National Highways Authority Of ... vs You One-Maharia (Jv) & Ors
2010 Latest Caselaw 988 Del

17

*      IN THE HIGH COURT OF DELHI AT NEW DELHI


+      C.C.P.(O) 120/2005 in O.M.P. 342/2004


       NATIONAL HIGHWAYS
       AUTHORITY OF INDIA                       ..... Petitioner
                    Through: Mr. Sumit Gahlawat and Ms. Padma
                             Priya, Advocates.

                       versus


       YOU ONE-MAHARIA (JV) & ORS                ..... Respondents
                   Through: Mr. Ramesh P. Bhatt, Senior Advocate,
                            with Mr. Ravikesh K. Sinha, Advocate,
                             for respondents No.1, 3 to 6 and 8.

                                   Date of Decision : FEBRUARY 22, 2010

CORAM:
HON'BLE MR. JUSTICE MANMOHAN

1. Whether the Reporters of local papers may be allowed to see the judgment?   Yes.
2. To be referred to the Reporter or not?                                      Yes.
3. Whether the judgment should be reported in the Digest?                      Yes.


                                JUDGMENT

MANMOHAN, J (ORAL)

1. At the outset, Mr. Ramesh P. Bhatt, learned senior counsel for

respondents, on instructions, states that Dr. Vinay Goel, respondent no.4

expired in December, 2009. In view of the aforesaid statement, respondent

No.4 is deleted from the array of parties. Let an amended memo of parties

be filed during the course of the day.

2. Present contempt petition has been filed under Sections 11 and 12 of

Contempt of Courts Act, 1971 read with Article 215 of the Constitution of

India for initiation of contempt proceedings against the respondents.

3. Mr. Sumit Gahlawat, learned counsel for petitioner has drawn my

attention to the order dated 04th April, 2005 passed by a learned Single Judge

of this Court in OMP No. 342/2004 wherein this Court directed as under:

"41. Further, mandatory directions are issued to the first respondent to furnish a bank guarantee in sum of Rupees 2 crores (Two crores) in favour of the petitioner and as per the format of the guarantees which have been found to be forged. Said bank guarantee to be kept alive till decision on the disputes between the parties by the arbitral tribunal.

42. Petitioner would be entitled to cost against the first respondent in sum of Rs.25,000/-."

4. Mr. Gahlawat submits that the respondents are guilty of contempt as

they have willfully disobeyed the mandatory directions by this Court for

furnishing of bank guarantee and for payment of costs.

5. Mr. Gahlawat states that in the reply affidavit filed by respondents,

the only defence taken is that the said respondents have filed three appeals

being FAO(OS) 157-159/2005 against the order dated 04th April, 2005.

6. Mr. Gahlawat states that there is no stay in the appeals filed by the

respondents. He further points out that a similar defence has been rejected

by the Bombay High Court in Hindustan Composites Ltd. vs. Jasbir Singh

Randhawa & Anr. reported in 2002(5) Bom CR 511 wherein the Court

held:

"9. Perusal of the order dated 8-12-98 shows that the respondent No. 2 clearly understood that in case the Court confirms the ad interim order it will have to stop the manufacture of their product. In para 7 of the order dated 8-12-

98, the Court has referred to the submissions made on behalf of the respondent No. 2. The following from para 7 of the order is relevant.

"Relying on the judgment of the Gujarat High Court in the case of M/s. Lalbhai Dalpatbhai & Co. v. Chittaranjan Chandulal Pandya, MANU/GJ/0051/1966 : AIR1966 Guj189, he submitted that as grant of injunction against the defendants would result in closure of the company where public money has been invested and 50 employees are engaged, the grant of the injunction would be against the public interest, therefore the injunction cannot be granted."

