Balmer Lawrie And Company Ltd v. Saraswathi Chemicals

Balmer Lawrie And Company Ltd v. Saraswathi Chemicals

(High Court Of Delhi)

Execution Petition No. 280 of 2012 | 17-03-2017

Vibhu Bakhru, J.

1. The above captioned petition has been filed under Section 36 of the Arbitration and Conciliation Act, 1996 for enforcing the arbitral award dated 24.7.2000 entered in favour of the Decree Holder (DH) and against the Judgment Debtor (JD) described as "Saraswathi Chemicals, Proprietors Saraswati leathers Chemicals (P) Ltd." This is an application filed on behalf of the DH, inter alia, praying for amending the execution petition. Essentially, the DH seeks to implead the Directors of JD: Shri Shanker Mundhra, Shri Vijay Mundhra Shri Krishan Mundhra, and Shri Arun Mundhra, all sons of Late Shri G.D. Mundhra as JD Nos. 2, 3, 4 & 5.

2. The DH alleges that the JD is essentially a concern of the Mundhra family and all sons of Late Shri G.D. Mundhra are involved in the business. It is further alleged that the DH had acted on the representations of the Late Shri G.D. Mundhra and Shri Krishan Mundhra and, consequently, Shri Krishan Mundhra and legal heirs of Late G.D. Mundhra are responsible for satisfying the arbitral award.

3. The DH has also alleges that the proposed JDs have siphoned off the assets of the JD company and, therefore, ought to be held responsible for satisfying the arbitral award.

4. Mr. Singh, the learned Counsel for the petitioner submitted that the JDs description varies in several documents. He submitted that in the Stockist Agreement dated 1.8.1995, the JD was described as "M/s. Saraswathi Chemicals, Partnership firm having Office at 7, Deputy Ganj, Sadar Bazar, Delhi-110006" but in other documents, M/s. Saraswati Chemicals has been described as a proprietorship concern of Saraswati Leather Chem Pvt. Ltd. He contended that in the circumstances, the proposed JDs were the real persons behind the corporate facade.

5. It is seen that the present petition is for enforcement of the arbitral award dated 24.7.2000, which was rendered in the context of disputes that had arisen, inter alia, in relation to the Stockist Agreement dated 1.8.1995. A bare perusal of the said agreement indicates that M/s. Saraswati Chemicals was described as partnership firm. However, this was corrected as recorded in the Minutes of the Meeting held between the parties on 15.1.1993. The relevant extract of which reads as under:

"(6) The 6th line of the Stockist agreement, page No. 1, should be read as M/s. Saraswati Chemicals (Proprietor: Saraswati Leather Chem. Pvt. Ltd.), having their office........... (Not as M/s. Saraswati Chemicals, partnership firm, but as Saraswati Leather Chem. Pvt. Ltd.)."
6. The said minutes have been produced and bear the signatures on behalf of DH. Further there is no dispute as to the genuineness of the said minutes. It is also pointed out that on 20.3.1996, the parties entered into another Stockist Agreement, where the JD was correctly described as a proprietorship concern of M/s. Saraswati Leather Chem Private Limited.

7. It is also not disputed that all bills and invoices were raised by the DH in the name of the JD as a company and this was also true in respect of all business correspondence between the parties. It is also asserted that the statutory sales tax forms issued by the JD to the DH reflected the JD as a company and not as a firm of the proposed JDs.

8. There is no indication in the arbitral award as to the constitution or the nature of the JDs entity. However, it is not disputed that the DH had instituted the proceedings against JD as a company and not as a firm.

9. It is relevant to note that the JD had filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 before the Madras High Court and the same was disposed of by an order dated 8.4.2011. A perusal of the said order also indicates that the JD had filed the said petition as "Saraswathi Chemicals, Proprietor, Saraswathi Leather Chem. (P) Ltd.".

10. Thus, there can be no dispute that JD is a company and not a firm. It is also not the case of DH that the JD is not a private company; on the contrary, it is the DHs case that corporate veil must be lifted and the members of the Mundhra family must be impleaded as JDs for the reasons stated in the application. Mr. Singh has also referred to the decision of this Court in V.K. Uppal v. M/s. Akshay International Pvt. Ltd., , in support of his contention that in a given case, the Court can lift corporate veil and execute the decree against the persons who are operating behind the corporate facade.

