The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a Ploy adopted for committing illegalities and/or to defraud people
|Case name:||Delhi Development Authority Vs. Skipper Construction Company(P) Ltd. & Another|
|Case number:||1996 AIR 2005 1996 SCC (4) 622|
|Court:||SUPREME COURT OF INDIA|
|Bench:||JEEVAN REDDY, B.P. (J) PARIPOORNAN, K.S.(J)|
- BRIEF FACTS AND PROCEDURAL HISTORY:
- A plot of land was put to auction by the Delhi Development Authority [D.D.A.] in October 1980. Skipper Construction Company [Skipper] offered the highest bid in A sum of Rs. 9.82 crores. It was supposed to be a record bid at that time. According to the conditions of auction, twenty five percent of the amount was payable immediately and the rest within ninety days. Skipper deposited the twenty five percent but did not deposit the balance. It asked for extension repeatedly and it was granted repeatedly. As many as seven extensions were granted spread over the period January, 1981 to April, 1982.
- Since Skipper failed to deposit the balance consideration even within the last extended period, proceedings were taken for cancelling the bid. Skipper went to Court and on May 29, 1992 obtained stay of cancellation. In January 1983, D.D.A. constituted a committee to consider the request of Skipper and other similar requests and to devise a formula for ensuring timely payments by such purchasers. The committee reported that cancellation of bids in such matters usually land D.D.A. in protracted litigation and suggested that to enable them to pay the monies due to D.D.A., the purchasers be given permission to commence development/construction on the plot [though possession as such be not delivered] subject to the condition that the property in the land would remain with the D.D.A. until the entire consideration is paid; if the entire consideration is not paid according to the revised schedule, the D.D.A. should be entitled to re-enter the plot and take it over along with the construction, if any, made thereon.
- The committee recommended further that a revised agreement be obtained from such purchasers incorporating the above terms. When called upon to execute the revised agreement, in 1984, Skipper raised all sorts of objections and executed it only in the year 1987. Even before permission to enter upon the plot and to make construction thereon was granted under the revised agreement, Skipper appears to have been selling the place in the proposed building to various persons and receiving monies.
- Once it got the permission to enter upon the plot and to make construction thereon, it became all the more easy for it to sell the space in the proposed building. It did not pay the first instalment under the revised agreement in time but only after some delay. It did not pay the second instalment. Bank guarantees furnished by it in terms of revised agreement were also found to be defective. Every time the D.D.A. thought of cancelling the agreement on account of the said defaults, an argument was put forward that it would cause great hardship to hundreds of persons who have purchased space in the proposed building and that they would be deprived of their hard-earned monies.
- Skipper has been making some small token payments from time to time meanwhile. While the endless correspondence and discussions were going on between Skipper and D.D.A., Skipper went to Delhi High Court by way of a writ petition, C.W.No.2371 of 1989, asking for a writ of mandamus to the D.D.A. to sanction the building plans or in the alternative to grant permission to him to start construction at his risk. On March 19, 1990, the High Court passed an order permitting Skipper to commence construction in accordance with the sanctioned plans subject to deposit of a sum of Rupees twenty lakhs in two instalments and Rs.1,94,40,000/- within one month. Against the said order, D.D.A. came to this Court by way of Special Leave Petitions (C) Nos. 6338 and 6339 of 1990. Meanwhile, Writ Petition (C) No.2871 of 1989 came up for final hearing on December 21,1990.
- The Delhi High Court made an order on that day directing Skipper to pay to D.D.A. a sum of Rs. 8,12,88,798/- within thirty days and to stop all further construction with effect from January 9, 1991 till the said payment was made. It was provided that in default of such payment, the licence [revised agreement dated August 11, 1987] would stand determined and D.D.A. would be entitled to re-enter the plot. Reasons for the order were given on January 14, 1991. Skipper failed to deposit the amount as per the direction of the High Court. It approached this Court by way of Special Leave Petition (C) No.196 of 1991. On January 29, 1991, this Court grantee an interim order subject to Skipper depositing Rs.2.5 crores within one month and another sum of Rs.2.5 crores before April 8, 1991. Skipper was expressly prohibited from inducting any person in the building and from creating any rights in favour of third parties. Inspite of the said prohibitory orders from this Courts Skipperissued an advertisement on February 4, 1991 in the leading newspapers of Delhi insisting persons to purchase the space in the proposed building.
- It published such, advertisements repeatedly. Special Leave Petition (C) No. 196 of 1991 was ultimately dismissed on January 25, 1993, whereafter, D.D.A. re-entered the plot and took physical possession of property on February 10, 1993 along with the building thereon free from all encumbrances in terms of the revised agreement/licence and as provided in the orders of the Delhi High Court dated December 21, 1990/January 14, 1991. It also forfeited the amounts paid till then by Skipper in terms of the revised agreement and the said Judgment.
