Ois Advanced Technology Pvt Ltd vs State Nct Of Delhi
2020 Latest Caselaw 159 Del

$~5
*     IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                Date of decision:13.01.2020

+     CRL.REV.P. 536/2017 & Crl.M.A. 11828/2017, 18812/2017 &
      19833/2017

      OIS ADVANCED TECHNOLOGY PVT LTD                    ..... Petitioner
                         Through      Mr.Akhil Sibal, Sr. Adv. with
                                      Mr.Avneesh Arputham &
                                      Mr.Shantanu, Advs.

                         versus

      STATE NCT OF DELHI                                ..... Respondent
                    Through           Mr.Hirein Sharma, APP for State.
                                      SI Data Ram IGIS Crime Branch.

      CORAM:
      HON'BLE MR. JUSTICE SURESH KUMAR KAIT

                         J U D G M E N T (ORAL)

1. The present petition is filed under sections 397 read with sections 401

and 482 of the Code of Criminal Procedure, 1973 against the order dated

12.07.2017 passed by learned CMM, Patiala House Courts, Delhi.

2. Facts of the case as stated in the present petition are that petitioner

company is a private limited company incorporated as such under the

provisions of the Indian Companies Act. Present petition has been filed by

the authorized representative of the company namely Nirmal Ramawat,

Accounts Manager, who has been duly authorized vide board resolution

dated 28.03.2016.

3. As alleged in the present case that Member Central Board of Direct

Taxes (CBDT) vide their letter dated 12.05.2016 addressed to the Defence

Secretary, MOD, officially informed them that investigation wing of the

Income Tax Department at Delhi had come across photocopies of some

classified documents. A search and seizure action under Section 132 of the

Income Tax Act, 1961 was carried out on 27.04.2016 in the case of the OIS

group of companies, Mr. Sanjay Bhandari and other connected cases. One of

the premises covered u/s 132 of the Act was A-341, First Floor, Defence

Colony, New Delhi. This was a residential premise occupied by Sh. Ashok

Shankar, allegedly a close associate of Sanjay Bhandari and also the

Director of some of the OIS group of companies, namely Santech Petro

Global Private Limited and Santech Infrastructure Private Limited.

4. It is further alleged that examination of the seized documents resulted

in the recovery of some photocopies of documents of Ministry of Defence,

Government of India marked 'Secret' and 'confidential'. Details of the

alleged secret and confidential documents may be found in the FIR.

5. Accordingly, the Ministry of Defence Vide MoD I.D. No.

01/TS/AS(J)2016 dated 30.08.2016, addressed to CISC, HQ IDS and

verbal/telephonic Instructions thereon had issued HQ to file an FIR in the

case. Accordingly, a case FIR No.173/2016 was registered at Police Station

Parliament Street for the offences punishable under section 3 & 5 of the

Official Secrets Act. The investigation of the case later on was transferred to

the Crime Branch. During the investigation, an application was filed by the

Investigating officer seeking issuance of Non-bailable warrants against

accused Sanjay Bhandari. Accordingly, Ld.Trial Court vide order dated

23.12.2016, issued NBWs and fixed the case on 11.01.2017. The

Investigating officer moved another application before the Trial Court

seeking issuance of open ended warrants against said accused so that a Red

corner notice could also be opened by CBI, then Trial Court vide order

dated 04.01.2017 allowed the application. On 11.01.2017, IO submitted a

report stating that the accused could not be traced despite having carried out

raids at various places in Delhi and Haryana and further requested initiation

of proceedings under Section 82 Cr.P.C. After considering the said request,

learned Trial Court issued process under Section 82 Cr.P.C. against accused

Sanjay Bhandari which was to be executed through the IO with the direction

to execute the said process as per its mandate and ensure the presence of the

process server along with the report on 28.02.2017. It was further directed

that besides execution of process through normal course, proclamation

proceedings against the accused were to be published in an English daily

(Hindustan Times) as well as in a Hindi Newspaper having local circulation

over the areas in Delhi and Haryana. Accordingly, investigating officer after

issuing the proclamation, moved an application before the Ld. Trial Court

seeking issuance of process under Section 83 Cr.P.C., which was allowed

vide order dated 1.03.2017.