11. In view of the above, the only question that needs to be addressed in the present petition is whether this Court can lift the corporate veil while enforcing the arbitral award and whether the necessary grounds for doing so have been established

12. In the first instance, it is doubtful whether this Court could enforce the arbitral award against non parties to the arbitration agreement. It is trite law that an arbitral Tribunal draws its jurisdiction from the agreement between the parties and persons who are not party to the arbitration agreement cannot be proceeded against by an arbitral Tribunal. Thus, an arbitral award made by an arbitral Tribunal against any person who is not a party to the arbitration agreement would be wholly without jurisdiction and unenforceable. There may be exceptional cases where a Court may compel persons who are not signatories to an arbitration agreement to arbitrate provided it is established that the non-signatory(ies) are either claiming through signatory(ies) or there was clear intention to be bound as parties (see: Chloro Controls India Private Limited v. Severn Trent Water Purification Inc & Ors., VII (2012) SLT 502 : (2013) 1 SCC 641 [LQ/SC/2012/874] ). However an arbitrator cannot lift the corporate veil and proceed against non parties. An arbitration is consensual. It is based on the agreement between parties. The arbitrator derives his jurisdiction to adjudicate disputes from the consent of parties, therefore, he is not in a position to enlarge the scope of his influence and extend his jurisdiction to non-parties by exercise of his limited jurisdiction based on the consent of parties.

13. Though a Court can lift the corporate veil, the same can be done only in extraordinary circumstances and by due adjudicatory process. It is trite law that an executing Court cannot go behind the decree; it must be enforced as it is. Thus, it is not open for a petitioner to claim that although the decree is against one entity it must be enforced against another. However, there may be cases where it is found that the assets of the judgment debtor have been secreted, siphoned off, or by a fraudulent device ostensibly placed outside the control of the judgment debtor, in an endeavour to frustrate the enforcement of the decree. In such cases, the Court is not powerless to extend its reach to third parties to enforce the decree; however this is limited for recovering the assets of the judgment debtor. In the event a corporate facade is used to perpetuate such fraud, the corporate veil may be lifted.

14. In the present case, none of the grounds for lifting the corporate veil are established. The DH has not made out a case of egregious fraud; the same has been neither been pleaded nor established. Thus, there is no occasion for this Court to examine the question of lifting the corporate veil. The statement that the Mundhra family members have been conducting the affairs of the JD company is no ground for piercing the corporate veil. The decision of the Bench of this Court in V.K. Uppal v. M/s. Akshay International Pvt. Ltd. (supra) is also of no assistance to the petitioner. On the contrary, in that case, this Court had observed that "This Court as the executing Court cannot execute the decree against anyone other than the judgment debtor or against the assets/properties of anyone other than the judgment debtor. The identity of a Director or a shareholder is distinct from that of the company".

15. Mr. Singh had contended that although no case of fraud was pleaded or established, the DH was seeking that the corporate veil be lifted on the ground of improper conduct. The ground of improper conduct for lifting the corporate veil is synonymous to fraud and is available only where the incorporated vehicle is used to commit a fraud or to perpetrate a dishonest act. This Court is at a loss to ascertain as to how the allegations made in the application established improper conduct sufficient for the Court to further examine the question of lifting the corporate veil.

16. Plainly, a mere allegation that the Directors have siphoned off the assets without any particulars cannot be accepted as the ground for improper conduct. As noted above, the error in describing the JD as the firm in Stockist Agreement was ex facie an inadvertent error, which was corrected subsequently. There is no material (or even a cogent allegation) that the DH had been defrauded by the description of the JD as a firm and subsequently as a company. The DH had never dealt with the JD as a firm; this is established by the bills, invoices, correspondence as well as the statutory forms (sales tax). Thus it can hardly be asserted - and in all fairness it is not - that the DH has been defrauded on now discovering the JD to be a company

