Delhi High Court
Anirban Roy & Anr vs Ram Kishan Gupta & Anr on 3 August, 2017
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 3rd August, 2017
+ CM(M) 559/2017 & CM No.19057/2016 (for stay)
ANIRBAN ROY & ANR ..... Petitioners
Through:Mr. J.P. Sengh, Sr. Adv. with
Mr. Lalit Bhardwaj, Ms. Priya
Sharma & Ms. Manisha Mehta,
Advs.
Versus
RAM KISHAN GUPTA & ANR ..... Respondents
Through: Mr. Hemant Malhotra & Mr.
K.J.S. Kalra, Adv. for R-1.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. This petition under Article 227 of the Constitution of India
impugns the orders [dated 23rd February, 2017 and 17th March, 2017
in Execution No.97/2017 of the Court of Additional District Judge
(ADJ)-03, New Delhi District, Patiala House Courts, New Delhi] in
exercise of powers under Order XXI Rule 41 of CPC, directing the
petitioners viz. Anirban Roy and Romira Roy being the Directors of
the respondent no.2 / judgment-debtor Seed Infrastructure & Solutions
Pvt. Ltd. to disclose their personal movable and immovable assets in
terms of judgment dated 11th January, 2016 of this Court in Execution
Petition No.275/2012 titled Bhandari Engineers & Builders Pvt. Ltd.
Vs. Maharia Raj Joint Ventures & Ors. and on failure of the
petitioners to do so, issuing bailable warrants in the name of the two
petitioners.
CM(M) No.559/2017 Page 1 of 8
2. The petition was entertained and vide ad-interim order dated
19th May, 2017, the direction for issuance of bailable warrants was
ordered to be kept in abeyance.
3. The counsel for the respondent no.1 appears.
4. I have already in order dated 19th July, 2017 in CM(M)
No.731/2017 titled Ashu Sharma Vs. Framework Interiors dealt with
the identical order of the same learned ADJ and allowed the petition.
5. In the present case, the respondent no.1 is the holder of a decree
against the respondent no.2 for recovery of Rs.30,66,740/- with
interest and for mandatory injunction directing the respondent no.2
judgment-debtor to furnish TDS certificates and to pay arrears of
electricity and maintenance charges.
6. In execution filed by the respondent no.1 of the said decree, an
order under Order XXI Rule 41 of the CPC was issued and
subsequently the directions as contained in the impugned order dated
23rd February, 2017 directing the petitioners, being the Directors of the
respondent no.2 / judgment-debtor, to also disclose their personal
movable and immovable assets was issued.
7. A routine direction against Directors and shareholders of
judgment-debtor companies turns the elementary principle of
company law, a company being a legal entity, is distinct from its
shareholders and Directors, on its head.
8. 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.
CM(M) No.559/2017 Page 2 of 8
9. I have in V.K. Uppal Vs. Akshay International Pvt. Ltd. 2010
SCC online Delhi 538 held; (i) that 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 Vs. 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 Vs. Radiant Sports Management 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
CM(M) No.559/2017 Page 3 of 8
but the said judgment was over ruled by the Division Bench EFA(OS)
No.17/2008 decided on 7th November, 2008 and reported as
MANU/DE/1756/2008, finding that the director of the company had
agreed to be personally liable to satisfy the decree and for this reason
holding him liable; however the Division Bench refrained from
commenting authoritatively on the aspect of lifting of the corporate
veil in execution; (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 therefor
has to be pleaded; (ix) that it cannot be laid as a general proposition
that whenever the decree is against a company, its
Directors/shareholders would also be liable-to hold so would be
contrary to the very concept of limited liability and obliterate the
distinction between a partnership and a company; (x) that though 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. Vs. Chander Mohan Chadha (2004) SCC 1 but a case therefor
has to be made out; (xi) that the decree holders in that case had not
made out any case therefor; the directors were not parties to the
proceedings in which decree was passed and were not impleaded in
the execution petition also and there were no averments in the
execution petition of fraud or improper conduct or of incorporation of
the company to evade obligations imposed by law and in which
situations Supreme Court in Singer India Ltd. supra has held that the
corporate veil must be disregarded.
CM(M) No.559/2017 Page 4 of 8
10. Applying the aforesaid principles, the decree in favour of the
respondent No.1 and against the respondent No.2 for recovery of
money cannot be executed against the petitioners for the reason of the
petitioners being directors of the respondent No.2
11. The High Court of Madhya Pradesh in Vimalchand Vs. Arora
Distillery Pvt. Ltd. Co., Vidisha 2009 (3) MPLJ 332 held that decree
obtained against a private company cannot be executed against its
managing director or directors and the managing director and directors
cannot be held personally liable for the decretal amount.
