CERTIFICATE OF PROBATE/LETTER OF ADMINISTRATION & TERRITORIAL JURISDICTION

 

Certificate of Probate/Letter of Administration & Territorial jurisdiction

The vast number of civil cases related to properties based on testamentary matters. The matter of inheritance shall be governed by Indian Succession Act, in such an event. However, if the death occurs intestate i.e without leaving any Will, then the ordinary mode of inheritance as per The Hindu Succession Act 1956 (as amended and up to date) or as per the law of inheritance of other religion shall follow. The very purpose of writing this article, is to address to a situation, where petition for probate and /or Letter of Administration  of the estate of deceased, who left behind a Will is filed and order of probate/Letter of Administration in respect of a Will is also granted. However, before issuing certificate another aspect emerges i.e territorial jurisdiction of District Judge in respect of such properties as mentioned in the Will, which is situated outside the state or outside the territorial limit of such District Court. Clearly, probate/Letter of administration is granted to the Will and thereafter the aspect of issuing certificate shall follow. It is of pertinence that the order of grant of probate/letter of administration shall be judicial work, whereas issuing of Certificate shall be ministerial work. Still, the ministerial work shall be of importance in as much as valuation of properties mentioned in the Will has to be ascertained from proper channel and court fee/non judicial stamp paper will have to be procured for issuing certificate of probate/letter of administration and it will be at that stage that even territorial jurisdiction of all other properties mentioned in the Will shall be of further relevance.

One may be amused as regards after grant of probate/letter of administration, how is that the aspect of territorial jurisdiction could emerge. It is because, at the time of instituting petition for seeking Probate or letter of Administration, it is sufficient that the deceased had place of abode within the territorial limit of such District Court and/ or any one property i.e moveable or immovable should fall within the territorial limit of such District Court. In such a situation there is no embargo as regards entertaining the petition and grant of probate/letter of administration of the impugned will. However, a Will may also include other properties moveable or immoveable and that may be situated outside the state. In such an event certificate of probate/letter of administration cannot be issued by a District Court in respect of such properties situated outside the territorial limit of such District Courts. Whether such fetter shall be attached to High Court also as regards the properties contained in the Will which is situated outside the state shall be deliberated later. Suffice to say, that, The Indian Succession Act 1925 itself provides the answer in this regard and that shall be delineated little later.

At the very anvil, the petitioner shall have the option as per the provisions of Indian Succession Act 1925 to approach District Judge or concerned High Court, since as per the Act both High Court and District Court shall have concurrent jurisdiction. Though, as may turn out, the jurisdiction of District Court shall be circumscribed after granting of probate/letter of Administration and cannot traverse beyond its territorial limit, unless the value of such properties outside the territorial limit of such court does not exceed Rs 10,000/-.

The broad questions, thus, emerges are as under:

(A)        Whether after granting of probate or letter of administration in respect of the Will, certificate can be issued in respect of such moveable or immoveable properties situated outside the state by a District Court?

(B)        If the answer to the question (1) is “No”, whether such certificate can be issued by High Court?

(C)        If the answer to question (2) is yes, what are the rational of it and/or judicial precedents in this regard?

It is therefore necessary to analyse the aforesaid issue in a bigger canvas. At the cost of repetition it is pointed out that the issue of territorial jurisdiction in respect of such additional properties as per the Will, falling outside the State, shall only emerge after the order of grant of probate/letter of administration and while issuing certificate.

PROVISIONS OF INDIAN SUCCESSION ACT 1925

The Indian Succession Act, 1925 is divided into 11 parts, with some of the parts sub−divided into several chapters. Part VI of the Act comprising of 23 Chapters, contains exhaustive provisions relating to “Testamentary Succession”.

Sections 57 to 191 of the Act are included in this Part.  Part IX of the Act contains Sections 217 to 369, divided into 13 chapters. Chapter IV of Part IX contains provisions governing “the practice in granting and revoking probates and letters of administration.” Sections 264 to 302 are found in this Chapter.

The procedure for making an application for probate or for letters of administration with the Will annexed, is provided in Section 276.

264. Jurisdiction of District Judge in granting and revoking probates, etc.—

 (1) The District Judge shall have jurisdiction in granting and revoking probates and letters of administration in all cases within his district.