6. Mr. Akhil Sibbal, learned senior counsel appearing on behalf of the

petitioner submits that the process server was not present on the said date

and no order under Section 82 Cr.P.C. was passed against the accused.

Thereafter, Investigating officer attached and seized two vehicles belonging

to the Petitioner Company, being an Audi Q7 bearing registration no. DL 03

CBM 0351 and a BMW 7 series bearing registration number DL 04 CNE

5400. Further, several bank accounts belonging to the petitioner company

were also frozen on the directions of the Investigating officer. Moreover,

Investigating officer filed a report with respect to the process under Section

83 Cr.P.C., wherein he stated that he was still in process of identification of

properties belonging to accused Sanjay Bhandari and he sought further time

for the same. Thereafter, he further gave details of the partial attachment

carried out by him. The Trial Court vide order dated 24.03.2017, extended

the process under Section 83 Cr.P.C. and sought a detailed report in this

regard on 18.04.2017. On the said date, petitioner company moved an

application under Section 84 Cr.P.C. seeking release of the properties

wrongly attached by the Investigating Officer. Thereafter, an application

also came to be filed on behalf of the Kotak Mahindra Prime Ltd. under

Section 451 Cr.P.C. seeking release of the two vehicles to them on

superdari. The bank sought repossession of the vehicles since allegedly been

hypothecated to the bank in lieu of a loan, which had not been paid. The Ld

Trial Court vide the impugned order dismissed application filed by the

Petitioner and further allowed the application filed by Kotak Mahindra

Prime Ltd.

7. It is further submitted, it is not the case of the police that Petitioner

company was involved in the instant FIR. However, Trial Court has decided

the application vide the impugned order without dealing with the issue of

wrongful attachment of bank accounts.

8. Learned senior counsel further submits that impugned order is

contrary to the settled principles of company law that a company has distinct

legal entity from its shareholders. The principle of separate legal entity of a

company forms the bedrock of company law jurisprudence in India and

around the world and has been entirely disregarded in the impugned order.

9. Moreover, as per section 83 of Cr.P.C., where at the time of the issue

of the proclamation the Court is satisfied, by affidavit or otherwise, that

person in relation to whom the proclamation is to be issued - (a) is about to

dispose of whole or any part of his property, or (b) is about to remove whole

or any part of property from local jurisdiction of the Court, it may order the

attachment simultaneously with the issue of the proclamation. Such order

shall authorise attachment of any property belonging to such person within

the district in which it is made and it shall authorise attachment of any

property belonging to such person out of such district when endorsed by the

District Magistrate within whose district such property is situate.

10. Learned senior counsel submits that in the present case, the company

is not an accused and property in question belongs to petitioner company,

therefore, learned court below has illegally passed an order by attaching

property of the petitioner company. Moreover, as per section 83 of Cr.P.C.,

the Court issuing a proclamation under Section 82 may, for reasons to be

recorded in writing, at any time after the issue of the proclamation, order the

attachment of any property, movable or immovable, or both, belonging to

the proclaimed person. However, in the present case, no such reasons have

been recorded in the impugned order.

11. To strengthen his arguments, learned senior counsel has relied upon

the case of Tata Engineering And Locomotive Co. Ltd. vs. State of Bihar &

Ors. and batch matters: AIR 1965 SC 40 decided by the Constitutional

bench of the Hon'ble Supreme Court whereby it was observed as under:

"The true legal position in regard to the character of a corporation or a company which owes its incorporation to a statutory authority, is not in doubt or dispute. The corporation in law is equal to a natural person and has a legal entity of its own. The entity of the corporation is entirely separate from that of its shareholders; it bears its own name and has a seal of its own; its assets are separate and distinct from those of its members; it can sue and be sued exclusively for its own purpose; its creditors cannot obtain satisfaction from the assets of its members; the liability of the members or shareholders is limited to the capital invested by them; similarly, the creditors of the members have no right to the assets of the corporation. This position has been well-established ever since the decision in the case of Salomon v. Salomon & Co. (1) was pronounced in 1897; and indeed, it has always been the well- recognised principle of common law. However, in the course of time, the doctrine that the corporation or a company has a legal and separate entity

of its own has been subjected to certain exceptions by the application of the fiction that the veil of the corporation can be lifted and its face examined in substance. The doctrine of the lifting of the veil thus marks a change in the attitude that law had originally adopted towards the concept of the separate entity or personality of the corporation. As a result of the impact of the complexity of economic factors, juridical decisions have sometimes recognised exceptions to the rule about the juristic personality of the corporation. It may be that in course of time these exceptions may grow in number and to meet the requirements of different economic problems, the theory about the personality of the corporation may be confined more and more."