12. This Court again in Balmer Lawrie & Co. Ltd. Vs. Saraswathi
Chemicals Proprietors Saraswathi Leather Chemicals (P) Ltd. 2017
SCC OnLine Del 7519 held that the money due under arbitrator‟s
award against a company could not be recovered from the directors of
the company. It was further held that though the court can lift the
corporate veil, the same can be done only in extra-ordinary
circumstances and by due adjudicatory process and the executing
Court cannot go behind the decree and it must enforce it as it is and
that it is not open to a decree holder to enforce a decree against any
person other than the one against whom the decree is. It was further
held that a mere allegation that the directors have siphoned off the
assets without any particulars, cannot be accepted as the ground for
improper conduct.
13. Reference may also be made to Asian Granite Pvt. Ltd. Vs.
Deen Dayal Aggarwal 2016 SCC OnLine Del 69 setting aside the sale
of the property of a company in execution of a decree against the
directors of the company.
CM(M) No.559/2017 Page 5 of 8
14. As far as reference to Bhandari Engineers & Builders Pvt. Ltd.
supra is concerned, a perusal thereof does not show this Court to have
held that in every case of execution of a money decree against a
company, the Directors of the judgment debtor company are required
to furnish details of their personal properties. The direction to the
Directors, in Bhandari Engineers & Builders Pvt. Ltd. supra, was on
account of the business relationship as found therein. There is no such
finding in the present case.
15. Once the decree against the respondent No.2 cannot be executed
against the petitioners as its directors, the next question is whether
under Order XXI Rule 41 of the CPC, a direction to the directors to
disclose their personal movable and immovable assets can be issued.
16. Order 21 titled "Execution of Decrees and Orders", in Rule 41
thereof provides as under:
"41. Examination of judgment debtor as to his property.- (1)
Where a decree is for the payment of money the decree holder
may apply to the court for an Order that--
(a) the judgment debtor, or
(b) where the judgment debtor is a corporation, any officer
thereof, or
(c) any other person, be orally examined as to whether any or
what debts are owing to the judgment debtor and whether the
judgment debtor has any and what other property or means of
satisfying the decree; and the court may make an order for the
attendance and examination of such judgment debtor, or
officer or other person, and for the production of any books or
documents.
(2) Where a decree for the payment of money has remained
unsatisfied for a period of, thirty days, the court may, on the
application of the decree holder and without prejudice to its
CM(M) No.559/2017 Page 6 of 8
power under sub-rule (1), by order require the judgment
debtor or where the judgment debtor is a corporation, any
officer thereof, to make an affidavit stating the particulars of
the assets of the judgment debtor.
(3) In case of disobedience of any order made under sub-rule
(2), the court making the order, or any court to which the
proceeding is transferred, may direct that the person
disobeying the order be detained in the civil prison for a term
not exceeding three month unless before the expiry of such
term the court directs his release.)"
17. The direction impugned is evidently under sub-Rule (2) of
Order XXI Rule 41. However what the said rule 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.
18. Once the directors of a company are not judgment-debtor in a
decree against a company, there can be no direction to them to
disclose their assets. Mr. Justice Chagla of the Bombay High Court, in
Bachubai Manjrekar Vs. Raghunath Ghanshyam Manjrekar ILR
1942 Bombay 128 held that except in very exceptional circumstances,
the Court should never make an order under Order XXI Rule 41 of
CPC without in the first instance giving notice to the party against
whom an order is sought. In the present case, the order against the
petitioners has been made without even giving any opportunity to the
CM(M) No.559/2017 Page 7 of 8
petitioners to show cause as to why the direction against them should
not be issued.
19. Mention may also be made of Bivi Ammal Vs. Union Bank
Ltd., Kumbakonam 48 LW part 4 157 laying down that "any other
person" within the meaning of Order XXI Rule 41(1) includes a
garnishee but if a garnishee denies a debt, he ought not to be examined
under Order XXI Rule 41 of the CPC unless the Court is satisfied on
affidavit or on examination of the judgment-debtor that in the interest
of the decree holder, the garnishee should be examined and his books
produced to better enable the decree holder to proceed with the
execution and to prevent a possible fraud or collusion between the
judgment-debtor and the garnishee. I may mention that no such
finding also has been returned in the present case.
20. The direction contained in the impugned order dated 23 rd
February, 2017 directing the petitioners to on affidavit disclose their
personal movable and immovable assets as distinct from the assets of
the respondent no.2/judgment-debtor thus cannot be sustained and is
set aside. Axiomatically, the impugned order dated 17 th March, 2017
of issuance of bailable warrants against the petitioners for non-
compliance with the directions dated 23rd February, 2017 also has to go.
21. The petition thus succeeds and is disposed of.
No costs.
RAJIV SAHAI ENDLAW, J.
AUGUST 03, 2017 „gsr‟/‟R‟ (Corrected & released on 29th September, 2017) CM(M) No.559/2017 Page 8 of 8