2019:DHC:3792

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* IN THE HIGH COURT OF DELHI AT NEW DELHI

Decided on: 2nd August, 2019

+ CM(M) 1066/2018 & CM APPL. 36566/2018

GURMEET SATWANT SINGH & ORS ..... Petitioners

Through: Mr. Kunal Anand, Advocate with
Mr.V.K. Singh, AR for Petitioners.
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versus

MEERA GUPTA & ANR. ..... Respondents

Through: Mr. Anil Kr. Gupta, Mr. Pushit
Gupta, Mr. Sanjay Rathi &
Mr.Prateek Gupta, Advocates.
CORAM:
HON’BLE MR. JUSTICE PRATEEK JALAN

PRATEEK JALAN, J. (ORAL)

1. The present petition under Article 227 of the Constitution of India is

directed against an order dated 09.08.2018 passed by the Additional District
Judge-02 [West], Tis Hazari Courts, Delhi in CS-119/2017 (New
No.699/2017), whereby the Trial Court has dismissed the application of the
petitioners herein [defendant nos. 2 to 4 in the suit] for deletion of their
names from the array of parties in the suit.
2. The plaintiff/respondent filed a suit for recovery of sum of
₹37,49,000/-, wherein four parties were arrayed as defendants. Defendant
no. 1 is M/s. Gurind Systems Pvt. Ltd., a company incorporated under the
relevant provision of the Companies Act, 1956, and defendant nos. 2 to 4
are stated to be the directors of the said company.

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3. The cause of action pleaded in the suit is that the “defendants” used
to place orders for supply of material from the plaintiff and were liable for
making payment against the invoices issued by the plaintiff in respect of
those supplies. The plaintiff/respondent annexed with the plaint copies of
various bills/ invoices. It was further alleged that the “defendants” had
issued 7 cheques in favour of the plaintiff/respondent out of which four
cheques were dishonoured. According to the plaintiff/respondent, the
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remaining three cheques were not presented, at the instance of the

defendants. The plaintiff claims that the sum of ₹35,39,820/- is outstanding
in terms of a running account, alongwith interest thereupon, as well as the
value of C-forms. The further averment of the plaintiff/respondent is that
she has come to know from reliable sources that, with a view to evade
payment of their liability to her, the defendants/petitioners are selling their
factory located in Himachal Pradesh.
4. The suit having been filed under Order XXXVII of the Code of Civil
Procedure, 1908 (hereinafter, “the CPC”), the Trial Court, by an order dated
12.02.2018, has granted conditional leave to defendant against which
CM(M) 287/2018 has been filed by the respondent no.2 herein, which is
pending before this Court. This Court has passed an interim order in that
petition staying the condition imposed by the Trial Court and, the suit is
thus proceeding for trial.
5. In the meantime, the application under consideration was filed by the
defendant nos. 2 to 4 on the ground that, as directors of the defendant no. 1
company, they do not have any personal liability to the plaintiff in respect
of the transactions and are thus neither necessary nor proper parties to the
suit.

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 2019:DHC:3792

6. By the impugned order, the Trial Court has dismissed the said
application, noting the submission of the plaintiff that the plaintiff has made
allegations of cheating and fraud against the defendants and has also filed a
criminal complaint against them. The Trial Court based its reasoning upon
paragraphs 2, 4 and 12 of the plaint, and distinguished the judgment of this
Court in Mukesh Hans & Anr. vs. Smt. Uma Bhasin & Ors [RFA 14/2010
decided on 16.08.2010] cited by the defendant nos. 2 to 4. The relevant
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observations of the Trial Court in the impugned order dated 09.08.2018, are
as follows:-
“8. I have heard Sh. Asit Tiwari, Ld. Counsel for the
plaintiff and Sh.Saurav Sharma, Ld. Counsel for the
defendants and perused the record. Ld. Counsel for
defendants has relied upon Judgment of the Hon'ble High
Court in case titled Mukesh Hans & Anr. Vs. Smt. Uma
Bhasin & Ors - RFA No. 14/2010 decided on 16.08.2010.
9. Ld. Counsel for the defendants No. 2 to 4 submitted that
in the plaint there is no single averment against the
Directors - defendants No. 2 to 4. Therefore, they may be
deleted from the array of parties as per law. The defendant
company is a separate legal entity and no decree can be
enforced against its Directors.
10. On the other hand Ld. Counsel for the plaintiff
submitted that defendants No. 2 to 4 are necessary and
proper parties. He further submitted that a complaint has
already been filed against defendants No. 2 to 4 at PS
Nangloi on 11.05.2017 on the allegations of fraud and
cheating. The defendants sold the factory of defendant No.1
at Himachal Pradesh in order to evade the payments of
outstanding dues to the plaintif. Therefore, the defendants
No. 2 to 4 are appropriate and necessary parties for the
present suit. Ld. Counsel for plaintif referred to para 2, 4
and 12 of the plaint wherein it is specifically averred that
the defendants are alleged to be involved in the
transactions and liability to pay suit amount.

