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2016 (9) TMI 967 - BOMBAY HIGH COURT

2016 (9) TMI 967 - BOMBAY HIGH COURT - TMI - 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 th .....

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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 not .....

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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 - APPEAL (L) NO.794 OF 2015 IN JUDGES ORDER NO.215 OF 2014 IN EXECUTION APPLICATION NO.240 OF 2011 IN FOREIGN AWARD DATED 17 JANUARY 2011 - Dated:- 6-9-2016 - V.M. KANADE AND REVATI MOHITE DERE, JJ. For The Appellant : Mr. Mustafa Doctor Senior Counsel wit .....

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learned Single Judge extending the period of precept issued under section 46 of the Code of Civil Procedure by which cargo viz coal which was purchased in the name of BIIL was attached at Tuticorin Port at Tamilnadu. An international award was passed in favour of Respondent No.2 - Vitol S.A for an amount of ₹ 443 crores with interest and costs against Bhatia International Limited ( BIL ). Not a single penny has been recovered by Vitol - SA from BIL despite a lapse of five years from the d .....

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economic entity, the goods which were standing in the name of BIIL could be attached in execution of the international award. The learned Single Judge accepted the contention of Vitol - S.A. and after examining all the material on record, held that BIIL and BIL was a single economic entity. This was done by lifting the corporate veil of both the companies. The questions which inter alia fell for consideration before this Court were whether the concept of lifting of corporate veil was available .....

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jurisdiction under clause 15 of the Letters Patent since the view taken by the learned Single Judge is not perverse and is a plausible view under the facts and circumstances of the case. JUDGMENT : (Per V.M. Kanade, J.) 1. Appellant is challenging the order passed by the learned Single Judge who was pleased to extend the precept order which was passed under Section 46 of the Civil Procedure Code in execution proceedings taken out by the RespondentAward Holder/Judgment Creditor. 2. The questions .....

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rder passed by the learned Single Judge? 3. Brief facts which are relevant for the purpose of deciding this appeal are as under: 4. An International Award came to be passed in favour of Respondent - Vitol S.A. and against Bhatia International Limited ( BIL ) on 17/01/2011. As a result of the Award, BIL was supposed to pay an amount of ₹ 443 crores alongwith interest to the RespondentAward Holder/Judgment Creditor. 5. An application was filed by Respondent - Vitol S.A. for issuance of prece .....

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ntly siphoning off the funds from BIL to defeat execution of the International Award and therefore it was prayed that though the goods may be shown to be belonging to BIIL, in fact, they belonged to the Group Companies and therefore they were liable to be attached in execution of the International Award. 6. The learned Counsel appearing on behalf of the Respondent No.2 produced material to show that if the corporate veil of two Companies was lifted, it would show that it was a single entity and .....

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ported at Tuticorin Port belonged to BIL and on this basis asked for attachment of the coal. He further submitted that the learned Single Judge after coming to the conclusion that the coal was owned by BIIL, had yet issued precept order by holding that BIL was the owner of the coal which was imported at Tuticorin Port. Thirdly, it is submitted that the concept of lifting of corporate veil is not available in execution proceedings. He submitted that if the said concept is admitted, there are thou .....

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then submitted that the the reliance which was placed by the learned Single Judge on certain judgments which were not cited by either parties was not correct since these judgments did not support the case of the Respondent No.2 and were in fact in favour of the Appellant. He submitted that the two judgments cited by the Appellant, though they were referred to in the judgment, reason why these judgments were not considered by the learned Single Judge was not mentioned in the Judgment and order of .....

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relied upon the judgment of the Apex Court in State of UP vs. Renusagar Power Co. (1988) 4 SCC 59 : 1988 Supp (1) SCR 627. He then submitted that Respondent No.2 had brought sufficient material on record to indicate that BIL was siphoning off monies to defeat execution of the Award passed in favour of Respondent No.2. 10. Before we deal with the rival submission, it would be relevant to take into consideration the settled legal position. 11. The first question is, in which cases corporate veil c .....

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well settled that doctrine of piercing the veil has been applied by the Court in various diverse circumstances. Though, initially, this concept was primarily applied in cases of tax evasion, the Courts have expanded this concept and had applied it to the cases (A) where the Petitioner himself has invited the Court to look behind its own corporate personality. Reference can be made to the following judgments under this category: (i) State of U.P. & Ors vs. Renusagar Power Co. and Ors. (1988) .....

