IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE THOMAS P.JOSEPH MONDAY, THE 24TH OCTOBER 2011 / 2ND KARTHIKA 1933 CRP.No. 463 of 2011() ------------------------------- CMA.NO.22/2010 of DISTRICT COURT, KOTTAYAM IP.NO.9/2005 of PRL.SUB COURT,KOTTAYAM .................... REVN. PETITIONER(S)/ APPELLANT/PETITIONER ----------------------------------------------------------------------- 1. REENU ZACHARIAH, W/O.ZACHARIAH KURIAN, RESIDING AT ASHOK BHAVAN, MOUNT WARDHA, MUTTAMBALAM, KOTTAYAM DISTRICT. BY SRI.JOSEPH MARKOSE, SENIOR ADVOCATE SRI.V.ABRAHAM MARKOS SRI.MATHEWS K.UTHUPPACHAN SRI.BINU MATHEW SRI.TERRY V.JAMES SRI.B.J.JOHN PRAKASH SRI.TOM THOMAS (KAKKUZHIYIL) RESPONDENT(S): ---------------------------- 1. K.I.PHILIPOSE, S/O.IDICULLA, RESIDING AT PEACE VALLY HOUSE, VADAVATHOOR.P.O., PIN-686 010. MANGANAM KARA, VIJAYAPURAM VILLAGE, KOTTAYAM TALUK AND KOTTAYAM DISTRICT. 2. ANNAMMA PHILIPOSE, W/O.K.I.PHILIPOSE, RESIDING AT PEACE VALLEY HOUSE, VADAVATHOOR.P.O. PIN-686 010, MANGANAM KARA, VIAJAYAPURAM VILLAGE, KOTTAYAM TALUK AND KOTTAYAM DISTRICT. 3. SHINY KORAH, W/O.THOMAS M.JOSHNA, RESIDING AT MALAYIL THAZETHIL HOUSE, PAKKIL KARA, PIN-686 012, NATTAKAM VILLAGE, KOTTAYAM DISTRICT. 4. K.M.PHILIP, RESIDING AT 12-A, SILVER ARCH, 66, NEPEAN SEA ROAD, MUMBAI-400 006. 5. DR.K.O.MAMMEN, RESIDING AT 10, WALTON ROAD, BANGALORE-560 001. 2/- -2- CRP.No. 463 of 2011 6. P.GEORGE VARGHESE, RESIDING AT O/E/N CONNECTORS LTD., P.B.NO.2, VYTILLA, KOCHI-682 019. 7. ASHOK KURIAN, RESIDING AT ASHOK BHAVAN, MOUNT WARDHA, KANJIKUZHY, MUTTAMBALAM.P.O., PIN-686 001, KOTTAYAM. 8. D.G.NAYAR, RESIDING AT 2C, ANUGRAHA APARTMENTS-1 2ND CROSS ROAD SEETHA NAGAR, NUNGAMBAKKAM, CHENNAI-600 034. 9. N.D.ACHIAH, C-3 MADURA TENACE, 72, NEW AVADI ROAD,KILPAUK, CHENNAI-600 010. 10. GEORGE KURUVILLA, RESIDING AT VAIRAMS, 112 THYAGARAJA ROAD, T.NAGAR, CHENNAI-600 017. BY THIS CIVIL REVISION PETITION HAVING COME UP FOR ADMISSION ON 24/10/2011, ALONG WITH CRP. NO. 464 OF 2011 THE COURT ON THE SAME DAY PASSED THE FOLLOWING: sts CRP.NO.463/2011 APPENDIX PETITIONER'S ANNEXURES: ANNEX A1 COPY OF THE I.P.NO.9/2005 DATED 9/8/2005 FILED BY THE RESPONDENTS 1 TO 3 BEFORE THE HONOURABLE SUB COURT, KOTTAYAM. ANNEX A2(A) COPY OF THE DEPOSIT RECEIPT DATED 19/09/2000 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. ANNEX A2(B) COPY OF THE DEPOSIT RECEIPT DATED 16/12/2000 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. ANNEX A2(C) COPY OF THE DEPOSIT RECEIPT DATED 20/02/2001 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. ANNEX A2(D) COPY OF THE DEPOSIT RECEIPT DATED 30/06/2001 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. ANNEX A2(E) COPY OF THE DEPOSIT RECEIPT DATED 30/11/2001 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. ANNEX A2(F) COPY OF THE DEPOSIT RECEIPT DATED 27/03/2002 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. ANNEX A2(G) COPY OF THE DEPOSIT RECEIPT DATED 01/06/2002 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. ANNEX A2(H) COPY OF THE DEPOSIT RECEIPT DATED 19/03/2004 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. ANNEX A2(I) COPY OF THE DEPOSIT RECEIPT DATED 11/05/2004 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. ANNEX A2(J) COPY OF THE DEPOSIT RECEIPT DATED 28/02/2005 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. ANNEX A3 COPY OF THE WRITTEN OBJECTION DATED 06/11/2006 TO ANNEXURE-AI FILED BY THE REVISION PETITIONER IN I.P.NO.9/2005. ANNEX A4 COPY OF THE I.A.NO.1488/2008 DATED 3/6/2008 FILED BY THE REVISION PETITIONER AND OTHERS BEFORE THE HON'BLE SUB COURT, KOTTAYAM. ANNEX A5 COPY OF THE COUNTER AFFIDAVIT DATED 10/06/2008 FILED BY THE RESPONDENTS 1 TO 3 IN I.A.NO.1488/2008 IN I.P.NO.9/2005. 