(2) Except in cases to which section 57 applies, no Court in any local area beyond the limits of the towns of Calcutta, Madras and Bombay, shall, where the deceased is a Hindu, Muhammadan, Buddhist, Sikh or Jaina or an exempted person, receive applications for probate or letters of administration until the State Government has, by a notification in the Official Gazette, authorised it so to do.”

 

The bare perusal of sub−section (2) of Section 264 shall reveal that it imposes a bar upon the Courts in any local area beyond the limits of the towns of Calcutta, Madras and Bombay, from receiving applications for probate or letters of administration, until the State Government, by a notification in the Official Gazette, authorized them so to do, wherever the deceased is a Hindu, Muhammadan, Buddhist, Sikh or Jaina or an exempted person. But the bar under Sub−section (2) has no application to cases, to which Section 57 applies.

Section 57 of the act reads as under:

57. Application of certain provisions of Part to a class of Wills made by Hindus, etc.—

The provisions of this Part which are set out in Schedule III shall, subject to the restrictions and modifications specified therein, apply—

(a) to all Wills and codicils made by any Hindu, Buddhist, Sikh or Jaina on or after the first day of September, 1870, within the territories which at the said date were subject to the Lieutenant−Governor of Bengal or within the local limits of the ordinary original civil jurisdiction of the High Courts of Judicature at Madras and Bombay; and

(b) to all such Wills and codicils made outside those territories and limits so far as relates to immoveable property situate within those territories or limits; and

(c) to all Wills and codicils made by any Hindu, Buddhist, Sikh or Jaina on or after the first day of January, 1927, to which those provisions are not applied by clauses (a) and (b):] Provided that marriage shall not revoke any such Will or codicil.”

The relevant provision regarding territorial jurisdiction is section 270 of the Indian Succession Act which reads as under :

270.      When probate or administration may be granted by District Judge.-Probate of the Will or letters of administration to the estate of a deceased person may be granted by a District Judge under the seal of his Court, if it appears by a petition, verified as hereinafter provided, of the person applying for the same that the testator or interested as the case may be, at the time of his decease had a fixed place of abode, or any property, moveable or immovable, within the jurisdiction of the Judge.

 

271.      Disposal of application made to judge of district in which deceased had no fixed abode.-When the application is made to the Judge of a district in which the deceased had no fixed abode at the time of his death, it shall be in the discretion of the Judge to refuse the application, if in his judgment it could be disposed of more justly or conveniently in another district, or, where the application is for letters of administration, to gram them absolutely, or limited to the property within his own jurisdiction.

It is therefore clear that in order that a court may have territorial jurisdiction, the deceased should have either a fixed place of abode or moveable or immovable property within its jurisdiction.

According to section 300 of the Indian Succession Act, the High Court shall have concurrent Jurisdiction with the District Judge in the exercise of all powers which are conferred by the Act on the District Judge. The aforesaid jurisdiction of High Court is subject to sub-section (2) which reads as under :

 

300.Concurrent jurisdiction of High Court-

(1) The High Court shall have concurrent jurisdiction with the District Judge in the exercise of all the powers hereby conferred upon the District Judge.

(2)  Except in cases to which section 57 applies, no High Court, in exercise of the concurrent jurisdiction hereby conferred over any local area beyond the limits of the towns of Calcutta. Madras and Bombay, shall, where the deceased is a Hindu, Muhammadan, Buddhist, Sikh or Jains or an exempted person, receive applications for probate or letters of administration until the State Government has by a notification in the Official Gazette, authorised it so to do."

 

It may be noted that this sub-section (2) does not apply where section 57 of the Act applies. This is clear from the very starting words. According to clause (c) of Section 57, the said provision is applicable to all Hindus, Buddhists, Sikhs and Jains after first January 1927. That means that the restriction contained in sub-section (2) of Section 300 of the Act applies only to Muhammadans and exempted persons.

273. Conclusiveness of probate or letters of administration. -Probate or letters of administration shall have effect over all the property and estate' moveable or immovable, of the deceased, throughout the State in which the same is or are granted and shall be conclusive as to the representative title against all debtors of the deceased and all persons holding property which belongs to him, and shall afford indemnity to all debtors, paying their debts and all persons delivering up such property to the person to whom such probate or administration have been granted: Provided that probates and letters of administration granted-

(A) by a High Court, or (B) by a District Judge, where the deceased at the time of his death had a fixed place of abode situate within the jurisdiction of such Judge, and such Judge certifies that the value of the property and estate affected beyond the limits of the State does not exceed ten thousand rupees, shall unless otherwise directed by the grant, have like effect throughout the other States."

