PRINCIPLES OF ORDER 7 RULE 10 AND 10 A CPC AND DE NOVO TRIAL

 

Principles of Order 7 Rule 10 and 10 A CPC and de novo trial

Once a suit is preferred before a civil court, the same shall have to be in consonance with Order IV, VI & VII of The Code of Civil Procedure. If the suit is found in order, notice is issued to the defendants for settlement of issues. The defendants, in the event of contest are required to file written statement within stipulated time or as prescribed by the courts. After pleadings are complete, issues are framed and the suit is to be posted for evidence and trial proceeding begins. However, the defendants upon entering appearance may raise the issue of lack of territorial or pecuniary jurisdiction of court and if it is found that the concerned court does not have territorial or pecuniary jurisdiction, the plaint is liable to returned by the said court under Order VII Rule 10 read with A of CPC. The plaint may be returned upon adjudication of application preferred by any of the parties or the court may decide on it suo moto. However, there remained ambiguity, as regards, whether the plaint so returned, to be filed before appropriate courts of jurisdiction shall take up the case from the stage it was pending in the court or the case shall have to be started de novo. The answer to that is being craved for herein.

Order VII Rule 10-A, indicates its insertion by the Code of Civil Procedure (Amendment) Act, 1976 (with effect from 01.02.1977). The New Rule 10-A is being inserted to obviate the necessity of serving summonses on the defendants where the return of plaint is made after the appearance of the defendant in the suit.

The provisions as contained in Order VII Rule 10 and 10 A of CPC may be perused before adverting further.

Return of plaint (RULe 10)

(1)    Subject to the provisions of rule 10A, the plaint shall at any state of the suit be returned to be presented to the Court in which the suit should have been instituted.

Explanation-
For the removal of doubts, it is hereby declared that a Court of appeal or revision may direct, after setting aside the decree passed in a suit, the return of the plaint under this sub-rule.

(2)    Procedure on returning plaint- On returning a plaint, the Judge shall endorse thereon the date of its presentation and return, the name of the party presenting it, and a brief statement of the reasons for returning it.

                          RULE 10 A

Power of court to fix a date of appearance in the court where plaint is to be filed in proper court after its return:-

 

(1)   Where in any suit, after the defendant has appeared, the court is of opinion that the plaint should be returned due to non-jurisdiction, it shall, before doing so, intimate its decision to the plaintiff.  

(2)   Where an intimation is given to the plaintiff under sub-rule (1), the plaintiff may make an application to the court-

(a)   specifying the court in which he proposes to present the plaint after its return,

(b)    praying that the court may fix a date for the appearance of the parties in the said court, and

(c)   requesting that the notice of the date so fixed may be given to him and to the defendant.

(3) Where an application is presented by the plaintiff as aforesaid, the court shall, before returning the plaint and notwithstanding that the order for the return of plaint was made by it on the ground that it has no jurisdiction to try the suit :-

a) Fix the date for the appearance of the parties in the court in which the plaint is proposed to be presented, and

b)  Give to the plaintiff and to the defendant notice of such date for appearance. .

(4) Where the notice of the date for appearance is given under sub-rule (3)-

(a)  it shall not be necessary for the court in which the plaint is presented after its return, to serve the defendant with a summon for appearance in the suit, unless, the court, for reasons to be recorded, otherwise directs, and

(b) The said notice shall be deemed to be a summons for the appearance of the defendant in the court in which the plaint is presented on the date so fixed by the court by which the plaint is returned.

(5)  Where the application made by the plaintiff under sub-rule (2) is allowed by the court, the plaintiff shall not be entitled to appeal against the order returning the pliant.

 

In a recent judgment captioned as M/s EXL Careers & Another Vs Frankfinn Aviation Services Pvt Ltd Civil Appeal No. 2904 of 2020 arising out of SLP (Civil) No. 16893 of 2018 a Three (3) Judge bench of Supreme Court has dealt with the issue.  In fact, vide the aforesaid judgment, the hon’ble Supreme Court has settled the conflicting judgments of two judge benches of Supreme Court in decisions rendered in Joginder Tuli vs. S.L. Bhatia, (1997) 1 SCC 502 and Oil and Natural Gas Corporation Ltd. vs. Modern Construction & Co., (2014) 1 SCC 64 8.

The following questions of law is answered by the Three (3) Judge bench of Supreme Court:

“If a plaint is returned under Order VII Rule 10 and 10A of the Code of Civil Procedure 1908, (hereinafter called as “the Code”) for presentation in the court in which it should have been instituted, whether the suit shall proceed de novo or will it continue from the stage where it was pending before the court at the time of returning of the plaint?

