Whether the Enforcing Court can lift the Corporate Veil in execution of a Foreign Award where the Additional Respondents were never parties to the arbitration proceedings and/or the Foreign Award was not passed against them
In Mitsui OSK Lines Ltd. (Japan) v. Orient Ship Agency Pvt. Ltd. Chamber Summons No. 157 of 2019 decided on 7 February 2020, the Bombay High Court was called to decide whether the Executing Court can at all lift the Corporate Veil by making parties personally liable to satisfy the decree in execution, when the decree/Foreign Award was not passed against them.
In this case, the Foreign Award had been passed in Japan which was accepted as a decree of the Court by the Bombay High Court. Later, the Award Holder had sought to execute the award by taking out various proceedings in execution. However, out of the awarded amount of Rs. 66,26,84,888.95, the Award Holder was able to satisfy the award only to the extent of approximately Rs. 2 Crores. By way of Chamber Summons before the Bombay High Court, the Award Holder prayed to make the proposed Additional Respondents personally liable for satisfying the Foreign Award which is deemed to be a decree of the Court. The Award Holder has applied for the Corporate Veil of the Judgment Debtor to be lifted to try and reach out to what is alleged to be the real persons behind the Judgment Debtor who are claimed to be the Directors of the Judgment Debtor as well as the Associate Companies of the Judgment Debtor.
Before adverting further, it will be germane to discuss Indian legal jurisprudence on this issue. In Bhatia Industries and Infrastructures Ltd. vs. Asian Natural Resources (India) Ltd., a foreign award was challenged before the Bombay High Court wherein the Court was called upon to enumerate instances where the corporate veil can be lifted by the Court and whether the concept of lifting of corporate veil is also available in execution proceedings. Aligning with English authorities on the lifting of corporate veil, the Bombay High Court inter alia held that the concept of lifting the corporate veil can be resorted to even in execution proceedings.
Similar views were taken by the Delhi High Court in Formosa Plastic Corporation Ltd. vs. Ashok Chauhan and Others and Punjab and Haryana High Court in Sai Sounds Private Limited vs. Kiran Contractors Private Limited wherein the Courts inter alia held that the doctrine of Corporate Veil can be applied even in execution proceedings.
However, in the instant case, the court had distinguished Bhatia International on the facts. In Bhatia International, the attachment on the basis of an arbitral award was alleged to be made in respect of coal which belonged to BIIL, an alter ego of the Judgment Debtor, BIL and not BIL itself. It was when the said BIIL sought to vacate the attachment, the Division Bench of the Bombay High Court concluded that both BIL and BIIL are in fact, one and the same and therefore, the attachment was in effect of the properties of BIL the Judgment Debtor.
In the present case, however, the Award Holder was not going against the Associate Companies in respect of particular assets claiming that they belong to the Judgment Debtor, but was in fact, making the Additional Respondents personally liable in respect of the Foreign Award passed against the Judgment Debtor. Hence, the Court took the view that the judgment in Bhatia Industries will have no application in the facts and circumstances of the present case. Similarly, Formosa Plastic and Sai Sounds were distinguished by the Court with the peculiar facts of this case.
The law with regard to the doctrine of piercing the Corporate Veil in India, which stands as an exception to the principle that a company being a legal entity separate and distinct from its shareholders with its own legal rights and obligations was promulgated by the Supreme Court in Balwant Rai Saluja vs. Air India Ltd. In that case, the Supreme Court made it clear that the doctrine would apply in a restrictive manner and would apply only when it is evident that the company was a camouflage or a sham deliberately created by the persons exercising real control over the said company for the purposes of avoiding a liability. Therefore, to justify the piercing of the Corporate Veil, the Courts will be required to be satisfied that there is some impropriety in question and there must be both control of the company by the wrongdoer(s) and impropriety.
It is to be noted that in this decision although the judgment of the United Kingdom’s Supreme Court in Prest v. Petrodel Resources Ltd. has been relied upon, it has been relied upon for what is popularly described as the evasion principle where the Court would pierce the Corporate Veil for the purpose and only for the purpose of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality. The evasion principle applies when a person is under an existing legal obligation or liability, or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control.
In the instant case, heavy reliance was placed upon Prest by the Award Holder in contending that Indian Courts have recognized the principles laid down in Prest viz. the concealment principle as well as the evasion principle. However, it is to be noted that the decision in Prest was not a case of an execution of a decree/Foreign Award.
It was an application filed by the wife in the divorce proceedings for the transfer of ownership of eight residential properties (including the matrimonial home), legal title of which vested in two companies registered in the Isle of Man to her name towards her share in the estate of her husband. It was her contention that the assets stood in the names of various companies which were otherwise owned and controlled by her husband. The application was opposed by the Companies contending that the assets were owned by the companies which were separate and distinct entities and consequently, they could not been proceeded against. It was in this contest that the decision of Prest was passed naming the two principles viz. concealment principle and the evasion principle, which were recognized by the Court.
However, as per Bombay High Court, the dictum of Prest relating to the concealment principle were not applicable in present case where the Judgment Creditor is attempting to foist a personal liability on the Additional Respondents by seeking to execute the Foreign Award against them despite their not being parties to the Foreign Award.
Further, the Bombay High Court interpreted Prest to mean that the concealment principle does not involve piercing the Corporate Veil at all. It applies where there is interposition of a company or perhaps several companies so as to conceal the identity of the real actors. This will not deter the courts from identifying them, assuming that their identity is legally relevant. It has been held that the Court is not disregarding the “facade”, but only looking behind it to discover the facts which the corporate structure is concealing. This is in counter distinction with the evasion principle.
To draw a parlance, it will be apposite to discuss Arcelormittal India Private Ltd. vs. Satish Kumar Gupta & Ors, wherein the Supreme Court was concerned with the Insolvency and Bankruptcy Code and in particular Section 29A thereof. Although that case had referred to the Prest case, it is clear from the decision in Arcelormittal that there is a statutory requirement under Section 29A of the Code i.e. disregarding the Corporate Veil in considering a situation where a resolution plan required to be filed so that the same defaulter does not come around in another avataar to take over the company.
It is thus clear that the context of that decision was in respect of the statute which itself required the Corporate Veil to be lifted. The principles set out in Arcelormittal for lifting of the Corporate Veil, which would arise where statute lifts the Corporate Veil or where protection of public interest is of paramount importance or where company has been formed to evade obligations imposed by the law, then the Court will disregard the Corporate Veil.
Thus, placing reliance on the above authorities, the Bombay High Court concluded as under
- The Judgment Creditor in the present case has not satisfied any of the principles related with lifting of Corporate Veil and accordingly, the lifting of the Corporate Veil is not at all justified in the facts and circumstances of the present case.
- In addition, the lifting of the Corporate Veil cannot at all arise in the instant case as the Additional Respondents are neither the parties to the Foreign Arbitration Agreement nor parties to the Foreign Award and as such cannot be proceeded against in execution of the Foreign Award.
- Further, the Additional Respondents are neither legal representatives nor representatives of the Judgment Debtor within the meaning of the provisions of the Civil Procedure Code, 1908 of India which is a complete code in itself.
- In order to determine as to whether the Corporate Veil is to be lifted would be a matter of trial and cannot be done in the manner sought to be done i.e. by the present Chamber Summons seeking to join the Additional Respondents as parties to the Execution Application and making them personally liable.
 1999 (1) AD (Delhi) : 1998 (76) DLT 817
 (2016) 1822 PLR 518
 (2014) 9 SCC 407
 (2013) UKSC 34
 Wood and another v Baker and others  EWHC 2536 (Ch)
 (2019) 2 SCC 1