2/- -2- CRP.NO.463/2011 ANNEX A6 COPY OF THE I.A.NO.1438/2008 DATED 22/10/2008 FILED BY THE REVISION PETITIONER AND OTHERS BEFORE THE HON'BLE SUB COURT, KOTTAYAM. ANNEX A7 COPY OF THE CERTIFICATE FOR COMMENCEMENT OF BUSINESS ISSUED BY THE REGISTRAR OF COMPANIES, TAMIL NADU. ANNEX A8 COPY OF THE ORDER DATED 30/4/2008 PASSED BY THE HON'BLE HIGH COURT OF JUDICATURE AT MADRAS IN OSA NOS.308,309,312 OF 2006 AND OSA NO.91/2007 AND M.P.NOS.1 AND 2 OF 2006. ANNEX A9 COPY OF THE ORDER DATED 22/2/2010 PASSED BY THE HON'BLE PRINCIPAL SUB JUDGE, KOTTAYAM IN I.A.NO.1488/2008,1489/2008 & I.A.NO.1438/2008 IN I.P.NO.9/2005. ANNEX 10 COPY OF THE JUDGMENT DATED 13/11/2009 PASSED BY THIS HON'BLE COURT IN WP(C)NO.33001/2008. RESPONDENT'S ANNEXURES: NIL /TRUE COPY/ P.A.TO.JUDGE sts THOMAS P. JOSEPH, J. ---------------------------------------- C.R.P.Nos.463 and 464 of 2011 --------------------------------------- Dated this 24th day of October, 2011 ORDER These civil revisions arise from the common judgment of learned District Judge, Kottayam in C.M.Appeal.Nos.22 and 23 of 2010 arising from the common order passed by the learned Principal Sub Judge, Kottayam on I.A.Nos.1488 and 4438 of 2008 in I.P.No.9 of 2005 filed by respondents 1 to 3. Petitioner claims to be an employee of the M/s. Integrated Finance Company Limited (for short, "the Company”), which according to the petitioner is a public limited company. Respondents 4 to 10 are described in the insolvency petition as former/present directors of the said company. According to respondents 1 to 3, they made various deposits with the said company, the deposits matured but the amounts were not returned to them. They made allegations in the petition so as to attract Sec.6 of the Insolvency Act (for short, "the Act”) and prayed that petitioner and respondents 4 to 10 may be adjudicated as insolvents. Petitioner and respondents 4 to 10 filed objection to the insolvency petition. Petitioner filed I.A.Nos.1488 of 2008 and 4438 of 2008 in the insolvency proceeding, the former under Rule 2 of Order XIV of the Code of C.R.P.Nos.463 and 464 of 2011 -: 2 :- Civil Procedure (for short, "the Code”) and the latter, under Sec.151 of the said Code. Purport of the applications is to frame a preliminary question as to the maintainability of the insolvency petition against petitioner and to dispose of that question. The Insolvency Court considered the question and found that in view of the allegations made in the insolvency petition, request of petitioner cannot be accepted. That finding has been confirmed by the learned District Judge in the C.M appeal. 2. Learned Senior Advocate appearing for petitioner has contended that insolvency proceeding is not maintainable since even as admitted by respondents 1 to 3, their transactions were with a public limited company which must be governed by the provisions of the Companies Act and in view of Sec.8 of the Act, no insolvency petition shall be presented against any corporation, association or company registered under any enactment for the time being in force. It is further contended by the learned Senior Advocate that the power to lift the corporate veil is not a creation of the statute but a general power of the Court but the insolvency Court cannot be invested with that power. There is no evidence of any demand made by respondents 1 to 3 to the petitioner for payment of any amount. The further contention is that the allegations in the insolvency petition do not attracted any of the clauses of Sec.6 of the Act so that respondents 1 to 3 could C.R.P.Nos.463 and 464 of 2011 -: 3 :- maintain the insolvency proceeding. 