2016 (9) TMI 1666 - HC - Companies Law

Attachment of property - monies were transferred, siphoned off, fraudulent documents were prepared and liabilities were transferred - HELD THAT - Perusal of Order 21 Rule 58 clearly reveals that legislature in its wisdom has ensured that if a claim is made by third party, claiming to be the owner of the property which is attached, he can, instead of filing separate suit, file his objection under Order 21 Rule 58 and such an objection has to be considered by the Court. It will be necessary here to point out that sufficient power has been given to the Executing Court to decide the application and it has been clearly mentioned in the proviso to Rule 58(1) of order 21 that no such claim or objection shall be entertained - (a) where, before the claim is preferred or objection is made, the property attached has already been sold; or (b) where the Court considers that the claim or objection was designedly or unnecessarily delayed. Therefore, the Executing Court has power to regulate the procedure before deciding the claims or objections which are filed by the third parties. Keeping that in mind, the learned Single Judge has made those observations in para 4 of the said order. The application for issuance of precept under section 46 is taken out firstly in cases where the property is situated outside the jurisdiction of the Court and, secondly, if the property which is to be attached is a movable property then order of attachment is passed, so that the execution does not become infructuous. The learned Single Judge therefore, in our view, has correctly followed the procedure laid down under CPC. It is therefore clarified that if such a remedy is available to the Appellant under Order 21 Rule 58, Appellant can also exhaust that remedy and the learned Judge before whom such an application is made shall accordingly decide it in accordance with law. Appeal dismissed.

Summary

Issues Involved:
1. Issuance of precept under Section 46 of CPC.
2. Lifting of corporate veil.
3. Ownership and attachment of coal.
4. Validity of transfer agreement.
5. Application under Order 21 Rule 58 of CPC.

Issue-wise Detailed Analysis:

1. Issuance of Precept under Section 46 of CPC:
The appellant challenged the learned Single Judge's order of issuing a precept for attaching coal at Navlaki Port and Tuticorin Port. The Division Bench emphasized that before issuing a precept, the Executing Court must be fully satisfied that the goods in question are owned by the judgment debtor. The learned Single Judge failed to conduct an inquiry to ascertain ownership, which led to the setting aside of the precept order. The Court reiterated that the precept should only be issued when there is no doubt about the judgment debtor's ownership of the goods.

2. Lifting of Corporate Veil:
The learned Single Judge lifted the corporate veil, treating Bhatia Global Trading Limited (BGTL) and Bhatia International Limited (BIL) as a single entity. This decision was based on the observation that the Bhatia Group was controlled by a single individual, Surinder Singh Bhatia. The Division Bench upheld this decision, noting that even in execution proceedings, the Court could lift the corporate veil if it concluded that the judgment debtor was siphoning off money to other entities to defeat the Award.

3. Ownership and Attachment of Coal:
The learned Single Judge found that the coal at Navlaki Port and Tuticorin Port, though standing in the names of BGTL and Bhatia Industries & Infrastructure Limited (BIIL), actually belonged to BIL. The appellant argued that the learned Single Judge erred in making this determination without proper inquiry. However, the Division Bench observed that the learned Single Judge had examined the material on record and concluded that the coal belonged to BIL. The appeal against this finding was dismissed.

4. Validity of Transfer Agreement:
The learned Single Judge held that the transfer agreement dated 28/11/2009 was sham and bogus, executed to defeat the claim of the judgment creditor, Vitol S.A. The Division Bench concurred with this view, noting that the extension of the agreement's completion date till 30/01/2011, after the Award was passed, indicated an attempt to transfer BIL's assets to BGTL fraudulently.

5. Application under Order 21 Rule 58 of CPC:
The appellant contended that the learned Single Judge should have allowed them to file an application under Order 21 Rule 58 of CPC to establish their claim. The Division Bench noted that the appellant themselves argued the application as if it were under Order 21 Rule 58 before the learned Single Judge. The learned Single Judge clarified that the application was not under Order 21 Rule 58 and that objections to attachment should be made under this rule. The Division Bench upheld this approach, stating that the learned Single Judge correctly followed the procedure under CPC.

Conclusion:
The appeal was dismissed, with the Division Bench affirming the learned Single Judge's findings on the issuance of precept, lifting the corporate veil, ownership of coal, and the sham nature of the transfer agreement. The appellant was advised to exhaust the remedy under Order 21 Rule 58 if available. The judgment emphasized the necessity of proper inquiry and satisfaction of ownership before issuing precepts and upheld the lifting of the corporate veil to prevent fraudulent asset transfers.