Mitsui Osk Lines Ltd (Japan) vs Orient Ship Agency Pvt. Ltd. (Res) And Ornate Multi Modal Carriers Pvt Ltd And 7 Ors (Add. Res)

Mitsui OSK Lines Ltd. (Japan) ...Applicant/ Award Holder/ Judgment Creditor

In the matter between

Mitsui OSK Lines Ltd. (Japan) ...Award Holder/ Judgment Creditor

Versus

Orient Ship Agency Pvt. Ltd. ...Respondent/ Judgment Debtor

And

1 Ornate Multi Modal Carriers Pvt. Ltd. 2 I.K. Marine Agencies Pvt. Ltd. 3 Pan Orient Shipping & Logistics Pvt.Ltd. 4 Fulcrum Shipping & Logistics Pvt.Ltd. 5 Jalal S. Jalali 6 Jamil S. Jalali 7 Mehdi S. Jalali 8 Jalil S. Jalali ...Additional Respondents

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Mr. Kevic Setalvad, Senior Advocate a/w Mr. Gaurang Mehta, Ms. Poorva Garg, Mr. Parikshit Barpujari and Mr. Jehan Lalkaka i/b Mulla & Mulla And C.B.& C., for the Applicant/Award Holder.

Mr. Sanjay Jain a/w Mr. Prathamesh Kamat and Ms. Aditi Pawar, i/b Ms. Sapna Rachure, for the Additional Respondent No. 1.

Mr. Sanjay Jain a/w Mr. Prathamesh Kamat and Ms. Aditi Pawar, i/b A Mehta Laljee and Co., for Additional Respondent Nos. 2, 3 and 5 to 8.

Mr. Rahul Narichania, Senior Counsel a/w Harsh B. Buch i/b Govind Solanki, for Additional Respondent No. 4.

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CORAM : R.I. CHAGLA J.

Reserved on : 29 November 2019 Pronounced on : 07 February 2020

ORAL JUDGMENT :

1. This Chamber Summons has been filed by the Award

Holder in the above Execution Application seeking leave of this Court

to amend the Execution Application in accordance with the draft

amendments set out in the Schedule annexed to this Chamber

Summons. The Award Holder has by way of the amendment sought

enforcement and execution of the Foreign Award dated 2nd February

2009 that was passed against the Respondent, against the third

parties/entities mentioned therein as the "Associate Companies"

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(being Additional Respondent Nos. 1 to 4) and "the Jalalis"

(Additional Respondent Nos. 5 to 8) in their personal capacity as

being jointly and severally liable to pay the awarded dues under the

said Foreign Award to the Applicant/Award Holder. Further, the

Award Holder has sought for incidental and consequential relief in

the Chamber Summons.

2. The Award Holder is in the shipping business and

operates vessels/ocean liners. The Respondent/Judgment Debtor is a

company registered under the Companies Act, 1956 and is in the

business of shipping agency and other businesses related to water

transport and ocean transportation. The Award Holder had entered

into an agency agreement dated 1st April 1964 under which the

Respondent was appointed as its general agent for the West Coast of

India, North of Calicut. Under the agency agreement, the Respondent

was required, inter alia, to collect freight and other monies due and

payable to the Award Holder in the area of management, operation

and business of the vessel and liners and to account for and make

over the same to the Award Holder. The Respondent had under the

agency agreement been forwarding on a monthly basis General

Statements of Accounts ("GSA"). It was the case of the Award Holder 3/108 February 7, 2020

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that there were certain irregularities in the GSA since December

2000. Disputes and differences between the Award Holder and the

Respondent concerning the forwarding of freight amount and other

amounts collected by the Respondent which belonged to the Award

Holder and which the Award Holder claimed that the Respondent

had wrongfully and unauthorisedly withheld. This was claimed to be

in order to deny payments to the Award Holder and unjustly enrich

the Respondent. The Award Holder by letter dated 5th April 2002

terminated the agency agreement on account of what is stated to be

serious breach of the agency agreement and financial irregularities

committed by the Respondent which were not remedied or rectified

by the Respondent. Due to the dispute and differences between the

parties, the Award Holder invoked arbitration by the said letter

raising various claims made against the Respondent.

3. It is the case of the Award Holder that the Respondent

had not cooperated in the constitution of the Arbitral Tribunal

despite of the invocation of arbitration under the provisions of

agency agreement. The Award Holder was thus, constrained to adopt

proceedings before the Tokyo District Court which by judgment dated

9th February 2005 appointed an Arbitrator. The Respondent had 4/108 February 7, 2020

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preferred an appeal from the judgment dated 9th February 2005

which appeal failed.

4. The arbitration proceedings before the Arbitral Tribunal

in Tokyo, Japan started only in the year 2006 and the same resulted

in the Foreign Award which was published on 2nd February 2009. In

October 2009 or thereabouts, the Award Holder filed Arbitration

Petition No. 842 of 2009 seeking leave of this Court to enforce the

Foreign Award against the Respondent. The Award Holder has

referred to an earlier Arbitration Petition No. 446 of 2003 which had

been filed by the Award Holder under Section 9 of the Arbitration

and Conciliation Act, 1996 and in which an order of status quo had

been passed by this Court in respect of the immovable properties of

the Respondent. A similar order dated 4th February 2010 was passed

by this Court in Arbitration Petition No. 842 of 2009. The Award

Holder has referred to the immovable properties of the Respondent

which were listed in Exh.M to Arbitration Petition No. 842 of 2009

and in respect of which the status quo order had been passed. These

immovable properties of the Respondent included (i) premises at

Udyog Bhavan, Ground Floor, Ballard Pier, Mumbai - 400 038

(admeasuring 3800 sq.ft.) ("the U Bhavan premises"); (ii) premises 5/108 February 7, 2020

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at Nav Vyapar Bhavan, Unit No. 226, P. D'Mello Road, Carnac Bunder,

Mumbai - 400 009 ("N.V. Bhavan premises"); (iii) premises at Orient

House, 4th Floor, Ballard Estate, Mumbai.

5. The Award Holder has stated in the Affidavit in Support

of the Chamber Summons that the Respondent did not disclose to

this Court either in the Arbitration Petitions filed in 2003 and/or in

2009 that U. Bhavan premises and N.V. Bhavan premises had been

mortgaged or that the banks concerned had enforced the mortgage

by selling the premises under SARFAESI Act.

6. The Arbitration Petition No. 842 of 2009 was made

absolute by an order and judgment dated 28th January 2014,

holding that the Foreign Award was enforceable in India in the same

manner as if it were a Decree of this Court. By order dated 25th

February 2014, this Court continued the status quo order dated 4th

February 2010 in respect of the Respondent's immovable properties.

7. It is stated by the Award Holder in the said Affidavit in

Support that the Respondent considerably delayed the arbitration

process which although having been commenced in the year 2002, 6/108 February 7, 2020

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culminated in the Foreign Award dated 2nd February 2009 i.e. after a

period of about seven years. The Respondent had thereafter, sought

adjournments in the Arbitration Petition No. 842 of 2009 which came

to be disposed of by the said order and judgment dated 28th January

2014 i.e. after an expiry of five years. The Award Holder was thus,

able to put the Foreign Award in execution in India only in March

2014 by filing the above Execution Application in this Court. It is the

case of the Award Holder that the Jalalis used and utilised the period

between the years 2002 to 2014 and even thereafter, during the

pendency of the Execution Application to systematically denude and

strip the Respondent of all its assets, properties, business, income and

monies, inter alia, by transferring and/or diverting the same to the

Associate Companies and Jalalis themselves and/or by siphoning off

the monies and funds of the Respondent to leave the Respondent a

shell company without any assets and without any business. Thus, no

recoveries could be made by the Award Holder, in the enforcement

proceedings concerning the Foreign Award against the Respondent.

8. The Award Holder has referred to the proceedings in the

Execution Application including the Chamber Summons No. 292 of

2014 filed in this Court as well as the orders and directions passed by 7/108 February 7, 2020

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this Court against the Respondent and the Jalalis for disclosure of the

assets and properties of the Respondent which may be available for

satisfying the awarded dues and for attachment and sale of these

assets and properties of the Respondent. The Award Holder has

referred in particular to the order dated 9th April 2014 passed by this

Court in the said Chamber Summons by which the Additional

Respondent Nos. 5 and 6 (referred to as "the Jalalis") were directed

to file Disclosure Affidavits disclosing all the assets, effects and

properties of the Respondent. Since the Jalalis failed to file Disclosure

Affidavits within the stipulated period of four weeks, an order dated

9th September 2014 came to be passed by this Court directing

issuance of bailable warrants against the Jalalis. It is thereafter stated

that more than 20 weeks after the order dated 9th April 2014 that

the Jalalis filed Affidavit dated 17th September 2014 purporting to

make disclosure of the assets and properties of the Respondent

Company. Since the Disclosure Affidavit had not completely disclosed

the particulars or details of the Respondent's assets and properties

and had only annexed the Respondent's annual accounts for financial

year 2012-13 and not for financial year 2013-14; further orders came

to be passed by this Court by which the Jalalis were required to file

further Affidavits and documents including copies of the 8/108 February 7, 2020

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Respondent's Income Tax Returns, Annual Accounts, Bank

Statements, etc. These were thereafter, filed from time to time by the

Jalalis till October, 2015. A total of eight Affidavits were filed by the

Jalalis in the Chamber Summons No. 292 of 2014.

9. The Award Holder in the said Affidavit in Support has

thereafter, referred to the state of affairs of the Respondent as

reflected in the Annual Accounts/Financial Statements. It is stated

that from a perusal of the Articles of Association, it is clear that the

Directors are not liable to retire by rotation at the Annual General

Meeting indicating that Respondent's Directors are permanent

Directors as confirmed by the Respondent's Auditors in their Audit

Report annexed to each financial statement. It was brought to light

by way of the 2014 Disclosure Affidavit that the U. Bhavan premises

had been sold in proceedings under SARFAESI Act while the N.V.

Bhavan premises had been attached and thereafter, sold in the year

2007 or thereabouts. The U. Bhavan premises which belong to the

Respondent had been sold by the Jalalis to liquidate the financial

facilities availed by the Additional Respondent No. 1, Ornate Multi

Modal Carriers Pvt. Ltd. ("Ornate") and discharge the guarantees of

the Jalalis. It is the Award Holder's case that the Jalalis in order to 9/108 February 7, 2020

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cover up the correct position had falsely stated in the 2014 Disclosure

Affidavit that the U. Bhavan premises had been auctioned in the year

2007 since the Respondent could not be repay the loan amount. The

Jalalis had thus, suppressed the position that the loan had been in

fact availed by the Additional Respondent No. 1, Ornate. It is further,

stated by the Award Holder that the N.V. Bhavan premises had been

mortgaged to Mandvi Bank and the same was subsequently

purchased by the Bank in the year 2007 and thereafter, the

Respondent had no interest in the said property. However, from the

Sale Deed dated 31st August 2006 produced by the Jalalis by way of

Disclosure Affidavit dated 17th December 2014, it was evident that

the N.V. Bhavan premises had been sold by the Respondent as

Transferor and Mandvi Bank as Transferee. The property had never

been mortgaged to the Bank and/or never been attached and transfer

of N.V. Bhavan premises was a case of voluntary sale and transfer

effected by the Respondent on account of private negotiations

between the Jalalis and Mandvi Bank. It is stated that this is clear

from the Minutes of the Meetings of the Respondent's Board of

Directors annexed to the Sale Deed and the Board Resolution passed

by the Board of Directors of Mandvi Co-operative Bank annexed to

the Sale Deed. The Board Resolution records that the bank was in 10/108 February 7, 2020

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need of additional office space. Hence, the proposal for the purchase

of the N.V. Bhavan premises. The Board Resolution mentioned the

seller as "ORNATE" and not the Respondent.

10. The Award Holder in the said Affidavit in Support

has also referred to the Auditors Report and qualifications of the

auditors therein, in particular, to show that the transactions of the

Respondent with Companies/entities listed in the register maintained

under Section 301 of the Companies Act, 1956 which are referred to

therein. The Auditor's Report does not have the Auditors opinion on

the bonafides of the purported transactions with related parties and

Associate Companies contemplated by the said Section 301 of the

Companies Act, 1956.

11. Thereafter, the Award Holder has in the said

Affidavit in Support referred to the transactions with the related

parties. These included salary/remuneration drawn by the Additional

Respondent's Directors (being the Jalalis). It is mentioned that for

last 15 years the Jalalis have drawn/taken away from the Respondent

Company and I.K.M. Limited amounts of Rs. 8.37 Crores and Rs. 3.13

Crores respectively, by way of salary/remuneration. It is mentioned 11/108 February 7, 2020

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that in case of the Respondent Company, the salary/remuneration

drawn by the Jalalis had been increased systematically from Rs.

29.77 Lakhs in F.Y. 2007-08 to Rs. 1.61 Crores in F.Y. 2012-13 even in

a scenario of falling turnover of the Respondent. It is stated that the

significant portion of the Respondent's turnover (almost 90% in F.Y.

2012-13) had been diverted to make payment towards the

salary/remuneration to the Jalalis whilst denying the payment to the

creditors of the Respondent like the Award Holder who is the

Judgment Creditor. It is stated that there is no legal process for

payment of salary/remuneration to the Jalalis since no contract

between the Respondent and its Directors relating to payment of

salary/remuneration has been produced and none appears to have

been shown to the Respondent's Auditors. The Jalalis had also drawn

amounts of salary/remuneration from the Associate Companies. The

Award Holder has relied upon the Chart regarding annual

salary/remuneration received by the Jalalis from the Respondent and

the Associate Companies for the certain years mentioned therein

which is stated to be based on the limited information available to

the Award Holder from perusal of the available financial statements

of the Respondent and Associate Companies.

