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TMI Blog2006 (3) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... rised representative of the plaintiff firm and the brother-in-law of Smt. Prabha Uppal stating that defendant No. 1 company was inviting short-term deposits at good interest rates. Defendant No. 4 is stated to have represented that his brother and wife are also the directors of defendant No. 1 company. The plaintiff made a deposit of Rs. 15 lakhs in the name of defendant No. 1 company for a period of six months with interest at 18 per cent per annum in pursuance to a cheque No. 681911 dated 22-11-1996, drawn on Syndicate Bank, Kriti Nagar, New Delhi, to carry, interest at 18 per cent per annum. 3. The plaintiff claims to have demanded the money back in March, 1997, and after considerable persuasion cheque No. 296473 dated 25-3-1997, for Rs. 15 lakhs drawn on Allahabad Bank, Parliament Street, New Delhi, was issued on behalf of defendant No. 1 company and signed by defendant No. 2. However, the plaintiff firm was apparently asked not to present the cheque with the assurance of payment of further interest. The plaintiff states that acting in good faith and relying upon the representations made by the defendants, the cheque was not presented for encashment. The time-period for presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e No. 1 9. The first issue arises from the plea that the suit is bad for misjoinder of parties on account of impleadment of defendant No. 4 in the suit. Since defendant No. 4 is neither a shareholder nor a director of defendant No. 1 company. The onus was put on the defendants to prove the said issue. A perusal of the averments contained in the plaint shows that the case set up is that it is defendant No. 4 who approached the plaintiff and whether defendant No. 4 can be made liable on the basis of the material on record is a different aspect. It is also relevant to note that one of the documents produced in evidence is a confirmation letter dated 6-5-1998, (exhibit PW1/P1). This document was issued by the plaintiff company and the confirmation was signed by defendant No. 4. It is, however, relevant to note that while signing the said letter, defendant No. 4 had deleted the word "Director" put under his name while signing on behalf of defendant No. 1 company. In his testimony, defendant No. 4 had stated that other than this document, he had not signed any other document on behalf of defendant No. 1 and the said document was signed at the request of the plaintiff. 10. The aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addressed by the plaintiff to the defendant regarding the refund of deposit is drawn to the attention of defendant No. 4. This letter set out that since the clearance did not come till May, 1997, and defendant No. 1 had pleaded financial stress, the cheque had not been presented. The cheque was not being replaced and request for payment was made. Learned counsel for the plaintiff contends that the social relationship between the parties is not disputed and defendant No. 1 company is nothing, but a front for the remaining defendants. Learned counsel, thus, contends that the corporate veil is liable to be lifted as a view to the contrary would amount to a premium on the fraud which has been played by the defendants on the plaintiff. In this behalf, learned counsel referred to the judgment of the Supreme Court in Singer India Ltd. v. Chander Mohan Chadha [2004] 122 Comp. Cas. 468 , where it has been observed as under : "In Palmer's Company Law (24th edition), in Chapter 18, para 2 onwards some instances have been given in which the modern company law disregards the principle that the company is an independant legal entity and also when the courts would be inclined to lift the corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by the Act". Since then, however, the courts have come to recognise, several exceptions to the said rule. While it is not necessary to refer to all of them, the one relevant to us is "when the corporate personality is being blatantly used as a cloak for fraud or improper conduct". (Gower : Principles of Modern Company Law, 4th edition, 1979 at page 137) Penningtons Company Law, 5th edition, 1985, at page 53) also states that "where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law", the court will disregard the corporate veil . . .' It was held that, broadly, where a fraud is intended to be prevented, or trading with the enemy is sought to be defeated, the veil of corporation is lifted by judicial decisions and the shareholders are held to be 'persons who actually work for the corporation'. The main principle on which such a course of action can be taken was state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and Indian law. Lifting the veil of incorporation under statutes and decisions of the courts is an equally settled position of law. This is more readily done under American law. To look at the realities of the situation and to know the real state of affairs behind the facade of the principle of the corporate personality, the courts have pierced the veil of incorporation. Where a transaction of sale of its immovable property by a company in favour of the wives of the directors is alleged to be sham and collusive, as in the instant case, the court will be justified in piercing the veil of incorporation to ascertain the true nature of the transaction as to who were the real parties to the sale and whether it was genuine and bona fide or whether it was between the husbands and the wives behind the facade of separate entity of the company. That is what was done by the High Court in this case." (p. 318) 17. I am in agreement, with the submission of learned counsel for the plaintiff insofar as the liability of defendant No. 2 is concerned. Defendant No. 2 was extremely evasive during his cross-examination. Defendant No. 2 as DW2 stated that the building, namely, Sunder Plaza, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate veil are satisfied in the present case. It has already been observed that the concept of corporate entity was evolved to encourage and promote trade and commerce, but not to defraud people. The present case is one where dearly the plaintiff is sought to be defrauded of the amount of Rs. 15 lakhs under the cloak of a corporate entity of defendant No. 1 company and, thus, such a corporate veil must be lifted especially taking into consideration that defendant No. 1 company was only a family arrangement of the remaining defendants. 21. Issue No. 2 is, thus, answered in favour of the plaintiff to the extent that defendant No. 2 is held personally liable apart from defendant No. 1. Issue No. 3 22. The question of the rate of interest is not in dispute since in the cross-examination of defendant No. 2 as DW2, the witness has clearly admitted that the rate of interest was 18 per cent per annum. It is, thus, held that defendant Nos. 1 and 2 are liable to pay interest on the principal amount. However taking into consideration the declining rates of interest over the period of time, I am inclined to grant pendente lite interest at 15 per cent per annum and future interest at 12 p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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