Sh. Atul Gupta (Huf) vs M/S Trident Projects Limited & ...
2009 Latest Caselaw 158 Del

*           HIGH COURT OF DELHI : NEW DELHI

+     IA No.14928/2007 & IA No.___/2007 in CS (OS) No.186/2007

%                  Judgment reserved on :         9th January, 2009
                   Judgment pronounced on :      19th January, 2009

     SH. ATUL GUPTA (HUF)                ...Plaintiff
            Through    : Mr. Pankaj Gupta, Advocate

            Versus

     M/S. TRIDENT PROJECTS LIMITED & ORS.       ....Defendants
            Through    : Mr. Dinesh Agnani, Advocate for
                         Defendant No.2
                         Mr. Anil Sapra and Mr. Rajesh
                         Pathak, Advocates for D-3

Coram:
HON'BLE MR. JUSTICE MANMOHAN SINGH

1. Whether the Reporters of local papers may
   be allowed to see the judgment?

2. To be referred to Reporter or not?

3. Whether the judgment should be reported
   in the Digest?                                              Yes

MANMOHAN SINGH, J.

1. By this order, I shall dispose of the two applications being IA

No.14928/2007 (U/o VI R 17 CPC) in CS (OS) No.186/2007 filed by the

plaintiff seeking amendment in the plaint and application IA

No___/2007 under Order X Rule 1 CPC filed by the Defendant No.2 for

deletion of his name.

2. The plaintiff has filed the suit for recovery of Rs.75,20,000/- by

way of compensation against the Defendants claiming the joint and

several liability of the Defendants. The Defendant No.1 is a company

incorporated under the Companies Act, 1956 and Defendants No.2 and

3 are the promoters/directors of the Defendant company who are

alleged to be liable for their fraudulent acts of using the corporate

personality as a cloak to defraud the functioning of the company and

thereby diverting the funds of the Defendant company to their own

personal advantages or building projects in their individual names. In

the suit, the allegation relating to fraud and misrepresentation are

specifically averred to allege the liability of the Defendants and their

liability as the officers of the company.

3. The plaintiff has filed the present application seeking amendment

to the plaint for inclusion of pleading regarding lifting of corporate veil

for holding Defendants No. 2 and 3 personally liable for claim in the suit

under the transactions made by them in the name of the Defendant

company with plaintiff, and also for making a typographical correction

in prayer clause in description of Defendants with number "1 to 3" in

place of "2 & 3".

4. The plaintiff sought to add the following para at the end of para

No.14 of the plaint :

"In view of conduct and contradictory claims stated by defendant nos.2 and 3 described above and the facts and circumstances of the case, plaintiff pleads and applies for lifting of corporate veil of defendant company for holding defendant nos.2 and 3 liable personally to claim in suit."

5. From the bare reading of the plaint in paragraphs 8, 9 and 10, it

can be gauged that there are allegations of fraud made against the

Defendant No.2 and Defendant No.3 whereby the personal liability of

the Defendant No.2 and Defendant No.3 is sought. It is stated in the

paragraph 8 of the plaint that Defendant No.2 had withdrawn under

"self cheques", a sum of Rs.208 lacs from account of the company

maintained with ABN Amro Bank and on asking for response in

withdrawing over Rs.208 lacs during span of over 30 months refused to

audience to the plaintiff. It was alleged that the withdrawals made by

Defendant No.2 were used for setting up of a shopping mall by trade

name of "One Style Mile" and restaurant "Olive Bar and Restaurant" in

a old haveli near Qutub, New Delhi.

6. In the reply filed by the Defendant No.3, it is denied that he has

diverted any funds of the Defendant from the Defendant company for

his personal use or committed any fraud. The Defendant No.3 also

denied existence of any veil which is required to be lifted.

7. In the reply filed by Defendant No.2 it is submitted that since the

Defendant No.2 has ceased to be the director of the Defendant No.1

company since 1st January, 2000, there was no privity of contract

between the plaintiff and Defendant No.2 and thus, there is no

personal liability of Defendant No.2 against the plaintiff.

8. I have heard the learned counsel for the parties and the

pleadings and application filed by the plaintiff.

9. In the beginning, It would be pertinent to mention that the

original suit itself contained the specific allegations against the

directors more specifically Defendant No.2 and Defendant No.3

seeking their personal liability. The plaintiff by way of this amendment

is attempting to elaborate the said plea by averring and seeking to lift

the corporate veil.

10. There is no res integra that the concept of the corporate veil can

be invoked by the courts when there is case of fraud,

misrepresentation, diversion of funds. (Singer India Ltd. v. Chander

Mohan Chadha, (2004) 7 SCC 1).