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12. The Award Holder has also referred to certain

loans/advances given by the Respondent to Associate Companies and

which are recorded in the Respondent's financial statements. This

includes a loan of Rs. 22.50 Crores advanced by the Respondent to

Ornate almost 15 to 16 years back. This has been mentioned in the

Affidavit of Disclosure dated 25th November 2014 filed in the

Chamber Summons No. 292 of 2014 where the said loan has been

described as inter-corporate advance given by the Respondent to

Ornate. For more than 16 years Ornate neither paid interest on the

loan amount nor repaid the same. The Award Holder has stated that

the alleged loan was a mere book entry structured by the Jalalis in

the financial statements of the Respondent and Ornate to cover up

the removal/transfer by the Jalalis of the sum of Rs. 22.50 Crores

from the Respondent to Ornate without any consideration flowing to

the Respondent for the same. The Award Holder has also referred to

the transactions with the Associate Companies reflected in the

financial statements which are under the heads, (a) Repairs and

Maintenance; (b) Transportation Charges and (c) Administration

Charges indicating the Respondent had availed of services from the

Associate Companies on a regular basis. The Award Holder stated

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between the Respondent and the concerned Associate Companies

recorded in the register maintained under Section 301 of the

Companies Act, 1956 nor were the contracts shown to the

Respondent's Auditors. It is stated that this can lead to only one

conclusion that the entries in the financial statements showing

transactions with the Associate Companies are false, fraudulent and

mere book entries in the Respondent's financial statement. The

Award Holder has referred to a chart showing monies purported to

have been paid by the Respondent to the related entity/Associate

Company on account of alleged services rendered between the

periods 2007-08 till 2015-16. It is stated that these transactions of a

total amount of Rs. 11.21 Crores or thereabouts was transferred by

the Jalalis out of the Respondent to the Associate Companies which

are also fully controlled by them.

13. The Award Holder has also in the said Affidavit in

Support referred to investments in Related Entities/Associate

Companies. This includes an amount of Rs. 7.50 Crores invested by

the Respondent in Preference Shares in Ornate. It is stated that the

Respondent has not received preferential dividend of 15 percent for a

single year and the entire preferential dividend has been in arrears 14/108 February 7, 2020

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ever since issuance of the Preference Shares. The Preference Shares

have not been redeemed by the Respondent. The loss of the

Respondent on account of non receipt of dividends over the last 17

years would be to the tune of Rs. 19.04 Crores. It is further stated

that the investment of the Respondent monies in the Preference

Shares of Ornate was a transaction consciously structured by the

Jalalis to cause losses to the Respondent by way of loss of interest as

also the loss of the invested amount of Rs. 7.50 Crores.

14. The Award Holder has referred to a gradual and

structured decrease in the fixed assets of the Respondent Company.

This is stated to be by the sale of U. Bhavan premises as well as N.V.

Bhavan premises. It is stated that in the very same F.Y. 2008-09 as the

Foreign Award was passed, the Jalalis accelerated their planned

structuring of gradual reduction and depletion of the Respondent's

fixed assets. Thereafter, during the pendency of the Arbitration

Petition No. 842 of 2009 and subsequently, during the pendency of

the above Execution Application, the Jalalis continued their planned

depletion of the fixed assets of the Respondent, so that between the

F.Y. 2008-09 and F.Y. 2015-16, the value of the fixed assets reflected

in the Respondent's financial statements have been reduced from 15/108 February 7, 2020

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6.36 Crores to Rs. 1.08 Crores only. The Award Holder has prepared

a chart showing the gradual depletion of the fixed assets which is

annexed as Exh.G to the Chamber Summons.

15. The Award Holder has thereafter, referred to the

siphoning off, of the monies of the Respondent lying in the bank

accounts by transfer to the Jalalis and Associate Companies which are

stated to be all related entities. This has been set out in paragraph

11(xiii) of the said Affidavit in Support. An order dated 7th

September 2015 has been referred to wherein it is recorded that the

transfer/withdrawal of the monies from the Respondent's bank

account had taken place between the period of the order directing

disclosure i.e. 9th April 2014 and the date of the Disclosure Affidavit

i.e. 17th September 2014. By the said order dated 7th September

2015, the Jalalis were required to show cause why they should not be

arrested for siphoning off funds of the Respondent Company after the

order directing disclosure dated 9th April 2014 had been passed. The

Award Holder has referred to the bank statements reflecting the

transfers to IKM Ltd. (Additional Respondent No. 2) and self

withdrawals by the Jalalis from the Respondent's bank accounts as

well as reflecting the transfers made from the Respondent's bank 16/108 February 7, 2020

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accounts to Pan Orient and Fulcrum. Reference is made to the bank

statements with Ratnakar Bank and Saraswat Bank. These have been

annexed to the Chamber Summons as Exh.J and Exh.K. The Award

Holder has stated that the transfer of the monies to the Associate

Companies was not pursuant to any contract or arrangement for sale

of goods or rendering of services, but are merely

accommodation/circular transactions structured by the Jalalis.

16. The Award Holder has also mentioned in the said

Affidavit in Support that there are abnormally high amounts shown

in the Respondent's financial statements towards expenditure not

commensurate with the turnover/revenue from operations. The

Respondent had shown huge amounts towards employee benefit

expenses and remuneration to the Directors for the F.Y. 2008-09 till

F.Y. 2016-17. The Respondent is shown to having incurred expenses

totalling to Rs. 23.89 Crores approximately over nine years. The

Award Holder has stated that there is no record at all and none had

been shown/produced to justify and/or support the abnormally high

expenditure shown to have been incurred by the Respondent. The

Award Holder has further stated that the Respondent had shown

substantial amount incurred towards office and general expenses as 17/108 February 7, 2020

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well as office administration charges in its financial statements and

similar entries are found in the financial statements by the Ornate

and Pan Orient. The Award Holder has relied upon a chart which is at

Exh.N to the Chamber Summons showing expenses of the

Respondent under various heads as reflected in the various financial

statements. The Award Holder has stated that the amounts alleged to

have been incurred towards employee benefit expenses and

remuneration to Directors are grossly overstated and/or inflated in

an attempt to transfer and/or withdraw monies of the Respondent

from its Bank Accounts and/or transfer the same to the Jalalis and

their Associates.

17. The Award Holder has referred to the sudden and

abnormal provision made in the Respondent's financial statements

for F.Y. 2013-14 for diminution in the value of the investments of the

Respondent Company and other instances of window dressing of the

Respondent Company's financial statements. A comparison in

between the financial statements of the Respondent Company drawn

for the periods prior to the filing of the above Execution Application

and the period thereafter. The Respondent had been a profit making

company having healthy reserved positions, substantial fixed assets 18/108 February 7, 2020

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and substantial current investments in the prior period. It is then

stated that losses were engineered in the Respondent's financial

statements for F.Y. 2013-14 showing a lower turnover of operations in

a sum of Rs. 3.69 Crores against the previous turnover of Rs. 5.71

Crores. The Respondent's financial statements were structured to

reflect high expenditure towards employee benefit expenses of (Rs.

3.52 Crores) and other expenses (Rs. 1.72 Crores) even on a low

turnover of Rs. 5.71 Crores. It is stated that the Jalalis had thus,

engineered huge losses in the financial statements of the Respondent

and left the Respondent with negligible assets to thwart and defeat

the enforcement of the Foreign Award against the Respondent.

18. The Award Holder has referred to the state of

affairs of the related entities/Associate Companies as reflected from

their Annual Accounts/Financial Statements. In relation to Additional

Respondent No. 2, I.K. Marine Limited Agency Pvt. Ltd. (for short

"IKM Ltd."). It is stated that the company was promoted in the 1972

with the main object to carry on business of shipping agents, ship

managers, loading brokers, crewing-agents and to act as agents for

ship-owners. It is stated that the Company is an Associate Company

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affairs are inextricably interlinked with the Respondent and other

Associate Companies controlled by the Jalalis. The Company had an

equity capital of Rs. 1 Lakh divided into 10,000 shares of Rs. 10/-

each. The Jalalis through the Respondent/Judgment Debtor took

over control and management of IKM Ltd. which became a fully

owned subsidiary of the Respondent. The Award Holder has referred

to and given particulars of the state of affairs of the Respondent

Company for three distinct periods as under:-

(i) First period i.e. pre-termination; when the paid up

capital of IKM Ltd. remained constant at Rs. 1.00

Lakh and during this period, IKM Ltd.'s annual

revenue from operations never exceeded Rs. 57/-

Lakhs or thereabouts. During this period IKM Ltd.'s

profit/loss after paying taxes ranged from a profit of

Rs. 10.21 Lakhs to a loss of Rs. 3.07 Lakh. The

Auditors were M/s. P.K. Sanghvi & Company,

Chartered Accountants for the period F.Y. 1997-98 to

2002-03. They were replaced by to M/s. S.D. Gunjal

& Company from F.Y. 2003-04 onward. Subsequent

to the change, the turnover increased from Rs. 4.44 20/108 February 7, 2020

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Lakhs for F.Y. 2002-03 to Rs. 4.05 Crores in F.Y.

2003-04. The Auditors Report indicate that IKM Ltd.

does not have internal audit system and fully

operates under the Director's control and

supervision. IKM Ltd. is in the business of

transportation and container handling which is also

one of the businesses of the Respondent Company.

IKM Ltd. also had no staff or personnel and used

paid service charges to the Respondent.

(ii) The second period was from the date of termination

of the Agency Agreement till the date of the Arbitral

Award. During the second period (from 2002-2008)

the paid up Share Capital continued to remained at

Rs. 1.00 Lakh. In F.Y. 2003-04 IKM Ltd.'s turnover

rose dramatically almost 100 times from Rs. 4.44

Lakh (in F.Y. 2002-03) to Rs. 4.05 Crores (in F.Y.

2003-04). During second period, the turnover

ranged from Rs. 4.44 Lakh to 6.64 Crores and the

Company earned annual profit after tax ranging

between 8.93 Lakhs to Rs. 45.05 Lakhs. By the end 21/108 February 7, 2020

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of F.Y. 2008-09 the written down value of IKM Ltd.'s

fixed assets had substantially increased to Rs. 172/-

Lakhs. In F.Y. 2008-09 the Jalalis in their personal

capacity took almost 92% stake in IKM Ltd. The

paid-up capital of the company increased to Rs. 12/-

Lakh by issuing fresh paid up capital of 11,000

shares of Rs. 10/- each to the Jalalis.

(iii) The third period (post Award); commences from

March 2009 when the Award Holder filed

Arbitration Petition No. 842 of 2009 in this Court

for enforcement of the Foreign Award and continues

till date. During this period the turnover increased

substantially and was in the region of Rs. 10/-

Crores to Rs. 28/- Crores. In F.Y. 2015-16 long terms

loans/secured loans were taken by IKM Ltd. against

hypothecation of book debts, vehicles and against

personal guarantees of the Jalalis increased to Rs.

8.72 Crores. IKM Ltd.'s fixed asset had also

increased from Rs. 2.03 Crores (F.Y. 2009-10) to Rs.

7.10 Crores (F.Y. 2012-13). The fixed assets 22/108 February 7, 2020

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increased primarily on account of addition of office

premises, vehicles trailers, etc. Pertinently, during

the same period, the Respondent's fixed assets

decreased from 29.49 Crores (in F.Y. 2005-06) and

Rs. 18.86 Crores (in F.Y. 2006-07) to Rs. 1 Crore (in

F.Y. 2015-16). The Award Holder has stated that this

was due to the diversion of business as well as

assets from the Respondent Company to IKM Ltd. by

the Jalalis who sought to make IKM Ltd. as the

flagship company. It is further stated that during this

period, huge expenses were recorded in the

financial statements on a regular basis towards,

employees benefit expenses and which was slightly

lesser than the turnover to show negligible profits in

IKM Ltd.'s books. IKM Ltd. had also granted loans to

the Associate Companies which included the loans

advanced by the IKM Ltd. to Ornate shown in the

Balance Sheet of 2013-14 of an amount of Rs. 2.93

Crores. In IKM Ltd.'s Auditor's letter dated 18th

December 2017 to the Prothonotary & Senior

Master of this Court it is stated that the loans and 23/108 February 7, 2020

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advances given by IKM Ltd. had increased to Rs.

6.75 Crores and that Ornate will not be able to

repay the amount of Rs. 6.75 Crores and

accordingly, the valuation of IKM Ltd.'s shares

would be in the negative.

19. The Award Holder has then referred to the

statement of affairs of related entity/Associate Company being

Ornate as reflected from its Annual Accounts/Financial Statements. It

is stated that Ornate is a related entity and/or Associate Company of

the Respondent being under the same management and Ornate's

affairs are also inextricably interlinked with the Respondent and

other Associate Companies controlled by the Jalalis. The objects of

Ornate mirror those of the Respondent Company as also IKM Ltd.

and they all operates in similar lines of business.

20. Ornate's equity capital paid-up share capital is Rs.

50/- Lakh divided into Rs. 100/- each fully paid-up. All the equity

paid-up shares belonging to Jalalis in equal shares. Pertinently

40,000 out of 50,000 shares are issued as Bonus Shares. Thus, the

contribution of Jalalis to Ornate's equity capital is only Rs. 10/- Lakh. 24/108

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Ornate has also issued Preference Shares of total value of Rs. 7.50

Crores to the Respondent Company. Thus, total share capital of

Ornate reflected in the Ornate financial statement is Rs. 8/- Crores

out of Rs. 7.50 Crores is attributable to the Preferential Shares issued

by Ornate to the Respondent Company. The Respondent Company

therefore, is a major stake-holder in Ornate.

