Case: Subhra Mukherjee  Vs. Bharat Coking Coal Ltd

s filed Title Suit No. 28(A) of 1976 in the court of the Subordinate Judge, 1st Court, Dhanbad, praying for a declaration of title in respect of a bungalow and a piece of land measuring 1.38 acres consisting of survey plot Nos. 91 to 94 appertaining to Khatian No. 2 of mouza Nichitpur (hereinafter referred to as `the suit property) and for permanent injunction restraining the respondents from interfering with their possession2. The suit property was owned by Ms. Nichitpur Coal Company Private Limited (hereinafter referred to as `the Company), which is registered under the Indian Companies Act. By a resolution of the board of directors of the Company dated September 21, 1970, it was resolved to sell the suit property to the appellants for a consideration of Rs.. However, the appellants paid Rs. 7,000to one of the directors under receipt dated December 20, 1979 (Ext. 10). An agreement to sell the suit property to the appellants for Rs. 7,000as consideration of the Bungalow and Rs. 2,000as price of the land) was executed by the Company on January 3, 1971 (Ext.8). The Company executed the sale deed in their favour on March 20, 1972 (Ext.9)3. The Coal Mines (Nationalisation) Act, 1973 (for short `the Act of 1973) came into force on May 1, 1973 and from that date the right, title and interest of the owners in relation to the coal mines specified in the Scheduled appended to the Act of 1973 (the said Company is mentioned at serial No. 133 of the Schedule) vested in the Central Government (they will hereinafter be referred to `as the vested properties). Thereafter under the order of the Central Government, the vested properties stood transferred to and vested in the Government Company named Ms. Bharat Coking Coal Ltd. (for short `BCCL). As the appellants did not hand over the possession of the suit property to BCCL, it initiated proceedings under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 (for short `the P.P. Act) for their eviction from the suit property on October 15, 19764. Being faced with eviction proceedings under the P.P. Act, the appellants filed the said suit against BCCL for declaration of their rights in, title to and interest over the suit property. The suit was resisted by BCCL, inter alia, on the ground that with effect from the appointed date the suit property vested in it and that the alleged sale transaction in favour of appellants was sham, collusive, without any consideration and was brought into existence to avoid the effect of vesting of the suit property under the Act of 1973. It was also stated that the appellants were wives of the directors of the Company, who are real brothers. On appreciation of the evidence placed before it, the trial could held that the appellants got no title to the suit property and were, therefore, not entitled to any relief and thus dismissed the suit on September 22, 1977. Aggrieved by the judgment and decree of the trial court, the appellants filed Title Appeal No. 147 of 1977 before the learned District Judge, Dhanbad. On reappraisal of the evidence on record, the learned District Judge allowed the appeal and set aside the judgment and decree of the trial court and decreed the suit of the appellants, as prayed for on October 6, 1978. The BCCL then unsuccessfully carried the matter, in second appeal, before the High Court of Judicature at Patna (Ranchi Bench). The judgment and decree of the High Court dismissing the second appeal on October 7, 1985, was challenged by BCCL in Civil Appeal No. 838 of 1986 in this Court. On August 17, 1993, this Court set aside the impugned judgment and decree of the High Court and remitted the matter to the High Court5. However, after remand, in view of the submission made by the learned counsel for BCCL that point No. 2 was covered by the judgment of this Court in Bharat Coking Coal Ltd. v. Madanlal Agrawal, 1997(1) SCC 177, the High Court decided it first. On Point No. 1 the High Court restored the judgment of the trial Court holding that the transaction of sale between the appellants and the Company was sham and bogus and was entered into to avoid the vesting of the suit property in Central Government under Section 3(1) of the Act of 1973 and thus allowed the second appeal filed by the BCCL on November 11, 1997. That judgment and decree are under challenge in this appeal.

Reasoning: 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