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TMI Blog2006 (9) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... ailway, Bhubaneswar - the third respondent herein. By the said letter, M/s. Annapurna Rail S T Construction Limited, Visakhapatnam (as the petitioner-company was known earlier) was informed that the Ministry of Railways (Railway Board) by letter No. 2002/SIG/B/8, dated 12-6-2003, decided that the business dealings with M/s. Annapurna Construction, Vijayawada and also their sister concerns and partners/shareholders should be banned on all Indian Railways and organizations for a period of five years with effect from 28-5-2003 and therefore, the business dealings with the petitioners are banned for a period of five years as "some of the partners of M/s. Annapurna Construction, Vijayawada are appearing in the Memorandum and Articles of Association of the petitioner-company". This writ petition is filed mainly contending that the petitioner-company being an independent entity has its own identity different from Annapurna Construction, Vijayawada and that it has nothing to do with Annapurna Construction, Vijayawada. Background facts 2. The pleadings on record are aplenty by way of affidavits, Counter, reply and rejoinder affidavits. There is, however, not much dispute about the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar of Firms, Government of Andhra Pradesh, with Registration No. 09033. Be it also noted that this firm was in existence and was doing business with Indian Railway as contractors for supplying and executing various S T works. It is brought to this Court that recently this firm has been dissolved, which has, however, no bearing on the issue in this writ petition. (ii) M/s. Annapurna Constructions, Visakhapatnam (M/s. Annapurna Constructions, Visakhapatnam (hereafter called, Vizag firm ) was constituted under a partnership deed, dated 4-7-1995, with six partners. M/s. Raghavaiah, Koteswara Rao and Annapurna, sons and wife of Yella Mallikarjuna Rao and Venkata Lakshmi, wife of Raghavaiah had major share whereas Idulapati Srinivasa Rao and Idulapati Radhakrishna Murthy are the two other partners. Yella family had 70 per cent and Idulapati family had 30 per cent share in Vizag firm, which was incidentally constituted for the same purpose, for which Vijayawada firm was constituted, namely, execution of all types of works contracts i.e., Civil/Electrical/Mechanical and was to function from the premises with door No. 30-5-9, Krishna Gardens (later from Door No. 49-27-60, Madura Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that when the impugned order was issued in July, 2005, by the third respondent based on the decision of the Railway Board in June, 2003, the petitioner-company was incorporated entity having its own identity, perpetual succession and nature as a juristic person, and therefore, the same cannot be treated as a sister concern of either Vijayawada firm or Vizag firm. According to the learned counsel, even if negligible number of partners in Vijayawada and Vizag firms as well as the subscribers to Memorandum of Association of petitioner-company (on its inception) are same, the same does not lead to any conclusion that the petitioner-company and its predecessor firm are sister concerns of Vijayawada firm. A strenuous submission is made that the alleged misconduct of Vijayawada firm in supplying goods to Railways through dubious means, cannot be the basis for banning business dealings with the petitioner-company. Such decision is arbitrary and violative of Articles 14 and 19(1)( g ) of Constitution of India. Nextly, it is the submission of the learned counsel for the petitioner, after the formation of the company in 1998, with the approval of the Railways, the petitioner-company e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Deputy Chief Signal and Telecom Engineer, Vijayawada of South Central Railway entered into agreement with Vijayawada firm for supply of Siemens Point Contractor Relay Units, which are proprietary articles of M/s. Seimens Limited to the Railways. During the years 1993-94 Vijayawada firm supplied seven (7) numbers of Relay Units under agreement No. B/SG/CN/Agt.6/90-91, dated 28-6-1990 vide delivery challan No. Nil , dated 7-12-1993. Subsequently, the employer found that Vijayawada firm had obtained used Point Contractor Relay Units by dubious means from Railways and had supplied the same to the Railways as if genuinely procured from M/s. Seimens Limited. Government of India in Ministry of Railways (Railway Board) issued a statement of imputations against Vijayawada firm vide Memorandum No. 2002/SIG/B/8, dated 19-9-2002. The said firm was required to submit an explanation/representation as to why Government of India should not ban business dealings with the firm and also with their allied/sister concerns/partners on all Indian Railways for a period of five years. Vijayawada firm did not submit any explanation to memorandum of imputations and, therefore, Government of India cam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard of Company. The acts of malfeasance and misfeasance and acts of misdemeanor by the shareholders and directors of a corporation (company), do not always bind the company as such. However so as to apply law to ascertained facts, judicial process can ignore juristic personality of the company and haul-up the directors and in certain cases even shareholders to discharge the legal obligations. When the corporate veil is lifted/pierced, it only means that the Court is assuming that the corporate entity of a concern is a sham to perpetuate the fraud, to avoid liability, to avoid effect of statute and to avoid obligations under a contract. But enter a caveat; almost always the incorporated company cannot be equated into shareholders/directors and it is only occasionally the corporate veil of the company is pierced "in order to find out the substance only where it is permitted by the statute or in exceptional cases of fraud". 