21. The Award Holder has stated that the Garnishee

Notice No. 179 of 2015 had been issued to Ornate in respect of the

debt due by Ornate to the Respondent and by an order dated 12th

March 2015, this Court had made the Garnishee Notice absolute.

Thus, an order and decree has been passed in favour of the Award

Holder and against Ornate for a sum of Rs. 21.51 Crores along with

interest. To enforce the Garnishee Decree, the Award Holder filed a

fresh Execution Application No. 919 of 2016 against Ornate.

Chamber Summons No. 13 of 2016 had been taken out by the Award

Holder in the Execution Application No. 919 of 2016 for compelling

disclosure by Ornate and its Directors, the Jalalis of the assets and

properties of Ornate available for satisfaction of dues payable to the

Award Holder under the Garnishee Decree. Along with the Disclosure

Affidavits filed by the Ornate in Chamber Summons No. 13 of 2016, 25/108 February 7, 2020

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the Jalalis/Ornate had forwarded to the Award Holder's Advocates

copies of the Annual Accounts/Financial Statements of Ornate for F.Y.

2013-14, 2014-15 and 2015-16. The Financial Statements of Ornate

shows that there has been gradual decrease in the fixed assets of

Ornate. It is stated that the Jalalis intentionally/consciously and

deliberately removed the immovable properties from Ornate. The

Financial Statements of Ornate indicate no reasons for disposal of the

immovable properties. Further, the value of other fixed assets such as

machinery/equipment (after depreciation) had reduced to a

negligible amount which is apparent from the schedule annexed to

Ornate's Balance Sheet (as of F.Y. 2016-17) when compared to the

schedule annexed to the Balance Sheet (as of 31st March 2009).

There has also been a decline in Ornate's revenue from

operations/turnover from Rs. 11.27 Crore (in F.Y. 2001-08) to

Rs.1.59 Crore (in F.Y. 2016-17). The Jalalis have used Ornate's staff,

infrastructure and assets for rendering service which has been billed

for by IKM Ltd. The employee benefit expenses have been recorded in

Ornate's financial statement.

22. The Award Holder has also referred to

discrepancies in the statements made by the Jalalis through their 26/108 February 7, 2020

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Advocate's correspondence when compared to the Financial

Statements in relation to the loans and advances and repayment

thereof. Certain mention is also made of awarded dues of Rs. 86/-

Lakhs received by Ornate from JNPT in the year 2016 which were

transferred to IKM Ltd. by evading payment to the Award Holder.

23. The Award Holder has then referred to the

siphoning off, of monies of Ornate lying in its Bank Accounts to

transfer to the Jalalis and Associate Companies all stated to be

related entities.

24. The Award Holder has then referred to the state of

affairs of the related entity/Associate Company being Additional

Respondent No. 3 Pan Orient Shipping & Logistics Pvt.Ltd. (for short

"Pan Orient") as reflected from its Annual Accounts/Financial

Statements. It is stated that the Pan Orient is a related entity and/or

an Associate Company of the Respondent, being under the same

management and Pan Orient's affairs are also inextricably interlinked

with the Respondent and other Associate Companies controlled by

the Jalalis. Pan Orient is a Private Limited Company promoted by the

Jalalis to carry on business of clearing, freight forwarding by 27/108 February 7, 2020

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shipping, airways, land ways, etc. Pan Orient was incorporated in the

year 2007 i.e. during pendency of the arbitral proceedings. It is

stated that the Financial Statements of the Pan Orient reveal that;

(a) The Auditor's Report annexed to Pan Orient's annual

accounts for F.Y. 2014-15, states that the company's

business is that of carrying freight and forwarding

and supplying manpower for administrative

services.

(b) Pan Orient has no fixed assets and uses and utilises

the office infrastructure of the Respondent Company

for carrying on its day to day operations without

charge.

(c) The summary of Pan Orient's Profit and Loss

Accounts for F.Y. 2013-14, F.Y. 2014-15, F.Y. 2015-16

and F.Y. 2016-17 have been set out by the Award

Holder and which reflects negligible profits for F.Y.

2013-14, F.Y. 2014-15 and F.Y. 2015-16 and loss for

year 2016-17.

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(d) From the Annual Accounts of Pan Orient it reveals

that the revenue from operations reflected in Pan

Orient's Profit & Loss Account are attributable only

to the related transactions and are amounts received

from the Respondent Company (as purported

administrative charges) and from IKM Ltd. (as

freight and forwarding charges). From the revenue

from operations almost equal amounts are shown to

have been expended towards expenditure for

operating costs including employee benefit

expenses.

(e) The Financial Statements of Pan Orient shows that

Pan Orient had been incorporated only for purpose

of the diversion and transfer of certain amounts on

a regular basis from the Respondent Company and

the IKM Ltd. to itself.

(f) In Form No. AOC-2 filed with F.Y. 2014-15 it had

been stated that there was no board of Directors

approval for the related party transactions with the 29/108 February 7, 2020

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Respondent Company or IKM Ltd. and that there

was no contract/arrangement or agreement

concerning these purported transactions.

25. The Award Holder has then referred to the state of

affairs of the related entity/Associate Company being Additional

Respondent No. 4 Fulcrum Shipping & Logistics Pvt.Ltd. (for short

"Fulcrum") as reflected from its Annual Accounts/Financial

Statements. It is stated that Fulcrum is a related entity and/or

Associate Company of the Respondent, being under the same

management and Fulcrum's affairs were also interlinked with the

Respondent and other Associate Companies controlled by the Jalalis.

Fulcrum is a Private Limited Company promoted by the Jalali family

in the year 2012 after passing of the Foreign Award against the

Respondent. Fulcrum's main objects are to carry on the business of

logistics and to act as international freight forwarding and shipping

agents, fleet owners, warehousing, container agents, cargo agents,

charting agents, freight brokers. The main objects of Fulcrum are

similar to those of the Respondent and Associate Companies. The

Respondent and all the Associate Companies operate in similar lines

of business. From the Memorandum of Association and Articles of 30/108 February 7, 2020

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Association and Financial Statement of Fulcrum for F.Y. 2012-13,

2013-14, 2014-15, 2015-16 and 2016-17 following are shown:-

(i) Fulcrum is promoted by the family of the Jalalis.

(ii) The Directors of Fulcrum are Jamil Jalali

(Additional Respondent No. 6), Sadegh Jalali (son

of Jamil Jalali) and Ali Jawad Jalali (nephew of

Jamil Jalali). Fulcrum's Directors are the members

of the Jalali family. Fulcrum was incorporated with a

small equity paid-up capital of Rs. 1/- Lakh divided

into 10,000 equity shares of Rs. 10/- each divided

equally between the above mentioned three Jalalis.

In F.Y. 2014-15 i.e. within two years of

incorporation, the paid-up shares capacity was

increased from Rs. 1/- Lakh to Rs. 22/- Lakh.

(iii) Fulcrum commenced operations in F.Y. 2012-13

which is first year of operations. Fulcrum had taken

a loan of Rs. 1.31 Crores from L & T Finance Ltd.

against security of hypothecation of vehicles and 31/108 February 7, 2020

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personal guarantees of the Directors, which is

reflected as long term liabilities in the books of

Fulcrum. The Fixed Assets of Rs. 1.52 Crores is

reflected in F.Y. 2012-13 out of which a sum of Rs.

1.48 Crores represent Trailers. Fulcrum is shown to

be in the business of giving out Trailers on hire and

admittedly, engaged in the business of

"Transportation Services and Freight Forwarders".

Pertinently, IKM Ltd.'s list of fixed assets reflects

ownership of Trailers.

(iv) Fulcrum in F.Y. 2012-13 are turnover of Rs. 76.80

Lakhs out of which Rs. 72.80 Lakhs was attributable

to transactions for transportation with IKM Ltd.

Thus, the only major source of revenue for Fulcrum

during F.Y. 2012-13 is IKM Ltd. Fulcrum has shown

net profit (after depreciation and tax) of Rs.

5,70,029/- in F.Y. 2012-13.

26. It is stated by the Award Holder that based on

these Financial Statements, the Fulcrum is nothing but the another 32/108 February 7, 2020

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front of the Jalalis created to divert business and income of the other

Associate Companies to itself.

27. Thereafter, in paragraph 17 of the said Affidavit in

Support, it is stated thus:-

"17. It is clear and evident from the above narration culled out from the financial statements of the Respondent and the Associate Companies that the affairs of all these Companies are interlinked and that all these Companies along with the Jalalis constitute one single economic entity as is also reflected by the following:

(i) The Jalalis are common Shareholders and Directors of all these Companies and the Jalalis constitute the management thereof.

(ii) The Jalalis are the Permanent Directors of all these Companies.

(iii) Three of these Companies being the Respondent, Ornate and Pan Orient have common office premises and have their registered office at a common address. Ornate and Pan Orient have shown their registered address at the registered office address of the Respondent.

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(iv) The website of the Respondent i.e. www.orientshipgroup.com was the common website of the Respondent and all the Associate Companies as can be seen from their letterheads. Hereto annexed and marked as EXHIBIT - "X", EXHIBIT "Y" and EXHIBIT "Z" are copies of letterheads taken from financial statements of IKM Ltd., Ornate and Pan Orient respectively.

(v) All these Companies carry on the same or similar business all concerned with shipping, water transport, transaction and freight handling.

(vi) All these Companies have common Chartered Accountants / Auditors being M/s. S.D. Gunjal & Co., Chartered Accountants.

(vii) That till the year 2008, IKM Ltd. was the wholly owned subsidiary of the Respondent. In the year 2008, on account of issuance of additional capital which was subscribed to by the Jalalis, the Jalalis took 92% stake in IKM Ltd. and the Respondent remained the Owner of the balance 8% shares."

28. It is further stated that the financial statements of

all the Companies i.e. the Respondent as well as its Associate

Companies have shown huge amounts incurred towards the

Director's remuneration, salaries/wages of employees and employee

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benefit expenses, which expenses bear no relevance to the scale of

operations/turnover of the concerned Company. A Chart of F.Y. 2011-

12 onwards i.e. till F.Y. 2016-17 has been set out in paragraph 18 of

the said Affidavit and which it is stated reflects this position. It is

further stated that the Respondent and Associate Companies have

common employees doing work generated by the Jalalis and

distributed amongst the Respondent as well as Associate Companies.

It is further stated that the Jalalis clearly treat the Respondent and

Associate Companies as their own proprietary or partnership

concerns. There are related party transactions reflected in the

financial statements by reason of which the funds of the Respondent

have been transferred to the Associate Companies. It is further stated

that the nature of fixed assets reflected in the Financial Statements of

the Respondent as well as Associate Companies are substantially

similar and they are all shown to be carrying on the same business.

The Award Holder has stated that the Jalalis have consciously and

deliberately structured defaults in repayment of unsecured loans

advanced by the Respondent to the Associate Companies. This

includes defaults on the part of the Ornate in making repayment of

loan of Rs. 21.50 Crores advanced by the Respondent to Ornate

several years ago so that the money never reached the Respondent. It 35/108 February 7, 2020

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is mentioned that the Jalalis could manage this only because these

Companies were under their management and control and are group

companies.

29. In paragraph 26 of the said Affidavit in Support,

the Award Holder has stated that there has been regular and

structured siphoning off, of the Respondent's funds and/or

removal/reduction of the Respondent's assets. This has been stated to

defeat and delay the Foreign Award passed against the Respondent. It

is further stated that pursuant to this objective and taking aid of the

corporate structure of the Associate Companies which are fully

owned and controlled by the Jalalis, the Jalalis structured a regular

siphoning off, of the Respondent's monies and funds and gradual

reduction of the Respondent's assets by using methods and devices,

which are stated as under:-

(i) Repayment of the loans availed by the Associate

Companies from Bankers/Lenders by sale of the

immovable property of the Respondent. The

Respondent lost a very valuable immovable

property at Udyog Bhavan [adm. 3800 sq.feet] on 36/108 February 7, 2020

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account thereof.

(ii) Voluntary sale of the Respondent's property at Nav

Vyapar Bhavan.

(iii) Payment of high amounts to the Jalalis towards

managerial remuneration.

(iv) Showing high operating expenses every year and

paying huge amounts towards salaries/wages and

employees benefit expenses.

(v) Transferring monies and funds of the Respondent

to Associate Companies under the guise of related

party transactions.

(vi) Regular withdrawal of cash from the Bank

Accounts of the Respondent and then giving

legitimacy to such cash withdrawals by alleging

the same to be withdrawals in the normal course

of business.

(vii) Ensuring non-payment of the loans payable by an

Associate Companies to the Respondent so that the

loan amount remained with the Associate

Companies forever.

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(viii) Ensuring that no dividends were paid on the

Preference Shares and the Preference Shares were

never redeemed by the Associate Companies

[Ornate] so that the monies invested by the

Respondent in the Preference Shares always

remained in the control of the Jalalis through

Ornate.

(ix) Ensuring diminishing turnover of the Respondent

over the years by diverting business and income to

the Associate Companies being IKM Ltd. whose

turnover increased dramatically between the

period 2002 to 2008 while that of the Respondent

decreased and became almost negligible by F.Y.

2015-16 [i.e. two years after the filing of the above

Execution Application against the Respondent].

(x) Reducing and making zero the Fixed Assets like

vehicles and trucks of the Respondent so that the

Respondent would not be able to take up any

transportation or container handling business,

which business would be diverted to IKM Ltd. or

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other Associate Companies. Pertinently, the Jalalis

purchased trailers worth Rs. 1.63 Crores and the

same is reflected in Fulcrum's financial statements

for F.Y. 2012-13. Further there are entries for

purchase of containers in foreign currency to the

tune of Rs. 68/- Lakhs in F.Y. 2016-17 by Fulcrum.