- January 29, 1991 marks the watershed in these proceedings. Before the said date, Skipper had collected about Rupees fourteen crores from various parties agreeing to sell the space in the proposed building. Even after January 29, 1991, Skipper issued several advertisements and collected substantial amounts – Rupees eleven crores, according to its own version from various parties agreeing to sell the space in the said building. It appears that same space was sold to more than one person and monies collected. Not only did Skipper brazenly violate the orders of this Court dated January 29, 1991 by issuing advertisements, it also filed a suit in the Delhi High Court being Suit No.770 of 1993 seeking an injunction restraining the D.D.A. from interfering with its alleged title and possession over the plot and for a declaration that the re-entry by D.D.A. was illegal and void ! It also sought for a declaration that it has discharged all the amounts due to D.D.A. and that nothing was due from it. It obtained interim orders staying re-auction of the plot.
- Against the interim order of the High Court staying the re-auction of the plot, D.D.A. approached this Court by way of Special Leave Petition (C) No.21000 of 1993. Noticing the conduct of Skipper, this Court initiated suo motu contempt proceedings against Tejwant Singh and his wife, Surinder Kaur, directors of Skipper. They were asked to explain (1) why did they institute Suit No.770 of 1993 in respect of the very same subject matter which was already adjudicated by this Court on January 23, 1993, i.e., by affirming the orders of the High Court dated December 21, 1990 and January 14, 1991 and (2) why did they enter into agreements for sale and create interest in the third parties in defiance of the orders of this Court dated January 29, 1991. After hearing the contemnors, this Court found them guilty of contempt of this Court.
- The contemnors deposited a sum of Rupees two crores but failed to deposit the balance. They also failed to furnish the Bank guarantee. As a result of the said failure, they were committed to prison. Both the contemnors have served out their sentence. Meanwhile, D.D.A. invited tenders for the sale of the said plot of land along with the construction raised thereupon. The highest offer received was in the sum of Rupees seventy crores from M/s. Banganga Investments. It was accepted with the permission of this Court. The consideration has been deposited with the D.D.A. and the property transferred in favour of the said purchaser. At this stage, the question arose as to what should be done with the hundreds of persons who have been duped and defrauded by Skipper and who had parted with substantial amounts on the basis of the fraudulent and false representations made by Skipper. This Court made a distinction between persons who purchased the space before January 29, 1991 and the persons who purchased the space thereafter.
- The first concern of this Court was to reimburse the persons who purchased space in the said building prior to January 29, 1991. Their claims were said to be in the region of Rupees fourteen crores. Accordingly, this Court directed D.D.A. to set apart a sum of Rupees sixteen crores [out of the said amount of Rupees seventy crores] and to make it available to such purchasers in accordance with the orders of this Court. This Court also requested Justice R.S.Lahoti of the Delhi High Court to act as a one-man Commission to prepare a list of persons who had paid the amounts prior to January 29, 1991 and to determine the amount paid by each of them. After an elaborate enquiry, Justice Lahoti Commission submitted a Report dated February 2, 1996 according to which a sum of Rupees 13,27,37,561.59 crores was paid by more than seven hundred persons. The Commission asked for directions of this Court whether the said persons should also be paid the interest in addition to the principal, as claimed by them. When the report of the Commission came up for orders before this Court, Be directed that for the time being only principal amount shall be paid to the said purchasers and that the balance amount along with interest accruing thereon shall be kept apart. This was done keeping in view the interests of post-January 29, 1991 purchasers. It is true that these persons did purchase notwithstanding the warning notice of D.D.A. but it is equally possible that many of them may have seen only the subsequent advertisements of Skipper and not the warning notice of D.D.A. published on February 13, 1991.
- We may clarify that our order dated February 12, 1996 does not mean that the pre-January 29, 1991 are not entitled to interest on the amounts paid by them for which they have a legitimate claim. We have only kept that claim under consideration pending further developments in the matter. We may also mention that this Court had appointed another Commission headed by Justice O.Chinndppa Reddy, a former Judge of this Courts to enquire into the role played by the officials of the D . in the matter and to recommend appropriate action against them. Justice Chinnappa Reddy Commission submitted a Report promptly on July 7, 1995, after conducting a pain-staking and elaborate enquiry, on the basis of which this Court had directed disciplinary action to be taken against certain officers of the D.D.A.
- At this stages several applications have been filed by the post-January 29 purchasers to sell the properties of Tejwant Singh, his wife and children, which were attached by this Court under its Order dated February 8, 1995 [in suo motu contempt proceedings] and utilise the proceeds so realised to reimburse them along with interest and damages. Notice of the said applications was given to Tejwant Singh and Surinder Kaur and to the sons of the said persons whose properties were attached under the aforesaid orders.