9. In Life Insurance Corpn. of India v. Escorts Ltd. AIR 1986 SC 1370 the Supreme Court laid down that, "the corporate veil may be lifted where a statute contemplates or fraud or improper conduct is intended to be prevented or a taxing statute or a benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering this aspect, the Supreme Court then adverted to piercing/lifting of corporate veil. A reference was made to Renusagar Power Co. s case ( supra ), wherein it was held that whenever a corporate entity is opposed in an unjust and inequitable purpose, the Court would not hesitate to lift the veil and look into the realities so as to identify the persons who are guilty and liable thereof. Then the Supreme Court observed that the State may not be liable in relation to the day-to-day functioning of the companies but its liability would arise on its failure to perform the constitutional duties and functions of public sector undertakings as in relation thereto lie the State s constitutional obligations as, "State acts in a fiduciary capacity". The observations relevant are as follows : "25. It is now well settled that the corporate veil can in certain situations be pierced or lifted. The principle behind the doctrine is a changing concept and it is expanding its horizon as was held in State of U.P. v. Renusagar Power Co. The ratio of the said decision clearly suggests that whenever a corporate entity is abused for an unjust and inequitable purpose, the court would not hesitat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Seimens make during 1993-94 under agreement dated 28-6-1990. While doing so, respondents also banned Vizag company from tendering for railway works on the ground that it is a sister concern. Hence, it becomes necessary to know who are the persons that promoted Vizag company and whether such persons had any relationship with Vizag firm as well as Vijayawada firm. Whether these persons behind the corporate mask of Vizag company should face serious consequences that be fallen on Vijayawada firm - whatever the shape and colour and mode, such persons project for their business dealings ? That is the incidental question, which would be almost a natural corollary. 12. Vizag company was incorporated on 12-5-1998 with Registration No. 01-29389 and commenced its business with effect from 11-6-1998 as per the certificate of commencement of business issued by the Registrar of Companies, Hyderabad (RoC), pursuant to section 149(3) of Companies Act, 1956. The company changed its name to L.R. Constructions as per the fresh certificate of incorporation issued by RoC on 10-2-2004. The Chartered Company Secretary has given a certificate giving details of the shareholders, first Directors, Subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Vijayawada firm and Idulapati family would control Vizag firm as well as Vizag company. Though not very intricate, the balance was maintained presumably to share the profits and losses. This becomes clear by reference to the MoU entered into by and between Vizag firm and Vizag company on 7-12-2002. Under the said MoU, which was with the approval of the Railways, it was agreed as follows : "AND WHEREAS, both the parties have agreed for the following, viz., 1. That the party to the first part, a company consisting three directors, viz., Sri Y. Raghavaiah, Smt. Y.V. Lakshmi and Smt. Y. Annapurna and these three individuals are the partners of the firm the party to the second part, having 100 per cent controlling interest. 2. In view of the future enlistment and growth expected in varioud Departments of Central Government authorities it was agreed that the party to the second part to discontinue its business operations. 3. However, the works under progress, which are not mentioned in Para 8 below, executing by the party to the second part shall be completed in all respects, by itself, thereafter the credentials against these works shall be transferred to the party to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ada firm though Vizag firm was also registered under section 58 of the Indian Partnership Act, 1932 ( Partnership Act , for brevity) on 26-6-1999 vide serial (Regn.) No. 09033/1995. Learned Standing Counsel also submits that Vizag firm also claimed eligibility qualification by enclosing credential certificates of Vijayawada firm, when they submitted tenders, to Indian Railways for supply and execution of S T works. Documents are produced before this Court in support of the said submission. Some of them are referred to herein below. A. Correspondence with Railways : ( i ) Letter No. APC/PAT.SHIP DEED/10, dated 21-10-1999 - This is a communication from Y. Raghavaiah, Y. Venkata Lakshmi and Y. Annapurna to Divisional Signalling Telecommunication Engineer (Construction) (DSTE), South Central Railway, Vijayawada informing that consequent on dissolution of firm, new partnership deed has been entered into and requesting the addressee to record the changes. This letter was addressed on the letter-pad of Vizag firm. ( ii ) Letter No. Nil , dated 7-12-2000 - This is a communication addresse by Y. Raghavaiah to Senior DSTE/Projects, Vijayawada requesting for release of securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection with doubling of one section of Kur Division in South Central Railway, valued at Rs. 1,08,74,280 in pursuance thereto, again, Y. Raghavaiah, Managing Partner of Vizag firm submitted tender vide letter dated 1-11-1997 on the letter-pad of Vizag firm. In this letter also, address of Vijayawada firm mentioned at the bottom along with same APGST/CST number. Again, here also the certificates dated 