30. It is thereafter stated that the above is the manner

in which over a period of time (during the pendency of the

arbitration and thereafter) the Jalalis systematically stripped and

denuded the Respondent of its assets, properties and monies, with

intent to defeat and delay the claims of the Award Holder under the

Foreign Award.

31. The Award Holder has also referred to the conduct

of Jalalis, the Respondent and the Associate Companies during the

pendency of the Execution Application. It is mentioned that due to

this conduct which took place between March 2014 and May 2018,

by way of execution, the Award Holder has managed to recover from

the Respondent only a paltry sum of Rs. 1,39,24,210/- approximately,

which is a small fraction of the awarded amount of Rs. 66/- Crores 39/108 February 7, 2020

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along with further interest. The Award Holder has thereafter narrated

what it claims are instances of the conduct of the Jalalis/Respondent

during the pendency of the execution proceedings in this Court over

the past five years. This they claim demonstrated the obstructionist

attitude of the Jalalis to defeat and delay the Execution proceeding

and ensure that the Award Holder is not in a position to enjoy the

fruits of the Foreign Award. The Award Holder has referred to the

delay in filing of the Disclosure Affidavits for about five months to

enable the Jalalis to allow themselves time to withdraw and remove

the income from the Respondent and transfer it to the Associate

Companies/entities controlled by the Jalalis.

32. The Award Holder has submitted that the

Corporate Veil is required to be lifted to fasten liability for payment

of the awarded dues owed by the Respondent under the Foreign

Award, upon the Associate Companies and the Jalalis. This in view of

the Jalalis having used the corporate cloak of the Associate

Companies to transfer monies out of the Respondent and Associate

Companies using various means and devices and thus, perpetuating

fraud upon the Award Holder. It is stated that upon lifting the

Corporate Veil, the Jalalis are the only persons found behind the 40/108 February 7, 2020

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corporate facade of all these Companies. Accordingly, the Award

Holder has submitted that the Foreign Award be enforced and

executed against the Jalalis and the Associate Companies in their

personal capacity who are all jointly and severally liable to pay the

awarded dues under the Foreign Award which with interest is a large

sum of approximately Rs. 78/- Crores, even after giving credit for the

amounts recovered with further interest still accruing on the awarded

amounts.

33. Affidavits in Reply have been filed by the

Respondent/Judgment Debtor as well as the Additional Respondents

which are more or less similar in nature, filed for the purpose of

opposing grant of urgent ad-interim/interim relief. The Affidavits

have not dealt with the factual averments in the Chamber Summons

but have opposed the maintainability of the Chamber Summons on

various grounds raised therein. The first being on the ground of

limitation. It is stated that the Award Holder despite being aware of

the various disclosures made by way of the Affidavits filed in the year

2014-15 i.e. of the state of affairs of Companies and entities proposed

to be added as Additional Respondents in the Execution Application

and the transactions now referred to in the said Affidavit, failed to 41/108 February 7, 2020

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take any step to bring the proposed Additional Respondents on

record. Hence, the Chamber Summons which now seeks to bring the

proposed Additional Respondents as parties to the Execution

Application and seeks execution of the Foreign Award against them in

their personal capacity are hopelessly barred by limitation. Another

ground raised by the Respondent as well as the Additional

Respondent is that there is no privity between the proposed

Additional Respondents and the Award Holder. The proposed

Additional Respondents were not parties to the arbitral proceedings.

An Execution Application can only be executed against parties

against whom an Award is passed and not third parties who have no

privity whatsoever with the Award Holder. Thereafter, they have

raised the ground that the issues raised in the Chamber Summons is

a matter of trial. It is stated that the Applicant is trying to fasten

liability on the proposed Additional Respondents without substantial

evidence against them. The allegations of siphoning off monies,

fraud, lifting of Corporate Veil are a matter of trial and thus, such a

trial cannot be ignored. These allegations in the said Affidavit in

Support of the Chamber Summons i.e. of fraudulently siphoned off

monies are nothing but bald allegations without any credible

evidence attached to them. The allegations of fraud cannot be tested 42/108 February 7, 2020

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on mere Affidavits and unless fraud is established conclusively this

Court cannot hold commonality of identity for lifting of Corporate

Veil. Thereafter, they have raised the contention that the Executing

Court cannot go beyond the merits of the award or behind what the

award says.

34. The proposed Additional Respondent No. 4 in its

Affidavit has sought to answer certain of the factual allegations made

against it. The Affidavit states that two out of three Directors of the

proposed Additional Respondent No. 4 namely Sadegh Jalali and Ali

Jawed Jalali are not proposed to be made parties or Additional

Respondents. The Additional Respondent No. 4 has relied upon a

copy of the tabulation extracted from its ledger of accounts which is

annexed to the compilation of documents tendered along with the

Affidavit in Reply in order to show that the remuneration has been

paid to the Directors of the proposed Additional Respondent No. 4

since the years 2012 to 2017. This indicates the proposed Additional

Respondent No. 6 never received any remuneration from proposed

Additional Respondent No. 4 which is in contrast to the submissions

made by the Applicant before this Court. It is stated that the

proposed Additional Respondent No. 4 and the Respondent 43/108 February 7, 2020

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Judgment Debtor are two separate and distinct legal entities

conducting separate and distinct businesses. The proposed Additional

Respondent No. 4 and the Respondent Judgment Debtor are involved

in inter se business of providing services to and fro as and when

required by the Respondent Judgment Debtor or any other business

entity. The invoices raised by the proposed Additional Respondent

No. 4 have been annexed in the compilation of documents and

marked as TAB 2 to TAB 3 which were raised as and when services

were rendered to the Respondent Judgment Debtor by the proposed

Additional Respondent No. 4 for services rendered in moving

containers in New Delhi for the Judgment Debtor's principals. The

proposed Additional Respondent No. 4 has also given an answer to

the allegation of the siphoning off funds of Rs. 4,00,000/- from the

Respondent Judgment Debtor to the proposed Additional Respondent

No. 4's account. It is stated that the sum of Rs. 4,00,000/- was

advanced to by the proposed Additional Respondent No. 4 to the

Respondent/Judgment Debtor in connection with service of booking

of space for carriage of certain cargo through the Judgment Debtor.

However, owing the certain unforeseen circumstances, the Judgment

Debtor was unable to complete this booking and had to return the

advance received by it. The Judgment Debtor refunded the same 44/108 February 7, 2020

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amount of Rs. 4,00,000/- to the account of the proposed Additional

Respondent Nos. 4 and this is reflected in the bank statements for the

relevant period which is annexed and marked in the compilation of

documents as TAB 4. It is thereafter stated in the said Affidavit that

the proposed Additional Respondent No. 6 is merely a Director

holding a minuscule 1.54 percent shareholding in the proposed

Additional Respondent No. 4. The proposed Additional Respondent

No. 6 is only a Director and has no controlling interest in the

proposed Additional Respondent No. 4. The Replies have thus, sought

dismissal of the Chamber Summons.

35. The Affidavit in Rejoinder has been filed by the

Award Holder which denies what is stated in the Affidavit in Reply of

the Judgment Debtor as well as the Additional Respondents.

36. Mr. Kevic Setalvad, the learned Senior Counsel

appearing on behalf of the Award Holder has submitted that the

Award Holder has till date been able to satisfy the Foreign Award

only to the extent of approximately Rs. 2 Crores. He has submitted

that at the time when Arbitration Petition No. 842 of 2009 was filed

by the Award Holder for enforcement of the Foreign Award, the 45/108 February 7, 2020

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status quo order dated 4th February, 2010 was passed in respect of

three properties of the Judgment Debtor. The Award Holder at that

time was reasonably certain of recovering a substantial part of the

Award from the sale of these properties. The Judgment Debtor

although aware when the status quo order was passed that these

three properties had already been disposed of, did not bring to the

knowledge of this Court till about the year 2015 when the Execution

Proceedings commenced, that these properties had been sold to clear

the debts of Ornate. He has submitted that the Judgment Debtor was

made a shell company by the Jalalis in order to defeat award. He has

submitted that the sum of Rs. 21 Crores which had been attached in

garnishee proceedings against Ornate, a group / sister company of

the Judgment Debtor has also been placed out of reach of the Award

Holder by alleging that the Additional Respondent No.1 is facing

winding up proceedings. The winding up proceedings have been

commenced by the Additional Respondent No.1's own former

director and managing director.

37. He has submitted that the Chamber Summons

which has been filed to lift the Corporate Veil in order to attribute

liability to the four common directors of the Judgment Debtor (the 46/108 February 7, 2020

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Jalalis) and its group companies. Pursuant to the filing of the present

Chamber Summon, an order dated 14th February, 2019 was passed

by this Court (K.R. Shriram, J.) at the interim stage granting time till

20th March, 2019 to the Respondent and Additional Respondents to

file Affidavit in Reply. The Respondent and Additional Respondents

by letter dated 12th April, 2019 served their respective Affidavits in

Reply upon the Advocates of the Applicant / Award Holder raising

preliminary objections to the Application. When the matter was

placed for final hearing, an opportunity was once again given to the

Respondent and Additional Respondents to file Affidavit-in-Reply on

merits on or before 7th June, 2019. The Respondent / Additional

Respondents despite this opportunity did not deal with the

application on merits but served the very same Affidavits in Reply

upon the Advocates of Applicant / Award Holder on 6th June, 2019.

Thus the Respondent and Additional Respondents chose not to

respond on merits. He has submitted that the averments pleaded by

the Award Holder that the Respondent and Additional Respondents

are all one entity have not been denied by the Respondent and

Additional Respondents.

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Summons, the Applicant has relied upon the Respondent / Additional

Respondents own documents including their financial statements and

filings with the Registrar of Companies. The Applicant has during the

arguments tendered a compilation of documents viz. Volumes I to III.

Volume I includes a note on the two premises at Nav Vyapar Premises

and Udyog Bhavan premises and the documents in respect thereof.

Volume II are the bank accounts and audited accounts disclosed by

Respondent. Whereas in Volume III is a Note on Related party

transactions inter-corporate loans. Another compilation in volume III

are the Chamber Summons No. 13 of 2016 and Execution

Application No.919 of 2016 filed by the Award Holder against the

garnishee viz. Ornate. There are other Notes on nexus between

Respondent and Related Companies, loans given by the Respondent

to Additional Respondent No.1 and Preference Shares of Ornate

subscribed to by the Respondent as well as Note on the Respondent's

financial statements from F.Y. 2003-04 to F.Y. 2016-17 which are

available on MCA Website.

39. He has submitted that in view of undisputed

factual position pleaded by the Applicant in the Chamber Summons

and not denied by the Respondent / Additional Respondents, the 48/108 February 7, 2020

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Applicant is entitled to lift the Corporate Veil. This aspect will have to

be dealt with by the Executing Court by virtue of Section 47 of the

Code of Civil Procedure, 1908. He has submitted that Jalalis though

represented by their counsel made no separate / independent

arguments on behalf of themselves to refute the Applicant's claim

that the Jalalis were behind all these companies.

40. In support of his submission that the Corporate

Veil of the Respondent is to be lifted, he has relied upon the

judgment of the Division Bench of this Court in Bhatia Industries and

Infrastructures Ltd. Vs. Asian Natural Resources (India) Ltd .1 The

Division Bench of this Court upheld an order of a Single Judge and

decided the question as to whether the Corporate Veil can be lifted by

the Court and whether the concept of lifting the Corporate Veil is also

available in Execution proceedings. He has submitted that the

Division Bench of this Court after considering several judgments has

held that the doctrine of lifting the Corporate Veil does apply in the

case of Execution proceedings. He has submitted that the parameters

laid down by the Division Bench of this Court apply to the

Respondent and Additional Respondent Nos. 1 to 8. The Additional

1 (2017) 201 Company Cases 46 (Bom.).

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Respondent Nos. 1 to 8 are inextricably interlinked with the

Judgment Debtor. He has submitted that the Associate Companies as

well as the four common Directors (the Jalalis) are nothing but a

single entity and their business is conducted in such a manner as to

defeat the execution of the Award passed in favour of the Applicant.

He has submitted that the Special Leave Petition which has been filed

from the judgment of the Division Bench of this Court in Bhatia

Industries (supra) has been disposed of, leaving the question of law

open. This does not mean that the judgment passed by the Division

Bench of this Court is per incuriam as sought to be contended by the

Respondent. He has relied upon judgment of the Supreme Court in

Khoday Distilleries Ltd. & Ors. Vs. Shri Mahadeshwara Sahakara Sakkare Karkhane Ltd., Kollegal 2 which has held that an order

refusing special leave to appeal does not stand substituted in place of

the order under challenge. The Supreme Court has held that refusing

special leave to appeal does not attract the doctrine of merger.

41. He has submitted that the Additional Respondent

Nos. 1 to 8 are nothing but the Respondent / Judgment Debtor and

all of them are one entity disguised as separate corporate entities. He

2 (2019) 4 Supreme Court Cases 376.