Section 273 of the Act contains the provisions that notwithstanding concurrent jurisdiction of District Judge and High Court, provisions of Section 273 do not keep them at par. These provisions make the probate or letters of administration issued by the High Court conclusive even in respect of property situated throughout India but they limit in operation such conclusiveness in respect of probates or letters of administration issued by District Judge.

                                                  LAW

 

In Kanta vs State And Anr  AIR 1985 Delhi 453 the Delhi High court has held in para 20  that:

“20. Section 273 of the Act does not deal with the jurisdiction of the High Court or the District Judge to entertain and decide a petition for grant of letters of administration or probate. That provision only deals with the effect and binding force of grant of letters of administration or probate by the High Court or the District Judge. It has nothing to do with the territorial Jurisdiction. The territorial jurisdiction is dealt with by sections 270, 271, and 300 of the Act which have been referred to already. Had the intention of the legislature been that section 273 of the Act, would deal with the territorial jurisdiction also, there was hardly any necessity of enacting sections 270, 271 and 300 of the Act. Therefore, on harmonious construction of sections 270, 271, 273 and 300 of the Act it is clear that section 273 has nothing to do with the territorial jurisdiction and it only deals with the binding force or effect of the letters of administration and probate issued by a High Court or District Judge”.

Before, narrating on the aspect further, it may be worthwhile to refer to a recent Supreme Court Judgment reported as Narender Nath Agarwal Vs Yogender Nath Agarwal & Ors 2021 (2) SCALE 627. The Supreme Court has clarified all such aspects as regards the territorial jurisdiction of District Court and High Court in no uncertain terms. The following judgments/precedents are also analysed by the Supreme Court in this context:

(1)  Ishwardeo Narain Singh vs Kamla Devi & Ors AIR 1954 SC 280

(2)  Chiranji al Shrilal Goenka Vs jasjit Singh & Ors (1993) 2 SCC 507

(3) T. Venkata Narayana & Ors Vs Venkata Subbamma (Smt) (Dead) & Ors (1996) 4 SCC 457

(4)  Balbir Singh Wasu Vs Lakhbir Singh & Ors (1985) 1 SCC 144

(5)  Nirmala Devi Vs Arun Kumar Gupta (2005) 12 SCC 505

(6) Smt Rukmani Devi & Ors Vs Narender Lal Gupta (1985) 1 SCC 144

 A cumulative reading of Sections 57, 213 and 264 would show: (i) that a person claiming to be an executor or legatee under a Will cannot rely upon the Will, in any proceeding before a Court of justice, unless he has obtained probate (if an executor has been appointed) or letters of administration with the Will annexed, if such a Will has been executed by certain classes of persons; and (ii) that the jurisdiction to grant probate or letters of administration vests only in courts located within the towns of Calcutta, Madras or Bombay and the Courts in any local area notified by the State Government in the Official Gazette.

Therefore, what follows is that:

(i) unless, the testator belongs to  any of the classes of persons specified in the Act; and

(ii) unless, the Will is made or some of the properties covered by the Will are located, within the local limits of a notified area, there is no necessity for an executor or a legatee under a Will to seek probate or letters of administration.

By virtue of Section 213(2) (i) read with Clauses (a) and (b) of Section 57, the mandatory requirement to seek probate or letters of administration for establishing a right as executor or legatee under a Will, is applicable only to Wills made by a Hindu, Buddhist, Sikh or Jaina within the local limits of the ordinary original civil jurisdiction of certain High Courts and to Wills made outside those territories, to the extent they cover immovable property situate within those territories. Therefore, there is no prohibition for a person whose case falls outside the purview of these provisions, from producing, relying upon and claiming a right under a Will, in any proceeding instituted by others including the other legal heirs for partition or other reliefs.

In view of Proviso (b) to Section 273, letters of administration granted by a District Court cannot have validity in respect of a property located outside the State, if its value exceeds Rs. 10,000/−. No such fetter is however attached to High Court. However, this problem can be resolved by ordering the transfer of the testamentary case to the High Court and ordering the transfer of the partition suit from the District Court back to the High Court.