12. Learned senior counsel submits that it has always been the well-

recognised principle of common law, however, in the course of time, the

doctrine that the corporation or a company has a separate legal entity of its

own, has been subjected to certain exceptions by application of the principle

that the veil of the corporation can be lifted and its face examined in

substance. The 'doctrine of the piercing of corporate veil' thus marks a

change in the attitude that law had originally adopted towards the concept of

the separate entity or personality of the corporation. As a result of impact of

the complexity of economic factors, juridical decisions have sometimes

recognised exceptions to the rule about juristic personality of the

corporation.

13. The Hon'ble Supreme Court in the case of Balwant Rai Saluja &

Anr. vs. Air India Limited & Ors.: (2014) 9 SCC 407 has observed and held

as under:

"70. The doctrine of „piercing the corporate veil‟ stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with its own legal rights and obligations. It seeks to disregard the separate personality of the company and attribute the acts of the company to those who are allegedly in direct control of its operation. The starting point of this doctrine was discussed in the celebrated case of Salomon v. A Salomon & Co Ltd., [1897] AC 22. Lord Halsbury LC (paragraphs 31-33), negating the applicability of this doctrine to the facts of the case, stated that:

"...a company must be treated like any other independent person with its rights and liabilities legally appropriate to itself ..., whatever may have been the ideas or schemes of those who brought it into existence."

Most of the cases subsequent to the Salomon case (supra), attributed the doctrine of piercing the veil to the fact that the company was a „sham‟ or a „façade‟. However, there was yet to be any clarity on applicability of the said doctrine.

71. In recent times, the law has been crystallized around the six principles formulated by Munby J. in Ben Hashem v. Ali Shayif, [2008] EWHC 2380 (Fam). The six principles, as found at paragraphs 159- 164 of the case are as follows- (i) ownership and control of a company were not enough to justify piercing the corporate veil; (ii) the Court cannot pierce the corporate veil, even in the absence of third party interests in the company, merely because it is thought to be necessary in the interests of

justice; (iii) the corporate veil can be pierced only if there is some impropriety; (iv) the impropriety in question must be linked to the use of the company structure to avoid or conceal liability; (v) to justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and (vi) the company may be a „façade‟ even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The Court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done.

74. Thus, on relying upon the aforesaid decisions, the doctrine of piercing the veil allows the Court to disregard the separate legal personality of a company and impose liability upon the persons exercising real control over the said company. However, this principle has been and should be applied in a restrictive manner, that is, only in scenarios wherein it is evident that the company was a mere camouflage or sham deliberately created by the persons exercising control over the said company for the purpose of avoiding liability. The intent of piercing the veil must be such that would seek to remedy a wrong done by the persons controlling the company. The application would thus depend upon the peculiar facts and circumstances of each case.

80. The present facts would not be a fit case to pierce the veil, which as enumerated above, must be exercised sparingly by the Courts. Further, for piercing the veil of incorporation, mere ownership and control is not a sufficient ground. It should be established that the control and impropriety by the Air India resulted in depriving the Appellants-workmen herein of their legal rights. As regards the question of impropriety, the Division Bench

of the High Court of Delhi in the impugned order dated 02.05.2011, noted that there has been no advertence on merit, in respect of the workmen‟s rights qua HCI, and the claim to the said right may still be open to the workmen as per law against the HCI. Thus, it cannot be concluded that the controller „Air India‟ has avoided any obligation which the workmen may be legally entitled to. Further, on perusal of the Memorandum of Association and Articles of Association of the HCI, it cannot be said that the Air India intended to create HCI as a mere façade for the purpose of avoiding liability towards the Appellants-workmen herein."