It was pointed out by the learned Counsel for the petitioner that in the memorandum appeal filed any respondent No. 2 in paras 18 and 26 it has stated as follows :-

"The grant of the interim relief is not in public interest in as much as the public financial institutions have invested large amounts of money in the appellant company and large number of employees are employed by them. Grant of relief as prayed for would necessarily result in the closure of the Appellant Company, which cannot be permitted in an action on trade secret or confidential information (para 18) The appellant shall suffer irreversible harm and loss if production would stop, and the respondent No. 1 is incapable of compensating the loss in terms of money (Para 26)." It is thus clear that when the notice of motion was being heard finally the respondent understood that the grant of injunction in the terms in which it was sought would result in obliging the respondent No. 2 to stop the production, therefore when the ad interim order was confirmed they sought stay of the order. In the appeals filed by the respondent No. 1 and respondent No. 2 also they sought stay of the order, saying that otherwise they will have to stop the production, but the Appeal Court while admitting the appeals said "No interim relief". In this situation, therefore, the respondent No. 2 had only two options i) to secure stay of the order granting temporary injunction from superior Court or ii) to stop the production. The respondents did neither. They have admittedly continued the production using the same process which has been held to be the same as the petitioner. In this situation, therefore, the stand now taken in these proceedings by the respondents that the order injunction does not operate against the respondent No. 2 because the petitioner has not proved that the process that it uses is secret, is obviously an after thought and therefore, cannot be said to be bona fide. As observed above, the Court at the final hearing of the notice of motion, where all the

contention now raised were raised, including the question about the secrecy of the process used by the petitioner, confirmed the ad interim order, therefore, now the respondents cannot raise the same contention. In my opinion, therefore, it is clearly established that the respondents have disobeyed the orders passed by this Court.

10. The question now to be considered is whether the disobedience is wilful or deliberate. When an order made by Court is not obeyed by a party due to bona fide misinterpretation of the order, the disobedience does not amount to contempt of the Court. In the present case, can it be said that the respondents disobeyed the order dated 8-12-98 because they bona fide misinterpreted the order? In my opinion, the answer has to be in the negative. It is clear from the submission of learned Counsel for the respondent No. 2 recorded in the order and reproduced above that the respondent knew perfectly well, what would be the consequences of the confirmation of the ad interim order. This is further clear from the contents of the memorandum appeal referred to above. Once, the prayer of the respondents for stay of the order dated 8-12-98 was not granted by the Appeal Court, there was no justification whatsoever for continuing the production. It is thus, clear that the respondents have wilfully and deliberately disobeyed the order dated 8-12-98 and therefore, they are guilty of having committed contempt of the Court"

7. On the other hand, Mr. Bhatt submits that as appeals against the order

dated 04th April, 2005 have already been filed by the respondents, the

present contempt proceedings should be stayed till the disposal of the said

appeals. In this connection, Mr. Bhatt, relies upon a judgment of Supreme

Court rendered in the case of Modern Food Industries (India) Ltd. & Anr.

vs. Sachidanand Dass & Anr. reported in 1995 Supp. (4) SCC 465 wherein

it has been held as under:

"4. .........Wherever the order whose disobedience is complained about is appealed against and stay of its operation is pending before the Court, it will be appropriate to take up for consideration the prayer for stay either earlier or at least simultaneously with the complaint for contempt. To keep the prayer for stay stand-by and to insist upon proceeding with the

complaint for contempt might in many conceivable cases, as here, cause serious prejudice. This is the view taken in State of J & K v. Mohd. Yaqoob Khan (1992) 4 SCC 167."

8. He also submits that the order dated 04th April, 2005 is without

jurisdiction and a nullity as no bank guarantee had been prayed for in the

Section 9 petition in which the order dated 04th April, 2005 has been passed.

According to him, even if such an order is not complied with, it would not

result in wilful disobedience of the order and would thus not constitute

contempt.

9. Mr. Bhatt also submits that respondents No. 2 to 12 in the present

contempt petition were not parties to O.M.P. No. 342/2004 in which the

order dated 04th April, 2005 has been passed. Mr. Bhatt also points out that

respondent No.8 in its reply affidavit has taken the stand that the Foreign

Joint Venture partner was not served with O.M.P. No.342/2004 and order

dated 04th April, 2005 was passed ex parte against Foreign Joint Venture

partner. According to Mr. Bhatt, breach, if any, of the order dated 04 th

April, 2005 is not wilful inasmuch as the appeals have been filed and they

have been admitted by the Division Bench.

