2019 (11) TMI 1458 - HC - Companies Law

Attachment of property - Lifting of attachment effected by the execution Court - 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? - HELD THAT - 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. 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. 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. 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 attachment of the property effected in the execution petition is restored - appeal allowed.

Summary

Issues:
1. Whether the claim petition filed under Order XXI Rule 58 of the Code of Civil Procedure should be allowed to lift the attachment of the property.
2. Whether the principle of lifting the corporate veil is applicable in the case involving two companies with common directors and investors.

Issue 1: Claim Petition under Order XXI Rule 58:
The Appellant, a decree holder, challenged the order lifting the attachment of a property under execution in O.S. No. 417 of 2011. The claim petitioner, M/s. Nippon Infra Project (P) Ltd., sought to lift the attachment, arguing that it was not liable to compensate the decree holder. The property in question was purchased by the claim petitioner and used for constructing a commercial building. The claimant contended that the property was not to satisfy the decree debt. The court below allowed the claim petition based on evidence presented, leading to the appeal by the decree holder.

Issue 2: Lifting the Corporate Veil:
The Court deliberated on the concept of corporate veil in cases involving multiple companies with common directors and investors. The Appellant argued that both M/s. Infra Housing Pvt. Ltd. (judgment debtor) and M/s. Nippon Infra Project (P) Ltd. had common directors and investors. The Appellant emphasized that the claim petitioner's director admitted the shared interests and commonality between the companies. The Court referred to legal precedents, including the principle of lifting the corporate veil to uncover the true nature of relationships and transactions. Notably, the Court cited instances where the veil could be lifted to prevent fraud, evasion of legal obligations, or injustice to stakeholders. The Court analyzed the facts of the case, highlighting the intertwined nature of the companies and the need to protect the interests of parties seeking legal redress.

The judgment concluded that the claim petitioner's attempt to separate itself from the judgment debtor company through the corporate veil was not valid. Given the commonality of directors and intertwined business activities, the Court found that the claim petitioner's property was liable for attachment to satisfy the decree debt. The Court set aside the order lifting the attachment and allowed the appeal, restoring the attachment of the property for execution of the decree. The claim petition was dismissed, emphasizing the legal permissibility of lifting the corporate veil to ensure justice and prevent misuse of corporate structures.