- ISSUE BEFORE THE COURT:
The nature and ambit of this court’s power under Article the 142 of the constitution?
Lifting the corporate veil
- RATIO OF THE COURT
- In Aron Salomon v. Salomon & Company Limited (1897 Appeal Cases 22), the House of Lords had observed, “the company is at law a different person altogether from the subscriber…; and though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands received the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, on any shape or form, except to the extent and in the manner provided by that Act”. Since then, however, the Courts have come to recognize several exceptions to the said rule.
- The law as stated by Palmer and Gower has been approved by this Court in Tata Engineering and Locomotive Company Limited v. State of Bihar [1964 (6) S.C.R. 885 ]. The following passage form the decision is apposite: “Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But, it would not be possible to evolve a rational consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly, where fraud is intended to be prevented, or trading with 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 .”
- In DHN Food Distributors Ltd. & Ors. v. London Borough of Tower Hamlets [ 1976 (3) All.E.R. 462 ], the Court of Appeal dealt with a group of companies. Lord Denning quoted with approval the statement in Gower’s Company Law that “there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group”. The learned Master of Rolls observed that “this group is virtually the same as a partnership in which all the three companies are partners”. He called it a case of “three-in-one” – and, alternatively, as “one-in-three”. The concept of corporate entity was evolved to illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned.
- The fiduciary relationship may not exist in the present case nor is it as case of a holder of public office, yet if it is found that someone has acquired properties by defrauding the people and if it is found that the persons defrauded should be restored to the position in which they would have been but for the said fraud, the court can make all necessary orders. This is what equity means and in India the Courts are not only courts of law but also courts of equity.
- The above course appears testified and necessary looked at from any angle, viz., (a) that the contemnors should not be allowed to enjoy or retain the fruits pf their contempt; (b) the interests of justice, which call for the lifting of the corporate veil – the said property is in truth and effect the property of Tejwant Singh and members of his family and must be available to satisfy the claims of the persons defrauded by him; (c) that while acting under Article 142 of the Constitution, this Court must do complete justice between the parties and for that purpose, it is necessary to ensure that a person who has defrauded a large number of persons by issuing advertisements in the leading newspapers published from the capital inviting people to come and purchase space in the said building in open and brazen violation of clear and specific orders of this Court should not be allowed to
benefit from his fraud and/or contemptuous acts.
- DECISION HELD BY COURT:
(1) the property at No.3, Aurangzeb Road, New Delhi, shall be attached, if not already attached – and if it has already been attached, it shall continue to be under attachment;
(2) the Embassy of Israel in India, New Delhi, the lessee of the said property, is requested to deposit the monthly rent payable in respect of the said building in this Court with effect from the date of receipt of a copy of this order and continue to deposit the same until further orders. Such deposit in Court shall discharge- the Embassy of its obligation to pay rent to ’Maple Leaf’, its landlord.
(3) Tejwant Singh and his wife, Surinder Kaur, are directed to deposit in this Court a sum of Rupees ten crores within two months from today. In default, steps will be taken to sell the property at No.3, Aurangzeb Road, New Delhi by inviting tenders from the public. The said amount of Rupees ten crores is tentatively arrived at as the amount required to reimburse the pre-January 29, 1991 purchasers in full, as explained hereinabove, and also to reimburse the post- January 29, 1991 purchasers in full. [This shall not be treated as the final figure required in this behalf.] While fixing this amount, we have taken into account the fact that about Rupees six crores is now available with this Court as stated supra;
(4) the attachment of properties belonging to Tejwant Singh, his wife and children, already effected, including the properties mentioned in the application, I.A.No.29 of 1996, filed by the D.D.A. shall continue to be in force pending further orders. It is, however, open to any of them to come forward with a proposal to sell any of those properties and if this Court is satisfied about the bonafides of the deal, the attachment will be lifted on condition that the confederation so received is deposited into this Court. It is obvious that any such deposit will be treated as a deposit towards the direction regarding deposit of Rupees ten crores contained in Direction No.3 above;
(5) since it is necessary to ascertain the persons who have paid amounts to Skipper after January 29, 1991 for purchasing the space in the said building, and to exclude the claims of non-genuine persons, we appoint Sri O.Chinnappa Reddy, a former Judge of this Court, as the oneman Commission to ascertain the number and identity of the persons who have purchased the space in the building being raised by Skipper after January 29, 1991 and also to determine the amounts paid by each of them. The Commissionis requested to submit its Report within a period of six months, as far as possible. The remuneration and the expenses of Sri Justice O.Chinnappa Reddy will be borne entirely by the D.D.A. out of the funds now lying with it, as per his terms.