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has relied upon the decision of the Supreme Court in Gangabai

Mohata Vs. Fulchand & Ors.3 which had occasion to consider who

would be a "representative" of the Decree Holder under Section 47 of

the Code of Civil Procedure, 1908 (for short "CPC"). He has

submitted that the Supreme Court has held that where a person

approaches the Executing Court claiming to be a representative of the

decree holder's interest and the decree holder disputes it, the

Executing Court has power to resolve the dispute. The Supreme

Court held that the word "representative" used in Section 47 of the

CPC is much wider than the words "legal representative" used in

Section 50 of the CPC. The very object of Section 47 of the CPC is to

avert another suit concerning the decree in execution. He has

submitted that the Jalalis being the common directors (Additional

Respondent Nos.5 to 8) as well as the associated companies

(Additional Respondent Nos.1 to 4) are nothing but a representative

of the Judgment Debtor, being one common entity. He has submitted

that the attempt of the Additional Respondent No.4 to disassociate

itself from the Respondent and Additional Respondent Nos. 1 to 3

and 5 to 8 is nothing but an attempt to wriggle out of the reliefs

claimed against it in the present application. On lifting of the

3 (1977) 10 Supreme Court Cases 387.

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Corporate Veil it can be seen that the Additional Respondent No.4 is

nothing but an alter ego of Judgment Debtor and Additional

Respondent Nos. 1 to 3.

42. He has relied upon the decision of the Delhi High

Court in Formosa Plastic Corporation Ltd. Vs. Ashok Chauhan & Ors .4

and the decision of the Punjab and Haryana High Court case in Sai

Sounds Pvt. Ltd. Vs. Kiran Contractors P. Ltd.5 which were considered

in Bhatia Industries (supra). Both the Courts had held that the Court

has the power to lift the Corporate Veil, in execution proceedings. He

has submitted that such power will be exercised by the Court by

lifting the Corporate Veil where a fraud was being committed to

defeat the process of Court and for realization of the decree. He has

submitted that in the present case it is in the interest of justice that

injunction and disclosure orders be passed against Additional

Respondent Nos. 1 to 8 from alienating their assets so that the

Applicant is not left with a fait accompli, as the Respondent and

Additional Respondents seek to do. In the present case, the party

executing the Award in India is a foreign party and has spent

4 (1998) Supreme Court Cases Online Del.743.

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considerable time in enforcing the Foreign Award. If such relief is not

granted an unscrupulous Award Debtor can always prolong the

matter so as to give it sufficient time to arrange its affairs in such a

manner so as to defeat a foreign award.

43. He has submitted that although it was contended

by the learned Counsel appearing for the Additional Respondents

that the judgment viz. Jawarha Lal Nehru Hockey Tournament

Society V. Radiant Sports Management P. Ltd .6 relied upon by the

Punjab and Haryana High Court in Sai Sound (Supra) while arriving

at its conclusion, has been overruled, by Division Bench of Delhi High

Court on 7th November, 2008. He has submitted that both the

judgments of the Single Judge and Division Bench are of no

relevance to the present case as the facts in that matter were

different. He has submitted that what is relevant is the observation

made in Sai Sounds (Supra) that the Corporate Veil can be lifted even

the execution proceedings particularly in cases of of a closely held

company where the Court is satisfied about the need to follow such a

course. He has submitted that this observation stands uncontroverted

and squarely applies to the present case. He has submitted that the

6 (2008) 149 DLT 749.

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facts and circumstances in Sai Sounds (supra) are similar to the facts

in the present case. In that case the justification for proceeding

against the assets of the director was based on a plea that he had

committed fraud by running away from the execution process by

filing an appeal and neither complying with the condition of stay nor

the directions for making payment as was directed to be done when

the company court admitted the winding up petition. He has

submitted that in the present case, the Jalalis had for a period of

almost five years after the Award Holder had in its favour an order of

status quo on certain immovable properties of the Judgment Debtor,

failed to disclose either at the time of order granting status quo or

even thereafter till commencement of execution proceedings that

those properties did not exist. These Jalalis had played fraud upon

this Court by allowing a status quo order to be passed and thereafter

allowing it to continue for a period of almost five years, knowing full

well that the order of status quo was infructuous at the outset.

Further, the Jalalis failed to make proper disclosures and filed as

many as eight Affidavits / Disclosure Affidavits, over several months

and even bailable warrants had to be issued against them to compel

them to make disclosures. The Jalalis adopted all measures to delay

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including appealing against the judgment of this Court which

enforced the Foreign Award to the Supreme Court. Thereby gaining

time to manage their affairs and to deplete the assets and net worth

of the Judgment Debtor and divert business to their other companies

being Additional Respondent Nos. 1 to 4.

44. He has thereafter relied upon the decision of the

United Kingdom Supreme Court in Prest V. Petrodel Resources Ltd.

and Ors.7 in support of his submission that the Court has recognized

the concealment principle apart from the evasion principle and held

that the concealment principle is legally banal and does not involve

piercing the Corporate Veil at all. It is the interposition of a company

or perhaps several companies so as to conceal the identity of the real

actors. This will not deter the Court from identifying them, assuming

that their identity is legally relevant. In these cases, the Court is not

disregarding the "facade", but only looking behind it to discover the

facts which the corporate structure is concealing. He has submitted

that several cases were referred to and relied upon in Prest (Supra)

one of such cases is Mubarak v. Mubarak8. The Court held in that case

7 (2012) EWCA Civ. 1395 8 (2001) I FLR 673.

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that the Family Division would lift the Corporate Veil not only where

the company was a sham but "when it is just and necessary". He has

submitted that the judgment of the United Kingdom Supreme Court

in Prest (supra) has been adopted by the Supreme Court in the recent

judgment of Arcelormittal India Private Ltd. vs. Satish Kumar Gupta

& Ors.9. He has submitted that the Supreme Court in Arcelormittal

(supra) had adopted the principle stated in Gower's Company that:-

"...there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group".

45. He has submitted that the judgment of the United

Kingdom, Supreme Court in Prest (supra) has also been followed in

Balwant Rai Saluja vs. Air India Ltd. 10 He has submitted that the

principles laid down in Prest (supra) which includes the concealment

principle are applicable in Indian Law and to the facts of the present

case.

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46. He has submitted that if this Court comes to the

conclusion that a trial is required, it would be imperative in the

interregnum to safeguard the assets in hands of the Additional

Respondents and direct disclosure for the benefit of the Applicant /

Award Holder. This is more so required in the facts and circumstances

of the present case where the record reflects that despite numerous

proceedings, the Applicant / Award Holder has been unable to

recover monies in satisfaction of the Foreign Award as the Judgment

Debtor has been made into a shell company.

47. He has relied upon the judgments of the Supreme

Court in Chintalapati Shrinivasa Raju v. SEBI11 which had been

referred to in Arcelormittal (supra). The Supreme Court referred to

the test laid down in SEBI v. Kishore R Ajmera12 to consider who

exercises "control" over a company. He has submitted that it is

imperative in the present case that the Corporate Veil is lifted behind

the Judgment Debtor and Additional Respondent Nos. 1 to 4 are the

Jalalis who are in management and control of these companies. He

has submitted that the relief sought for in Chamber Summons to be

11 (2018) 7 SCC 443.

12 (2016) 6 SCC 368.

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granted and that the Applicant should not be compelled to file a

separate Suit against each of the Additional Respondents and lead

evidence knowing full well that the Applicant is a foreign party and

has already spent 18 years in pursuing the Arbitration and

proceedings before this Court. Further, that it is in the interest of

justice that the Foreign Award should not be allowed to be defeated

in this manner and the Applicant be permitted to bear the fruits of

the Arbitral Award in its favour.

48. Mr. Rahul Narichania, the learned Senior Counsel

for the Additional Respondent No.4 herein has submitted that the

Award Holder has no right to proceed against the proposed

Additional Respondent No.4 in execution. He has submitted that the

proposed Additional Respondent No.4 was incorporated on 19th

April, 2012 under the Indian Companies Act, 1956 i.e. after the

passing of the Foreign Award on 2nd February, 2009. The Additional

Respondent No.4 has three directors viz. Jamil Jalali, (proposed

Additional Respondent No.6), Sadegh Jalali and Ali Jawad Jalali. The

shareholding amongst directors as of today is Sadegh Jalali having

65.14%, Ali Jawad Jalali having 33.32% and Jamil Jalali (proposed

Additional Respondent No.6) having 1.54% shareholding in the 58/108 February 7, 2020

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proposed Additional Respondent No.4. Mr. Sadegh Jalali and Ali

Jawad Jalali have no connection to the Judgment Debtor as well as

no shareholding in the Judgment Debtor. They have not been sought

to be joined as proposed Additional Respondents in the Execution

Application. The proposed Additional Respondent No.6, who has a

minuscule holding of 1.54% has no controlling interest in proposed

Additional Respondent No.4 and is not concerned with the day to day

functioning of proposed Additional Respondent No.4. The only

commonality that exists between the other two directors viz. Mr.

Sadegh Jalali and Ali Jawad Jalali is that Mr. Jamil Jalali who is

sought to be joined as Additional Respondent in the Execution

Proceedings is the father of Mr. Sadegh Jalali and uncle of Mr. Ali

Jawad Jalali and the Managing Director of the Judgment Debtor. He

has submitted that merely being a relative of a director or a director

being a director in another Company at the same time does not make

the two separate companies one and the same. The two majority

shareholders viz. Mr. Sadegh Jalali and Mr. Ali Jawad Jalali hold

between them over 98.46% shareholding in proposed Additional

Respondent No.4 are not even been made parties to the instant

Chamber Summons. This would be fatal to the maintainability of the

Chamber Summons viz-a-vis. proposed Additional Respondent No.4. 59/108

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49. He has submitted that the proposed Additional

Respondent No.4 had been incorporated after the filing of the

Arbitration Petition seeking enforcement of the Foreign Award

against the Judgment Debtor before this Court. Thus, the proposed

Additional Respondent No.4 could not have been a party to the

arbitration agreement or the arbitration proceedings. He has relied

upon Section 7 of the Arbitration and Conciliation Act, 1996 to

contend that the said provision is mandatory and cannot be

circumvented in any situation. He has relied upon the judgment of

the Delhi High court in K.K. Modi Investment and Financial Services

Pvt. Ltd. Vs. Apollo International Inc. & Ors. 13 to contend that every

company which is incorporated under the relevant law of a country is

a separate legal entity. The Court cannot presume that all subsidiary

companies and the holding or parent company shall be considered as

one legal person and a contract with one company shall be

considered as contract with every other company of that group. It is

not the position under Company Law or any other law that a

subsidiary company has no legal existence, it is only the main

company that has legal existence. He has submitted that the Chamber

Summons has been filed with a malicious intent to bring under the

13 (2009) 2 Arb. LR 499.

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ambit of this Court's jurisdiction entities which altogether have never

been privy to any agreement or contract either with the Judgment

Creditor or Judgment Debtor. He has submitted that on a reading of

Section 48 of the Arbitration and Conciliation Act, 1996, it is

sufficient to conclude that in the absence of an arbitration

agreement, the entity against whom the execution of the award is

sought has never been party to the arbitration proceedings, execution

of such an award cannot be sought without a proper opportunity for

that entity to defend the allegations so levelled against it. He has in

support of this contention relied upon a decision of this Court in

Tropic Shipping Co. Ltd., London Vs. Kothari Global Ltd., Mumbai 14

which held that under Sections 47 and 48 of the Arbitration and

Conciliation Act, 1996, a party who has an award in his favour is

required to file enforcement proceedings seeking a declaration that

the award is enforceable against the party against whom the award is

passed. It is only upon the Court accepting the contention that the

Foreign Award is enforceable against that party, the Foreign Award

will be given the characteristic of a decree of the Court. Considering

that no award has been passed against the proposed Additional

Respondent No.4, no action can be against the proposed Additional

14 2002 (2) Mh.L.J. 585.

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Respondent No.4.

50. He has submitted that to enable the Court to

pierce the Corporate Veil the Judgment Creditor must satisfy the

criteria laid down in Balwant Saluja (Supra) case. He has submitted

that the allegations of siphoning off monies from the Judgment

Debtor to the proposed Additional Respondent No.4 has no merit. He

has placed reliance upon the Affidavit in Reply to the Chamber

Summons which has dealt with the allegations of the Award Holder

that proposed Additional Respondent No.4 had siphoned off Rs.4

Lakhs. He has submitted that money of Rs.4 Lakhs was actually

advance monies paid by the Additional Respondent No. 4 for a

service to be availed from the Judgment Debtor and the Judgment

Debtor being unable to provide such service due to certain

circumstances refunded the same to proposed Additional Respondent

No.4. He has submitted that it is evident that no monies were paid by

the Judgment Debtor to the proposed Additional Respondent No.4 as

alleged. He has further submitted that the Judgment Creditor has

attempted to create an impression that since the Judgment Debtor

and proposed Additional Respondent No.4 shared the same office for

a brief period, they are controlled by the same entity and are in fact a 62/108 February 7, 2020

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facade and sham company. He has relied upon the invoices at TAB 17

to TAB 21 which do not bear the common address of the branch

office which is evidence enough to show that the common branch

office was utilized only for a brief period until the business of

proposed Additional Respondent No.4 was settled.

51. He has submitted that the Judgment Creditor has

attempted to create impression that the Judgment Creditor is a river

in which monies originally vested and that the proposed Additional

Respondents have been created to make tributaries of this river in

attempting to siphon monies. The Judgment Creditor in fact has

failed to establish and / or prove siphoning off funds and/or that

funds have been siphoned from the Judgment Debtor itself to the

other entities. He has submitted that, there is no substance in the

allegations made by the Judgment Creditor that the proposed

Additional Respondent No.4 and Judgment Debtor conduct the same

business. Merely because the proposed Additional Respondent No.4

and Judgment Debtor conduct business in the field of Ocean

Transport does not mean that they conduct the same business. Ocean

Transport being an umbrella over many smaller yet largely significant

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involves, shipments, charterers, barge owners, ships agents,

protective agents, M.T.O.'s, Logistic providers, Container

Transporters, Cargo Carriers, etc. He has submitted that the proposed

Additional Respondent No.4 and the Judgment Debtor do not have

same business. He has submitted that the allegations made by the

Judgment Creditor that the proposed Additional Respondent No.2

owns trucks and so does the proposed Additional Respondent No.4,

there is a chance that only one company owns trucks or has in fact,

bought the trucks which is enough to establish that the two

companies are one and the same has no substance.