It may be noted that the Rule 10 A of Code of Civil Procedure is only a sequitur with regard to the procedure to be followed for the same. It cannot be interpreted as providing for continuation of the suit. Significantly, under Order VII Rule 10- A fresh summons had to issue upon presentation of the plaint before the court of competent jurisdiction.

The following precedents are in support of de novo proceedings of the suit after return of plaint:

(i)           Ramdutt Ramkissen Dass vs. E.D. Sassoon & Co., AIR 1929 PC 103;

(ii)        Amar Chand Inani vs. The Union of India, (1973) 1 SCC 115;

(iii)       Harshad Chimanlal Modi (II) vs. DLF Universal Ltd., (2006) 1 SCC 364

(iv)        Hasham Abbas Sayyad vs. Usman Abbas Sayyad, (2007) 2 SCC 355

 

Conversely, it is also held in the following judgments that the proceedings shall not be de novo, but from the stage it is returned:

(i)          R.K. Roja vs. U.S. Rayudu, (2016) 14 SCC 275

(ii)          Oriental Insurance Company Ltd. vs. Tejparas Associates and Exports Pvt. Ltd., (2019) 9 SCC 435,

(iii)       Joginder Tuli vs. S.L. Bhatia, (1997) 1 SCC 502

 

In Joginder Tuli (supra) the original court had lost jurisdiction by reason of the amendment of the plaint and the Trial Court directed it to be returned for presentation before the District Court. The Supreme Court had observed as follows:

“5. … Normally, when the plaint is directed to be returned for presentation to the proper court perhaps it has to start from the beginning but in this case, since the evidence was already adduced by the parties, the matter was tried accordingly. The High Court had directed to proceed from that stage at which the suit stood transferred. We find no illegality in the order passed by the High Court warranting interference.”

 

The context of the order is therefore implicit in the above judgment. The directions was made in the peculiar facts of the case and in exercise of the discretionary jurisdiction under Article 136 of the Constitution. As there was no discussion of the law either and therefore, no precedential value could be attached to it.

In  Modern Construction (supra), referred to the consistent position in law by reference to Ramdutt Ramkissen Dass vs. E.D. Sassoon & Co., Amar Chand Inani vs. The Union of India, Hanamanthappa vs. Chandrashekharappa, (1997) 9 SCC 688, Harshad Chimanlal Modi (II) (supra) and after also noticing Joginder Tuli (supra), arrived at the conclusion as follows:

“17. Thus, in view of the above, the law on the issue can be summarised to the effect that if the court where the suit is instituted, is of the view that it has no jurisdiction, the plaint is to be returned in view of the provisions of Order 7 Rule 10 CPC and the plaintiff can present it before the court having competent jurisdiction. In such a factual matrix, the plaintiff is entitled to exclude the period during which he prosecuted the case before the court having no jurisdiction in view of the provisions of Section 14 of the Limitation Act, and may also seek adjustment of court fee paid in that court. However, after presentation before the court of competent jurisdiction, the plaint is to be considered as a fresh plaint and the trial is to be conducted de novo even if it stood concluded before the court having no competence to try the same.”

 

The Supreme Court in M/s EXL Careers  Supra) has held as under:

“21. The statutory scheme now becomes clear. In cases dealing with transfer of proceedings from a Court having jurisdiction to another Court, the discretion vested in the Court by Sections 24(2) and 25(3) either to retry the proceedings or proceed from the point at which such proceeding was transferred or withdrawn, is in marked contrast to the scheme under Order VII Rule 10 read with Rule 10-A where no such discretion is given and the proceeding has to commence de novo.”

        

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                                           Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

SUCCESSION CERTIFICATE: LAW, JURISIDCTION OF COURTS & EFFECT

 

Succession certificate: LAW, Jurisidction of Courts & EFFECT

If a person dies intestate, leaving behind moveable properties such as fixed deposits, shares, debentures etc then the class 1 legal heirs shall have to obtain succession certificate from the competent courts of law in order to lay claim on such movables left over by the deceased. It is also imperative that such class I legal heirs also obtain Surviving Members certificate (SMC) from the appropriate SDM office before preferring claim for succession in appropriate courts of jurisdiction. The same shall be necessary, in as much as, before hand if the SMC is available processing of succession case before courts are facilitated. The succession certificate shall also be needed, in case, the nominee is named in any such deposits. It is so, because, nominee gets the deposit only as a trustee of legal heirs and the bank or such agency is discharged, once, the money is transmitted to the nominee of deceased. However, the claim of legal heirs of deceased could emanate after issuance of succession certificate. The necessary enactment, in this context is Indian Succession Act 1925.