10. Mr. Bhatt lastly submits that in this case if the Court is not satisfied

with the affidavit filed by the respondents, it should issue rule nisi and after

giving another opportunity to respondents only proceed further with the

matter. In this context Mr. Bhatt relies upon a Supreme Court judgment in

Dr. Prodip Kumar Biswas vs. Subrata Das & Ors. reported in 2004 SCC

(Cri) 1341 wherein it has been held as under:

"8. The procedure to initiate contempt proceedings has been laid down in the Act. Section 14 lays down the procedure when the contempt is in the face of the Supreme Court or a High Court. The case in hand is not covered by Section 14 of the Act. It is not a case of contempt in the face of the Court. That was also not the submission urged on behalf of Respondent 1. In the case of a criminal contempt, other than a contempt referred to in Section 14 of the Act, the procedure to take cognizance has been laid down in Section 15 of the Act. Sub-section (3) of Section 15, inter alia, provides that every motion or reference made under the section shall specify the contempt of which the person charged is alleged to be guilty. The procedure to be followed after taking cognizance has been provided for in Section 17 of the Act. Section 17 provides that notice of every proceeding under Section 15 shall be served personally on the person charged, unless the court for reasons to be recorded directs otherwise. It also sets out the documents which are required to be accompanied with the notice. The Calcutta High Court, in exercise of powers conferred by Section 23 of the Act and Article 215 of the Constitution of India has made rules to regulate the proceedings for contempt of itself or of a court subordinate to it under the Act being the Contempt of Courts Calcutta High Court Rules, 1975. Rule 19, inter alia, provides that the Court may issue rule nisi. It further provides that the rule nisi shall be drawn up, as far as may be, in the model form in Form 1, Appendix 1. Rule 20, inter alia, provides that where a rule is issued by the Court on its own motion under Rule 15, the rule nisi shall be drawn up, as far as may be, in the model form in Form 2, Appendix 1. Rule 29 provides that the respondent or the contemnor may file an affidavit showing cause and the petitioner may file a reply thereto within such time as may be directed by the Court. The Court may, however, in a contempt proceeding take such evidence as may be considered necessary. Admittedly, rule nisi was not drawn up. In fact, it seems that neither was any notice of contempt issued to the appellant nor any hearing took place except what has been noticed hereinbefore.

9. The contempt of court is a special jurisdiction to be exercised sparingly and with caution whenever an act adversely affects the administration of justice or which tends to impede its course or tends to shake public confidence in the judicial institutions. This jurisdiction may also be exercised when the act complained of adversely affects the majesty of law or dignity of the courts. The purpose of contempt jurisdiction is to uphold the majesty and dignity of the courts of law. (See Supreme Court Bar Assn. v. Union of India (1998) 4 SCC 409)"

11. The admitted position before me is that three appeals have been filed

against the order dated 04th April, 2005. The Indian partner, the Foreign

partner as well as the Joint Venture company have filed the three appeals

being FAO(OS) 157-159/2005. However, in none of the three appeals, there

is any stay of the present contempt proceedings. On the contrary, after the

contempt proceedings had been filed, the Division Bench vide its order

dated 13th November, 2006, clarified that there is no stay and it would be

appropriate for the petitioner to proceed against the respondents in

accordance with law for enforcement and/or compliance of the order dated

04th April, 2005. The said order dated 13th November, 2006 is reproduced

hereinbelow:-

"Certain directions were issued by the learned Single Judge on 4.4.05 directing the respondent no.1 to furnish a bank guarantee in a sum of Rs.2 crores (Two crores) in favour of the appellant herein and as per the format of the bank guarantee the said bank guarantee be kept alive till the decision on the disputes between the parties by the Arbitral Tribunal. We are informed that the aforesaid directions have not been carried out and complied with by the respondent no.1. There is no stay granted by this Court and, therefore, it shall be appropriate for the appellant to proceed against the respondent no.1 in accordance with law for enforcement and/or compliance of the order of the learned Single Judge. If and when such a prayer is made by the appellant before the appropriate forum, necessary action in accordance with law shall be taken and appropriate orders shall be passed.

Counsel appearing for the respondent seeks for an adjournment. At his request, adjourned to 15.2.2007."