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be made to the following cases : (i) Vodafone International Holdings vs. Union of India(2012) 6 SCC 613. (ii) Juggilal Kamlapar vs. Commissioner of Incometax (1969) 1 SCR 988. (iii) DeBeers Consolidated Mines Ltd vs. Howe Surveyor of Taxes 1906 AC 455 (D) where residence of a company has to be determined for the purpose of ascertaining common law offence of trading with the enemy. Reference can be made to the following case : (i) Daimler Co. Ltd. vs. Continental Tyre and Rubber Co. Ltd. (1916) .....

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6) 1 WLR 852 (ii) Harold Holdsworth & Co. vs. Caddies (1955) 1 WLR 352 (iii) Scottish Cooperative Wholesale Society Ltd. vs. Meyer(1959) AC 324 (G) where there is an involvement of industrial law and human rights and also where the requirement of justice so require. Reference can be made to the following case : (i) Kapila Hingorani vs. State of Bihar(2003) 6 SCC 1 (H) where associated companies are inextricably connected as to be in reality part of one concern. Reference can be made to the f .....

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l to reproduce the relevant paragraphs of the said judgment in which evolution of this doctrine has been beautifully traced. Paras 51 to 72 of the said judgment are relevant and they read as under: 51. This naturally brings us to the question of lifting the corporate veil or piercing the corporate veil as we often call it. On behalf of the appellants, however, it was very strongly urged that in this case there was no ground for lifting the corporate veil and Shri Trivedi, learned Additional Advo .....

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sition that normally the court has disregarded the separate legal entity of a company only where the company was formed or used to facilitate evasion of legal obligations. He referred us to the observations of this Court in Western Coalfields Ltd. v. Special Area Development Authority, Korba [(1982) 1 SCC 125]. The facts of that case were, however, entirely different and it is useless to refer to them but at page 17 of the report, Chandrachud, C.J. speaking for the Court quoted the observations .....

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not civil servants. 52. Chandrachud, C.J. relied on the aforesaid observations and referred to Pennington s Company Law, 4th Edn., pages 5051, where it was stated that there were only two cases where the court had disregarded the separate legal entity of a company and that was done because the company was formed or used to facilitate the evasion of legal obligations. 53. The learned Editor of Pennington s Company Law, 5th Edn., at page 49 has recognised that this principle has been relaxed in s .....

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where the court had disregarded the company s corporate entity and paid attention to where the real control and beneficial ownership of the company s undertaking lay. When it had done this, the court had relied either on a principle of public policy, or on the principle that devices used to perpetrate frauds or evade obligations will be treated as nullities, or on a presumption of agency or trusteeship which at first sight Salomon case [1897 AC 22] seems to prohibit. Again at page 36 of the same .....

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case of power cuts and denial of supply of 100 per cent power to Hindalco, in our opinion, underline the facts and, as such, imply acceptance and waiver of the position that Renusagar was a power plant owned by Hindalco. Shri Trivedi naturally relied on several decisions which we shall briefly note in aid of the submission that Renusagar s power plant could not be treated as Hindalco s power plant. He referred us to the well known case of Aron Salomon v. A. Salomon & Co. Ltd. [1897 AC 22] ( .....

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hese propositions, in our opinion, do not have any application to the facts of the instant case. Shri Trivedi also drew our attention to Bank voor Handel en Schee pvaart N.V. v. Slatford [(1953) 1 QB 248] where in the context of the international law property belonging to or held on behalf of a Hungarian national came up for consideration and the distinction between a shareholder and a company was emphasised and highlighted. 55. In Kodak Ltd. v. Clark [(197) 1 SCC 248] the Court of appeal in Eng .....

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than by voting as shareholders. It was held that the foreign company was not carried on by the English company, nor was it the agent of the English company, and that the English company was not, therefore, assessable to income tax. Renusagar was not the alter ego of Hindalco, it was submitted. On the other hand these English cases have often pierced the veil to serve the real aim of the parties and for public purposes. See in this connection the observations of the Court of appeal in DHN Food Di .....

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467 as follows: Third, lifting the corporate veil. A further very interesting point was raised by counsel for the claimants on company law. We all know that in many respects a group of companies are treated together for the purpose of general accounts, balance sheet and profit and loss account. They are treated as one concern. Professor Gower in his book on company law says: there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to .....

