Mansimran Kaur

New Delhi, May 17, 2022:  While allowing the interlocutory applications instituted by the plaintiffs and refuting the contentions of the defendants on account of being meritless, the Delhi High Court has opined that commission of fraud and misrepresentation  by the Directors and Shareholders of the Company are sufficient causes to lift the corporate veil.

The Bench of Justice Amit Bansal also said, “So long as the perpetrators of fraud are located within the jurisdiction of this Court, this Court would have the jurisdiction to lift/pierce the corporate veil in respect of a corporate entity incorporated outside India by the aforesaid persons.”

The Interlocutory application in the present case was preferred by the plaintiffs under Order XXXIX Rules 1 and 2 of the Code of Civil Procedure, 1908. and Section 151 of the CPC, seeking a direction to be given to the defendants for disclosure of assets of the first to fifth defendants. Also, Interlocutory applications were  instituted by the defendants under Order VII Rule 10 and 11.

Facts in brief were that the fifth defendant had chartered the Vessel from the second plaintiff through a Voyage Charter party. Thereafter the fifth defendant ordered the vessel to proceed to Fujairah, UAE and deliver the Cargo to Vitol Bahrain E.C. as receivers, when originally, the Cargo was to be delivered to the port of Rotterdam. In pursuance of the same, letter of indemnity was issued on behalf of the fifth defendant , in favor of the plaintiffs, in terms of which the defendant-company agreed to indemnify the plaintiffs in respect of any liability, loss, damage, or expense caused by arrest or detention or threatened arrest of the Vessel.

On the basis of the aforesaid LoI, the Vessel completed discharge but the defendant-company did not pay Natixis and misappropriated the proceeds of the sale. Natixis was, therefore, left holding the bill of lading and the plaintiffs were exposed to a claim by Natixis. Consequently, the plaintiffs sent a letter to the fifth defendant calling upon them to pay a sum directly to Natixis so as to prevent the arrest of the Vessel. However, the defendant no. five company neither paid the aforesaid amount to Natixis nor replied to the aforesaid notice.

Thereafter, the plaintiffs filed proceedings before the High Court of Justice, Commercial Court against the fifth defendant  and the English Court directed the defendant-company to notify Natixis as to the form, wording and amount in which the security would be furnished by the fifth defendant.  Thus, the entire transaction involving the purchase and on-sale of Cargo by the defendant-company and procurement of trade finance from Natixis was a fraudulent act and the victim of the aforesaid fraud were the plaintiffs, who had to secure Natixis to the tune of USD 14,908,056. Thereafter, the first four defendants had left UAE, from where they were operating the company of the fifth defendant  and were  stated to be presently in New Delhi.

In view of the same, the plaintiffs filed the present suit against the defendants for lifting the corporate veil of the fifth defendant and for holding the fourt defendants collectively reliable and / or severally liable in their personal capacity for the admitted liability of the fifth defendant-company.  Stating that the four defendants were in India, the Court opined that present matters were well within the jurisdictional limits. 

Next,  the Court examined the issue of lifting the corporate veil. In reference to the same, the Court relied on the Supreme Court case of Delhi Development Authority Vs. Skipper Constructions wherein it was observed that where a corporate character is employed for committing illegality or for defrauding others, the Court would ignore the corporate character and will look at the reality behind the corporate veil to do justice between the parties. 

Thus, the Court was of the view that it was undisputed fact that the defendants, first, second , third and fourth were the only shareholders and directors of the fifth defendant’s company. It was further observed that documents placed on record, including the judgments of the English Court, the defendant-company was indulged in fraudulent activities causing loss to the plaintiffs.  Therefore, on merits, the defendants had failed to set up any case. The entire defence of the defendants is based on objections with regard to the territorial jurisdiction and enforceability of the judgments of the English Court. This leads this Court to a conclusion that the defendants do not have anything to say on the merits of the case, the Court stated. 

The Bench also concluded the matter by holding that that the present case was such wherein the corporate veil should be lifted. Hence, the Court directed the four defendants to disclose the details of their assets on oath.  Accordingly the applications filed by the plaintiffs were allowed and the applications filed by the defendants were dismissed. 

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