2016 (9) TMI 967 - HC - Companies Law

Lifting of corporate veil - whether the concept of lifting of corporate veil was available even in execution proceedings and whether any interference was called for in the finding recorded by the learned Single Judge? - Held that - The concept of removing corporate veil is applicable not only in the cases of holding of subsidiary companies or in the case of tax evasion but can be equally applied in execution proceedings.We are therefore of the view that the corporate veil can be lifted in cases where the Court from the material on record comes to the conclusion that the Judgment Debtor is trying to defeat the execution of the Award which is passed against him. In our view, the learned Single Judge was justified in carrying out that exercise. We concur with the view taken by the learned Single Judge. The learned Single Judge has considered all the circumstances which indicate that Mr. Surinder Singh Bhatia and his members of his family had created several corporate bodies and they were controlled by Mr. S.S. Bhatia and his family and therefore the learned Single Judge has rightly come to the conclusion that they had to be treated as one single entity as they were being used as cloaks behind which Mr. Surinder Singh Bhatia and his family were using the devise of incorporation as ploy adopted for preventing execution of the international award which was passed against BIL and in favour of Respondent No.2 Vitol.. It has to be noted that the learned Single Judge proceeded to examine the material on record which indicated that the BILL and the BIL was a single entity and has come to the said conclusion after piercing the corporate veil of both the companies. It has to be noted that the learned Single Judge proceeded to examine the material on record which indicated that the BILL and the BIL was a single entity and has come to the said conclusion after piercing the corporate veil of both the companies. Learned Single Judge was justified in lifting the corporate veil in this case and was further justified in coming to the conclusion that BILL and BIL was a single economic entity. No interference is called for in the order passed by the learned Single Judge

Summary

Issues Involved:
1. In which cases can the corporate veil be lifted by the Court, and whether the concept of lifting the corporate veil is available in execution proceedings?
2. Whether the learned Single Judge was justified in lifting the corporate veil in this case and concluding that BIIL and BIL were a single economic entity?
3. Whether any interference is called for in the order passed by the learned Single Judge?

Issue-wise Analysis:

1. In which cases can the corporate veil be lifted by the Court, and whether the concept of lifting the corporate veil is available in execution proceedings?

The court examined the evolution of the doctrine of lifting the corporate veil, tracing it back to the landmark case of Salomon vs. Salomon (1897 AC 22). It highlighted various circumstances where courts have disregarded the separate legal entity of a company, including cases of tax evasion, fraud, public interest, and execution proceedings. The court referenced several judgments, including State of UP vs. Renusagar Power Co. (1988) 4 SCC 59, which elaborated on the changing and expanding concept of lifting the corporate veil. It noted that this doctrine can be applied in execution proceedings, citing cases like Formosa Plastic Corporation Ltd. vs. Ashok Chauhan (1999) and Sai Sounds Private Limited vs. Kiran Contractors Private Limited (2016). The court concluded that lifting the corporate veil is permissible in execution proceedings, especially when the judgment debtor is trying to defeat the execution of an award.

2. Whether the learned Single Judge was justified in lifting the corporate veil in this case and concluding that BIIL and BIL were a single economic entity?

The court reviewed the facts and chronology of events leading to the case. An international award was passed in favor of Respondent No.2 (Vitol S.A.) against Bhatia International Limited (BIL), which remained unpaid. Vitol sought to attach coal at Tuticorin Port, arguing that BIIL and BIL were a single economic entity. The learned Single Judge accepted this contention, noting several factors:
- The companies were part of the Bhatia Group, managed by Surinder Singh Bhatia and his close relatives.
- Surinder Singh Bhatia held significant roles in both companies.
- Financial statements and reports indicated a high level of interdependence between BIIL and BIL.
- Both companies shared common addresses, email IDs, logos, and employees.

The court concurred with the learned Single Judge's view, stating that the companies were being used as cloaks to prevent the execution of the international award. It referenced the Supreme Court's judgment in Kapila Hingorani vs. State of Bihar (2003) and Delhi Development Authority vs. Skipper Construction Co. (P) Ltd. (1996), which supported the lifting of the corporate veil in cases of fraud or to prevent injustice.

3. Whether any interference is called for in the order passed by the learned Single Judge?

The court noted that the scope of interference with the findings of a learned Single Judge in an appeal under Letters Patent is limited. It cited Wander Ltd vs. Antox India P. Ltd. (1990) and emphasized that an appellate court should not substitute its own discretion unless the original discretion was exercised arbitrarily, capriciously, or perversely. The court found that the learned Single Judge's findings were neither perverse nor illegal and were based on a thorough examination of the material on record. It concluded that there was no reason to interfere with the order, as the findings were reasonably possible based on the presented material.

Conclusion:

The court upheld the learned Single Judge's decision to lift the corporate veil and treat BIIL and BIL as a single economic entity. It affirmed that the concept of lifting the corporate veil is applicable in execution proceedings and found no grounds for interfering with the order. The appeal was dismissed.