(emphasis supplied)

12. Order 39 Rule 2A of Code of Civil Procedure along with Sections

2(b), 12(1) and 12(3) of the Contempt of Courts Act, 1971, and Article 215

of the Constitution of India give this Court the power to punish a party who

wilfully disobeys any judgment, decree and directions passed by this Court.

The aforesaid provisions are reproduced hereinbelow for ready reference:

"A. Order 39 Rule 2A

2A. Consequence of disobedience or breach of injunction.-- (1) In the case of disobedience of any injunction granted or other order made under rule 1 or rule 2 or breach of any of the terms on which the injunction was granted or the order made, the Court granting the injunction or making the order, or any Court to which the suit or proceeding is transferred, may order the property of the person guilty of such disobedience or breach to be attached, and may also order such person to be detained in the civil prison for a term not execeding three months, unless in the meantime the Court directs his release.

(2) No attachment made under this rule shall remain in force for more than one year, at the end of which time if the disobedience or breach continues, the property attached may be sold and out of the proceeds, the Court may award such compensation as it thinks fit to the injured party and shall pay the balance, if any, to the party entitled thereto.

B. Contempt of Courts Act 2(b) "Civil contempt" means wilful disobedience to any judgment, decree, direction, order, writ or other process of a court or wilful breach of an undertaking given to a court.

12. Punishment for contempt of court - (1) Save as otherwise expressly provided in this Act or in any other law, a contempt of court may be punished with simple imprisonment for a term which may extend to six months, or with fine which may extend to two thousand rupees, or with both.

Provided that the accused may be discharged or the punishment awarded may be remitted on apology being made to the satisfaction of the court.

xxx xxx xxx (3) Notwithstanding anything contained in this section, where a person is found guilty of a civil contempt, the court, if it considers that a fine will not meet the ends of justice and that a sentence of imprisonment is necessary shall, instead of sentencing him to simple imprisonment, direct that he be detained in a civil prison for such period not exceeding six months as it may think fit.

C. Constitution of India

215. High Courts to be courts of record.--Every High Court shall be a court of record and shall have all the powers of such a court including the power to punish for contempt of itself.

13. The object of the aforesaid provisions is to punish wilful disobedience

of any Court order so as to secure enforcement of the said order. Justice

would be undone if any court is disobeyed without fear of any punitive

consequences. Vindication of public interest by punishment for

contemptuous conduct is the purpose sought to be achieved. [See Jyoti

Limited vs. Kanwaljit Kaur Bhasin & Anr. reported in 32 (1987) DLT

198]. In Hadkinson v. Hadkinson reported in (1952) 2 All. E.L.R 567., it

has been held that, "it is the plain and unqualified obligation of every

person against, or in respect of, whom an order is made by a court of

competent jurisdiction to obey it unless and until that order is discharged.

The uncompromising nature of this obligation is shown by the fact that it

extends even to cases where the person affected by an order believes it to be

irregular or even void."

14. Supreme Court in The Advocate General, State of Bihar vs. M/s.

Madhya Pradesh Khair Industries & Anr reported in AIR 1980 SC 946 has

held:

"7. ...... it may be necessary to punish as a contempt, a course of conduct which abuses and makes a mockery of the judicial process and which thus extends its pernicious influence beyond the parties to the actions and affects the interest of the public in the administration of justice. The public have an interest, and abiding and a real interest, and a vital stake in the effective and orderly administration of justice, because, unless justice is so administered, there is the peril of all rights and

liberties perishing. The court has the duty of protecting the interest of the public in the due administration of justice and, so, it is entrusted with the power to commit for Contempt of Court, not in order to protect the dignity of the Court against insult or injury as the expression "Contempt of Court" may seem to suggest, but to protect and to vindicate the right of the public that the administration of justice shall not be prevented, prejudiced, obstructed or interfered with. "It is a mode of vindicating the majesty of law, in its active manifestation against obstruction and outrage." Per Frankfurter, J. in Offutt v. U.S. (1954) 348 US 11 "The law should not be seen to sit by limply, while those who defy it go free, and those who seek its protection lose hope." Per Judge, Curtis- Raleigh quoted in Jennison v. Baker (1972)1 All ER 997at P.1006."