To set at rest any ambiguity it may be worthwhile to reproduce para no. 48 of Ravinder Nath Agarwal (Supra):

46. In so far as second transfer petition is concerned, the relief sought therein is to transfer the testamentary case pending in the High Court of Uttrakhand to the District Court, Saket, Delhi. Since, the Will set up by the petitioner covers properties located both in Nainital and Delhi, both these courts have concurrent jurisdiction. But in view of proviso (b) to section 273, letters of administration granted by a District Court cannot have validity in respect of property located outside the state, if its value exceeds Rs 10,000/-. However, this problem can be resolved by ordering the transfer of testamentary case to the High Court of Delhi and ordering the transfer of the partition suit from the District Court Saket back to the High Court of Delhi.”

                                       CONCLUSION

Thus, a petition for probate/Letter of Administration in respect of a Will left behind by a testator can be preferred in the District Court within the jurisdiction of that the deceased last resided and/or at least one immoveable/moveable property is situated. The petition can be filed in High Court as well, in the very first instance in view of concurrent jurisdiction. The order of probate/Letter of Administration is granted in respect of the Will, however, subsequent to that certificate is required to be issued and the jurisdiction of District Court is truncated in respect of such properties of the Will situated outside the territorial limits of such District Court or the properties situated outside the state. However, as illustrated no such embargo or inhibition applies to a High Court and a High Court can issue certificate in respect of any other properties of the Will in respect whereof petition for probate/Letter of Administration is preferred, even if  situated outside the state as well. In Ravinder Nath Agarwal (Supra) the same is emphatically held by hon’ble Supreme Court while interpreting sections 264, 273 and section 300 of Indian Succession Act 1925 itself and by analyzing the judgments/precedents in this regard.  

                                               ------------

                                       Anil K Khaware

Advocate

Founder & Senior Associate

Societylawandjustice.com

AGREEMENT & GPA WHETHER IT CONFERS TITLE

 

Agreement & GPA WHETHER IT CONFERS title

 

The Supreme Court has very recently in a matter captioned as Ghanshyam Vs Yogendra Rathi, Civil Appeal No. 7527-7528/2012 decided on 2^nd June 2023 has revisited the scope of General Power of Attorney, Agreement to sell, Will, Receipt and part performance as per section 53-A and Section 54 of Transfer of Property act 1882 and the earlier decision of Supreme Court reported as Suraj Lamp & Industries Pvt. Ltd. Vs. State of Haryana & Anr 5 (2009) 7 SCC 363 is reinforced and reaffirmed with specific reference to the context, as referred to above.

The gravamen of the case in Ghanshyam (Supra) was the implication of agreement to sell, GPA and Will on the possessory rights and title of the purchaser. The Supreme Court had apart from revisiting Suraj Lamp (Supra) had also analysed the judgments of Delhi High Court reported as under:

1.   Veer Bala Gupta Vs Municipal Corporation of Delhi & Anr (2003) 104 DLT 787;

2.   Asha M Jain Vs Canara Bank & Ors (2001) 94 DLT 841

3.   Imtiaz Ali Vs Nasim Ahmed AIR 1987 Delhi 36

4.   G.Ram Vs DDA AIR 2003 Delhi 120

 

SECTION 53 –A and 54 of Transfer of Property Act

Before delving on the issue, it may be worthwhile to reproduce the provisions of Section 53-A and section 54 of Transfer of Property Act 1882 and hence the same are reproduced as under:

53A. Part performance.—Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.]

54. “Sale” defined.—‘‘Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. Sale how made.—Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument. In the case of tangible immoveable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property. Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property. Contract for sale.—A contract for the sale of immoveable property is a contract that a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property.

 

                          Ghanshyam Vs Yogendra Rathi

The case in Ghanshyam (Supra) is rather interesting. The plaintiff-respondent had instituted a suit for eviction of the defendant-appellant from the suit premises and for mesne profits on the premise that he is the owner of the said property by virtue of an agreement to sell dated 10.04.2002, power of attorney, a memo of possession and a receipt of payment of sale consideration as well as a “Will” of the defendant appellant bequeathing the said property in his favour; the possession of the suit premises was handed over to the plaintiff-respondent pursuant to the agreement to sell, subsequently. on the request of the defendant-appellant the plaintiff-respondent allowed the defendant-appellant to occupy the ground floor and one room on the first floor of it for a period of 3 months as a licencee; the defendant/appellant failed to vacate the suit premises despite expiry of the licence period and termination of licence vide notice dated 18.02.2003.The judgment and decree was passed in favour of the plaintiff/respondent in the courts below and it was affirmed by the high court.

