Execution
proceedings: ORDER 21 of CPC and liability of Directors
It may sound ironical, but
Supreme Court has observed in so many cases that once a plaintiff succeeds in a
suit and obtains decree, the ordeal of decree holder in real sense begins at
that point in time. It is not as if the process of obtaining decree in civil
courts are any easier, still, even after being successful, the decree holder
has to sustain the travail and trauma, since the judgment debtor adopts several
tricks with a view to frustrate judgment and decree, the malaise is palpable.
The power of executing court is limited in a sense that it cannot go beyond the
terms of decree, however, several objections are raised, nevertheless, with a
view to frustrate the very process of execution so as to prevent a decree
holder from reaping the fruits of its efforts. It is worth-mentioning that if
objections are raised under Order XXI Rule 58 of CPC, the objection shall
itself be treated as a suit and fresh adjudication in that event shall be
necessary. Even otherwise, it is a common knowledge that in execution petition,
a decree holder has to brace for myriad of issues and objections. Let us come
to another aspect i.e if judgment debtor is a company and if the decree is
passed against a company, then, the decree holder has to undergo further toil,
since the decree holder has to deal with the objection against the personal liability
of Directors. The company is a separate juristic entity and Directors have
limited liability. Whether the Directors were made party to the suit or could
have been made a party is another dimension that fills the dockets of courts in
objections before the executing courts. The net result is tyranny and
continuous tyranny of a decree holder. It is in the above perspective that
judgments in Bhandari Engineers and Builders Pvt Ltd. Vs Maharia Raj
Joint Venture and Ors., 227 (2016) DLT 302. The aforesaid judgment had
necessitated the judgment debtor to file comprehensive affidavit of assets
before the executing court. The decision in Bhandari
Engineers (Supra) however is watered down.
The above situation
has to be analysed in this backdrop and it is to be seen as to whether a window
is open to a decree holder. In this context, recent judgment of Delhi High
Court captioned as GS Sandhu & Anr Vs Geeta Aggarwal CM (M) 1399/2019 decided
on 14.01.2022 shall be of relevance.
The High Court in the aforesaid
judgment has also dealt with Bhandari Engineers and Builders Pvt. Ltd.
Vs. Maharia Raj Joint Venture and Ors., 227 (2016) DLT 302 relating to
mandating a judgment debtor to file affidavits of assets in execution of a
decree.
The Delhi High court had dealt with several judgments while
adjudicating the GS Sandhu Case (Supra). The judgments are as under:
(i)
Anirban
Roy and Ors. Vs. Ram Kishan Gupta and Ors, 2017 SCC OnLine Del 12867;
(ii)
Gurmeet
Satwant Singh and Ors. Vs. Meera Gupta and Ors., 2019 SCC OnLine Del 9505;
(iii)
Delhi
Chemical and Pharmaceutical Works Pvt. Ltd. and Ors. Vs. Himgiri Realtors Pvt.
Ltd. and Ors., 2021 SCC OnLine
Del 3603.
(iv)
Delhi
Development Authority Vs. Skipper Construction Co. (P) Ltd. and Ors., (2000) 10 SCC 130
In Delhi
Chemical and Pharmaceutical Works Pvt. Ltd. and Ors. a Division Bench
of Delhi High Court observed that a direction under Order XXI Rule 41(2) of the
CPC can only be made upon an application filed by the decree holder in that
behalf. As per the provisions of Order XXI, the decree holder has to first make
efforts to determine
and find out the assets of the judgment debtor and only if the decree holder is
unable to find the same, the assistance of the court can be taken under Order
XXI Rule 41(2) of the CPC for direction that the judgment debtor be directed to
disclose its list of assets on affidavit. In case, the decree holder seeks
directions from court, an application has to be filed by the decree holder
under Order XXI Rule 41(2) of the CPC. It is held thus:
57. We are thus of the view
that Bhandari Engineers & Builders Pvt Ltd. (supra), to the extent extends
what is laid down therein to execution proceedings pertaining to all money
decrees and to all courts executing a money decree, cannot said to be good law.
Axiomatically, what is held in
Bhandari Engineers & Builders Pvt. Ltd. supra could not have been followed
in the execution proceedings from which this appeal arises.
62. As per the existing provisions of Order XXI
Rule 41 of the CPC, the Commercial Division, in our view erred in issuing
direction to judgment debtors to file affidavits and affidavits in a form other
than as prescribed in the CPC. The impugned orders do not record
that the decree holder had applied therefor, verbally or in writing. A
direction under Order XXI Rule 41 could not have been issued without the decree
holder applying therefor. Such direction could not have been issued without, in
spite of taking steps and owing to obstruction by the judgment debtor, the
decree remaining unsatisfied. No reason whatsoever has been given in the
impugned orders as to why the directions as issued were called for in the facts
of the case or why affidavit in the form prescribed in the CPC could not have
sufficed.”
