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2019 Supreme(Del) 1566
IN THE HIGH COURT OF DELHI
PRATEEK JALAN, J.
Gurmeet Satwant Singh & Others - Petitioner
Versus
Meera Gupta & Another - Respondent
CM(M). No. 1066 of 2018 & CM. APPL. No. 36566 of 2018
Decided On : 02-08-2019
For the Petitioners:Kunal Anand, Advocate, V.K. Singh, AR.
For the Respondents:Anil Kr. Gupta, Pushit Gupta, Sanjay Rathi, Prateek Gupta, Advocates.
The central legal point established in the judgment is the limited applicability of the doctrine of lifting the corporate veil and the clarification of the liability of company directors in the context of a company's actions.
Headnote:
Corporate Veil - Company Directors' Liability - Companies Act, 1956 - Order XXXVII of the Code of Civil Procedure, 1908 - [Companies Act, 1956, Order XXXVII of CPC] - The court discussed the principle of lifting the corporate veil and the limited circumstances in which it is applicable. It highlighted the legal provisions from Saloman vs. A. Saloman & Co. (1897) AC 22 (HL), LIC vs. Escorts Ltd (1986) 1 SCC 264, and Arcelormittal India Private Limited vs. Satish Kumar Gupta & Ors (2019) 2 SCC 1, and emphasized that the doctrine of lifting the corporate veil is available in limited circumstances where it is permitted by statute or required to ensure that effect is given to a beneficent legislation or where the corporate structure has been created to perpetuate a fraud. The court also referenced the judgment in Mukesh Hans & Anr. vs. Smt. Uma Bhasin & Ors [RFA 14/2010 decided on 16.08.2010] and clarified the liability of directors in the context of a company's actions.
Fact of the Case:
The plaintiff filed a suit for recovery of a sum of Rs.37,49,000/- against a company and its directors. The defendants, as directors of the company, sought deletion of their names from the array of parties in the suit, claiming no personal liability to the plaintiff. The Trial Court dismissed their application, citing allegations of cheating and fraud against the directors.
Finding of the Court:
The court found that the allegations in the plaint did not speak of any transaction with the defendant directors in their personal capacity. It emphasized that the doctrine of lifting the corporate veil is not available in every case of a liability alleged against a company and set aside the Trial Court's order, deleting the defendant directors from the array of parties in the suit.
Issues: The issues revolved around the personal liability of company directors in a suit for recovery and the applicability of the doctrine of lifting the corporate veil.
Ratio Decidendi: The court held that the doctrine of lifting the corporate veil is available in limited circumstances and referenced legal provisions and judgments to emphasize the conditions under which it may be resorted to. It clarified the liability of directors in the context of a company's actions.
Final Decision: The petition was allowed, and the defendant directors were deleted from the array of parties in the suit.
JUDGMENT :
1. The present petition under Article 227 of the Constitution of India is directed against an order dated 09.08.2018 passed by the Additional District Judge-02 [West], Tis Hazari Courts, Delhi in CS-119/2017 (New No.699/2017), whereby the Trial Court has dismissed the application of the petitioners herein [defendant nos. 2 to 4 in the suit] for deletion of their names from the array of parties in the suit.
2. The plaintiff/respondent filed a suit for recovery of sum of Rs.37,49,000/-, wherein four parties were arrayed as defendants. Defendant no. 1 is M/s. Gurind Systems Pvt. Ltd., a company incorporated under the relevant provision of the Companies Act, 1956, and defendant nos. 2 to 4 are stated to be the directors of the said company.
3. The cause of action pleaded in the suit is that the “defendants” used to place orders for supply of material from the plaintiff and were liable for making payment against the invoices issued by the plaintiff in respect of those supplies. The plaintiff/respondent annexed with the plaint copies of various bills/ invoices. It was further alleged that the “defendants” had issued 7 cheques in favour of the plaintiff/respondent out of which four cheques were dishonoured. According to the plaintiff/respondent, the remaining three cheques were not presented, at the instance of the defendants. The plaintiff claims that the sum of Rs.35,39,820/- is outstanding in terms of a running account, alongwith interest thereupon, as well as the value of C-forms. The further averment of the plaintiff/respondent is that she has come to know from reliable sources that, with a view to evade payment of their liability to her, the defendants/petitioners are selling their factory located in Himachal Pradesh.
4. The suit having been filed under Order XXXVII of the Code of Civil Procedure, 1908 (hereinafter, “the CPC”), the Trial Court, by an order dated 12.02.2018, has granted conditional leave to defendant against which CM(M) 287/2018 has been filed by the respondent no.2 herein, which is pending before this Court. This Court has passed an interim order in that petition staying the condition imposed by the Trial Court and, the suit is thus proceeding for trial.
5. In the meantime, the application under consideration was filed by the defendant nos. 2 to 4 on the ground that, as directors of the defendant no. 1 company, they do not have any personal liability to the plaintiff in respect of the transactions and are thus neither necessary nor proper parties to the suit.
6. By the impugned order, the Trial Court has dismissed the said application, noting the submission of the plaintiff that the plaintiff has made allegations of cheating and fraud against the defendants and has also filed a criminal complaint against them. The Trial Court based its reasoning upon paragraphs 2, 4 and 12 of the plaint, and distinguished the judgment of this Court in Mukesh Hans & Anr. vs. Smt. Uma Bhasin & Ors [RFA 14/2010 decided on 16.08.2010] cited by the defendant nos. 2 to 4. The relevant observations of the Trial Court in the impugned order dated 09.08.2018, are as follows:-
“8. I have heard Sh. Asit Tiwari, Ld. Counsel for the plaintiff and Sh.Saurav Sharma, Ld. Counsel for the defendants and perused the record. Ld. Counsel for defendants has relied upon Judgment of the Hon'ble High Court in case titled Mukesh Hans & Anr. Vs. Smt. Uma Bhasin & Ors - RFA No. 14/2010 decided on 16.08.2010.
9. Ld. Counsel for the defendants No. 2 to 4 submitted that in the plaint there is no single averment against the Directors - defendants No. 2 to 4. Therefore, they may be deleted from the array of parties as per law.
The defendant company is a separate legal entity and no decree can be enforced against its Directors.
10. On the other hand Ld. Counsel for the plaintiff submitted that defendants No. 2 to 4 are necessary and proper parties. He further submitted that a complaint has already been filed against defendants No. 2 to 4 at PS Nangloi on 11.05.