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the same as a partnership in which all the three companies are partners. They should not be treated separately so as to be defeated on a technical point. They should not be deprived of the compensation which should justly be payable for disturbance. The three companies should, for present purposes, be treated as one, and the parent company, DHN, should be treated as that one. So that DHN are entitled to claim compensation accordingly. It was not necessary for them to go through a conveyancing d .....

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e report: Secondly, on the footing that that is not in itself sufficient, still, in my judgment, this is a case in which one is entitled to look at the realities of the situation and to pierce the corporate veil. I wish to safeguard myself by saying that so far as this ground is concerned, I am relying on the facts of this particular case. I would not at this juncture accept that in every case where one has a group of companies one is entitled to pierce the veil, but in this case the two subsidi .....

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738) It was argued that the subsidiary companies were separate legal entities, each under the control of its own board of directors, that in law the board of the appellant company could not assign any duties to anyone in relation to the management of the subsidiary companies, and that, therefore, the agreement cannot be construed as entitling them to assign any such duties to the respondent. My Lords, in my judgment, this is too technical an argument. This is an agreement in re mercatoria, and i .....

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ake the decision of the appellant company s board fully effective. That particular passage, is I think, especially cogent having regard to the fact that counsel for the local authority was constrained to admit that in this case, if they had thought of it soon enough, DHN could, as it were, by moving the pieces on their chess board, have put themselves in a position in which the question would have been wholly unarguable. I also refer to Scottish Cooperative Wholesale Society Ltd. v. Meyer [(1958 .....

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port Ltd. v. British Transport Commission [(1961) 3 ALL ER 495] where he said that the cases - (All ER p. 518) show that where the character of a company, or the nature of the persons who control it, is a relevant feature the court will go behind the mere status of the company as a legal entity, and will consider who are the persons as shareholders or even as agents who direct and control the activities of a company which is incapable of doing anything without human assistance. The third ground, .....

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p that they ought to be regarded for this purpose as a single entity. The completeness of that identity manifested itself in various ways. The directors of DHN were the same as the directors of Bronze; the shareholders of Bronze were the same as in DHN, the parent company, and they had a common interest in maintaining on the property concerned the business of the group. If anything were necessary to reinforce the complete identity of commercial interest and personality, clause 6, to which I have .....

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rth & Co. (Wakefield) Ltd. v. Caddies [(1955) 1 ALL ER 725], where Lord Morton of Henryton in England, at page 734 of the report observed as follows: My Lords, this clause refers to a group of companies consisting of the appellant company and their existing subsidiary companies. I cannot read the clause as compelling the board to assign duties to the respondent in relation to the business of every company in the group. Nor can I read it as compelling the board to assign him duties in relatio .....

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nment and the duties from time to time. Further, I think the clause leaves the board free to appoint another person to be a managing director , and to divide the duties and powers referred to in the clause between the respondent and the other managing director in such manner as they think fit. It is true that each company in the group is, in law, a separate entity, the business whereof is to be carried on by its own directors and managing director, if any; but there is no doubt that the appellan .....

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e in relation to the management of the subsidiary companies, and that, therefore, the agreement cannot be construed as entitling them to assign any such duties to the respondent. My Lords, in my judgment, this is too technical an argument. This is an agreement in re mercatoria, and it must be construed in the light of the facts and realities of the situation. The appellant company owned the whole share capital of British Textile Manufacturing Co. and, under the agreement of 1947, the directors o .....

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of House of Lords observed at pages 7172 as follows: My Lords, it may be that the acts of the society of which complaint is made could not be regarded as conduct of the affairs of the company if the society and the company were bodies wholly independent of each other, competitors in the rayon market, and using against each other such methods of trade warfare as custom permitted. But this is to pursue a false analogy. It is not possible to separate the transactions of the society from those of t .....

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nducted, and the minority shareholders were content that it should be so. They relied - how unwisely the event provided - on the good faith of the society, and in any case they were impotent to impose their own views. It is just because the society could not only use the ordinary and legitimate weapons of commercial warfare but could also control from within the operations of the company that it is illegitimate to regard the conduct of the company s affairs as a matter for which it had no respon .....