The Supreme
Court has however, in Delhi Development Authority Vs. Skipper
Construction Co. (P) Ltd. and Ors., (2000) 10 SCC 130 was pleased to
justify lifting of the corporate veil in view of the fraud committed by the
petitioners that was discovered by the decree holder in the course of the
execution proceedings
In Geeta Aggarwal (Supra) the Delhi high Court has
held as under:
14. In Bhandari Engineers and Builders Pvt. Ltd. (supra), a Single
Bench of this Court directed that in cases of execution of money decrees, the
judgment debtor, at the initial stage itself should be directed to file
particulars of assets as on the date of the institution of the suit as well as
of the current date under Order XXI Rule 41(2) of the CPC along with the
statement of the bank accounts for the last three years. It was further
provided that if the judgment debtor’s affidavit does not sufficiently disclose
assets, a further affidavit may also be directed to be filed and the judgment
debtor be also examined orally under Order XXI Rule 41(1) of the CPC. This
constituted the dicta of Bhandari
Engineers and Builders Pvt. Ltd. (supra). Thereafter, the Court in Bhandari Engineers and Builders Pvt. Ltd. (supra)
directed, inter alia, the
directors of the judgment debtor company therein to file the details of their
personal assets. However, the aforesaid directions with regard to the directors
filing affidavits of their personal assets was only in the facts and
circumstances of the said case and was not the dicta of the said case.
Therefore, the reliance placed by the Executing Court on the judgment in Bhandari Engineers and Builders Pvt. Ltd. (supra)
for directing the petitioners to file their affidavit of personal assets is
clearly erroneous”.
In Anirban
Roy
(Supra) the following are the excerpts based on the observation of the court:
(1)
A routine direction against Directors
and shareholders of judgment-debtor companies turns the elementary principle of
company law, a company law being a legal entity, is distinct from its
shareholders and Directors, on its head;
(2)
It is settled principle of law that the
Directors and shareholders of a company are not liable for the dues of the
company except to the extent permitted by law;
(3) In V.K. Uppal v. Akshay International Pvt. Ltd.
MANU/DE/0320/2010 it is held that :
(i) there is no provision in
the CPC for execution of a money decree against a Pvt. Ltd. company, against
its directors;
(ii) that though Order XXI Rule 50 of the CPC does
provide for execution of a money decree against a firm, from the assets of the
partners of the said firm mentioned in the said Rule but there is no provision
with respect to directors of a company;
(iii) that the Executing Court cannot go behind the
decree and can execute the same as per its form only;
(iv) that 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;
(v)
that the identity of a director or a shareholder
of a company is distinct from that of the company-that is the very genesis of a
company or a corporate identity or a juristic person;
(vi)
The
classic exposition of law in this regard is contained in Solomon v. Solomon
& Co. Ltd. 1897 AC 22 where the House of Lords held that in law, a company
is a person all together different from its shareholders and directors and the
shareholders and Directors of the company are not liable for the debts of the
company except to the extent permissible;
(vii)
That
though a Single Judge of this Court in Jawahar Lal Nehru Hockey Tournament v.
Radiant Sports Management MANU/DE/1756/2008 : 149(2008) DLT 749 observed that
there could be a case where the Court even in a execution proceeding lifts the
veil of a closely held company, particularly a Pvt. Ltd. company and in order
to satisfy a decree, proceed against the personal assets of its directors and
shareholders
(viii)
that though Section 53 of the Transfer of the
Property Act, 1882 allows the creditors to have a transfer of property made
with an intent to defeat the creditors set aside but a case has to be pleaded;
(ix)
The Courts have watered down the principle in
Solomon supra to cover the cases of a fraud, improper conduct, etc. as laid
down in Singer India Ltd. v. Chander Mohan Chadha
MANU/SC/0626/2004 : (2004) SCC 1 but a case about it has to be made
out;.
It is apt to point out
that the sub-Rule (2) of Order XXI Rule 41 CPC however permits is a direction
for disclosure of the particulars of the assets of the judgment-debtor and not
assets of any other person. Though Order XXI Rule 41(1) also permits the Court
to examine "any other person" but the words "any other
person" are absent from sub-Rule (2) of Rule 41 which permits a direction
only against the judgment-debtor where the judgment-debtor is a corporation against any officer thereof and disclosure as aforesaid, of assets of
the judgment debtor only and not of personal assets of such officer. Moreover,
there may be a situation where the director of the company
had agreed to be personally liable to satisfy the decree and for this reason
holding him liable and that case the liability of Directors may be taken as
inbuilt.
The discussion shall be
incomplete if a recent enunciation in this regard is not set forth as regards
the power of courts to lift corporate veil.
In Delhi Airport Metro Express Pvt Ltd Vs Delhi Metro Rail Corporation
Ltd OMP (ENF) (Comm) 145/2021, 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”.
Thus, once
corporate veil of a company is lifted, then, of course, no impediments subsist
as regards seeking personal assets of Directors who were not a party in a suit
filed against a company. What therefore follows is that it cannot be laid as a general proposition that
whenever the decree is against a company, its Directors/shareholders would also
be liable, if it is to be held like that it would be contrary to the very concept
of limited liability. The liability of partnership firm and liability of
directors are in different footings. However, in case, there are averments and substantive proof about fraud and improper
conduct of directors, then even in execution proceedings the corporate veils
could be lifted and the personal affidavits of Directors may be called for as also
is held in Singer India (Supra) and several judgments enunciated
thereafter such as Delhi Airport Metro (Supra).
------
Anil
K Khaware
Founder & Senior Associate
Societylawandjustice.com
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