11. In Palmer's Company Law (24th Edn.) in Chapter 18, para 2

onwards some instances have been given in which the modern

Company Law disregards the principle that the company is an

independent legal entity and also when the Courts would be inclined

to lift the corporate veil. The important ones being in relation to the

law relating to trading with enemy where the test of control is

adopted and also where the device of incorporation is used for some

illegal or improper purpose. In Gower's Principle of Modern Company

Law (4th Edn.), in Chapter 6, the topic of lifting the veil has been

discussed. The learned author has said that there is no consistent

principle beyond refusal by the legislature and the judiciary to apply

the logic of the principle laid down in Solomon's case where it is too

flagrantly opposed to justice, convenience or the interest of the

Revenue. In the cases where veil is lifted, the law either goes behind

the corporate personality to the individual members, or ignores the

separate personality of each company in favour of the economic entity

constituted by a group of associated companies. The principal grounds

where such a course of action can be adopted are to protect the

interest of the Revenue and also where the corporate personality is

being blatantly used as a cloak for fraud or improper conduct.

Fraud is, therefore, necessary element for piercing the corporate

veil, which is already present in the original plaint in the instant case

and specifically pleaded. The plea which is sought to be inserted by

way of amendment thus, becomes merely elaborative one.

12. This takes me to the discussion of law of amendment. It is a

settled law that at the initial stage of the suit, where the pleadings are

not complete, the court will not go into the merits of the controversy

while adjudicating upon the amendment of the pleadings. If the

plaintiff is seeking the amendment of the plaint, he ought to be given

an opportunity to establish his case.

13. In Sarbjyot Kaur Saluja & Ors. v Rajender Singh Saluja: 148

(2008) Delhi Law Times 650 it was observed that:-

"The power to allow the amendment is wide and can be exercised at any stage of the proceedings in the interests of justice on the basis of guidelines laid down

in various precedents. This is no more res integra that the purpose and object of Order 6 Rule 17 is to allow either party to alter or amend his pleading in such manner and on such terms as may be just but it is equally true that the amendment cannot be claimed as a matter of right and under all circumstances. However, the Courts while deciding prayer for amendment should not adopt a hyper-technical approach and liberal approach should be the general rule particularly in cases where the other side can be compensated with costs. Technicalities of law should not be permitted to hamper the Courts in the administration of justice between the parties. Amendments are allowed in the pleadings to avoid uncalled for multiplicity of litigation. It is also no more res integra that pre-trial amendments are allowed more liberally than those which are sought to be made after the commencement of trial or after conclusion thereof. Mere delay usually cannot be a ground for refusing a prayer for amendment because merits of amendment sought to be incorporated by way of amendments are not be judged at the stage of allowing prayer for amendment. The Apex Court in G. Nagamma v. Siromanamma, (1996) 2 SCC 25, at page 26 had held that it is settled law that the plaintiff is entitled to plead even inconsistent pleas. In this case, the plaintiff were seeking alternative reliefs. The application for amendment of the plaint whereby neither cause of action could change nor the relief could be materially affected, was allowed. In another case, AIR 1995 SC 1498, Akshay Restaurant v. Panjanappa and Others the matter pertained to amendment of plaint and the application for amendment was allowed though different stands were taken by the plaintiff."

14. It is trite that the court will not go into the correctness and falisity

of the amendment while deciding upon whether the amendment

should be allowed or not. The merits of amendment sought to be

incorporated by way of amendment are not to be adjudged at the stage

of allowing prayer for amendment. (Rajesh Kumar Aggarwal & Ors.

Vs. K.K. Modi (2006) 4 SCC 385 and Lakha Ram Sharma v. Balar

Marketing Pvt. Ltd., 2006 (2) SCALE 363].

15. In view of the above discussion, I hold that inclusion of the plea

of piercing of the corporate veil will not change the nature and

character of the case and the cause of the action, it is merely

elaborative plea which can be allowed in view of the contradictory

stands taken by Defendants No.2 and 3 in their written statements.

Furthermore, the said amendment is necessary to decide the real

controversy between the parties and will not prejudice the parties if

allowed at this stage. Consequently, the plaintiff is allowed to amend

the plaint and to include the plea of lifting of corporate veil.

CS (OS) No.186/2007

16. The suit was listed before the Joint Registrar on 01.10.2008 when

it was reported that the Defendant No.1 has been served on 11.08.2008

by the publication in the newspaper 'The Statesman' Delhi edition but

no one appeared on behalf of the Defendant No.1 before the Joint

Registrar on the said date and even before the Court on 09.01.2009

when the two applications under Order 6 Rule 17 CPC filed by the

plaintiff were considered. The Defendant No.1 is accordingly

proceeded ex parte.

17. The matter be listed before Joint Registrar on 24th February, 2009

for completion of the pleadings and pending application.

I.A. No. /2007 (U/o X Rule 1 CPC r/w 151 CPC (By Defendant No.2 for deletion of name) (To Be Numbered)

18. In view the order passed in the application filed by the plaintiff

under Order 6 Rule 17 r/w 151 of CPC, the present application for

deletion of the name of Defendant No.2 from the plaint is dismissed as

infructuous.

19. It is needless to mention that the observations made herein will

not effect the merits of the controversy, and the merits of the

statements are to be examined during the course of the trial.

MANMOHAN SINGH, J.

JANUARY 19, 2009 sa/nn