52. He has relied upon the judgment in the case of

Indowind Energy Ltd. vs. Wescare (India) Ltd. & Anr .15 to contend

that each company is a separate and distinct legal entity and the

mere fact that the two companies have common shareholders or

common Board of Directors will not make the two companies one

and the same. Nor will the existence of the common shareholders

and common Board of Directors make the two Companies one and

the same. He has relied upon the judgment of this Court in the case

of Oil and Natural Gas Corporation Ltd. vs. M/s. Discovery

15 (2010) 5 SCC 306.

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Enterprises Pvt. Ltd. & Anr.16 to contend that merely because in that

case son and daughter-in-law of the Managing Director of JDIL were

the Directors of the Discovery Enterprises Pvt. Ltd., the same cannot

take ONGC's claim any further to pin down JDIL in respect of the

contractual obligations between DEPL and ONGC. He has submitted

that it is thus clear from these cases that mere commonality of

directors, shareholdings, offices and email addresses does not

establish a case where the Corporate Veil ought to be lifted. He has

also relied upon Judgment of this Court in the case of Siva Bulk Vs.

M.V. Aaodabao & Anr.17 to contend that Corporate Veil cannot be

lifted unless a compelling case is made out by the Applicant, since 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. Merely, because the directors and shareholders of

two companies are common, it does not make them one and the

same. The doctrine should be sparingly and only in appropriate cases

where the facts and circumstances so warranted. He has relied upon

the judgment of the Supreme Court in Balwant Saluja (Supra). The

principle of piercing of Corporate Veil was applied only in scenarios

16 Decided on 27th June, 2012 Arbitration Petition No.814 of 2011 (Bom. H.C.). 17 2016(4) Bom. C.R. 251.

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wherein it is evident that the company was a mere camouflage or

sham deliberately created by persons exercising real control over the

said company for the purpose of avoiding a liability. The intent of

piercing the Corporate Veil must be such that to do so would seek to

remedy a wrong done by the persons controlling the company. The

Supreme Court then crystallized the guidelines which need to be

followed before lifting a Corporate Veil over the alleged companies.

The principles were laid down referring to the Judgment of Ben

Hashem Vs. Ali Shayif18 and Prest (Supra) of the Supreme Court of

United Kingdom. The principles laid down by the Supreme Court are

as follows:-

"a. Ownership and control of a company were not enough to justify piercing the Corporate Veil;

b. The Court cannot pierce the Corporate Veil even in the absence of third party interests merely because it is thought to be in the interests of justice;

c. Corporate Veil can be pierced only if there is some impropriety;

d. The impropriety in question must be linked to the use of the company structure to avoid or conceal liability;

18 2016 (4) Bom C.R. 251.

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e. To justify piercing the Corporate Veil, there must be both control of the company by the wrong doer and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrong doings; and

f. The company may be a "facade" 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 is necessary to provide a remedy for the particular wrong done by the company."

53. He has submitted that the Applicant in order to

pierce the Corporate Veil must satisfy the above criteria. He has

submitted that it was further held in the above decision that for

piercing the veil of a Company, it should be evidenced that the

impropriety and the real control over the company together has

caused legal injury to the complainant. In the present case the

Judgment Creditor has not pleaded any impropriety as against the

proposed Additional Respondent No.4. Nor is there any evidence

produced to even remotely established that the Judgment Debtor has

been instrumental in creating proposed Additional Respondent No. 4.

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(supra) for lifting of the Corporate Veil clearly not satisfied in the

present case.

54. He has submitted that the case of Bhatia (supra),

is clearly distinguishable from the present case. The Applicant

Creditor in that case was not seeking to make another Company viz.

'B' liable to pay the amounts under the decree payable by 'A'. It was

affecting the properties of another Company 'B' in execution of a

decree against Company 'A'. It was when the company 'B' sought to

vacate the attachment it was contended that both companies 'A' and

'B' are in effect the same and therefore, the attachment was in effect

of the properties of company 'A'. He has submitted a factual

comparison of the facts as transpired in the Bhatia (supra) case and

in the present case, which evidences the fact that the ratio decendi in

Bhatia (supra) case cannot be followed and applied to the present

case. He has submitted that there is no legal precedent in 111 years

old history of the CPC, to justify the relief sought for by the Applicant

in the present Chamber Summons. He has submitted that when the

matter in Bhatia (supra) travelled to the Supreme Court, the SLP was

dismissed however the question of law has not been crystallized by

the Supreme Court and is expressly kept open.

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55. He has submitted that the Prest case relied upon

by the Award Holder is clearly distinguishable on facts from the

present case. In that case there was a trial where evidence of

witnesses were recorded to test the evidentiary value of the case

propounded. There the wife had in divorce proceedings sought an

order for the transfer of ownership of eight residential property

(including the matrimonial home), legal title which were vested in

two companies registered in the Isle of Man to her name towards her

share in the estate of her husband. These assets stood in the names of

various companies which were otherwise owned and controlled by

the husband. The case related to the concealment of assets of

companies and not companies. The concealment principle laid down

by the United Kingdom Supreme Court in Prest (supra) cannot apply

in the factual situation of the present case where the Judgment

Creditor is attempting to foist liability on several other companies

besides the Judgment Debtor. In the Prest case the Court did hold the

other companies liable. It only proceeded against assets standing in

the name of the companies which were being ring fenced by the real

owner i.e. the husband. He has submitted that the Evasion Principle

is the real instance of piercing the veil which has been recognized by

the Courts in India. It is in the context of this principle that the Prest 69/108 February 7, 2020

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(Supra) had been followed in India. The Concealment Principle has

not been recognized by our Courts whilst referring to the Prest case.

The Supreme Court in Balwant Saluja (supra) only refers to the

Evasion Principle and not the Concealment Principle. He has

submitted that the decision of the Supreme Court in Arcelormittal

(Supra) which refers to Prest (Supra) is a case which had been

decided under the Insolvency and Bankruptcy Code, 2016 (for short

"IBC") where there is a statutory requirement of disregarding the

corporate cloak whilst considering a situation when resolution plans

need to be filed so that the same defaulter does not come around in

another avatar to take over the insolvent Company. He has submitted

that the Judgment of the Supreme Court in Arcelormittal (Supra) has

in paragraph 37 clearly held that the Court will disregard the veil in

cases where it is either the point of public interest, or where the

statute mandates it or where there is evasion of a legal imposition. In

the instant case, the Judgment Creditor has failed to establish any of

the above and therefore. Section 29A of the IBC is enacted to prevent

abuse. The statute itself demands the disregarding of the Corporate

Veil to protect the creditors of the Defaulting Company.

56. He has submitted that the Judgments relied upon 70/108 February 7, 2020

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by the Award Holder viz. Sai Sounds (Supra) or Formosa Plastic

(Supra) are not applicable in the facts of the present case. In the Sai

Sounds (Supra) the director of the Company (against whom the

decree was passed) was held personally liable to satisfy the decree

because he had given an undertaking to pay the amount. In the case

of Formosa Plastic (supra) the action was commenced to restrain the

wife, son, brother of the Judgment Debtor from transferring assets

belonging to the Judgment Debtor though acquired in the name of

his wife, son and brother. He has submitted that in the context of the

case laws and precedents to apply, the Supreme Court in State of

Orissa Vs. Md. Illiyas 19 has held as under :-

"A case is a precedent and binding for what it explicitly decides and no more. The words used by Judges in their Judgments are not to be read as if they are words in Act of Parliament. In Quinn v. Leathem (1901) AC 495 (H.L.), Earl of Halsbury LC observed that every judgment must be read as applicable to the particular facts proved or assumed to be proved, since the generality of the expressions which are found there are not intended to be exposition of the whole law but governed and qualified by the particular facts

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of the case in which such expressions are found and a case is only an authority for what it actually decides."

57. He has submitted that the relief sought for in the

instant Chamber Summons ought not to be allowed as in doing so it

would impose a liability upon third parties who have never been

parties to the transactions/arbitration agreements from the very

inception thereby prejudicing their rights to propagate as a separate

legal entity.

58. Mr. Sanjay Jain, the learned Counsel appearing for

the Respondent and Additional Respondent Nos.1 to 3 and 5 to 8 has

relied upon various provisions of the CPC and contended that the

Additional Respondents are neither representatives nor legal

representatives within the meaning of the provisions in the CPC. He

has submitted that the CPC is a complete code in itself and execution

of a decree can be only against a Judgment Debtor defined in Section

2(10) of the CPC. Further, that legal representatives can be sued only

to the extent of the estate of the Judgment Debtor which have come

in their hands, Legal Representative is defined under Section 2(11) of

the CPC. He has submitted that a representative when taken with

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reference to a Judgment Debtor does not mean only its legal

representative but would include its representative in interest as well

as a purchaser in interest, who so far as its interest is concerned is

bound by the decree. Representative is to be determined under

Section 47 of the CPC. He has relied upon various case laws on the

provisions of the CPC concerning representative and legal

representative in support of his contention that the Additional

Respondents do not come within those provisions. These case laws

are not material to refer to as the position in law with regard to these

provisions is well settled. He has submitted that the allegations of

fraud is required to be both pleaded and proved. He has submitted

that in the present case the Applicant has except bare assertions,

allegations, surmises and conjectures failed to produce any concrete

evidence of fraud warranting lifting of the Corporate Veil. In any

event, the Applicant under the garb of lifting of the Corporate Veil, is

seeking to make the unconnected Additional Respondents liable

under the award.

59. He has submitted that the present Chamber

Summons is based on facts already known to the Judgment Creditor

and is nothing but a mere amplification of the earlier allegations 73/108 February 7, 2020

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made by the Judgment Creditor in earlier Chamber Summons No.292

of 2014, wherein most of the allegations have been dealt with by the

Judgment Debtor in its Affidavits of Disclosure. He has submitted

that Judgment Creditor has suppressed various orders of this Court in

the Execution Proceedings and also tendered incomplete documents

so as to cause prejudice against the Additional Respondents. He has

accordingly submitted that the Judgment Creditor as a result thereof

is not entitled to any relief much less an equitable and discretionary

relief. He has reproduced the preliminary grounds of challenge which

have been raised in the Affidavit in Reply to the Chamber Summons

viz. limitation, delay and latches, that the Executing Court cannot go

behind the decree and allegations of fraud which is required to be

both pleaded and proved. In the context of limitation, he has

submitted that the Chamber Summons is nothing but in the form of a

Suit against the Additional Respondents and the limitation period of

12 years is only qua the Judgment Debtor and would not apply to the

Additional Respondents on whom the liability is being thrusted

without an opportunity of trial. He has submitted that the Chamber

Summons is nothing but a tracing action to trace monies in the hands

of the Additional Respondents which cannot be permitted in an

Execution proceeding as tracing action can only be permitted by way 74/108 February 7, 2020

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of a Suit. He has submitted that there is gross delay and latches in

filing the present Chamber Summons as the documents which form

the basis of the Chamber Summons was available with the Award

Holder between September 2014 to September 2015 as part of the

Disclosure Affidavits despite which the present Chamber Summons

has been filed only on 21st January, 2019. He has submitted that the

Executing Court cannot go behind the decree or beyond the decree.

By seeking execution against the Additional Respondents, the

Judgment Creditor is in fact going both behind and beyond the

Foreign Award which was passed against the Judgment Debtor. He

has submitted that in the case of Additional Respondent No.1

(Ornate), the Judgment Creditor has taken out garnishee proceedings

and filed Execution Proceedings, thereby acknowledging that the

Additional Respondent No.1 is a separate legal entity and not one

and the same as the Judgment Debtor.

60. He has submitted that under Section 48 of the

Arbitration and Conciliation Act, 1996, the parties applying for

enforcement of the Award have to first invoke that Section and then

an opportunity is to be provided to the party against whom the

Foreign Award is being enforced as to why it should not be enforced. 75/108

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The present Chamber Summons is nothing but an attempt to short-

circuit the said provisions and thereby add parties who were neither

parties to the arbitration agreement nor participant to the Foreign

Award. The Foreign Award was made enforceable only against the

Judgment Debtor and not against any of the Additional Respondents

who are now sought to be made parties in the Execution Proceedings.

He has thereafter made submissions dealing with the lifting of the

Corporate Veil.