3. So far as maintainability of the insolvency proceeding is concerned, I am inclined to think, prima facie, that it should depend on the averments in the insolvency petition. Respondents 1 to 3 alleged that they made deposits with the Company, they got the interest for some time, the deposits got matured and thereafter, neither interest nor the principal amount was paid. The company went into financial crisis. In paragraph 2 of the insolvency petition it is stated that petitioner and respondents 4 to 10 are jointly conducting private finance business (in the name and style of the company). In paragraph 3 it is stated that for canvassing finance, petitioner and respondents 4 to 10 adopted several cunning tactics to make the public believe that they are financially sound, claiming that they are owners and Directors of Malayala Manorama Company and Madras Rubber Factory. They told the depositors that the Malayala Manorama Company and Madras Rubber Factory are guarantors for the deposits they make. To create confidence in the mind of the depositors, petitioner and respondents 4 to 10 publicised that they are doing business in finance in the name and style 'Integrated Finance Company Limited' but that was a foul play to mislead and defraud the creditors. It is recently learned that the company is a bogus company and a paper tiger. It is neither a company nor a C.R.P.Nos.463 and 464 of 2011 -: 4 :- partnership firm. Petitioner and respondents 4 to 10 are directly and personally accountable and answerable for the deposits collected. Respondents 1 to 3, lured by the attractive terms and conditions offered by petitioner and respondents 4 to 10 happened to make deposits (referred to in paragraph 4 of the insolvency petition). In paragraph 7, it is stated that petitioner and respondents 4 to 10 were actively participating in canvassing and receiving deposits and jointly managing the affairs of their private financing. It is further stated that petitioner and respondents 4 and 10 were heavily indebted to several persons all over the country their liability exceeding `.150 Crores. They have no assets and means to settle the accounts of various depositors. The amounts collected have been siphoned off by them. They have diverted the deposits and purchased properties and other valuable assets in their names and in the names of their henchmen who are unidentifiable and beyond the reach of depositors. In Paragraph 8, it is stated that petitioner and respondents 4 to 10 are misappropriating deposits collected (from respondents 1 to 3 and other depositors) and that the demand (made by respondents 1 to 3) to return the amount was not complied. Petitioner and respondents 4 to 10 are not available at their place of residence and houses. In paragraph 10, it is stated that they are absconding and that they are indulging C.R.P.Nos.463 and 464 of 2011 -: 5 :- in nefarious and deceitful activities to defraud and defeat creditors. It is further stated that petitioner and respondents 4 to 10 are making attempts to alienate their properties to defeat creditors. 4. True that by virtue of Sec.8 of the Act there could be no insolvency petition against the company though a company as a creditor can file a petition under the Act. It is also true that the fixed deposit receipts respondents 1 to 4 have produced in the trial court are all issued by the company in question. But, at this stage, I cannot forget that the various averments in the insolvency petition that the company is a bogus company formed by petitioner and respondents 1 to 4 to enable them engage in their private finance business. In P.C Agarwala Vs. Payment of Wages Inspector, M.P and Ors. ((2005)8 SCC 104), in paragraph 22 and 23 reference has been made to Palmer and Gower on the principles of lifting the corporate veil. Reference has also been made to Salomon Vs. Sslomon & Co. (1897 AC 22). In paragraph 23 last, the Supreme Court says: “broadly, where fraud is