(emphasis supplied)

15. In the present instance, I find that despite categorical directions of this

Court, respondents who are Directors/Authorised Representatives and

officials of Joint Venture Company have neither furnished nor kept the bank

guarantee of Rs. 2 crores alive till the decision on the disputes between the

parties by the arbitral tribunal. This is despite the fact that a period of nearly

five years has elapsed since the aforesaid mandatory directions were passed

by a learned Single Judge of this Court.

16. Respondents' submission that the order dated 04th April, 2005 need

not be complied with as it is without jurisdiction and a nullity, is in my view

untenable in law. Since the order dated 04th April, 2005 has been passed by

a coordinate Bench of this court, it is not open for me to go behind the order

and re-examine its legality and validity, specially when these grounds have

been taken in the appeals and yet no stay has been granted by the Appellate

Court. Moreover, in my opinion, if respondents' submission is accepted, it

would lead to 'judicial anarchy'. In fact, the Supreme Court in Tayabbhai

M. Bagasarwala & Anr. vs. Hind Rubber Industries Pvt. Ltd. reported in

AIR 1997 SC 1240 held the defendants in the said case guilty of contempt

as they had flouted and disobeyed interim orders. This was despite the fact

that the Supreme Court upheld the defendants' contention that the civil

Court which had passed the injunction order had no jurisdiction to entertain

the suit. The relevant observations of the Supreme Court in the said

judgment are reproduced as under:

"28. The learned counsel for Defendants 1 and 2 submitted that this is not a proceeding for contempt but a proceeding under Rule 2-A of Order 39 of the Civil Procedure Code. The learned counsel submitted that proceedings under Order 39 Rule 2-A are a part of the coercive process to secure obedience to its injunction and that once it is found that the Court has no jurisdiction, question of securing obedience to its orders any further does not arise. The learned counsel also submitted that enforcing the interim order after it is found that the Court had no jurisdiction to try the said suit would not only be unjust and illegal but would also reflect adversely upon the dignity and authority of the Court. It is also suggested that the plaintiff had instituted the present suit in the Civil Court knowing fully well that it had no jurisdiction to try it. It is not possible to agree with any of these submissions not only on principle but also in the light of the specific provision contained in Section 9-A of the Code of Civil Procedure (Maharashtra Amendment). In the light of the said provision, it would not be right to say that the Civil Court had no jurisdiction to pass interim orders or interim injunction, as the case may be, pending decision on the question of jurisdiction. The orders made were within the jurisdiction of the Court and once this is so, they have to be obeyed and implemented. It is not as if the defendants are being sought to be punished for violations committed after the decision of the High Court on the question of jurisdiction of the Civil Court. Here the defendants are sought to be punished for the disobedience and violation of the order of injunction committed before the decision of the High Court in Vishanji Virji Mepani (AIR 1996 Bom 367). According to Section 9-A, the Civil Court and the High Court did have the power to pass interim orders until that decision. If they had that power they must also have the power to enforce them. In the light of the said provision, it cannot also be held that those orders could be enforced only till the said decision but not thereafter. The said decision does not render them (the interim orders passed meanwhile) either non est or without jurisdiction. Punishing the defendants for violation of the

said orders committed before the said decision (Vishanji Virji Mepani) does not amount, in any event, to enforcing them after the said decision. Only the orders are being passed now. The violations are those committed before the said decision.

29. The correct principle, therefore, is the one recognised and reiterated in Section 9-A -- to wit, where an objection to jurisdiction of a civil court is raised to entertain a suit and to pass any interim orders therein, the Court should decide the question of jurisdiction in the first instance but that does not mean that pending the decision on the question of jurisdiction, the Court has no jurisdiction to pass interim orders as may be called for in the facts and circumstances of the case. A mere objection to jurisdiction does not instantly disable the court from passing any interim orders. It can yet pass appropriate orders. At the same time, it should also decide the question of jurisdiction at the earliest possible time. The interim orders so passed are orders within jurisdiction when passed and effective till the court decides that it has no jurisdiction to entertain the suit. These interim orders undoubtedly come to an end with the decision that this Court had no jurisdiction. It is open to the court to modify these orders while holding that it has no jurisdiction to try the suit. Indeed, in certain situations, it would be its duty to modify such orders or make appropriate directions. For example, take a case, where a party has been dispossessed from the suit property by appointing a receiver or otherwise; in such a case, the Court should, while holding that it has no jurisdiction to entertain the suit, put back the party in the position he was on the date of suit. But this power or obligation has nothing to do with the proposition that while in force, these orders have to be obeyed and their violation can be punished even after the question of jurisdiction is decided against the plaintiff provided the violation is committed before the decision of the Court on the question of jurisdiction."

