Killick Nixon Ltd vs Custodian & Ors

2. M/s. Dhanraj Mills Private Limited in its ordinary course of business had advanced interest free loans to the appellant M/s. Killick Nixon Limited and its group of companies. In the year 1992, the Special Court found that M/s. Dhanraj Mills Private Limited, its Directors and their close associates indulged in fraudulent securities transactions resulting in siphoning of huge funds of various banks. The banks had gone into liquidation as a result of those fraudulent securities transactions. The Special Court also held that the end beneficiaries of the siphoned funds were the Directors of M/s. Dhanraj Mills Private Limited and Director of Bank of Karad which bank was used as a conduit for the fraudulent transactions.

4. The Custodian, on behalf of M/s Dhanraj Mills Private Limited, proceeded against the appellant M/s. Killick Nixon Ltd. and its group Companies for recovery of loans totaling Rs.20,81,67,031/-. The amounts due to M/s. Dhanraj Mills Private Limited also stood attached with the issue of notification.

5. In the year 1995, the appellant M/s. Killick Nixon Limited and its group Companies filed separate applications before Special Court for ascertaining their individual liabilities with a request to grant time for recompense. Simultaneously, the Custodian also filed applications for fixation of liability and demanding interest @ 24% per annum. In the year 1997, the Special Court passed decrees against the appellant and its group Companies which are consent decrees qua invitum the Custodian, whereby individually ascertained amounts were to be paid in installments with the interest @ 15% per annum. Similar consent decree was passed against 13th group Company also.

6. M/s Dhanraj Mills Private Limited, in the meanwhile, made an application before the Special Judge 4 contending that the amounts recovered from the group Companies cannot be attached towards the debt payable by M/s Dhanraj Mills Private Limited to the Custodian, since there was no nexus between loans advanced to original judgment-debtors and the transactions with the banks. The prayer in the said application was that the amount so recovered was to be freed from attachment until to be paid back to M/s Dhanraj Mills Private Limited, by the Custodian. The Special Court dismissed the claim so made on the ground that the Directors of M/s Dhanraj Mills Private Limited and its close associates were involved in fraudulent deals and have siphoned off funds belonging to banks. The Special Court found overwhelming evidence that M/s Dhanraj Mills Private Limited is liable to make payment and all its assets fall within the purview of the Act. It is in this order the Special Court specifically held that this is a fit case "for the corporate veil to be torn off" as M/s Dhanraj Mills Private Limited had no explanation whatsoever for how such large amounts of "loans" could have been advanced to the appellant and its group Companies when M/s Dhanraj Mills Private Limited itself had been defunct for many years without any commercial activity of its own.

7. In the year 1999, The Special Court having considered the request of the original judgment debtors, granted extension of time and directed the Custodian not to proceed with execution of the decrees, subject to payment of defaulted 5 installments. As usually, the appellant and its group Companies defaulted in payment of the said amounts once again. Left with no alternative, the Custodian filed execution applications against the judgment debtors for recovery of dues from M/s Dhanraj Mills Private Limited. It is not necessary to refer the facts, the subsequent events in detail and various objections raised from time to time as to the sale of properties in the process of realizing the decretal amounts. However, one important fact that may be required to state is that the Special Court by its earlier order dated 30th November, 2001 required the judgment debtors to pay Rs.16 crores payable towards all decrees for considering the prayer for extension of time to which all of them agreed to do so. This singular fact establishes that even judgment debtors were treating the separate decrees passed against each one of them as a consolidated common decree. The Custodian, at all points of time treated them as a group to which no objections were raised at any point of time. The sale proceeds were accordingly appropriated against dues of the entire group of M/s Killick Nixon Ltd.

8. The dispute now raised by the appellants is that the sale proceeds or the properties of M/s. Killick Nixon group companies ought to be apportioned individually decree wise. This is contrary to its earlier stand. The material available on record also reveals that these group companies have always 6 referred to the aggregate principal amount of alleged loan given by M/s. Dhanraj Mills Private Limited.

11. The Special Court after a detailed consideration came to the conclusion that M/s. Killick Nixon Limited and others are group companies and they are all controlled by M/s. Dhanraj Mills Private Limited - notified party and the amounts that are being recovered in execution of the decrees are really public funds which were siphoned off by the Directors of M/s Dhanraj Mills Private Limited, and parked in the companies controlled by them. The Special Court accordingly held that the appropriation of sale proceeds made by the Custodian is proper and accordingly the Custodian should proceed further to recover the amount that remained in balance.

16. We find no merit in these appeals and they are accordingly dismissed without any order as to costs.

--------------------------J. [SURINDER SINGH NIJJAR] New Delhi, April 27, 2010.