61. He has submitted that the Judgment Creditor by

the present Application seeks to make all Additional Respondents

liable for the Foreign Award which is only passed against the

Judgment Debtor. Such imposition of the Foreign Award against

Additional Respondents is even beyond the concept of lifting of

Corporate Veil. He has submitted that in all the judgments relied

upon by the parties, it is clear that the Courts whenever they have

proceeded against a particular asset have on lifting of the Corporate

Veil come to the conclusion whether or not the assets belonging to

the person who is liable. The Judgment Debtor has not cited a single

case where the Courts have imposed liabilities of a Company on other

entities including Directors in their personal capacity. He has 76/108 February 7, 2020

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submitted that the judgment of the Division Bench of this Court in

Bhatia Industries And Infrastructure Ltd. (supra) is in an entirely

different context and is not applicable to the facts of the present case. He has submitted that the case of Bhatia Industries And

Infrastructure Ltd. (supra) was not a case where third parties were

sought to be impleaded in the Execution proceedings. The Court did

not impose the liability of the Judgment Debtor (Bhatia Industries

Ltd.-BIL) on the other entity (Bhatia Industries And Infrastructure

Ltd.-BILL). It is the case where the Court come to the conclusion that

the assets (i.e. coal) is an asset of BIL. This finding had been arrived

at by the learned Single Judge when Bhatia Industries And

Infrastructure Ltd. approached the Court seeking lifting of the

precept issued against the coal. He has submitted that the judgments

relied upon by the Division Bench of this Court in Bhatia Industries

And Infrastructure Ltd. (supra) which includes the Delhi High Court

judgment in Formosa Plastic Corporation Ltd. (supra) contemplated

leading of evidence. He has submitted that the judgment in Bhatia

Industries And Infrastructure Ltd. (supra) has no application to the

facts of the present case as there has been no transfer of assets

between the Additional Respondents and the Judgment Debtor. There

is also no financial dependency of the Additional Respondents on the 77/108 February 7, 2020

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Judgment Debtor or the Additional Respondents inter se. Each entity

has a different business. The present case is also not a case where the

asset of the other entity is sought to be claimed that it belongs to the

Judgment Debtor. Here the Judgment Creditor is imposing the entire

decretal liability amount on the Additional Respondents without

proving that they are the Judgment Debtor. The transactions between

the Judgment Debtor and the Additional Respondents cannot amount

to a steering influence exerted by the Judgment Debtor on the

Additional Respondents. In the case of Bhatia; BIL had a steering

influence on the management and business affairs of BILL. The

present case unlike the case in Bhatia is not a case where the

Judgment Debtor and the other entities are carrying out the same

business and dealing with the same product and same business

activity. The Judgment Debtor is merely a shipping agent since

inception and the Additional Respondents have carried out the

business that are connected to the Shipping industry but are not the

same and/or similar with the business of the Judgment Debtor. He

has further submitted that the Additional Respondents are not

inextricably interlinked with the Judgment Debtor, because they all

deal in different business than the Judgment Debtor. He has

submitted that merely having common directors and common 78/108 February 7, 2020

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shareholders cannot be a ground to consider that the companies are

inextricably interlinked. In the present case, the Judgment Debtor is

not exercising influence and dominating the Associate Companies to

be considered as the Companies being inextricably interlinked. In the

case of Bhatia; BIL and BIIL were held to be inextricably interlinked

after considering the documents on record and moreover, after

considering the dealings between the Companies. He has submitted

that the present case is thus, distinguishable from the Bhatia

Industries And Infrastructure Ltd. (supra). He has submitted that the

Supreme Court whilst dismissing the Special Leave application in

Bhatia International has left the question of law open.

62. He has submitted that the Judgment Creditor has

failed to establish any impropriety i.e. the misuse of a company by

the wrongdoers as a device or facade to conceal their wrongdoers. He

has submitted that looking into the peculiar facts of the present case,

the Additional Respondent Nos. 1 to 4 are companies, each one

carrying on a different business and are not a mere camouflage or

sham deliberately created by the persons exercising control over the

said company (which as per the Award Holder are the Directors being

Additional Respondent Nos. 5 to 8) for the purpose of avoiding 79/108 February 7, 2020

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liability. He has distinguished the judgment of the Punjab and

Haryana High Court in Sai Sounds Pvt. Ltd. (supra). He has further

submitted that the said judgment had relied upon the judgment of

the Delhi High Court in Jawahar Lal Nehru Hockey Tournament

Society Vs. Radiant Sports Management Pvt.Ltd . (supra), which was

overruled by the Division Bench of the Delhi High Court and the

orders of the Single Judge was reversed. Therefore, he has submitted

that this judgment cannot be relied upon for the law it lays down as

the basis on which the said law is laid down is itself set aside in

appeal. In any event, the facts and circumstances in Sai Sounds Pvt.

Ltd. (supra) are entirely different. In the present case, there is no

undertaking for payment of liability by the Judgment Debtor and/or

the Additional Respondents and/or the Directors of the Judgment

Debtor as they existed in that case where the Managing Director of

the company had admitted the liabilities and given an undertaking to

pay the decretal liability.

63. He has placed reliance upon the judgment of the

Supreme Court in Jayant Verma & Ors. Vs. Union of India20 which

specifically specifies what a ratio decidendi is and what is a per

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incuriam judgment. He has gone to the extent of submitting that the

Division Bench judgment in Bhatia Industries And Infrastructure Ltd .

(supra) is a per incuriam judgment which does not lay down the

principle of lifting of Corporate Veil in Execution proceedings. He has

submitted that the Single Judge judgment goes on to hold that the

property belonged to the Judgment Debtor and the attachment is in

respect of the property of the Judgment Debtor. He has submitted

that in any case, the Supreme Court has kept the question of law

open which mean that the Supreme Court doubted the proposition

laid down in the Division Bench judgment in Bhatia Industries And

Infrastructure Ltd. (supra).

64. He has placed reliance upon the judgment of the

Delhi High Court in V.K. Uppal Vs. M/s. Akhay International Pvt.Ltd. 21

which expressly states that the judgment in J awahar Lal Nehru

Hockey Tournament Society (supra) has been overruled and that the

Division Bench in the case of V.K. Uppal (supra) refrains from

commenting authoritatively on the aspect of lifting of the Corporate

Veil in execution and the same would not come to the rescue on the

Decree-holder. He has further placed reliance on the decision in

21 2010 SCC Online Del 538 81/108 February 7, 2020

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Anirban Roy & Anr. Vs. Ram Kishan Gupta & Anr .22 which judgment

considers the judgment of V.K. Uppal (supra) and Jawahar Lal Nehru

Hockey Tournament Society (supra) and submitted that this decision

has arrived at important findings, which are, that the Executing

Court cannot go behind the decree and can execute the decree as per

its form only; and if the decree is against the company, the Executing

Court cannot execute the decree against anyone other than the

Judgment Debtor company or against the assets and properties of

anyone other than the Judgment Debtor company and that the

identity of a director or a shareholder of a company is distinct from

that of the company which is the very genesis of the company or a

corporate identity or juristic person. He has submitted that the

Chamber Summons has sought for the Executing Court to do

precisely what is impermissible as held in the above decision. He has

thus, submitted that the Chamber Summons is absolutely perverse

and without any merit and is required to be dismissed at the outset

with costs.

65. Having considered the rival submissions, it

appears from the relief sought for in the Chamber Summons, that

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there is a desperate attempt on the part of the Award Holder to enjoy

the fruits of the Foreign Award passed in its favour by going against

entities which were neither parties to the arbitration agreement nor

to the Foreign Award. The Award Holder has stated that the Foreign

Award had been passed in Japan way back on 2nd February 2009 in

its favour and which was accepted as a decree of this Court by order

dated 28th January 2014. The Award Holder had sought to execute

the award by taking out various proceedings in execution. However,

out of the awarded amount, Rs. 66,26,84,888.95 mentioned in the

Execution Application filed in the year 2014, the Award Holder is

stated to have been able to satisfy the award only to the extent of

approximately Rs. 2 Crores. In the present Chamber Summons in

order to make the proposed Additional Respondents personally liable

for satisfying the Foreign Award which is deemed to be a decree of

this Court, the Award Holder has applied for the Corporate Veil of the

Judgment Debtor to be lifted to try and reach out to what is alleged

to be the real persons behind the Judgment Debtor who are claimed

to be the Jalalis as well as the Associate Companies of the Judgment

Debtor. Various facts have been adverted to by the Award Holder and

which have been set out herein above in order to attempt to satisfy

this Court that the Judgment Debtor has sought to defeat and delay 83/108 February 7, 2020

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the execution of the Foreign Award by various means including by

siphoning off funds to the Associate Companies which are also in the

hands of the Jalalis. Various financial statements have been relied

upon by the Award Holder with an attempt to show that the assets of

the Judgment Debtor were being depleted, both by satisfying the

loans which had been granted to the Associate Companies by the

Judgment Debtor as well as benefiting the Jalalis who were

controlling the Judgment Debtor as well as Associate Companies by

paying out large sums from these companies to the Jalalis as

managerial remuneration/employees benefit expenses. This has been

referred to in paragraph 26 of the said Affidavit in Support of the

Chamber Summons which has been referred to above. This has been

termed as regular siphoning off structured by the Jalalis of the

Respondent's monies and gradual reduction of the Respondent's

assets by methods and devices which have been set out in the said

paragraph.

66. The Award Holder has also referred in this context

to the status quo order dated 4th February 2010 passed in favour of

the Award Holder in respect of three properties of the Judgment

Debtor. It is stated that although the Award Holder was reasonably 84/108 February 7, 2020

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certain of recovering a substantial part of the award from the sale of

these properties, it was not aware when this status quo order was

passed that these properties had already been disposed of. This fact

was not brought to the attention of the Applicant or to this Court by

the Judgment Debtor till the year 2015 when the execution

proceedings commenced. These properties were sold to clear the

debts of the Additional Respondent No. 1 (Ornate). It appears that

steps were taken by the Award Holder against Ornate in separate

garnishee proceedings in order to recover the sum of Rs. 21 Crores

which had been lent by the Award Holder to the Ornate. This sum

had been attached in the said garnishee proceedings by adopting

such proceedings. It is clear that the Award Holder had at least

treated Ornate to be a separate legal entity and not one and the same

as the Judgment Debtor.

67. The Award Holder has drawn attention to the fact

that the Additional Respondents had filed its Reply by only opposing

the objections to the application without dealing with the application

on merits. This despite the Court granting an opportunity to the

Respondent and Additional Respondents to file their Affidavit in

Reply on merits. The Award Holder has contended that in view of the 85/108 February 7, 2020

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large number of averments pleaded by the Award Holder in the

Chamber Summons viz. that the Respondent and Additional

Respondents are one entity and this not having been denied by the

Respondent and Additional Respondents established the pleadings by

the Applicant that they are indeed one entity. The Award Holder has

in support of his pleadings relied upon several volumes of

compilation of documents. However, before considering whether it is

necessary to deal with the various facts as averred to by the Award

Holder in the Affidavit in Support of the Chamber Summons, it

would be appropriate to consider whether the preliminary objections

raised by the Respondent and Additional Respondents are to be

upheld. It would also be necessary to consider whether in the present

case, it would be necessary to lift the Corporate Veil in execution of a

Foreign Award where the Additional Respondents were never parties

to the arbitration proceedings and/or the Foreign Award was not

passed against them.

68. The preliminary objection as to the limitation has

been raised by the Respondent as well as the Additional Respondents

by contending that although the period of limitation is 12 years for

execution, the present Chamber Summons will not be maintainable, 86/108 February 7, 2020

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as the stipulated period of limitation is only qua the Judgment Debtor

and not the Additional Respondents on whom personal liability has

been thrusted. As the Additional Respondents are not the Judgment

Debtors, the period of limitation of 12 years would not be applicable.

This preliminary objection would be sustainable once this Court

arrives at a conclusion that the Corporate Veil of the Judgment

Debtor is not to be lifted, as the Judgment Debtor and the Associate

Companies are not a single entity. There appears to be some merit in

the contention of the Additional Respondents that in order to

determine as to whether the Corporate Veil is to be lifted would be a

matter of trial and cannot be done in the manner sought to be done

i.e. by the present Chamber Summons seeking to join the Additional

Respondents as parties to the Execution Application and making

them personally liable.

69. The Chamber Summons appears on the face of it

to be an attempt on the part of the Award Holder to trace monies in

the hands of the Additional Respondents, particularly, since the

Additional Respondents were not parties to the arbitration

proceedings and/or the Foreign Award. Such personal liability sought

to be imposed upon the Additional Respondents can only be 87/108 February 7, 2020

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determined in a substantial suit being filed by the Award Holder

against the Additional Respondents. By allowing the Award Holder to

execute the Foreign Award against the Additional Respondents by

making them personally liable, the Executing Court would indeed be

proceeding behind and/or beyond the decree.

70. There has also been gross delay and latches in

filing of the present Chamber Summons, as the present Chamber

Summons has adverted to various facts which would be in the

knowledge of the Award Holder in the year 2014-15. This is apparent

from the Disclosure Affidavits which have been filed by the

Respondent as well as the Jalalis who in order to make proper

disclosure filed as many as eight Disclosure Affidavits. These

Disclosure Affidavits are part of the seven volumes which have been

produced by the Award Holder in support of the Chamber Summons.

These Disclosures contain various financial statements, balance sheet

and other documents on the basis of which the Applicant/Judgment

Debtor has filed the present Application. Despite having access to this

information, the Award Holder waited for over four years to take out

the present Chamber Summons on 21st January 2019.

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71. Considering that this is a Foreign Award of which

the execution has been sought by the Award Holder, it would be

necessary to consider the relevant provision of the Arbitration and

Conciliation Act, 1996 viz. Section 48 thereof. Section 48 of the said

Act reads thus:-

"48. Conditions for enforcement of Foreign Awards. -

(1) Enforcement of a Foreign Award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that- (a) The parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

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Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

(2) Enforcement of an arbitral award may also be refused if the court finds that- (a) The subject-

matter of the difference is not capable of settlement by arbitration under the law of India; or

(b) The enforcement of the award would be contrary to the public policy of India.

Explanation. - Without prejudice to the generality of clause (b) of this section, it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption.

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of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security."

72. It is clear from this provision that the party against

whom the Foreign Award is to be enforced, is required to be given an

opportunity as to why the Foreign Award should not be enforced

against it. The provision also contemplates a case where the

enforcement of the Foreign Award may be refused by the Court and

which includes where the subject matter of the difference is not

capable of settlement by arbitration under the law of India or the

enforcement of the Award is contrary to the public policy of India.