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11. I have gone through the Judgment in the case of Mukesh

Hans (supra) and the pleadings of the parties. There is no
dispute to the well settled preposition of law that a
Company is a separate legal entity to its Directors and
share holders. In the present case in para 2 and 4 of the
plaint, the plaintiff has specifically averred about the
business dealings with the defendants. So liability is also
pleaded against the defendants No. 2 to 4 on the basis of 7
cheques issued. The cheques have been signed by defendant
No.3 Sh. Gurumeet Sat want Sing. As per para 12 of the
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plaint, the defendants in order to avoid the liability of suit

amount, already sold the factory of defendant No.1 at
Himachal Pradesh. The allegations and averments require
to be tested during the trial. In my opinion in the present
facts and circumstances the principle of lifting corporate
veil is applicable. There is specific averment with regard to
fraud against the defendants No. 2 to 4, therefore, the
Judgment in the case of Mukesh Hans (supra) is
distinguishable.
12. In view of the above observation and discussion, the
application under Order 1 Rule 10 CPC filed on behalf of
defendants is dismissed.”

7. Having heard learned counsel for the parties, I am of the view that
the order of the Trial Court is entirely unsustainable. The allegations
contained in the plaint do not speak of any transaction with the defendant
nos. 2 to 4 in their personal capacity. The business dealings, although
claimed to be with the “defendants”, the bills and invoices enclosed with
the plaint were all issued on the defendant no. 1 company. Similarly, the
cheques mentioned in the plaint were drawn on the account of the defendant
no. 1 – company, although they were signed by the defendant no. 2, as a
director of the company. The factory which is alleged to be sold in order to
evade a decree is also admittedly in the name of the company. The
contention of the plaintiff is that the company acted through the defendant

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nos. 2 to 4 and they thus incur a personal liability also. The Trial Court has
correctly noticed that a company has a distinct legal personality and its
directors and shareholders cannot ordinarily be held liable for its dues.
However, the cryptic observation of the Trial Court that the circumstances
of the present case attract the principle of lifting the corporate veil is not
supported by the pleadings before it or the reasoning in the impugned order.
8. The doctrine of the lifting the corporate veil is not available in every
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case of a liability alleged against a company. To so hold would lead to the

consequence that every commercial transaction involving a company will
require to be defended by the directors, shareholders or other officers of the
company in their personal capacity. This is anathema to the very concept of
corporate legal personality, as established ever since the judgment of the
House of Lords in Saloman vs. A. Saloman & Co. (1897) AC 22 (HL).
9. The doctrine of lifting the corporate veil is available in limited
circumstances where it is permitted by statute, or where the corporate
structure has been instituted to perpetuate a fraud. Following its decision in
LIC vs. Escorts Ltd (1986) 1 SCC 264, the Supreme Court has had occasion
to explain this doctrine in several judgments. While the class of cases in
which lifting of the corporate veil may be resorted to has not been
exhaustively defined, broadly this course is available when contemplated by
statute, or required to ensure that effect is given to a beneficent legislation,
or where the corporate structure has been created to perpetuate a fraud. The
conditions have been summarized thus in the recent judgment of the
Supreme Court in Arcelormittal India Private Limited vs. Satish Kumar
Gupta & Ors (2019) 2 SCC 1:
“37. It is thus clear that, where a statute itself lifts the
corporate veil, or where protection of public interest is of

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paramount importance, or where a company has been

formed to evade obligations imposed by the law, the court
will disregard the corporate veil. Further, this principle is
applied even to group companies, so that one is able to look
at the economic entity of the group as a whole.”

The averments contained in the plaint, in the present case, do not include
any allegation which would justify the lifting of the corporate veil.
10. Learned counsel for the petitioner has placed reliance upon the
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judgment in Mukesh Hans (supra) wherein the aforesaid proposition has

been laid down by a Coordinate Bench of this Court in the following
terms:-
“11. Indubitably, a company incorporated under the
Companies Act, whether as a private limited company or a
public limited company, is a juristic entity. The decisions of
the Company are taken by the Board of Directors of a
Company. The Company acts through its Board of
Directors, and an individual Director cannot don the
mantle of the Company by acting on its behalf, unless he is
so authorized to act by a special resolution passed by the
Board or unless the Articles of Association so warrant. It is
equally well settled that a Director of a Company though he
owes a fiduciary duty to the Company, he owes no
contractual duty qua third parties. There are, however, two
exceptions to this rule. The first is where the Director or
Directors make themselves personally liable, i.e., by
execution of personal guarantees, indemnities, etc. The
second is where a Director induces a third party to act to
his detriment by advancing a loan or money to the
Company. On the third party proving such fraudulent
misrepresentation, a Director may be held personally liable
to the said third party. It is, however, well settled that this
liability would not flow from a contract, but would flow in
an action at tort, the tort being of misrepresentation and of
inducing the third party to act to his detriment and to part
with money.”

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11. Learned counsel for the respondent has supported his submission by
relying upon the judgment of the Karnathaka High Court in Amar Pandey
& Anr. vs. Saifullakhan S/o. Gaffarkhan Sawakar
[CRL.PET.No.100125/2017, decided on 29.05.2019]. The said judgment
arose out of a complaint under Section 138 of the Negotiable Instruments
Act, 1881 and concerns the liability of directors under that statue. Suffice it
to say that the said judgment turns on the interpretation of the liability of
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directors and officers of a company in the case of an offence under Section

138 of the said Act, being committed by a company, and has no bearing on
the civil liability of a director.
12. In the facts and circumstances abovementioned, therefore, the
impugned order of the Trial Court dated 09.08.2018 is set aside. The
defendant nos. 2 to 4 are deleted from the array of parties in the suit.
13. The present petition is allowed, in the terms aforesaid.

PRATEEK JALAN, J.
AUGUST 02, 2019
„pv‟

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