19-11-1995, 20-11-1995 and 19-11-1996 issued by Senior DSTE in favour of Vijayawada firm and certificated dated 20-8-1994 issued by Dy. CSTE-CON, South Central Railway, Rayagada, in favour of Vijayawada firm were enclosed to claim credentials. ( iii )South Central Railway issued tender notice dated 3-6-1998 for execution of outdoor signalling works in connection with replacement of existing lever frames and ground gears by route relay interlocking at Simhachalam. Y. Raghavaiah submitted tender vide letter dated 29-7-1998 on a plain paper showing Registration No. 09033. The certificate of experience dated 30-5-1998 issued by Senior DSTE, Guntakal, in favour of Vijayawada firm was enclosed. The documents pursuant to the tender applications and experience certificates were fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of M/s. Srinivasa Constructions and making false assertions and using the credentials of M/s. Annapurna Constructions which they are not entitled. Hence this public notice is given intimating one and all that our clients, and their Firm M/s. Annapurna Constructions having nothing to do with Shri I. Srinivasa Rao of his father Shri I. Radhakrishna Murthy or M/s. Srinivasa Constructions." The above notice would reveal that M/s. Annapurna Constructions at Vijayawada as well as Vizag was also treated and considered by all the shareholders/contributories as one entity, that is the reason why public notice was issued intimating all concerned that Vizag firm has nothing to do with I. Srinivasa Rao and I. Radhakrishna Murthy or M/s. Srinivasa Constructions, which was started by these two persons. Public was also informed that these two persons cannot use the name of M/s. Annapurna Constructions. 14. The correspondence made by Vijayawada firm as well as Vizag firm even while claiming release of security deposit was signed by Y. Raghavaiah representing Vijayawada and Vizag firms. Vijayawada firm has shown Vizag firm as head office in their correspondence. Both the firms have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was deposited but the balance was not deposited. Repeatedly Skipper asked for extension of time which was granted initially but when such time was not extended and bid was cancelled, Skipper went to the Court in May 1982 and obtained stay of cancellation. While making representations to DDA for extension, Skipper, though possession was not handedover and construction thereon was not permitted, went on selling the place/space in the proposed building. The agreement was revised by the DDA but Skipper violated the same by not paying the first instalment. But, large number of people purchased the space/place in the build- ing. When DDA did not sanction building plans, he went to Delhi High Court in 1990 and obtained order for commencement of construction on certain conditions. He went to Supreme Court, which permitted Skipper to pay Rs. 2.50 crores within one month and Supreme Court prohibited Skipper from inducting any person in the building and creating any rights in favour of third parties. In spite of prohibitory orders, Skipper issued advertisement in leading newspapers inviting persons to purchase the space in the proposed building. S.L.P., was dismissed and DDA re-entered the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt that there is great force in the submission made by the learned senior counsel on behalf of the respondent that Vizag firm always treated as Vijayawada firm as a branch office and the latter treated the former as head office. On occasions more than one, Y. Raghavaiah, who seems to be controlling the business of the firms as well as the company acted on behalf of Vijayawada firm and also claimed the experience/credentials of Vijayawada firm while submitting tenders. In such background, was it not proper for the respondents to assume that Vizag firm and Vijayawada company are sister concerns of Vijayawada firm. 18. Till decision of the House of Lords in Brind case, the judicial review in the matter of exercising discretion was governed by the principles laid down by Lord Greene in Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn. [1947] 2 All ER 640. In this case, Wednesbury Corporation while granting permission to Associated Picture House for exhibiting cinematography films imposed condition that children under the age of fifteen years shall not be admitted to any entertainment. The plaintiff sought a declaration that such condition is ultra vires Entertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is challenged as being incompetent or violative of fundamental rights, the Court has to assume a primary role. In such primary judicial review, the test invariably is strict scrutiny test which, as explained by Jagannadha Rao, J. in Om Kumar s case ( supra ) as proportionality (SCC para 28) as below : "By "proportionality", we mean the question whether, while regulating exercise of fundamental rights, the appropriate or least-restrictive choice of measures has been made by the legislature or the administrator so as to achieve the object of the Legislation or the purpose of the administrative order, as the case may be. Under the principle, the court will see that the Legislature and the administrative authority "maintain a proper balance between the adverse effects which the legislation or the administrative order may have on the rights, liberties or interests of persons keeping in mind the purpose which they were intended to serve". The Legislature and the administrative authority are, however, given an area of discretion or a range of choices but as to whether the choice made infringes the rights excessively or not is for the court. That is what is meant by proportional ..... X X X X Extracts X X X X X X X X Extracts X X X X
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