The suit was contested on the premise that the aforesaid documents were manipulated on blank papers, but execution of that was not disputed nor the factum of memo of possession was disputed. The sale consideration was admittedly paid. The issues were framed as regards fraud/manipulation and also regarding the right of the plaintiff-respondent to get the defendant-appellant evicted and the third with regard to entitlement of mesne profits. The issues were decided against the defendant/appellant.

Before the Supreme Court, leave was granted and appeal was admitted on the question as to whether the above documents namely the power of attorney, the Will, the agreement to sell coupled with possession memo and the receipt of payment of sale consideration would confer any title upon the plaintiff-respondent so as to entitle him to a decree of eviction and mesne profits.

The plaintiff had claimed ownership on the strength of the aforesaid documents, especially the agreement to sell and the memo of possession as well as the receipt of payment of sale consideration. It is no res integra that agreement to sell is not a document of title or a deed of transfer of property by sale and as such, may not confer absolute title upon the plaintiff-respondent over the suit property in view of Section 54 of the Transfer of Property Act, 1882, nonetheless, the agreement to sell, the payment of entire sale consideration as mentioned in the agreement itself and corroborated by the receipt of its payment and the fact that the plaintiff-respondent was put in possession of the suit property in accordance with law as is also established by the possession memo on record, goes to prove that the plaintiff-respondent is de-facto having possessory rights over the suit property in part performance of the agreement to sell. This possessory right of the plaintiff-respondent is not liable to be disturbed by the transferer, i.e., the defendant-appellant. The entry of the defendant-appellant over part of the suit property subsequently is simply as a licencee of the plaintiff/respondent. He does not continue to occupy it in capacity of the owner.

Since, a categorical finding was recorded that the above-mentioned documents have not been fraudulently obtained or have not been manipulated, and held to be genuinely executed, hence, plaintiff was held to be in a settled possession of the suit property at least in part performance of the agreement which cannot be disturbed or disputed by the transferer, i.e., the defendant-appellant. The possession of plaintiff therefore could not be disturbed. The defendant was a mere licensee and the license was already terminated, hence, the defendant/appellant was mandated to restore the possession to plaintiff.

GPA & WILL

The power of attorney executed by the defendant-appellant was of no consequence as on the strength of said power of attorney, neither sale deed had been executed nor any action pursuant thereof had been taken by the power of attorney holder which may confer title upon the plaintiff-respondent. Non-execution of any document by the general power of attorney holder consequent to it renders the said general power of attorney useless. Similarly, the “Will” executed by the defendant-appellant in favour of the plaintiff-respondent was held to be meaningless, since the Will shall come into effect only upon death of testator, which was not the case here.

The Supreme Court has held in Ghanshyam (Supra) as under:

 

“14. In connection with the general power of attorney and the will so executed, the practice, if any, prevalent in any State or the High Court recognizing these documents to be documents of title or documents conferring right in any immovable property is in violation of the statutory law. Any such practice or tradition prevalent would not override the specific provisions of law which require execution of a document of title or transfer and its registration so as to confer right and title in an immovable property of over Rs.100/- in value”.

 

Supreme Court on Title of property         

The Supreme Court had further held that decisions of Delhi High Court in Veer Bala Gulati (Supra) and Asha M. Jain (Supra) whereby it was held that the agreement to sell with payment of full consideration and possession along with irrevocable power of attorney and other ancillary documents is a transaction to sell even though there may not be a sale deed, cannot come to aid of the plaintiff-respondent inasmuch as the view is not in consonance with the legal position which emanates from the plain reading of Section 54 of the Transfer of Property Act, 1882.