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company must, if it is engaged in the same class of business, accept as a result of having formed such a subsidiary an obligation so to conduct what are in a sense its own affairs as to deal fairly with its subsidiary. At the opposite pole to this standard may be put the conduct of a parent company which says 'our subsidiary company has served its purpose, which is our purpose. Therefore let it die ' and, having thus pronounced sentence, is able to enforce it and does enforce it not only .....

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ompetition with it, no legal objection could be taken to the actions and policy of the society. Lord Carmont pointed this out in the Court of Session. But that is not the position. In law, the society and the company were, it is true, separate legal entities. But they were in the relation of parent and subsidiary companies, the company being formed to run a business for the society which the society could not at the outset have done for itself unless it could have persuaded the respondents to be .....

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ver may be the other different legal consequences following on one or other of these forms of combination one result, in my opinion, followed in the present case from the method adopted, which is common to partnership, that there should be the utmost good faith between the constituent members. In partnership the position is clear. As stated in Lindley on Partnership (11th Edn.), p. 401: A partner cannot, without the consent of his copartners, lawfully carry on for his own benefit, either openly .....

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all Richards Machine Co. Ltd. v. Jewilt [36 Tax Cases 511], where at page 525 of the report Lord Upjohn, J. observed that where you have a wholly owned subsidiary, and both the parent company and wholly owned subsidiary enter into trading relationships, there is, of course, a dual relation, but you cannot for the purposes of tax disregard the fact that there are, in fact, two entities and two trades, that is to say, the trade of each company. It is normally a question of fact whether the disburs .....

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attention was also drawn to the decision of the Madras High Court in Spencer & Co. Ltd. Madras v. CWT [(AIR 1969 Mad 359] where Veeraswami, J. held that merely because a company purchases almost the entirety of the shares in another company, there was no extinction of corporate character for each company was a separate juristic entity for the tax purposes. Almost on similar facts, are the observations of P.B. Mukharji, J. in Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Ltd. .....

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y connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected. After referring to several English and Indian cases, this Court observed that ever since A. Salomo .....

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ation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding. Here, indubitably, we are of the opinion that it is correct that Renusagar was brought into existence by Hindalco in order to fulfil the condition of industrial licence of Hindalco through production of aluminium. It is also manifest from the facts that the model of the setting up of power station through the agency of Renusagar was adopted by Hindalco to .....

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Board have themselves lifted the corporate veil and have treated Renusagar and Hindalco as one concern and the generation in Renusagar as the own source of generation of Hindalco. In the impugned order the profits of Renusagar have been treated as the profits of Hindalco. 67. In the aforesaid view of the matter we are of the opinion that the corporate veil should be lifted and Hindalco and Renusagar be treated as one concern and Renusagar s power plant must be treated as the own source of gener .....

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mpany Law but the veil has been pierced in many cases. Some of these have been noted by Justice P.B. Mukharji in the New Jurisprudence [Tagore Law Lectures, p.183] 69. It appears to us, however, that as mentioned the concept of lifting the corporate veil is a changing concept and is of expanding horizons. We think that the appellant was in error in not treating Renusagar s power plant as the power plant of Hindalco and not treating it as the own source of energy. The respondent is liable to duty .....

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er. Renusagar had in reality no separate and independent existence apart from and independent of Hindalco. 70. In the aforesaid view of the matter we are of the opinion that consumption of energy by Hindalco is clearly consumption by Hindalco from its own source of generation. Therefore, the rates of duty applicable to own source of generation have to be applied to such consumption, that is to say, 1 paisa per unit for the first two generating sets and nil rate in respect of third and fourth gen .....

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oncern and if that is taken the consumption of energy by Hindalco must be regarded as consumption by Hindalco from its own source of generation. 71. Inasmuch as the High Court upheld this contention of the respondent we are in respectful agreement of its views and the appeal directed against this finding of the High Court must, therefore, be rejected. 72. The electricity bill for arrears, subject to consideration of other aspects of the matter, that is to say, the validity of the order of reject .....

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2 PLR 518 have held that this doctrine can be applied even in execution proceedings. 14. The Delhi High Court in Formosa Plastic Corporation Ltd. (supra) has in terms held in para 45 as under: 45. The question whether the assets and the properties in question are owned and/or possessed by Chauhan and/or the names in which they may have been acquired are fictitious or fraudulent or merely cloaks can be decided after parties have led evidence. The Court has always the power of lifting the corporat .....

