Delhi Development Authority v. Skipper Construction Co.
Supreme Court of India, 6 May 1996, 2 judges, 1996 AIR 2005, 1996 SCC (4) 622
Acting under Articles 129 and 142, the Court lifted the corporate veil of a family company, treated its property as the contemnors' own, and attached it to secure repayment of buyers defrauded in breach of the Court's orders.
Facts
Skipper bid Rs. 9.82 crores for a DDA plot in 1980 but did not pay the balance despite repeated extensions. Under a revised agreement it began construction and sold space in the proposed building. On 29.01.1991 this Court prohibited it from creating third party rights, but Skipper kept advertising and collected about Rs. 11 crores more. After the High Court's orders were affirmed, DDA re-entered the plot and sold it with the building for Rs. 70 crores. In suo motu contempt proceedings, directors Tejwant Singh and Surinder Kaur were sentenced, their family's properties attached, and they served their sentences. Purchasers after 29.01.1991 then applied for sale of the attached properties to repay them.
Questions before the Court
- Whether, under Article 142, the Court should reopen final orders vesting the plot and building in DDA and pay the defrauded buyers out of DDA's funds.
- Whether contemnors who have served their sentence may keep the fruits of their contempt.
- Whether the corporate veil of companies controlled by the contemnors and their family could be lifted to reach their properties.
- Whether DDA was liable to reimburse the purchasers because its officials colluded with Skipper.
What the Court held
- Article 142 supplements the existing law to do complete justice and does not supplant it; the power is best left undefined. Even under it, the Court would not reopen final orders that vested the plot, building and paid monies in DDA.
- Undergoing punishment for contempt does not end the matter. A contemnor must not enjoy or retain the fruits of his contempt, and under Article 129 read with Article 142 the Court may undo the wrong, overriding procedural or technical objections.
- Where the corporate form is used to commit illegality or defraud people, the court will look behind the veil and may treat several companies as one entity controlled by the wrongdoer and his family.
- Guided by Amratlal Prajivandas and Reid, the Court held that where a person acquires property by defrauding people, it may make all orders needed to restore those defrauded, since Indian courts are courts of equity as well as law.
- The Court rejected the claim that DDA must reimburse the buyers, because DDA had issued a warning notice, and left open whether DDA is bound by mala fide acts of its officials. It attached the Aurangzeb Road property, directed the contemnors to deposit Rs. 10 crores, and appointed a Commission to verify claims.
Why it matters
The judgment applies the lifting of the corporate veil to reach property held through a family company and treats a change of directors and shareholding as a sham. It describes Article 142 as a power that supplements, and does not supplant, the existing law, and holds that serving a sentence for contempt does not let the contemnor keep the fruits of the contempt. It also criticises the mechanical grant of interim stays and injunctions by courts.
In the Court's words
Copied from the official judgment; each passage links to its page.
“In other words, the power under Article 142 is meant to supplement the existing legal framework - to do complete justice between the parties - and not to supplant it. It is conceived to meet situations which cannot be effectively and appropriately tackled by the existing provisions of law. As a matter of fact, we think it advisable to leave this power undefined and uncatalogued so that it remains elastic enough to be moulded to suit the given situation.”
“There is no doubt that this salutory rule has to be applied and given effect to by this Court, if necessary, by over-ruling any procedural or other- technical objections. Article 129- is a constitutional power and when exercised in tandem with Article 142, all such objections should give away. The Court must ensure full justice between the parties before it.”
“The concept of corporate entity was evolved to encourage and promote trade and commerce : but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned.”
“It is crystal clear that the property belongs to Tejwant Singh and the corporate veil and the change of directorships are all mere devices to screen the said property and its income from their creditors including the purchasers aforesaid. Tej Properties Private Limited is nothing but a fig-leaf and that too an inadequate one - to cover up the reality. The reality is Tejwant Singh, the contemner, who is the author of all these deals and devices.”
Provisions interpreted
Case and bench
- Parties
- Delhi Development Authority v. Skipper Construction Company (P) Ltd.
- Case
- Not printed in the file (applications in suo motu contempt proceedings arising in Special Leave Petition (C) No. 21000 of 1993)
- Decided
- 6 May 1996
- Bench
- B.P. Jeevan Reddy, K.S. Paripoornan
- Opinions
- Judgment delivered by B.P. Jeevan Reddy, J. No separate opinion appears in the file.
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