17. In the circumstances, the application is dismissed as bereft of any merit. EA (OS) Nos. 10/2013, 11/2013 & 13/2013

18. These are applications filed by the proposed JDS (directors of the JD). The application [EA (OS) 10/13] has been filed, inter alia, praying that the order passed on 27.8.2012 directing attachment of the properties bearing No. (a) E-865, Saraswati Vihar, Pitam Pura, New Delhi-110034 and (b) 16, 23 & 24, Third Floor, Block-B, behind Shiva Market, Pitam Pura, Delhi-110034 be lifted. EA (OS) No. 11/2013 has been filed seeking a stay of the order dated 27.8.2012 till the disposal of the objections [EA (OS) No. 10/2013]. The learned Counsel for the objector states that the properties in question are not the properties of the JD and, therefore, the attachment may be lifted. The above properties never belonged to the JD and were acquired by the applicants prior to the agreement between the DH and the JD. Mr. Singh, the learned Counsel for the DH submits that the attachment of the aforementioned properties was sought on the premise that directors/shareholders of the JD would be responsible for satisfying the award on lifting of the corporate veil. The learned Counsel for the parties agree that the order passed in EA (OS) No. 340/2013 above would also be determinative of the questions involved in the present applications. Accordingly, the present application [EA (OS) 10/2013] is allowed and the order dated 27.8.2012 to the extent that the properties in question (a) E-865, Saraswati Vihar, Pitam Pura, New Delhi-110034 and (b) 16, 23 & 24, Third Floor, Block-B, behind Shiva Market, Pitam Pura, Delhi-110034 are attached, is vacated and the attachment so directed is lifted.

19. In view of the above, EA (OS) 11/2013 does not survive.

20. EA (OS) 13/2013 is filed by the JD inter alia impugning the attachment of the above mentioned properties on the ground that the same do not belong to the JD. In view of the above, no further orders are required to be passed in this application.

21. The applications are disposed of Ex. P.280/2012 List for further proceedings on 11.7.2012.

Advocate List
Bench
  • HON'BLE JUSTICE VIBHU BAKHRU
Eq Citations
  • 2017 4 AD (DELHI) 696
  • 239 (2017) DLT 217
  • LQ/DelHC/2017/615
Head Note

A. Arbitration and Conciliation Act, 1996 — S. 36 — Enforcement of arbitral award — Lifting of corporate veil — Prerequisites for — Held, can be done only in extraordinary circumstances and by due adjudicatory process — Limitation on — It is not open for petitioner to claim that although decree is against one entity it must be enforced against another — In present case, none of the grounds for lifting corporate veil established — DH had not made out a case of egregious fraud — Statement that Mundhra family members have been conducting affairs of JD company is no ground for piercing corporate veil — Decision in V.K. Uppal case, held, also of no assistance to petitioner — In that case, Supreme Court had observed that executing Court cannot execute decree against anyone other than judgment debtor or against assets/properties of anyone other than judgment debtor — Corporate Law — Corporate veil — Lifting of — When can be done, and for what purpose (Paras 12 to 16) B. Arbitration and Conciliation Act, 1996 — S. 34 — Enforcement of arbitral award — Lifting of corporate veil — Prerequisites for — Held, though a Court can lift corporate veil, same can be done only in extraordinary circumstances and by due adjudicatory process — Arbitration and Conciliation Act, 1996 — S. 36 — Enforcement of arbitral award — Lifting of corporate veil — Prerequisites for — Held, can be done only in extraordinary circumstances and by due adjudicatory process — Limitation on — It is not open for petitioner to claim that although decree is against one entity it must be enforced against another — In present case, none of the grounds for lifting corporate veil established — DH had not made out a case of egregious fraud — Statement that Mundhra family members have been conducting affairs of JD company is no ground for piercing corporate veil — Decision in V.K. Uppal case, held, also of no assistance to petitioner — In that case, Supreme Court had observed that executing Court cannot execute decree against anyone other than judgment debtor or against assets/properties of anyone other than judgment debtor — Corporate Law — Corporate veil — Lifting of — When can be done, and for what purpose (Paras 12 to 16)