed to defeat the process of court and for realization of the decree in case of a closely held company. We have already observed that the judgment debtor company in which the Managing Director and his wife are the only share holders who hold 50% shares each and there was no other share holder. It is obvious that the Managing Director was trying to literally use the cloak of corporate entity for securing only immunity against enforcement of any liability contracted by the company. Therefore discard the argument placed by the learned Senior Counsel appearing on behalf of the petitioner that the decree cannot be enforced against the Managing Director. If the decree-holder was seeking for enforcement of the decree against the assets of the Managing Director the person that could be aggrieved can be the Managing Director and not the company. Significantly the Managing Director himself had not preferred the revision petition. The company cannot be said to be aggrieved against the decision rendered against the Managing Director. The revision is by a person who cannot even be treated as a aggrieved person. If the counsel were to contend that the liability of the company and of the Managing Director are not to be mixed up the petitioner s logic must be extended to apply to a situation that a direction against the Director ought not to be taken as a direction against the company also. The petitioner shall hang by his own petard on the arguments propounded before me. The token of logic if the company must be treated as aggrieved it can be only in a situation when the line drawn between the Company and the Director itself is an effaced. If the petitioner is literally pleading the brief for the Managing Director it vindicates the contention of the decree-holder that there exists no difference between the two and the petitioner company was not different from the Managing Director of the company itself. The enforcement of the decree must therefore proceed forth without any further obstruction and the revision itself must be taken as incompetent. The executing court has found if the assets of the Company are not satisfied the assets of the Managing Director could also be proceeded with.

Summary

Issues Involved:
1. Limitation for filing the execution petition.
2. Liability of the Managing Director for the company's decree.
3. Competency of the decree-holder to proceed against the assets of the Managing Director.
4. The validity of the executing court's decision to allow execution against the Managing Director's assets.

Detailed Analysis:

1. Limitation for Filing the Execution Petition:
The primary contention was whether the execution petition filed on 29.05.2004, more than 12 years after the decree on 30.08.1990, was barred by limitation. The court examined precedents including Ratan Singh vs. Vijay Singh, Chandi Prasad vs. Jagdish Prasad, and Shyam Sundar Sarma vs. Pannalal Jaiswal. The court noted that dismissal of an appeal on preliminary grounds does not constitute a merger of the trial court's judgment with the appellate court's decision. However, the court held that for Article 136 of the Limitation Act, the starting point of limitation should be the appellate court's decision if the appeal was dismissed otherwise than on merits. Thus, the execution petition filed within 12 years from the appellate court's decision on 27.01.1997 was deemed within time.

2. Liability of the Managing Director for the Company's Decree:
The court acknowledged the fundamental principle that a company is a separate legal entity, and its liabilities do not automatically translate to personal liabilities of its directors. However, exceptions exist where courts may lift the corporate veil, particularly in cases of fraud or misuse of the corporate entity to evade liabilities. The court found that the Managing Director's actions, including non-compliance with court orders and attempts to evade liabilities, justified lifting the corporate veil.

3. Competency of the Decree-Holder to Proceed Against the Assets of the Managing Director:
The decree-holder argued that the Managing Director had committed fraud by evading execution processes and not complying with court orders. The court agreed, noting that the Managing Director's actions warranted lifting the corporate veil. The court cited the Delhi High Court's decision in Jawahar Lal Nehru Hockey Tournament vs. Radiant Sports Management, which supported lifting the corporate veil in execution proceedings against a closely held company. The court concluded that the decree-holder was competent to proceed against the Managing Director's assets.

4. Validity of the Executing Court's Decision:
The executing court's decision to allow execution against the Managing Director's assets was challenged. The court found the reasoning erroneous but upheld the decision on different grounds. It emphasized that the company and the Managing Director were effectively indistinguishable, and the Managing Director's actions justified holding him personally liable. The court dismissed the revision petition, noting that the company could not be aggrieved by a decision against the Managing Director, who had not filed the revision petition himself.

Conclusion:
The court dismissed the revision petition with costs assessed at Rs. 3500/- against the respondent. The execution process was allowed to proceed against the Managing Director's assets, emphasizing the justification for lifting the corporate veil due to the Managing Director's fraudulent actions and attempts to evade liabilities.