intended to be prevented, or trading with the enemy is sought to be defeated, the veil of the corporation is lifted by judicial decision and the shareholders are held to be 'persons who actually work for the corporation'”. C.R.P.Nos.463 and 464 of 2011 -: 6 :- 5. Thus, by judicial pronouncement it is within the power of the Court to lift the corporate veil in case involving fraud. So far as the insolvency Court is concerned, no authority taking a view that the said Court is precluded from exercising that power is brought to my notice. Nor am I prima facie inclined to think that insolvency Court is not entitled to lift the corporate veil and find who are the real persons behind the company so-called and engaged in business when allegation of fraud is made and involved. Prima facie I am not impressed by the contention that the insolvency Court is not entitled and competent to lift the corporate veil so that when allegation of fraud is made such Court is not entitled to conduct an enquiry into the matter. But I am not expressing any final opinion on the matter since the insolvency court has to take the final decision on the question after conducting enquiry in the matter. 6. So far as application of Sec.6 of the Act is concerned, it is contended that there is no allegation that petitioner has disposed of any property. It is also contended by learned Senior Advocate that petitioner is only an employee of the company and joined the company just three years back while the company itself came into existence 20 years back. On facts whether petitioner is involved in the alleged activities under the name and style of the company is not a matter required to be decided at the C.R.P.Nos.463 and 464 of 2011 -: 7 :- preliminary stage. 7. So far as the contention that the allegations do not come within acts of insolvency stated in Sec.6 of the Act is concerned, there are sufficient allegations in the petition that petitioner and respondents 4 to 10 have siphoned off the money they have collected from the various depositors including respondents 1 to 3 and purchased property in their names and in the names of others whose names, respondents 1 to 3 say, they are not able to trace out. There is also allegation that petitioner and respondents 4 to 10 have made their availability scarce in the company office and their residence. Whether, these allegations are true or not are matters which the insolvency Court is yet to decide. 8. Learned Senior Advocate pointed out that a learned Single Judge of the Madras High Court prepared a scheme with reference to the various creditors of the company but a Division Bench of that High Court set aside the order and now the appeal is pending in the Supreme Court. What effect the decision of the Supreme Court would have on the insolvency proceeding is a matter which the insolvency Court has to decide at the appropriate stage. Having heard the learned Senior Advocate and gone through the relevant records I am not persuaded to think that interference is required at this stage with the C.R.P.Nos.463 and 464 of 2011 -: 8 :- proceedings pending in the insolvency Court or the judgment/order under challenge. But whatever observation contained in this judgment or judgment/order under challenge shall stand confined to the decision on I.A.Nos.1488 and 4438 of 2008 and the trial court shall dispose of the insolvency proceeding on merit untrammelled by any such observation or finding. It is open to the trial court to decide all contentious issues raised before it and arising from the pleading of parties. Trial court is also directed to expedite the proceeding after completion of preliminary steps. With the above directions these civil revisions are dismissed. Sd/- (THOMAS P. JOSEPH, JUDGE) Sbna/-