In this regard, reference two other decisions of the Delhi High Court in Imtiaz Ali (Suprqa) and G. Ram (Supra) which inter-alia observe that an agreement to sell or the power of attorney are not documents of transfer and as such the right title and interest of an immovable property do not stand transferred by mere execution of the same unless any document as contemplated under Section 54 of the Transfer of Property Act, 1882, is executed and  got registered under Section 17 of the Indian Registration Act, 1908. The same is the ratio in Suraj Lamp (Supra) and that has laid down the correct law. In  Suraj Lamp (Supra)  the transfer of immoveable property through sale agreement, general power of attorney and Will instead of registered conveyance deed is deprecated.

Thus, the Supreme Court has returned the finding that an agreement to sell may not be regarded as a transaction of sale or a document transferring the proprietary rights in an immovable property as per law, however, the prospective purchaser having performed his part of the contract and being lawfully in possession acquires possessory title is liable to be protected in view of Section 53A of the Transfer of Property Act, 1882. The said possessory rights of the prospective purchaser cannot be invaded by the transferer or any person claiming under him. The plaintiff-respondent admittedly was settled with possessory title in part performance of the agreement to sell and as the defendant-appellant had already lost his possession over it and had acquired the right of possession under a licence simpliciter, thus, the defendant/appellant had no right to continue in possession after the licence was determined. The defendant/appellant had already parted with the possession of the suit property by putting the plaintiff-respondent in possession of it under an agreement to sell and undisputedly, the plaintiff-respondent in this way came to acquire possessory title over the same. The defendant/appellant, as such, ceased to be in possession of it as an owner rather occupied it as a licencee for a fixed period which stood determined by valid notice, leaving the defendant-appellant with no subsisting right to remain in possession of the suit premises.Thus, the plaintiff/respondent was rightly held to be  entitled for a decree of eviction with mesne profits.

                                  CONCLUSION

The Supreme Court has therefore reiterated the ratio of Suraj lamp (Supra) in the most recent judgment of Ghanshyam (Supra). The case Ghanshyam (Supra) was rather interesting, in as much as the executants of Agreement to sell and GPA after handing over possession of property to the defendant and that too after receiving due consideration was seeking to deprive the plaintiff his right of possession on the strength of law to the effect that title shall not be conferred on defendant on account of GPA or agreement to sale, but the defendant/appellant opted to be oblivious of the fact that possession was handed over by him and consideration was received from the plaintiff and therefore, section 53-A of Transfer of Property Act 1882 shall come to the rescue of plaintiff and the fact that even after the purported sale, if the defendant was permitted to be in possession of a portion of the suit property for Three (3) months, the right cannot be extended any further, as he was a mere licensee of plaintiff. No doubt, the title shall not be conferred on the plaintiff on the strength of GPA and agreement to sale, still, for the reasons illustrated above and as per the principles of Section 53-A and Section 54 of Transfer of Property Act 1882, the possessory rights of plaintiff cannot be disturbed.

                                           --------------

                                  Anil K Khaware

                                  Founder & Senior Associate

Societylawandjustice.com

 

PRINCIPLES OF LIFTING OF CORPORATE VEIL

 

Principles of lifting of corporate veil

The clear prescription in law is that a company is a separate juristic entity, though, it can sue or be sued through a natural person. A board of Directors’ shall be responsible for management of the company, though, the board of Directors of a company limited by shares shall have limited liability. Therefore, so far as the personal liability of Directors’ are concerned, there shall be clear fetter attached to that and unless, a Director of the company undertakes a personal liability, he cannot be sued in his personal capacity. No doubt this is a pith and substance of the matter. As regards the issue of oppression and management, role and responsibilities of  Directors’ in matters related to Companies Act 2013 are concerned, the same are well defined and per se there are no ambiguity. However, in civil suits, liability by a Director is negated by a sheer camouflage. In ordinary course of litigation, it is often observed, that, if a judgment and decree against a company is passed, the Director or Directors around that time i.e when the judgment and decree are passed, resigns from the board of the company to extricate itself from liability in execution of the judgment and decree. We know, that a closely held company take recourse to all such measures to defeat a plaintiff /decree holder from reaping the fruit of a judgment and decree by claiming that at the relevant time i.e when a judgment and decree was passed, Mr “X”  was not a Director. I may hasten to add that in a criminal case, such as bouncing of cheques, or such other offences under the provisions of Companies Act 2013, the relevant time to sue shall be when cause of action arises i.e when cheques are dishonoured and therefore, even if a Director resigns subsequently, the same shall not absolve him from the liability, however, in execution of a decree in civil courts, such Director or Directors from a closely held company takes refuge that he is no longer a Director and therefore, he will not be personally liable to a judgment and decree passed against the company, he once was a Director. The manipulation in management in a closely held company is crafted in this manner and such Director or Directors’ takes refuge in a “principles of Corporate veil”. Whether such recourse shall be readily available to such a Director or there are circumstances when “lifting of corporate veil” could be permitted shall be delineated herein. Further, what shall be the impact of lifting of corporate veil on a Director, who, hitherto claimed that he no longer owed any liability towards a judgment and decree in view of his subsequent resignation that may have been passed against the company. The moot point is can a Director be allowed to frustrate a decree on the premise of his resignation at the time of pronouncement of judgment and decree and further, whether principles of corporate veil shall come to his rescue?                   