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, Formosa began delivering Resin but no payment was made by KOA. One Chavan had signed individual guarantee in 1993 in which he personally vouched for the existence and future qualified claims of Formosa . The suit was filed by Formosa in District Court of Texas, USA. Decree was passed in favour of Formosa. Appeal filed against it was dismissed. Application was filed in execution of the decree before High Court of Justice, London. Leave was granted by the High Court, London to enforce the decree .....

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issue of competency of the decreeholder to proceed against the assets of the Managing Director could be taken only if it is a circumstance when it is possible to tear the corporate veil. There is no difficulty in understanding the fundamental proposition that a company registered under the Companies Act is an independent entity and the liability of the company cannot be understood as constituting a personal liability for the Managing Director, except to the extent provided under the Income Tax A .....

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l immunity. In this case, admittedly the decree is only aagainst the company and there is no reference to the Managing Director's personal liability. However, it must be noticed that when the execution petition was filed, the petitioner had made a specific reference to the fact of the admission made by the Managing Director of the Company offering to make the payment before the Company Court, while prefering the appeal, but failed to comply with the direction of the Company Court's order .....

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was operating from House No.703, Sector 3, Chandigarh, but evading all types of liabilities. 17. We concur with the view taken by the Delhi Court in Formosa Plastic Corporation Ltd. (supra) and of the Punjab and Haryana High Court in Sai Sounds Private Limited (supra) that the concept of lifting the corporate veil can be resorted to even in execution proceedings. 18. In our view it is not necessary to refer to the judgment in DHN Food Distributors (supra), Juggilal Kamlapar (supra) since these .....

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has been referred to also in cases : (i) where two separate corporate entities are functioning as if they are in partnership with one company as an alterego of the other company, where one company is bound hand and foot by the other ; (ii) where parent company's management has steering influence on the subsidiary's core activities that the subsidiary can no longer be regarded to perform those activities on the authority of its own executive directors ; and (iii) where the company is the .....

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erefore 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. 21. The second question which falls for consideration is : whether the learned Single Judge was justified in lifting the corporate veil in this case and whether the learned Single J .....

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on and legal costs. Respondent No.2 filed execution proceedings in this Court and filed an application seeking an order of precept under section 46 of the Code of Civil Procedure, 1908, seeking attachment 54,300 MT of coal at the Tuticorin Port at Tamil Nadu. Application was made made by Sharp Corporation Limited objecting to the attachment levied under the Judges Order 215 of 2014. The said application filed by Sharp Corporation Limited was heard by the learned Single Judge and by judgment date .....

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BIL was a single entity after going through the exercise of piercing veil of two companies and other group companies known as Bhatia Group. 23. In the application filed by Respondent No.2 - Vitol for attachment / extending the precept with respect to remaining coal, Respondent No.2 narrated the circumstances and facts which, according to them, disclose that BILL and BIL was in fact a single entity. The learned Single Judge accepted the contention of Respondent No.2 - Vitol and has held that BIIL .....

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te of the companies which indicated that BIIL and BIL were two of the companies in the group which was essentially trading under the name Bhatia. Secondly, she has noted that the Director of the group was Surinder Singh Bhatia. She has further noted that he was whole time Director of BIIL from 2009 and was originally appointed Director in BIIL on 08/07/1993. She has noted that he resigned on 22/09/2014, exactly a week after the award was allowed to be enforced as a decree by this Court and three .....

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/08/2014, few days before the execution application was being filed. She has also noted that he ceased to be the Director of other Bhatia Group companies viz. Bhatia Coke and Energy Ltd., Bhatia Washery Ltd. (C ) The learned Single Judge has then noted the Articles of Association of BIIL and BIL in which Surinder Singh Bhatia has been one of the first Directors and also the subscriber to the Memorandum of Association of the company. The learned Single Judge also noted that other members of his f .....

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to BIIL as Bhatia Group Companies amongst others. (E) The learned Single Judge has then relied on the report given by the Credit Rating Institute viz ICRA. She has noted that the report states that BIIL was a part of the stronger promoter group i.e. BIL . She has further noted that the report stated on the basis of statistical data that BIIL has high dependence on BIL's management decision for its operation. (F) The learned Single Judge has then relied upon the financial statement contained .....