(emphasis supplied)

17. I am also of the opinion that just because the respondents have filed

appeals does not mean that they do not have to comply with the mandatory

directions passed by this Court. In fact, the order of Division Bench dated

13th November, 2006 makes it abundantly clear that there is no stay of the

proceedings and that petitioner is entitled to proceed against the respondents

for seeking enforcement and/or compliance of the Court order dated 04 th

April, 2005. Consequently, keeping in view the facts of this case and in

particular the order dated 13th November, 2006, the judgment of Supreme

Court in Modern Food Industries (India) Ltd. & Anr (supra), has no

application to the present case. In fact, I am fortified in my view by a

judgment of the Bombay High Court rendered in the case of Hindustan

Composites Ltd. vs. Jasbir Singh Randhawa & Anr. (supra) relied upon by

the learned counsel for petitioner.

18. The respondents argument that the Foreign partner was not served

either with the OMP No. 342/2004 or with the order dated 04th April, 2005 is

meaningless inasmuch as the said Foreign Joint Partner has subsequently

filed a substantive appeal being FAO(OS) 159/2006 and it has been nearly

four years since the said Foreign partner had knowledge of the order dated

04th April, 2005. It is pertinent to mention that despite a lapse of such long

time, respondent No.8 has not taken any steps to comply with the mandatory

directions passed by this Court.

19. Further, reliance by Mr. Bhatt in Dr. Prodip Kumar Biswas case

(supra), is misconceived in law inasmuch as this Court, unlike some other

High Courts like the Calcutta High Court, has framed no rules under the

Contempt of Courts Act. Consequently, the contempt proceedings cannot be

bifurcated into various phases and repeated notices need not be issued to the

contemnors. However, even if no rules have been framed, in my view

principles of natural justice have to be complied with and in the present case,

there is compliance with them as this Court had issued the following show

cause notice to the respondents:

"IN THE HIGH COURT OF DELHI AT NEW DELHI CCP No. 120/05 in OMP 342/04 (Petition under section .................11 and 12 of the Contempt Of Court Act, 1971).

National highways Authority India .......PETITIONER Versus Sh. Vinod Goel s/o Sh. S.R. Goel & Ors. ......Respondent.

NOTICE TO

D-1 Sh.Vinod Goel, S/o Sh. S.R. Goel, Managing Partner, M/s. You One Maharia (JV) A-10, Panchvati, Azadpur, Delhi-110033.

Whereas the petitioner above named has presented a petition with the prayer that the respondent be dealt with according to law, and whereas the said petition has been posted to a hearing by this Court. Notice is hereby given to you that the case will be listed before this Court on 21-2-96 (Actual). You are hereby required to appear before Court in person or through an Advocate duly instructed, on the aforesaid date and to SHOW CASUE as to why contempt proceedings should not be initiated against you.

Given under my hand and the seal of this Court, the 4th day of Jan., 2006.

Sd/-

SUPERINTENDENT (O) III For REGISTRAR"

20. In pursuance to the said show cause notice, only respondents No.1

and 8 have filed a reply affidavit in which they have primarily taken the

defence that as appeals are pending against the order dated 04th April, 2005,

this Court should not proceed further with the contempt proceedings.

Consequently, in my view, in the present case, principles of natural justice

have been complied with and the defence taken by the respondents is

untenable in law and contrary to the facts of the case.

