2020 (1) TMI 904 - HC - Companies Law

Attachment of property of petitioner company - separate legal entity of corporation or a company - doctrine of the piercing of corporate veil - HELD THAT - It is not in dispute that property/cars belonging to M/s OIS Advanced Technology Pvt. Ltd. and registered in the name of company M/s CIS Advanced Technology Pvt. Ltd., being a corporate entity, does not in any manner mean that it is distinct than that of Sanjay Bhandari, who is absconding accused. While passing impugned order, learned Trial Court has given two reasons; firstly, majority shareholding belongs to Sanjay Bhandari; secondly, it is a private limited company and the word belonging to under Section 83 Cr.P.C. is of widest amplitude. Even if the fact that the cars should not have been attached is excluded, then the shareholding of the company would have to be attached and in that scenario, the company would by itself become dysfunctional because 90 percent of the shareholding in the company would have been attached. Apart from that, there is also an established doctrine of lifting the corporate veil - The further fact that Corporate Entity was used to perpetuate the illegal activities of the absconding accused person is also a factor to be borne in mind. Under Section 84 Cr.P.C., the objection has to be filed by any person other than the proclaimed person. Considering the share holding in the company of M/s. OIS Advanced Technology Pvt. Ltd., the Trial Court found no merit in the plea of the petitioner that the company is a distinct corporate entity, separate from the individual and the property whereof cannot be attached. That being the situation, learned Court below was not inclined to set aside the order/ recall the order of attachment of properties of the company M/s OIS Advanced Technology Pvt. Ltd. Petition dismissed - decided against petitioner.

Summary

Issues Involved:
1. Legality of the attachment of properties under Section 83 Cr.P.C.
2. Separate legal entity of the company and its implications.
3. Doctrine of piercing the corporate veil.
4. Applicability of Section 84 Cr.P.C. for claims and objections to attachment.

Detailed Analysis:

1. Legality of the attachment of properties under Section 83 Cr.P.C.:
The petition challenges the attachment of properties under Section 83 Cr.P.C., arguing that the properties belong to the petitioner company, which is not an accused in the case. The Court noted that the attachment was ordered due to the majority shareholding of Sanjay Bhandari in the company, making it a shell company used to perpetuate illegal activities. The Court upheld the attachment, stating that the company’s properties could be attached under Section 83 Cr.P.C. if the company is a front for the accused’s activities.

2. Separate legal entity of the company and its implications:
The petitioner argued that the company is a separate legal entity distinct from its shareholders, citing the principle established in Salomon v. Salomon & Co. The Court, however, found that the company was a shell entity with 90% shares held by Sanjay Bhandari and 10% by his wife, used to shield the accused’s assets. The Court emphasized that the principle of a separate legal entity does not apply when the company is used as a facade for illegal activities.

3. Doctrine of piercing the corporate veil:
The judgment extensively discussed the doctrine of piercing the corporate veil, citing precedents such as Tata Engineering And Locomotive Co. Ltd. vs. State of Bihar and Balwant Rai Saluja vs. Air India Limited. The Court held that the doctrine allows disregarding the company’s separate legal personality when it is used to conceal wrongdoing. The Court found that the company in question was a mere camouflage for Sanjay Bhandari’s illegal activities, justifying the piercing of the corporate veil.

4. Applicability of Section 84 Cr.P.C. for claims and objections to attachment:
The petitioner filed an application under Section 84 Cr.P.C. seeking release of the attached properties, arguing that the properties belonged to the company, not the accused. The Court noted that Section 84 Cr.P.C. allows objections to attachment by persons other than the proclaimed person. Since the company was essentially controlled by the accused, the Court found no merit in the petitioner’s claim and upheld the attachment.

Conclusion:
The Court dismissed the petition, finding no illegality in the attachment of the company’s properties. The judgment upheld the principles of piercing the corporate veil and the applicability of Section 83 Cr.P.C. in cases where the company is used as a front for the accused’s illegal activities. The Court emphasized that the separate legal entity principle does not protect companies used to shield assets from legal scrutiny.