14. He further relied upon the case of G. Sagar Suri vs. State & Anr.:

2004 Cri LJ 212 whereby held that "Section 83 enjoins upon the court to

record the reasons in writing for ordering the attachment of any property

belonging to the person who has been proclaimed as an offender under

Section 82 Cr.P.C. Even the order of attachment of property has two pre-

requisites. Firstly the court has to satisfy itself either by affidavit or

otherwise that the person in relation to whom the proclamation is to be

issued is about to dispose of whole or any part of the property or secondly

that he is about to remove whole or part of the property from the local

jurisdiction of the court. Thus the orders passed by learned MM in this

regard suffer from gross illegality and inherent infirmity."

15. In the case of Kishori Devi vs. State of Bihar & Anr.: 1995(2)

BLJR1430 decided by High Court of Patna, Ranchi, whereby held that

"Section 83 as noticed above, contemplates that both movable or immovable

properties can be attached, which belongs to be a 'proclaimed person'. The

word 'belonging to the proclaimed person', in my opinion cannot be given

wider sense by including the property of the family members also." Thus,

the impugned order deserves to be set aside.

16. Learned APP appearing on behalf of the State/respondent submits that

M/s OIS Advanced Technology Pvt. Ltd is a shell company or the company

which has been incorporated for the beneficial interest of accused Sanjay

Bhandari as 90 percent share of the said company is with Sanjay Bhandari

and rest of 10 percent share belongs to Sonia Bhandari, wife of Sanjay

Bhandari. Investigation in the present case is going on and it has been found

that M/s OIS Advanced Technology Pvt. Ltd was a front of a company

whereby the illegal activities of the accused were being carried out. On

account of the miscellaneous applications filed by the petitioners, the

process under Sections 82/83 Cr.P.C. against accused could not be

completed and accused Sanjay Bhandari has also yet not been declared

proclaimed offender.

17. I note, learned counsel on behalf of M/s Kotak Mahindra Prime

Limited before the Trial Court submitted that it is not disputed fact that

Sanjay Bhandari had absconded and the property was on hypothecation of

the bank. The bank's money was involved in the case and they have

obtained orders from the Court of ld. ADJ and that being the situation, their

right should not be prejudiced and application under Section 451 Cr.P.C.

should be adjudicated and property be given on superdari to them.

18. It is not in dispute that property/cars belonging to M/s OIS Advanced

Technology Pvt. Ltd. and registered in the name of company M/s CIS

Advanced Technology Pvt. Ltd., being a corporate entity, does not in any

manner mean that it is distinct than that of Sanjay Bhandari, who is

absconding accused. While passing impugned order, learned Trial Court has

given two reasons; firstly, majority shareholding belongs to Sanjay

Bhandari; secondly, it is a private limited company and the word 'belonging

to' under Section 83 Cr.P.C. is of widest amplitude. Even if the fact that the

cars should not have been attached is excluded, then the shareholding of the

company would have to be attached and in that scenario, the company would

by itself become dysfunctional because 90 percent of the shareholding in the

company would have been attached. Apart from that, there is also an

established doctrine of lifting the corporate veil. The further fact that

Corporate Entity was used to perpetuate the illegal activities of the

absconding accused person is also a factor to be borne in mind. Under

Section 84 Cr.P.C., the objection has to be filed by any person other than the

proclaimed person.

19. Accordingly, learned Trial Court noted that the company's name in

the resolution, bears name of Micromet ATI Pvt. Ltd. though in the bottom

of the page, bears the name of M/s OIS Advanced Technology Pvt. Ltd. For

reference, Section 84 Cr.P.C. is reproduced as under:

"Section 84 Cr.P.C. : Claims and objections to attachment (1) If any claim is preferred to, or objection made to the attachment of, any property attached under section 83, within six months from the date of such attachment, by any person other than the proclaimed person, on the ground that the claimant or objector has an interest in such property, and that such interest is not liable to attachment under Section 83, the claim or objection shall be inquired into, and may be allowed or disallowed in whole or in part:

Provided that any claim preferred or objection made within the period allowed by this Sub-Section may, in the event of the death of the claimant or objector, be continued by his legal representative.