21. As far as the plea that respondents No.2 to 12 were not parties to the

OMP No. 342/2004 and that they are only Directors or officials or

authorised representatives of the Joint Venture Partner are concerned, I am

of the view that in the present case corporate veil has been used as a cloak

to wilfully disobey the orders of this court. In my opinion, the facts in this

case make its imperative for the Court to punish the concerned Directors and

officials for improper conduct of the Joint Venture Company-which in law is

a partnership. Punishment of Directors, officials and authorized

representatives of a company under the Contempt of Courts Act is not

unknown to law. In fact, the Supreme Court in Delhi Development

Authority vs. Skipper Construction Co. (P) ltd. & Anr. reported in (1996) 4

SCC 622 has held as under:

"24. In Salomon v. Salomon & Co. Ltd. the House of Lords had observed, "the company is at law a different person altogether from the subscribers ...; and, though it may be that after incorporation the business is precisely the same as it was before, the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by that Act."

Since then, however, the courts have come to recognise 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 concept of „piercing the veil‟ in the United States is much more developed than in the UK. The motto, which was laid down by Sanborn, J. and cited since then as the law, is that „when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons‟. The same can be seen in various European jurisdictions."

[(1990) 53 Modern Law Review 338] Indeed, as far back as 1912, another American Professor L. Maurice Wormser examined the American decisions on the subject in a brilliantly written article "Piercing the veil of corporate entity" [published in (1912) XII Columbia Law Review 496] and summarised their central holding in the following words:

"The various classes of cases where the concept of corporate entity should be ignored and the veil drawn aside have now been briefly reviewed. What general rule, if any, can be laid down? The nearest approximation to generalisation which the present state of the authorities would warrant is this: When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up- and-doing, men and women shareholders, and will do justice between real persons."

25. In Palmer‟s Company Law, this topic is discussed in Part II of Vol. I. Several situations where the court will disregard the corporate veil are set out. It would be sufficient for our purposes to quote the eighth exception. It runs:

"The courts have further shown themselves willing to „lifting the veil‟ where the device of incorporation is used for some illegal or improper purpose.... Where a vendor of land sought to avoid the action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the court treated the company as a mere „sham‟ and made an order for specific performance against both the vendor and the company."

Similar views have been expressed by all the commentators on the Company Law which we do not think necessary to refer to.

xxx xxx xxx xxx

28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people."

(emphasis supplied)

22. In fact, this Court in Jyoti Limited (supra) has also held as under:

22. Once, the corporate veil is lifted it is crystal clear that the orders of the court in question were disobeyed by the respondents. The company (M/s. Tower Height Builders Pvt. Ltd.) was admittedly promoted by the respondents alone. They, only were its shareholders and Directors. One of the respondents Smt. Kanwaljit Kaur Bhasin was its Chairman and the other respondent, Smt. Kamleen Bhasin, its Managing Director. The entire interest in the company was of the respondents. Thus, in reality the orders of the court were disobeyed by the respondents.

23. „Wilful‟ according to the Stroud‟s Judicial Dictionary 5th Edition, "implies nothing blameable, but merely that the person of whose action or default the expression is used is a free agent and that what has been done arises from the spontaneous action of his free will and it amounts to nothing more than this, that he knows what he is doing and intends to do what he is doing, and is a free agent; whatever is intention is wilful." According to Shorter Oxford Dictionary „wilful‟ means "asserting or disposed to assert one‟s own will against persuasion, instruction, or command, governed by will without regard to reason ;

obstinately self-willed or perverse." A wilful act, thus means an intentional and deliberate act."

(emphasis supplied)

23. In the present instance, I find that disobedience of the order dated 04 th

April, 2005, is wilful inasmuch as it is intentional and deliberate. In fact,

despite the order dated 04th April, 2005 and the Division Bench's order dated

13th November, 2006, respondents have taken no steps till date to comply

with the mandatory directions. Consequently, I hold the respondents guilty

of contempt as they have wilfully disobeyed this Court's order dated 04th

April, 2005.

24. I direct the respondents to be personally present in Court on the next

date of hearing for being sentenced. In case, any of the respondents wish to

state anything with regard to sentencing, they may file their affidavits within

a period of four weeks from today. List on 17th May, 2010.

MANMOHAN,J FEBRUARY 22, 2010 js