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hatia as the key management personnel followed by the other brothers and other family members of Bhatia family. Then she has noted that registered office of both the companies was at BCC house at Indore. Further, she has noted that there was a common Email Id of all the companies. She has noted that there was a common logo of Bhatia Group and the Group was having common employees and common key personnel of their common relatives. She has further noted that Bhatia Group was also shown to be havi .....

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a 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 Responde .....

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(HL)], has time and again been visited by the application of doctrine of lifting the corporate veil in revenue and taxation matters (See Dal Chand and Sons vs. CIT [ (1944) 12 ITR 458 (Lah)] and Juggilal Kamlapat vs. CIT [AIR 1969 SC 932: (1969) 1 SCR 988 : (1969) 73 ITR 702] . 27 The corporate veil indisputably can be pierced when the corporate personality is found to be opposed to justice, convenience and interest of the revenue or workman or against public interest (See CIT v. Sri Meenakshi .....

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(P) Ltd and Another(1996) 4 SCC 622 has observed in para 28 as under:- 28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit 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 .....

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also the facts were that one Tejwant Singh and members of his family had created corporate bodies and the Court, after lifting the veil, held that all of these was one entity belonging to and controlled by Tejwant Singh and family. It further observed that these corporate bodies were merely cloaks and masks behind which Tejwant Singh and his family members were hiding. We concur with the view taken by the learned Single Judge that BIIL and BIL was part of the group companies and though they were .....

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or by the judgment debtor and/or that the Appellant had acquired this cargo from the judgment debtor by any fraudulent means to defeat the award and/or claim of Vitol. It was further submitted that Vitol had made no attempt to explain why it had misled this Court in its previous affidavit by stating that the cargo in question belonged to judgment debtor. In short it was contended that in previous affidavit, it was stated that the cargo belonged to the judgment debtor whereas in the subsequent af .....

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atia International and Bhatia Industries is a single economic entity and it has been mentioned from paras 5 to para 12 of the said affidavit. There is therefore no substance in the submissions made by the learned Senior Counsel appearing on behalf of the Appellant that an attempt was made by Respondent No.2 to mislead the Court. In our view, Respondent No.2 had come out with a specific case that though the cargo at Tuticorin Port was in the name of BIIL, it could be attached since Bhatia Interna .....

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learned Senior Counsel for the Appellant took an exception to the finding recorded in para 34 of the judgment of the learned Single Judge. In our view, this observation has to be read in the context of whatever has been observed by the learned Single Judge before paragraph 34. The learned Single Judge had made those observations after arriving at a conclusion that BIIL and BIL was a single entity after lifting the corporate veil. 30. It was then contended that BIIL had established the ownership .....

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ced any material before this Court to show that High Seas Sale Agreement and High Seas Sale Invoice / Debit Note were either false or incorrect. It was submitted that the finding of the learned Single Judge was given firstly without giving an opportunity to the Appellant to produce proof of payment by BILL. It was submitted that the Appellant had prepared an additional affidavit to bring on record the proof of payment by BIIL. At this stage, the learned Counsel appearing on behalf of Respondent .....

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sion after piercing the corporate veil of both the companies. 32. It was then vehemently urged that the finding of the learned Single Judge that BIIL is an alterego of BIL was contrary to law and facts of the case and it was submitted that in any case BIIL cold not be held liable for the debt of BIL. It was submitted that the BILL was incorporated in 1993 and is a registered Company on the Bombay Stock Exchange since 5/4/2001. It was further submitted that 34% of the equity shares of the Company .....

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Co. cases 785 (Del). d. New Horizon Limited vs. Union of India (1995) 1 SCC 478. e. State of U.P. vs. Renu Sagar Power Company (1988) 4 SCC 59. f. Jones vs. Lipman [1962] 1 All ER 442. g. Gilford Motor Co. Ltd. vs. Horn (1933) ALL ER REP 109. It was submitted that none of the said judgments was an authority to support the proposition that the creditor was entitled to recover its dues from the sister company and/or from group company of the judgment debtor or that the same could be treated as si .....

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submitted that it was not Vitol's contention that BIIL was incorporated with the fraudulent purpose and/or for the purpose of siphoning away the assets of BIL or for the purpose of perpetrating any fraud upon creditors of BIL. It was submitted that BILL was incorporated as far back in 1993 and was publicly listed company. It was submitted that the learned Single Judge wrongly relied on the case in Adam vs. Cape where, in fact, it was held that that the Court was not entitled to exercise its .....

