Case: Subhra Mukherjee  Vs. Bharat Coking Coal Ltd

of the Act of 1973. 8. We have perused the deposition of P.W.8 - accountant - and the impugned judgment. There can be no doubt that the High Court in para 13 of its judgment mentioned that the resolution of the company dated September 21, 1970 (Ext.12), receipt evidencing payment of Rs. 7,000- on December 30, 1970 (Ext.10) under which one of the directors, husband of appellant No. 1, received the said amount and the sale deed executed on March 20, 1972 (Ext.9), had been proved by the appellants. But, then the High Court also noted with approval the following circumstances, pointed out by the first Appellate Court : firstly, the resolution dated September 21, 1970 (Ext.12) was an ante dated document. Mr. Srivastava submitted that the government authorities were in possession of all the records of the Company and they should have produced the original record to substantiate the allegation that the resolution was antedated and in the absence of such record the High Court was not justified in confirming the finding of the First Appellate Court. The fact remains that the appellants themselves took no steps to summon the record from the custody of the concerned authority. That apart, there is no mention of the resolution dated September 21, 1970 (Ext.12) either in the receipt (Ext.10) signed by one of the directors or in the agreement for sale of January 3, 1971 (Ext.8) or in the sale deed dated March 20, 1972 (Ext.9). On the basis of the intrinsic evidence, pointed out above, the conclusion that the resolution was an antedated document, appears to be irresistible. Secondly, it is pointed out by the High Court that though the resolution mentions the sale consideration as Rs. 5,000-, there is no explanation as to why it was enhanced to Rs. 7,000- for which receipt was signed by one of the directors of the Company. Thirdly, a more telling aspect is that the appellants did not exercise their rights as purchasers over the suit property till the date of the filing of the suit; the water and electricity connections were obtained during the pendency of the suit by them; further till the date of vesting of the suit property under the Act of 1973, it was maintained by the Company for the use of the directors. 9. It is rightly commented by the High Court that the agreement for sale (Ext.8) of the suit property is not a registered document; it recites the suit property will be sold for Rs. 7,000- even though the consideration of Rs. 7,000- was paid on December 30, 1970 (Ext.10) itself and neither the agreement nor the sale deed is in terms of the resolution. 10. Two other aspects which have weighed with the High Court are : the transaction of sale was between the husbands and the wives and that they had no independent source of their income, which cannot be ignored altogether as irrelevant. 11. Mr. Srivastava submitted that undue emphasis was given to the fact that the directors of the Company were brothers and the appellants are their wives. He argued that the Company is a separate legal entity which is independent of its directors and shareholders and repeatedly referred to the oft-quoted decision in Solomon v. Solomon. The principle laid down in Salomans case more than a century ago in 1897 by the Houses of Lords that the company is at law a different person altogether from the subscribers who have limited liability, is the foundation of joint stock company and a basic incidence of incorporation both under English law and Indian Law. Lifting the veil of incorporation under statutes and decisions of the courts is equally settled position of law. This is more readily done under American law. To look at the realities of the situation and to know the real state of affairs behind the facade of the principle of the corporate personality, the courts have pierced the veil of incorporation. Where a transaction of sale of its immovable property by a Company in favour of the wives of the directors is alleged to be sham and collusive, as in the instant case, the Court will be justified in piercing the veil of incorporation to ascertain the true nature of the transaction as to who were the real parties to the sale and whether it was genuine and bona fide or whether it was between the husbands and the wives behind the facade of separate entity of the Company. That is what was done by the High Court in this case. 12. There can be no dispute that a person who attacks a transaction as sham, bogus and fictitious must prove the same. But a plain reading of question No. 1 discloses that it is in two parts; the first part says, `whether the transaction, in question, is bona fide and genuine one which has to be proved by the appellants. It is only when this has been done that the respondent had to dislodge it by proving that it is a sham and fictitious transaction. When circumstances of the case and the intrinsic evidence on record clearly point out that the transaction is not bona fide and genuine, it is unnecessary for the court to find out whether the respondent has led any evidence to show that the transaction is sham, bogus or fictitious. 13. For the afore-mentioned reasons, we are unable to say that the High Court erred in taking the view that the sale, in favour of the appellants, is neither bona fide nor genuine and confers no right on them. 14. In view of the finding on point No. 1, the suit property remained the property of the Company and, therefore, it vested in the Central Government under Section 3(1) of the Act of 1973. This is what the High Court held on point No. 2, which is supported by the judgment of this Court in Bharat Coking Coal Ltd. v. Madanlal Agrawal, 1997(1) SCC 177.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]9. It is rightly commented by the High Court that the agreement for sale (Ext.8) of the suit property is not a registered document; it recites the suit property will be sold for Rs. 7,000even though the consideration of Rs. 7,000was paid on December 30, 1970 (Ext.10) itself and neither the agreement nor the sale deed is in terms of the resolution10. Two other aspects which have weighed with the High Court are : the transaction of sale was between the husbands and the wives and that they had no independent source of their income, which cannot be ignored altogether as irrelevantThe principle laid down in Salomans case more than a century ago in 1897 by the Houses of Lords that the company is at law a different person altogether from the subscribers who have limited liability, is the foundation of joint stock company and a basic incidence of incorporation both under English law and Indian Law. Lifting the veil of incorporation under statutes and decisions of the courts is equally settled position of law. This is more readily done under American law. To look at the realities of the situation and to know the real state of affairs behind the facade of the principle of the corporate personality, the courts have pierced the veil of incorporation. Where a transaction of sale of its immovable property by a Company in favour of the wives of the directors is alleged to be sham and collusive, as in the instant case, the Court will be justified in piercing the veil of incorporation to ascertain the true nature of the transaction as to who were the real parties to the sale and whether it was genuine and bona fide or whether it was between the husbands and the wives behind the facade of separate entity of the Company. That is what was done by the High Court in this case12. There can be no dispute that a person who attacks a transaction as sham, bogus and fictitious must prove the same. But a plain reading of question No. 1 discloses that it is in two parts; the first part says, `whether the transaction, in question, is bona fide and genuine one which has to be proved by the appellants. It is only when this has been done that the respondent had to dislodge it by proving that it is a sham and fictitious transaction. When circumstances of the case and the intrinsic evidence on record clearly point out that the transaction is not bona fide and genuine, it is unnecessary for the court to find out whether the respondent has led any evidence to show that the transaction is sham, bogus or fictitiousd reasons, we are unable to say that the High Court erred in taking the view that the sale, in favour of the appellants, is neither bona fide nor genuine and confers no right on them14. In view of the finding on point No. 1, the suit property remained the property of the Company and, therefore, it vested in the Central Government under Section 3(1) of the Act of 1973. This is what the High Court held on point No. 2, which is supported by the judgment of this Court in Bharat Coking Coal Ltd. v. Madanlal Agrawal, 1997(1) SCC 177