The Additional Respondents not being parties to the foreign

arbitration proceedings and/or the Foreign Award, the Chamber

Summons appears to evade this provision. The Additional

Respondents have not been given an opportunity to show cause as to

why the Foreign Award should not be enforced against them, as they

were not parties as envisaged under Section 48 of the said Act. The

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Foreign Award was enforceable only against the Judgment Debtor

who was the party to the arbitration agreement and against whom

the Foreign Award was passed. The Foreign Award cannot be

enforced against the Additional Respondents who are neither parties

to the arbitration agreement nor to the Award.

73. Various allegations of fraud have been averred in

the Chamber Summons which are nothing but bare assertions,

allegations, surmises and conjectures and hence, it would not be

necessary for this Court to go into the same, without the same being

established. These allegations have been made in support of the

Applicant's contention that the Corporate Veil is required to be lifted

to execute the Foreign Award against the Additional Respondents

albeit they are not parties to the Foreign Award and/or the Foreign

Award not having been passed against them. Since various

submissions have been made with regard to lifting of the Corporate

Veil, it would be necessary to deal with these submissions in order to

consider whether the Executing Court can at all lift the Corporate Veil

by making parties personally liable to satisfy the decree in execution,

when the decree/Foreign Award (in the present case) was not passed

against them.

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74. The Award Holder has not been able to produce a

Single judgment where, as in the present case, the Additional

Respondents are to be made personally liable to satisfy the decree

passed against the Respondent/Judgment Debtor. In fact, the

judgment relied upon by the Award Holder viz. Bhatia Industries And

Infrastructure Ltd. (supra) is entirely distinguishable on facts as in

that case, the attachment was alleged to be made in respect of coal

which belonged to BIIL and not the Judgment Debtor (BIL). It was

when the said BIIL sought to vacate the attachment, the Division

Bench of this Court concluded that both BIL and BIIL are in fact, one

and the same and therefore, the attachment was in effect of the

properties of BIL the Judgment Debtor. In fact, it appears from the

decision of the Single Judge in case of Bhatia Industries And

Infrastructure Ltd. (supra) that, the claim made by the BIIL that the

coal belonging to it, could not be attached as BIIL is not the

Judgment Debtor was held to be false and a finding was arrived at

that the coal in fact belonging to BIL who was the Judgment Debtor.

In the present case, the Award Holder is not going against the

Associate Companies who are the Additional Respondent Nos. 1 to 4

in respect of particular assets claiming that they belong to the

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personally liable in respect of the Foreign Award passed against the

Judgment Debtor. Hence, the judgment in Bhatia Industries And

Infrastructure Ltd. (supra) will have no application in the facts and

circumstances of the present case. In any event, the Supreme Court in

case of Bhatia Industries And Infrastructure Ltd. (supra) has kept the

question of law open. Considering that the ratio decidendi arrived at

in the case of Bhatia Industries And Infrastructure Ltd. (supra) does

not apply to the present case, the precedent relied upon by the Award

Holder cannot apply in the facts and circumstances of the present

case.

75. I further find that the judgments relied upon in

the case of Bhatia Industries And Infrastructure Ltd . (supra) viz.

Formosa Plastic Corporation Ltd. (supra) and Sai Sounds Pvt. Ltd.

(supra) also do not apply in the facts and circumstances of the

present case. The case of Formosa Plastic Corporation Ltd. (supra)

was a case where an action had been commenced to restrain the

wife, son, brother of the Judgment Debtor from transferring the

assets, belonging to the Judgment Debtor though created in the name

of his wife, son and brother so as to defeat the execution of the

decree. This was not a case where the Court considered the 94/108 February 7, 2020

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Judgment Debtor's wife, son and brother to be personally liable to

satisfy the decree. In case of Sai Sounds Pvt. Ltd. (supra), the

Managing Director of the company had personally undertaken to

satisfy the decree and it was in the facts and circumstances of the

case that the Managing Director of the company was held personally

liable. In the present case, there is no such undertaking given by the

Additional Respondents to satisfy the decree so as to make them

personally liable.

76. The judgment of the Supreme Court in Balwant

Rai Saluja (supra) has laid down the law with regard to the doctrine

of piercing the Corporate Veil, which stands as an exception to the

principle that a company being a legal entity separate and distinct

from its shareholders with its own legal rights and obligations. It is

made clear from this decision that the doctrine would apply in a

restrictive manner and would apply only when it is evident that the

company was a camouflage or a sham deliberately created by the

persons exercising real control over the said company for the

purposes of avoiding a liability. It has been held in the said decision

at paragraphs 69 to 72 and 74 as under :-

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"69. Vodafone case further made reference to a decision of the US Supreme Court in United States v. Bestfoods 141 L Ed 2d 43: 524 US 51 (1998). In that case, the US Supreme Court explained that as a general principle of corporate law a parent corporation is not liable for the acts of its subsidiary. The US Supreme Court went on to explain that Corporate Veil can be pierced and the parent company can be held liable for the conduct of its subsidiary, only if it is shown that the corporal form is misused to accomplish certain wrongful purposes, and further that the parent company is directly a participant in the wrong complained of. Mere ownership, parental control, management, etc. of a subsidiary was held not to be sufficient to pierce the status of their relationship and, to hold parent company liable.

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 :

(1895-99) All ER Rep 33 (HL). Lord Halsbury LC,

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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 Salomon case (supra), attributed the doctrine of piercing the veil to the fact that the company was a "sham" or a "facade". However, there was yet to be any clarity on applicability of the said doctrine.

71. In recent times, the law has been crystallised around the six principles formulated by Munby, J. in Ben Hashem v. Ali Shayif, 2008 EWHC 2380 (Fam). The six principles, as found at paras 159-64 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;

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(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 'facade' 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.

72. The principles laid down by Ben Hashem case (supra) have been reiterated by the UK Supreme Court by Lord Neuberger in Prest v. Petrodel Resources Ltd. (2013) UKSC 34, at para 64. Lord Sumption, in Prest case (supra), finally observed as follows:

"35. I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or

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subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The Court may then pierce the Corporate Veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the Corporate Veil."

73. .......

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 99/108 February 7, 2020

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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."

77. It is to be noted that in this decision although the

judgment of United Kingdom Supreme Court in Prest (supra) has

been relied upon, it has been relied upon for what is popularly

described as the evasion principle where the Court would pierce the

Corporate Veil for the purpose and only for the purpose of depriving

the company or its controller of the advantage that they would

otherwise have obtained by the company's separate legal personality.

In fact, heavy reliance has been placed upon the decision of the

United Kingdom Supreme Court in Prest (supra) by the Award

Holder in contending that our Court's have recognized the principles

laid down in the Prest (supra) viz. the concealment principle as well

as the evasion principle. In the decision of Prest (supra) the United

Kingdom Supreme Court had in paragraph 28 held as under :-

"28. The difficulty is to identify what is a relevant wrongdoing. References to a "facade" or "sham" beg too many questions to provide a satisfactory answer.

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It seems to me that two distinct principles lie behind these protean terms, and that much confusion has been caused by failing to distinguish between them. They can conveniently be called the concealment principle and the evasion principle. The concealment principle is legally banal and does not involve piercing the Corporate Veil at all. It is that the interposition of a company or perhaps several companies so as to conceal the identity of the real actors will not deter the courts from identifying them, assuming that their identity is legally relevant. In these cases the court is not disregarding the "facade", but only looking behind it to discover the facts which the corporate structure is concealing. The evasion principle is different. It is that the Court may disregard the Corporate Veil if there is a legal right against the person in control of it which exists independently of the company's involvement, and a company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement. Many cases will fall into both categories, but in some circumstances the difference between them may be critical."

78. It is clear from the decision in Prest (supra), that

the concealment principle does not involve piercing the Corporate

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Veil at all. It applies where there is interposition of a company or

perhaps several companies so as to conceal the identity of the real

actors. This will not deter the courts from identifying them, assuming

that their identity is legally relevant. It has been held that the Court

is not disregarding the "facade", but only looking behind it to

discover the facts which the corporate structure is concealing. This is

in counter distinction with the evasion principle. The learned Senior

Counsel appearing for the Award Holder has upon placing reliance

on the judgment in Prest (supra), relied upon the decision of the

Supreme Court in Arcelormittal India Private Ltd. (supra).

79. However, it is to be noted that the decision in

Prest (supra) was not a case of an execution of a decree / Foreign

Award as in the present case. It was an application filed by the wife

in the divorce proceedings for the transfer of ownership of eight

residential properties (including the matrimonial home), legal title of

which vested in two companies registered in the Isle of Man to her

name towards her share in the estate of her husband. It was her

contention that the assets stood in the names of various companies

which were otherwise owned and controlled by her husband. The

application was opposed by the Companies contending that the assets 102/108 February 7, 2020

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were owned by the companies which were separate and distinct

entities and consequently, they could not been proceeded against. It

was in this contest that the decision of Prest (supra) was passed

naming the two principles viz. concealment principle and the evasion

principle, which were recognized by the Court. The case in Prest

(supra) relating to the concealment principle cannot apply in the

facts of the present case where the Judgment Creditor is attempting

to foist a personal liability on the Additional Respondents by seeking

to execute the Foreign Award against them despite their not being

parties to the Foreign Award. In the case of Prest (supra), the Court

did not hold the companies personally liable. It only proceeded

against assets standing in the name of companies which were being

ring fenced by the real owner viz. the husband.

80. It is clear from the decision of the Supreme Court

in Balwant Saluja (Supra) that the Courts will not lift the Corporate

Veil unless it is satisfied that the principles laid down by the English

Court Ben Hashem (Supra) are satisfied. Therefore, to justify the

piercing of the Corporate Veil, the Courts will be required to be

satisfied that there is some impropriety in question and there must be

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that is use and misuse by the Company by them as a device or facade

to conceal their wrongdoings.

81. In Arcelormittal (Supra), the Supreme Court was

concerned with the Insolvency and Bankruptcy Code and in

particular Section 29 A thereof. Although that case had referred to

the Prest case, it is clear from the decision in Arcelormittal (Supra)

that there is a statutory requirement under Section 29A of the Code

i.e. disregarding the Corporate Veil in considering a situation where a

resolution plan required to be filed so that the same defaulter does

not come around in another avataar to take over the company. It

would be necessary to refer to Paragraph 37 of that decision which

reads as follows:-

"37. It is thus clear that, where a statute itself lifts the Corporate Veil, or where protection of public interest is of 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."

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82. It is thus clear that the context of that decision

was in respect of the statute which itself required the Corporate Veil

to be lifted. The principles have been set out in above paragraph for

lifting of the Corporate Veil, which would arise where statute lifts the

Corporate Veil or where protection of public interest is of paramount

importance or where company has been formed to evade obligations

imposed by the law, then the Court will disregard the Corporate Veil.

The Judgment Creditor in the present case has not satisfied any of

these principles and accordingly, the lifting of the Corporate Veil is

not at all justified in the facts and circumstances of the present case.

This finding is without prejudice to the earlier finding that in the

present case the lifting of the Corporate Veil cannot at all arise as the

Additional Respondents are neither the parties to the Foreign

Arbitration Agreement nor parties to the Foreign Award and as such

cannot be proceeded against in execution of the Foreign Award.

Further, the Additional Respondents are neither legal representatives

nor representatives of the Judgment Debtor within the meaning of

the provisions of the CPC which is a complete code in itself.

83. Considering that I am satisfied with the

preliminary objections raised by the Respondent and Additional 105/108 February 7, 2020

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Respondents, it is immaterial that the factual allegations raised by

the Award Holder in the Chamber Summons have not been dealt

with by the Respondent and the Additional Respondents. In any

event, these factual allegations are in the form of mere assertions,

allegations, surmises and conjectures and cannot be accepted without

the same being established in trial. However, since I have found that

there is no merit in the Chamber Summons to claim execution of the

Foreign Award against the Additional Respondents in their personal

capacity, there is no question of allowing a trial.

84. In the case of Ornate, Additional Respondent

No.1, there are already garnishee proceedings instituted by the

Award Holder and Execution Proceedings have been taken out for

execution of the decree in the garnishee proceedings and hence the

Award Holder has itself considered Ornate to be a separate legal

entity. Further, in the case of Fulcrum, Additional Respondent No.4,

the major shareholders who are also two out of the three Directors of

the Company are not even sought to be made Additional

Respondents. These are Mr. Sadegh Jalali and Mr. Ali Jawad Jalali

who between themselves hold over 98.46% shareholding in Fulcrum.

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Thus, the Chamber Summons is clearly not maintainable against the

Additional Respondent No.4. The other two Companies viz. IKM Ltd.

and Pan Orient, Additional Respondent Nos.2 and 3 as in case of

Additional Respondent Nos.1 and 4 are separate legal entities and

cannot be proceeded against and / or made personally liable for

execution of the Foreign Award when they were neither parties to the

Foreign Award nor parties to the Arbitration Agreement. This would

apply even in respect of the Jalalis, Additional Respondent Nos.5 to

8. Hence, they too cannot be made personally liable as sought to be

done in the present Chamber Summons. I accordingly, hold that the

relief sought for in the present Chamber Summons being in

circumvention of the provisions of the Arbitration and Conciliation

Act, 1996 viz. Section 48 cannot be granted.

85. Having considered the purport of the Chamber

Summons which is taken out in execution of the Foreign Award, it

would be appropriate to dismiss the Chamber Summons which as

mentioned has been only taken out in desperation by the Award

Holder who has otherwise not been able to enjoy the fruits of the

Foreign Award in its favour.

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86. The Chamber Summons is accordingly, disposed of

with no order as to costs.

[R.I. CHAGLA J.]

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