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re bound hand and foot to the parent company. It was submitted that in the present case BILL was not a subsidiary company of BIL and no such case was either pleaded or made out in the present case. 33. We are of the view that the said submission cannot be accepted. It has to be noted that the learned Single Judge has taken into consideration the law as it has evolved over a period of years on the doctrine of lifting of corporate veil and in that context the observations in Adam vs. Cape and in D .....

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the learned Senior Counsel appearing on behalf of the Appellant that the impugned judgment is contrary to Division Bench Judgment of this Court dated 27/03/2015. It is necessary to mention brief background regarding the circumstances under which the said judgment was delivered by Division Bench. 35. Initially, an application was made by Respondent No.2 for issuance of precept under section 46 of the Code of Civil Procedure in respect of attachment of cargo at Tuticorin Port. An application was f .....

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hould be made and only after the learned Single Judge was satisfied that the cargo was owned by BIL, an order of precept could be issued under section 46 of the Code of Civil Procedure. The learned Single Judge accordingly examined the material on record and came to the conclusion that though the cargo was in the name of BIIL, it could be attached because BIIL and BIL is a single entity. Therefore, it cannot be said that the finding given by the learned Single Judge is contrary to the Division B .....

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authorities for the proposition that two independent companies incorporated under the Companies Act were separate and distinct legal entities and the mere fact that two companies have common shareholders or common Board of Directors would not make the two companies a single entity. 37. Again, there is no substance in the said submission made by the learned Senior Counsel appearing on behalf of the Appellant. It is well settled that the observations made in the judgment cannot be read as a statut .....

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rite, should not be read as a statute. A decision is an authority for the questions of law determined by it. Such a question is determined having regard to the fact situation obtaining therein. While applying the ratio, the court may not pick out a word or a sentence from the judgment divorced from the context in which the said question arose for consideration. A judgment, as is well known, must be read in its entirety and the observations made therein should receive consideration in the light o .....

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cision is not an authority for a proposition which did not fall for its consideration. It is also a trite law that a point not raised before a court would not be an authority on the said question. In AOne Granites v. State of U.P. (2001) 3 SCC 537 it is stated as follows : (SCC p. 543, para 11) "11. This question was considered by the Court of Appeal in Lancaster Motor Co. (London) Ltd. v. Bremith Ltd. (1941) 1 KB 675 and it was laid down that when non consideration was given to the questio .....

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2, See para 42.]" 38. The observations made in Indowind Energy Limited (supra) and K.K. Modi Investment & Financial Services Private Limited (supra) are applicable in the facts of those cases but ratio of the said judgments will certainly not apply to the facts of this case. The learned Single Judge in her judgment has noted these two judgments. It is true that reasons why these two judgments have not been relied upon are not mentioned. Perusal of the facts of these two cases clearly in .....

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of Directors of Wescare granted approval to the agreement. No such approval was however granted by the Board of Directors of Indowind. Certain transactions took place between the two companies pursuant to the said agreement and thereafter dispute arose between the Wescare on the one hand and Subuthi on the other hand. Wescare filed a Petition under section 11 of the Arbitration and Conciliation Act against Subuthi and Indowind for appointment of a sole arbitrator to arbitrate upon the dispute b .....

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even though it was not a signatory to the agreement dated 24/2/2006. The Apex Court framed two issues which are found in para 10 of the said judgment which reads as under:- 10 On the contentions urged the following two questions arise for consideration: (i) Whether an arbitration clause found in a document (agreement) between two parties, could be considered as a binding arbitration agreement on a person who is not a signatory to the agreement? (ii) Whether a company could be said to be a party .....

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or common Board of Directors, will not make the two Companies a single entity. Nor will the existence of common shareholders or Directors lead to an inference that one company will be bound by the acts of the other. If the Director who signed on behalf of Subuthi was also a Director of Indowind and if the intention of the parties was that Indowind should be bound by the agreement, nothing prevented Wescare insisting that Indowind should be made a part to the agreement and requesting the Directo .....