Though, the issue of lifting of corporate veil has often been deliberated and it is also true that as law has evolved, the courts have veered around the view that corporate veil is not an absolute concept and the same could be lifted, if deemed appropriate for just decision of a case and if circumstances warrants lifting of corporate veil. However, a comprehensive analysis awaited the issues which appears to have culminated in a recent judgment rendered by hon’ble Delhi High Court in a matter captioned as Delhi Airport Metro Express Pvt Ltd Vs Delhi Metro Rail Corporation Ltd OMP (ENF) (Comm) 145/2021.  

To put in perspective, it may be apt to advert to the very genesis of the principles of “Lifting of Corporate Veil”.

The UK Supreme Court in a matter reported as Prest Vs Prest & Ors (2013) UKSC has held as under:

“[34] These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. It may be an abuse of the separate legal personality of a company to use it to evade the law or to frustrate its enforcement. It is not an abuse to cause a legal liability to be incurred by the company in the first place. It is not an abuse to rely upon the fact (if it is a fact) that a liability is not the controller's because it is the company's”.

The Supreme Court of India in a matter reported as Balwant Rai Saluja & Anr. vs. AIR India Limited & Ors (2014) 9 SCC 407 has explained the doctrine in the following terms:-

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. The starting point of this doctrine was discussed in the celebrated case of Salomon v. Salomon & Co. Ltd. [1897 AC 22 the law has been crystallised around the six principles formulated by Munby, J. in Ben Hashem v. Ali Shayif [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;

(iv)         The impropriety in question must be linked to the use of the company structure to avoid or conceal liability;

(v)          To justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and

(vi)          The company may be a “façade” even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done.

 

INDIAN POSITION

The position of law regarding this principle in India has been enumerated in various decisions. A Constitution Bench of the Supreme Court in LIC v. Escorts Ltd. [(1986) 1 SCC 264] , while discussing the doctrine of corporate veil, held that :

“90. … Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected, etc.”

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

In Balmer Lawrie & Co. Ltd. vs. Saraswathi Chemicals Proprietors Saraswathi Leather Chemicals (P) Ltd 2017 SCC OnLine Del 7519 it is held as under:

 

14. Though a Court can lift the corporate veil, the same can be done only in extraordinary circumstances and by due adjudicatory process. It is trite law that an executing Court cannot go behind the decree; it must be enforced as it is. Thus, it is not open for a petitioner to claim that although the decree is against one entity it must be enforced against another. However, there may be cases where it is found that the assets of the judgment debtor have been secreted, siphoned off, or by a fraudulent device ostensibly placed outside the control of the judgment debtor, in an endeavour to frustrate the enforcement of the decree. In such cases, the Court is not powerless to extend its reach to third parties to enforce the decree; however this is limited for recovering the assets of the judgment debtor. In the event a corporate facade is used to perpetuate such fraud, the corporate veil may be lifted”.

 

In para 89 of Delhi Airport Metro Express (Supra) the Delhi High Court has held as under:

 

“89.   On a review of the legal position as it prevails today across various jurisdictions, it is manifest that the doctrine of lifting of the corporate veil is no longer recognized to be applicable only in the context of the facade and sham tests that have held the field for centuries. The said principle may also in an appropriate case be liable to be resorted to where equity and the ends of justice may sanction such a recourse, where legal obligations are sought to be avoided as also in a setting where public policy or public interest so demand and require. A decree or judgment of a competent court must necessarily be enforced. Courts of justice would be failing in their duty if a decree were left to be a mere dead letter. If decrees and judgments of courts were to be rendered inexecutable and courts were to simply be forced to stand on the sideline, it would clearly shake the confidence of the people in the legal system and its very efficacy. An obligation which flows from a decree or an award must not only be duly recognized but also enforced in accordance with law. Taking any other view would render the entire adjudicatory process meaningless and an exercise in futility”.