(2) Claims or objections under Sub-Section (1) may be preferred or made in the Court by which the order of attachment is issued, or, if the claim or objection is in respect of property attached under an order endorsed under Sub-Section (2) of Section 83, in the Court of the Chief Judicial Magistrate of the district in which the attachment is made.

(3) Every such claim or objection shall be inquired into by the Court in which it is preferred or made:

Provided that, if it is preferred or made in the Court of a Chief Judicial Magistrate, he may make it over for disposal to any Magistrate subordinate to him. (4) Any person whose claim or objection has been disallowed in whole or in part by an order under Sub-Section (1) may, within a period of one year from the date of such order, institute a suit to establish the right which he claims in respect of the property in dispute; but subject to the result of such suit, if any, the order shall be conclusive."

If the language of Section 84 Cr.P.C. is read, the application has been

filed by the accused himself and the language that "by any person other than

the proclaimed accused person" precludes such an application per se.

20. Accordingly, considering the share holding in the company of M/s

OIS Advanced Technology Pvt. Ltd., the Trial Court found no merit in the

plea of the petitioner that the company is a distinct corporate entity, separate

from the individual and the property whereof cannot be attached. That being

the situation, learned Court below was not inclined to set aside the order/

recall the order of attachment of properties of the company M/s OIS

Advanced Technology Pvt. Ltd. Simultaneously, the Trial Court also found

no grounds for releasing vehicles - Audi Q7 and BMW 7 Series in favour of

M/s OIS Advanced Technology Pvt. Ltd.

21. Learned Trial Court also observed that hire purchase agreement

means that property is given on hire by the registered owner, subject to the

understanding that upon completion of hire/liquidation of the hire charges,

the said property shall be transferred by the registered owner. It is only an

agreement, that only upon completion of the hire charges paid by the person

to whom the property has been given, the legal right/ title in the property

shall pass. Accordingly, Kotak Mahindra Prime continues to be the

registered owner even during the pendency of the hire purchase transaction.

Said company is also a distinct person/ a separate entity than the Bhandaris

or OIS AT Pvt. Ltd.

22. It is not in dispute that the property belongs to the company

mentioned above.

23. As argued by learned APP and as found during investigation that the

companies are shell companies and no business has been carried out through

these companies. Though as per section 83 of Cr.P.C., the attachment can

be ordered of any property belonging to such persons means the accused

therein. In the present case, the chargesheet has not been filed, therefore, at

this stage, it cannot be concluded that the company is not made an accused.

24. It is pertinent to note, even otherwise, in a case, if any person

incorporated a company and purchased or transferred all properties in the

name said company and thereafter leaves the country. However, while

staying in abroad, he can operate the company through authorised

representatives and enjoy the proceeds of same. In that eventuality, when

100% shares of the company are with an accused, proceedings under Section

82 & 83 Cr.P.C. can be initiated and executed and in my considered opinion,

the property of such company can be attached. The proposition of law as

argued by learned senior counsel appearing on behalf of the petitioner is

applicable only in cases, where there are different shareholders and company

is doing business, but in the present case 90% shares belongs to accused

Sanjay Bhandari and 10% to his wife. Thus, it is a private limited company,

being run by the same family only but without conducting any business,

transactions, only owning properties in the name of the company. Without

any business but having property, in that situation, the Trial Court has

rightly lifted the corporate veil of the company and accordingly, the

applications moved by the petitioner have been dismissed.

25. In the case of Balwant Rai Saluja (supra), the Constitution Bench of

the Hon'ble Supreme Court held that the doctrine of piercing the corporate

veil of a company allowed the Court to disregard the separate legal

personality of a company and impose liability upon the persons exercising

real control over the said company. However, this principle has been and

should be applied in a restrictive manner, that is, only in scenarios wherein it

is evident that the company was a mere camouflage or sham, deliberately

created by the persons exercising control over the said company for the

purpose of avoiding liability. The present case falls under the same

circumstances, thus, I find no illegality and perversity in the order passed by

the court below.

26. Finding no merit in the present petition, the same is, accordingly

dismissed.

27. Interim order stands vacated.

28. Pending applications stand disposed of.

(SURESH KUMAR KAIT) JUDGE JANUARY 13, 2020 ab