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of the said judgment will not apply to the present case, firstly because in Indowind Energy Limited (supra), the issue was : whether Indowind Energy Limited, though was not a signatory to the agreement dated 24/2/2006, was bound by the agreement executed by Subuthi Limited and in this context the above observations were made by the Apex Court. 41. The facts in the present case are entirely different. An application was made by Respondent No.2, asking the Court to pierce the corporate veil on var .....

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rightly not relied on the observations made by the Apex Court in the said case. 42. In K.K. Modi Investment & Financial Services Private Limited (supra), again an application was made by the Petitioner K.K. Modi under section 9 of the Arbitration & Conciliation Act with a prayer that Respondent No.1 Apollo International Inc. and its affiliates viz Respondent Nos. 2, 3 and 4 be restrained from giving effect to the notice dated 22/04/2009 whereby the license agreement dated 06/09/2002 betw .....

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acts, Delhi High Court made the following observations. 5. The first requirement of Section 7 is that there should be a contract between petitioner and respondent, if there is no contract between petitioner and respondent the arbitration clause between them cannot be inferred. In the present case, the contract is there only between petitioner and respondent no.1 in the form of a Shareholder's Agreement. There is no contract between petitioner and respondents no.2, 3 & 4. Can such a contr .....

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s shall be considered one legal entity for the purpose of contracts, the Court cannot presume that all subsidiary companies and the holding or parent company shall be considered as one legal person and a contract with one company shall be considered as a contract with every other company of that group. If it is so, then the registration of separate companies as subsidiary companies or wholly owned companies would have no meaning and the Court would be effectively merging all subsidiary companies .....

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ompany. The petitioner should have entered into a contract with main company. The very fact that the petitioner entered into a contract with subsidiary company on the basis of an agreement of respondent no.1 with respondent no.3, shows that the petitioner knew that respondents no. 1 & 3 were two different legal persons and he was entering into contract with respondent no.1 or not with respondents no.2, 3 or 4. The contract between respondent no.1 & 3 cannot be considered as contract betw .....

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rely different and in the context of the facts of that case, observations in para 5 have to be considered. Once it is held that it is open for the Court to lift the corporate veil and the Court has after examining the facts and circumstances on record has come to the conclusion that two companies are single entity then general rule of limited liability and separate entity of companies would not apply in such case. Reliance was also placed on the Judgment in Vodafone International Holdings (supra .....

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s it is acting as an agent. Thus, even though a subsidiary may normally comply with the request of a parent company it is not just a puppet of the parent company. The difference is between having power or having persuasive position. Though it may be advantageous for parent and subsidiary companies to work as group, each subsidiary will look to see whether there are separate commercial interests which should be guarded. 102 When there is a parent company with subsidiaries, is it or is it not the .....

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aries are created or used as a sham. Of course, in many cases the courts do lift up a corner of the veil but that does not mean that they alter the legal position between the companies. 103. The Directors of the subsidiary under their articles are the managers of the companies. If new Directors are appointed even at the request of the parent company and even if such Directors were removable by the parent company, such Directors of the subsidiary will owe their duty to their companies (subsidiari .....

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iary can no longer be regarded to perform those activities on the authority of its own executive Directors. What has to be noted is that in the last line of para 103, the Apex Court has observed as under: .......The decisive criterion is whether the parent company's management has such steering interference with the subsidiary's core activities that the subsidiary can no longer be regarded to perform those activities on the authority of its own executive Directors. The Apex Court therefo .....

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tity. The learned Single Judge, after examining the record as rightly come to the conclusion that BIIL and BIL was a one single economic entity We therefore answer the question No.2 in the affirmative. Scope for interference by the Division Bench while exercising its jurisdiction in Letters Patent Appeal under Clause 15 of the Letters Patent. 45. It is well settled that the scope of interference with the finding given by the learned Single Judge in appeal filed under Letters Patent is limited an .....

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tion by the Single Judge. In such appeals, the appellate court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions. An appeal against exercise of discretion is said to be an appeal on principle. Appellate cour .....

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dicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court's exercise of discretion. After referring to these principles Gajendragadkar, J. in Printers (Mysore) Private Ltd vs. Pothan Joseph (1960) 3 SCR 713 : AIR 1960 SC 1156 : (SCR 721). ...... These principles are well established, but as has been observed by Viscount Simon in Charles Osenton & Co. v. Jhanaton [1942 AC 130) '….the law as to the reversa .....

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