TMI Blog2014 (2) TMI 1382X X X X Extracts X X X X X X X X Extracts X X X X ..... Simply because the shareholders, the Directors (in this case were not common) the addresses of the two companies that own the two ships are common or the constituted attorney who was appointed to buy the vessel is the same or that both the ships were purchased pursuant to the board meeting on the same day does not mean that the efforts of the subscribers were to conceal that fact and does not automatically mean that the intention to register the two ships in different names was to play a fraud. There is no bar in purchasing ships in different names if that is the way a person wants to do his business. There is of course an exception that the intention was to mask the true owners and the companies are a sham - Under order VI Rule 4 of Code of Civil Procedure, it is provided that if party pleading relies on any fraud then particulars with dates and time and the nature of fraud has to be stated in the pleading, i.e., the plaint. There are no particulars as required under Order VI Rule 4 of CPC of fraud stated in the plaint. Moreover, all these factors were known to the plaintiff or the plaintiff is deemed to have known prior to entering into the management agreement with the plaintif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V. Eastern Light. The purported management agreement relying on which the plaintiff has instituted the present suit has not been entered into with the applicant but is an agreement between the plaintiff and the defendant no. 3 and hence there is no arbitration agreement between the plaintiff and the applicant. Consequently, also the defendant no. 1 vessel cannot be arrested. 3. Counsel for the applicant submitted that defendant no. 1 and M.V. Eastern Light are not sister ships because both are owned by different legal entities. He further submitted that the identity of a company is distinct from its shareholders and assets of the company does not become asset of the shareholders and that the allegations of the plaintiff that the applicant, who is defendant no. 2, and defendant no. 3 are alter-egos of one another or enjoy same ownership or functional integrality are baseless. Hence, in these circumstances, the security furnished by the applicant has to be returned. 4. This court in a recent judgment in the matter of M/s. Universal Marine and Ramanand Padiyar Vs. M.T. Hartati Anr. (Notice of Motion No. 1080 of 2013 in Admiralty Suit No. 77 of 2012) [M.T. Hartati] has held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defendant no. 1 vessel had not been arrested in the other suit and if the caveat had not been filed and the plaintiff in this suit had simpliciter filed for the arrest of defendant no. 1 vessel, would the Court have passed an order of arrest on the basis of the facts and circumstances of the case as averred in the plaint. It is the applicant's case that the entire basis of the plaintiff's case is that defendant no. 2 and defendant no. 3 are alter-egos of one another, enjoy the same ownership and functional integrality and hence defendant no. 2 and defendant no. 3 enjoy identity and commonality of interest and functional integrality and are in law and effect, one entity. Therefore, defendant no. 1 vessel admittedly owned by defendant no. 2 required to be arrested for a claim of the plaintiff against defendant no. 3, who is not the owner of defendant no. 1. The basis for the plaintiff to state this is (a) the subscribers at the time of incorporation of defendant no. 2 and defendant no. 3 were the same, (b) the address of defendant no. 2 and defendant no. 3 are the same, (c) both the companies were formed on the same date, (d) both the companies appointed the same person as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shareholders and/or subscribers viz. Maria Del Rosario Rajoy Cerdeira and Miguel Mihalitsianos; and (ii) Defendant Nos. 2 and 3 operate out of the same office and/or business establishment viz. 47 Street, Bella Vista Aquilino de la Guardian Bldg./Ocean Business Plaza, Panama City. (iii) Furthermore, the decision to purchase defendant no. 1 and the vessel by defendant nos. 2 and 3 respectively appear to have been taken on the 21st April 2011, at the same, in the same premises and the board resolutions of both defendant nos. 2 and 3 have appointed the same person, Mr. Christian Schulz, to as their power of attorney holder for the transactions. Copies of the relevant certifications issued by Public Registry of Panama are annexed at Exhibits B and C hereto. The accounting of payments for both vessels are together. Copy of the account statement dated 14th July 2011 is annexed at Exhibit D, which shows that the payments for both the vessel were made together. Copies of minutes of the boarding meeting and powers of attorney are annexed at Exhibit E. In the light of the above, it is clear that defendant no. 2 and 3 (hereinafter referred to as the defendants ) are, as a matter of fact, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is provided. Exh. 'E' contains the minutes of meeting of Directors held on 21st April 2011 for both defendant no. 2 and defendant no. 3 in which one Christian Schulz, a German national is appointed as constituted attorney. The minutes as well as well as the power of attorney for both the companies are identical except that (a) the name of the vessel is different, (b) the three persons attending the board meeting are different and (c) the signatories to the two powers of attorney are different. Exh. 'F' is copy of the management agreement between the plaintiff and defendant no. 3. The management agreement for the 1st defendant vessel is not annexed to the plaint but has been annexed to Admiralty Suit No. 74/2011. I am told they are almost similar barring the name of ship and owners etc. 11. As regards, the stand of the applicant that the plaintiff has not proved fraud, Mr. Ramabhadran relied on order VI Rule 4 of the Code of Civil Procedure and submitted that he has put enough particulars in the 1st paragraph of the plaint and the omission to use the word 'fraud' cannot be held against him. He also relied upon the judgment of House of Lords rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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: Modern Company Law-4th Edn. (1979) at P.137]. Pennington [Company Law-5th Edn. 1985 at P.