The succession certificate shall be necessary for class 1 legal heirs of deceased, irrespective of declaring nominee. Another dimension to it is, where and in what forum, the case for seeking succession certificate could be filed and yet again, a deceased may have accounts and deposits in several locations or states, thus, what should be the appropriate forum and location, where such petition could be preferred?

Before going further, Section 371 of Indian Succession Act may be reproduced as under:

“371. Courts having jurisdiction to grant certificate:- The District judge within whose jurisdiction the deceased ordinarily resided at the time of his death, or, if at that time he had no fixed place of residence. The District Judge, within whose jurisdiction any part of the property of the deceased may be found, may grant a certificate under this Part.”

In this context, a recent judgment of Delhi High Court captioned as PJ Pothen & Anr Vs Sanghmitra (CGHS) Society and Ors FAO 351/2014 shall be of relevance. The Delhi High Court has held that the petition for seeking succession certificate shall have to be filed in a District Court of appropriate jurisdiction and the appropriate jurisdiction of District Court shall be such District Court within whose territorial jurisdiction, the deceased ordinarily resided at the time of his death. However, there may be a situation that the deceased may not have a fixed place of abode at the time of his death and in that event if any part of property of deceased is found may also have jurisdiction for entertaining a petition for seeking succession certificate. The Delhi High Court has held that the second part shall come into play, only, if first part is not satisfied i.e if the deceased had no fixed place of residence at the time of his death. It is also clearly held that the aforesaid two situations shall be relevant. The place of death of the deceased is not relevant. In PJ Pothen (Supra) the deceased was ordinary resident of New Delhi, but died in a hospital at Cochin (Kerala) and thus it was held that for the purpose of Section 371 of the Act, the deceased shall be treated as ordinary resident of New Delhi only.

Prior to the dicta of Delhi High Court as referred to above, in a matter captioned as Rameshwari Devi Vs Raj Bali Shah & Anr 1987 (13) ALR 705, Allahabad High Court has also held accordingly. Similar ratio was laid down in Shiv Kumar Vs Bhanu Prakash Singh MANU/MP/0408/1961. It is relevant to point out that in Shiv Kumar (Supra) the deceased was ordinary resident within the territorial limit of District Court , Rajgarh, however, she expired in Bombay, where she went for treatment and it was held that Rajgarh Court shall be the appropriate court for seeking succession certificate and not the courts of Bombay.

Yet another aspect of it could be perused in Madhuribai Mohan Walke Vs Anr Vs Annapurnabai Keshao Walke & Anr MANU/MH/0417/2003, the deceased was ordinary resident of “Wedshi” (Yavatrmal), however, he was posted at “Gadchiroli” and on account of his employment he was residing at “Gadchiroli” and therefore his ordinary place of residence was treated as “Gadchiroli” for the purpose of Section 371 of Indian Succession Act 1925. What is significant to note in the aforesaid context is that even permanent place of residence is of no relevance for the aforesaid purpose and under Indian Succession Act.

Thus, it clearly emerges that place of death of deceased shall be of no relevance for the purpose of preferring petition for seeking succession certificate. The place of ordinary residence of the deceased at the time of his death shall be relevant.

Extension of certificate: (S. 376)

As per section 376 of Indian Succession Act, 1925, application for seeking succession certificate could be moved by the class 1 legal heirs of deceased before a District Judge. A succession certificate could be issued and certificate could be extended to any debt or security that may not have been not originally specified therein. A bond or further bond or other security for the purpose mentioned in section 375 may also be required, in the same manner. It may be worthwhile to reproduce Section 375 herein for ready reference:

Requisition of security from grantee of certificate(S 375)

(1) The District Judge shall in any case in which he proposes to proceed under sub-section (1) or sub-section (4) of section 373, and may, in other case, require, as a condition precedent to the granting of a certificate, that the person to whom he proposes to make the grant shall give to the judge a bond with one more surety or sureties, or other sufficient security, for rendering an account of debts and securities received by him and for indemnity of person who may be entitled to the whole or any part of those debts and securities.

(2) The judge may, on application made by petition and on cause shown to his satisfaction, and upon such terms as to security, or providing that the money received be paid into Court, or otherwise, as he thinks fit, assign the bond or other security to some proper person, and that person shall thereupon be entitled to sue thereon in his own name as if it had been originally given to him instead of to the Judge of the Court, and to recover, as trustee for all person interested, such amount as may be recoverable thereunder.