 

WHETHER EXECUTING COURT CAN LIFT CORPORATE VEIL

The hon’ble Delhi Hig Court in a matter reported as  Delhi Airport Metro Express (Supra) has comprehensively dealt with the issue of lifting of corporate veil and the efficacy and limitation of the doctrine in the modern world. The recitation of the hon’ble Delhi High Court is worth reproducing:

 

89. On a review of the legal position as it prevails today across various jurisdictions, it is manifest that the doctrine of lifting of the corporate veil is no longer recognized to be applicable only in the context of the facade and sham tests that have held the field for centuries. The said principle may also in an appropriate case be liable to be resorted to where equity and the ends of justice may sanction such a recourse, where legal obligations are sought to be avoided as also in a setting where public policy or public interest so demand and require. A decree or judgment of a competent court must necessarily be enforced. Courts of justice would be failing in their duty if a decree were left to be a mere dead letter. If decrees and judgments of courts were to be rendered inexecutable and courts were to simply be forced to stand on the sideline, it would clearly shake the confidence of the people in the legal system and its very efficacy. An obligation which flows from a decree or an award must not only be duly recognized but also enforced in accordance with law. Taking any other view would render the entire adjudicatory process meaningless and an exercise in futility”.

 

94. As modern commerce and the regulatory regime in respect thereof has evolved over the decades, courts have leaned towards jettisoning a rigidity of approach or being tied down by principles which may have lost relevancy. Law in any case must grow and evolve bearing in mind the felt societal needs of the time and at the same time taking into consideration technological and social changes. It must keep abreast with the march of civilization itself. Commerce today straddles borders and boundaries of regions and countries. That has indubitably thrown up its own share of original and novel questions. These transformational and normative changes warrant this Court to observe that the evolution of the laws cannot be tied down to conventional creeds. The web of complex corporate structures and which many a time spread across jurisdictions commands the courts to develop and adapt. On a more foundational ground, this Court deems it appropriate to recall the famous words of Cardozo and Hand both of whom had commended for acceptance the basic principle that a corporate structure should not frustrate the enforcement of an obligation or leave a party remediless. Courts should desist from becoming a mere mute spectator”.

 

Similarly, again in para no.102 of the aforesaid case, hon’ble  Delhi High Court has clearly held that corporate veil can certainly be lifted. The finding of the hon’ble Delhi High Court is illustrated as under:

102. Before closing, it would appear appropriate to deal with the submission based on the provisions of the Code. The submission essentially was that the executing court cannot go behind the decree. According to learned senior counsel, since GNCTD had not been made a party to the arbitral proceedings, it could not at this stage of the execution proceedings be joined or held liable. The Court finds itself unable to sustain this submission for the following reasons. It must at the outset be noted that GNCTD has been joined in these proceedings consequent to the Court having pierced the veil. Such a course cannot possibly be construed as going beyond or behind the decree. The Court in these proceedings is essentially concerned with execution of the decree. For that purpose, it has for reasons aforenoted, come to the conclusion that the veil of corporate personality is liable to be lifted. It is in the aforesaid backdrop that GNCTD has been joined in these proceedings. The submission noted above is thus rejected”.

 

CONCLUSION

Therefore what clearly emanates from the foregoing discussions based on the judicial precedents is that the principles of lifting of corporate veil is not a norm, but an exception. The law has however evolved vastly over the years and corporate veil is no longer regarded as sacrosanct and courts are now clothed with adequate power in dealing with the delinquent, who acts in camouflage with a view to reap wrongful gains and take shelter to the principles of corporate veil to inflict losses on others and manipulate the inevitable. The concept is no longer absolute as illustrated above and when lifting of corporate veil appears to be just with a view to unravel truth and to unfold manipulation, siphoning of funds and deceit, the corporate veil can be lifted and the six (6) principles provides the clear periphery to the situation when corporate veils can be pierced or lifted.

 

Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com