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. A Professor of Law, S. Ottolenghi in his article From Peeping Behind the Corporate Veil, to Ignoring it Completely says, the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parent and subsidiary operated as a single economic entity and that an overall element of injustice or unfairness is present. He relied on another judgment of the United States Court of Appeals for the Sixth Circuit in the matter of United States Vs. Best Foods, decided on June 8, 1998 to support the same theory. He also relied on AIR 1965 SC 40 in the matter of TATA Engineering and Locomotive Co. Ltd. Ors. Vs. The State of Bihar Ors. to submit that the Hon'ble Supreme Court, way back in 1965 itself, has held that in course of time these exceptions may grow in number and to meet the requirements of different economic problems, the theory about the personality of the corporation may be confined more and more and this Court should proceed on the alter-ego theory propounded by the US Courts. He submitted that then Hon'ble Chief Justice Shri P.B. Gajendragadkar who delivered the judgment, in paragraph 24 of the said judgment said as under: 24.... However, in the course of time, the doctrine that the corporation or a company has a legal and separate entity of its own has been subjected to certain exceptions by the application of the fiction that the veil of the cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther than corporate-entity. It is significant, however, that according to Gower, the courts have only construed statutes as cracking open the corporate shell when compelled to do so by the clear words of the statute; indeed they have gone' out of their way to avoid this construction whenever possible. Thus, at present, the judicial approach in cracking open the corporate shell is somewhat cautious and circumspect. It is only where the legislative provision justifies the adoption of such a course that the veil has been lifted. In exceptional cases where courts have felt themselves able to ignore the corporate entity and to treat the individual shareholders as liable for its acts ,(2) the same course has been adopted. Summarising his conclusions, 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 stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be inequitable to uphold a legal distinction between them and among the factors to be considered in determining whether a subsidiary and parent operated as a single economic entity are whether the corporation was adequately capitalized for the corporate undertaking or the dominant shareholders siphoned corporate funds or the corporation simply functioned as a facade for the dominant shareholder etc. In fact, even in that judgment the Court has held that a plaintiff seeking to persuade a Delaware Court to disregard the corporate structure faces a difficult task because the courts have made it clear that the legal entity of a corporation will not be disturbed until sufficient reason appears. Moreover, the judgment also states that the Delaware Supreme Court has never explicitly adopted an alter-ego theory, though lower Delaware Courts have applied. All the judgments relied upon by the plaintiff to propound that an alter-ego theory should be developed without having to prove fraud, on the contrary and in fact suggest that fraud or sham or that the company was formed to mask the true owner has to be established. All the judgments, on a holistic reading, show that an element of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors (in this case were not common) the addresses of the two companies that own the two ships are common or the constituted attorney who was appointed to buy the vessel is the same or that both the ships were purchased pursuant to the board meeting on the same day does not mean that the efforts of the subscribers were to conceal that fact and does not automatically mean that the intention to register the two ships in different names was to play a fraud. There is no bar in purchasing ships in different names if that is the way a person wants to do his business. There is of course an exception that the intention was to mask the true owners and the companies are a sham. Under order VI Rule 4 of Code of Civil Procedure, it is provided that if party pleading relies on any fraud then particulars with dates and time and the nature of fraud has to be stated in the pleading, i.e., the plaint. There are no particulars as required under Order VI Rule 4 of CPC of fraud stated in the plaint. Moreover, all these factors were known to the plaintiff or the plaintiff is deemed to have known prior to entering into the management agreement with the plaintiff. It is not the plaintiff's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: ... I say that I have received instructions to state that on 15th November 2011, the plaintiff through its English Solicitors addressed a Notice to defendant No. 3 to join in the appointment of a sole arbitrator. Vide such notice the plaintiff suggested names of three arbitrators, calling upon defendant no. 3 to appoint one of three arbitrators so named as the sole arbitrator to constitute the arbitral tribunal. However, defendant no. 3 has failed to reply to this email. They have thus defaulted and failed to participate in the constitution of the arbitral tribunal. Annexed hereto as Exhibit A is the email dated 15th November 2011 addressed to defendant no. 3 by the plaintiff's English Solicitors. In Exhibit A of the said affidavit, i.e., the email dated 15th November 2011 of the English Solicitors, it is stated as under: ... We look forward to receiving Owners' confirmation that we may now proceed to appoint one of the above mentioned persons as sole arbitrator as soon as possible and, in any event, within 28 days as set out in Section 16(3) of the Act. Please note that, if Owners fail to respond to this message within the said timescale, the Manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso curiously reads as under: Dear Sir, Please find attached the statement as executed by CONDOR on behalf of their Managing Director (Mr. Martens). I am just relaying this message to you as a matter of facilitating communications (and IT support). For further communication please refer to the parties in concern. With best regards Christian Schulz The commonality in the name would purely be a coincidence or it could be the same person. If it is the latter it is all the more difficult to accept the documents produced by the plaintiff to show compliance with the undertaking. 23. Mr. Ramabhadran submitted that the applicant has merely denied the allegations in the plaint relating to common shareholders or common office or common resident agents and therefore adverse inference can be drawn against the applicant that they have not come up with any particulars. It is very difficult to accept Mr. Ramabhadran's submission because the primary onus is on the plaintiff to show materials and particulars that it was a fit case to lift the corporate veil which in my opinion they have failed to. 24. In my opinion and in view of the facts and circumstances of this ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