Validity of Succession Certificate:

Section 381 of the Indian Succession Act, 1925, stipulates the effect of the certificate issued by a District judge, in respect to debts and securities shall be conclusive against those who owe debts or may have a liability towards such security.

A succession certificate has validity throughout India.

Revocation of the Succession Certificate (S.383):

There has also been stipulations as regards revocation of Succession Certificate so issued may be revoked by a District judge, on the following ground or grounds.

(a)            If process to obtain the certificates were defective in substance;

(b)          If certificate is obtained by fraud, manipulation or concealments of material facts;

(c)           If certificate is obtained by means of untrue allegation of facts essential in point of law to justify the grant thereof, though such allegation may have been made inadvertently or ignorantly;

(d)        If the certificate is rendered useless and inoperative through circumstances;

(e)         If a decree or order made by a competent Court in suit or other proceedings with respect to effects comprising debts or securities specified in the certificate renders it proper that the certificate should be revoked.

APPEAL

Section 384 of the Indian Succession Act 1925 provides for the appeal before High Court from an order of District Court, whether granting succession certificate or not granting it or revoking the certificate. Subject to the order of High Court whether in appeal or under any other proceedings, the order passed by the District Judge shall be final.

In order to prefer a petition for seeking succession certificate before a District Court, it may be worthwhile for legal heirs claiming succession to obtain Surviving Members Certificate (SMC) as surviving legal heirs of deceased, so as to facilitate the hearing, before the District Court. The diagnostic features of SMC and Succession Certificate are illustrated as under:

SMC	Succession Certificate
1.     It identifies the rightful successor, who then may raise claim on the assets/properties of the deceased person.	1.     It is a document giving authority to the person to represent the deceased for the purposes of collecting the debts and securities due to him or payable in his name
2.     May be used for the purpose of transferring utilities such as Electricity connection, Telephone connection, House Tax, Bank Account etc.	3.     It is required for movable property such as shares, debentures, bank deposits, loans, or other securities
4.     SMC could be issued by a Revenue Officer / Tehsildar of a concerned district	4.     The District Judge grants certificate, provided the deceased had been an ordinary resident at the time of his death, within the territorial limit of jurisdiction of such district judge, or, if the deceased did not have a permanent place of residence at the time of his or her death, then succession certificate could also be issued by a District judge in the jurisdiction where any part of the deceased’s property falls.
5.     The application can be made only by spouse, children, parents, or siblings of the deceased.	5.     The application of succession certificate can only be made by class I legal heirs or class 2 legal heirs , if class 1 legal heirs are not there.
6.     Generally time consumed could 15 to 20 days for this purpose.	6.     A detailed process is entailed for objections and after disposal of objections and citations in newspaper and after the hearing , the certificate is issued.
7.     It is issued only with a view to identify heirs of deceased person.	7.     It is issued to establish validity and legality of the heirs and also to accord them authority in respect of assets and securities of the deceased persons.
8.     The documents to be furnished in this regard shall be (i) Death certificate (ii) Identity Card, (iii) Ration Card with names of family members and relationship along with affidavit executed on stamp paper	8.     Death certificate shall be required apart from the specifics such time and place of death, the name of all legal heirs and relation with the deceased and place of ordinary abode of deceased. 2-3% stamp paper towards the value of assets in respect whereof succession certificate are sought shall have to be deposited.
9.     It serve as a prima facie certificate and not conclusive in itself.	9.     It is conclusive, unless revoked and it is an evidence of representative status.

 

 In view of what are illustrated above , it is explicit that the law of succession stipulates and prescribes rules relating to devolution of properties of a deceased, who dies intestate i.e., without making a will. By virtue of obtaining a succession certificate, a grantee of a certificate under the Indian Succession Act, 1925 shall have authority to represent the deceased for the purposes of collecting the debts and securities due to him or payable in his name. It is also to ensure that banks or such other agency who holds money of deceased, can pay the Legal Heirs in terms of succession certificate, without any further hassles. It is also to be borne in mind that the Certificate does not establish the title of the grantee as the heir of the deceased, but only furnishes him with an authority to collect the debts and allows the debtors to make payment to the grantee without incurring any risk and in case nominees are not named by the deceased. In other words, the succession certificate shall be an authentic document guaranteeing legal heirs who obtains succession certificate as the only legal heir/heirs of the deceased property.

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                                  Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

 

 

EXECUTION PROCEEDINGS: ORDER 21 OF CPC AND LIABILITY OF DIRECTORS

 

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).

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                                        Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com