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Judgment
Ranjit Singh, J
The appellant Bank has filed these Appeals to impugn the order passed by the Tribunal below rejecting their Appeals filed against the order passed by the R.O. declining to attach the property No. 23, Jor Bagh, New Delhi owned by Tej Properties Pvt. Ltd. since the issue involved in all these Appeals are common and relates to the same property, these Appeals are disposed of by this common order. The appellant Bank had filed application before the Recovery Officer (R.O.) on 2nd May, 2014 seeking attachment of the property 23, Jor Bagh, New Delhi primarily relying upon certain reasons recorded by the Hon'ble Supreme Court in the case of Delhi Development Authority v. Skipper Construction Co. (P) Ltd., 1995 (SLT Soft) 779 : (1996) 4 SCC 622. As per the Bank, the Hon'ble Supreme Court has lifted the corporate veil to find that Mr. Tejwant Singh was the person behind various legal entities having been created, including Tej Properties. It was accordingly pleaded that the appellant Bank is entitled to exercise a right of general lien in respect of the property in question to recover its dues in other recovery cases wherein though the property may not be specifically charged yet Mr. Tejwant Singh being the CD in all the recovery cases, this property also could be attached for recovery of the dues of Mr. Tejwant Singh, Incidentally, this property-23, Jor Bagh, New Delhi is specifically mortgaged in R.C. Nos. 107/2000 and 181/2010 about which there was/is no dispute. The appellant Bank had filed application for attachment of this property in other connected cases, i.e., R.C. No. 5/2007, R.C. No. 76/2006, R.C. No. 179/2010 and R.C. No. 59/2011. The R.O. had issued notice for attachment qua this property in question.
Initially, Chandra Estates Pvt. Ltd. claiming interest in this property on the basis of some agreement came forward to file objections. Chandra Estates Pvt. Ltd. had also filed a Suit for specific performance of agreement dated 1st January, 1983 before the Hon'ble High Court. This Suit, however, was dismissed. Appeal preferred against this order before the Division Bench was also dismissed. Chandra Estates Pvt. Ltd. thereafter did not pursue its challenge. On the basis of above-noted facts, the Bank challenged the locus on the part of Chandra Estates Pvt. Ltd. to file objections. The R.O. accordingly dismissed these objections.
Subsequently, fresh objections came to be filed by Tej Properties Pvt. Ltd. against the notice of attachment of the said property, i.e. 23, Jor Bagh, New Delhi. The objector Tej Properties Pvt. Ltd. claimed that it is not a certificate-debtor in the case in which the attachment of the property is being sought. Similar objections were filed by the objector in the remaining three cases also. It may need a notice here that in all there are six inter-connected cases filed by the appellant Bank against Tejwant Singh Group, its Directors/guarantors etc. for recovery of the amount due. Final orders have been passed in all the six cases and Recover Certificates have been issued by the Tribunal below. The details of these six cases are:
Concededly, 23, Jor Bagh, New Delhi is mortgaged in R.C. No. 107/2000 and R.C. No. 181/2010.
The R.O., after considering the objections raised by Tej Properties Pvt. Ltd., has allowed the objections against the attachment of the property in R.C. No. 59/2011, 5/2007, 76/2006 and 179/2010. The Tribunal below has dismissed the Appeals filed against the orders passed by the R.O. Aggrieved against the orders passed by the Tribunal below, the Bank as filed the present Appeals.
The appellant Bank had primarily placed reliance on the orders passed by the Hon'ble Supreme Court, to contest the objections raised by the objector Tej Properties Pvt. Ltd. to claim itself to be a separate entity. The objector had pleaded before the R.O. that the appellant Bank placed reliance on the order of attachment passed by the Hon'ble Supreme Court while ignoring the release of the property. As per the objector, the Bank was trying to interpret the order of the Supreme Court in such a manner which would be contrary to the legal provision. The main prayer was that the property in question is owned by Tej Properties Pvt. Ltd. and it did not belong to CDs 1 to 4 and so it cannot be attached in the recovery cases. The objector also made reference to the plea of the Bank regarding lifting of corporate veil without showing any document. Similar pleas on the basis of release of document and sale of properties having monitored by the Supreme Court were also raised.
The Bank had filed reply to the objections raised by Tej Properties Pvt. Ltd. The Bank had pleaded that the reply filed by it in response to the objections filed by Chandra Estates Pvt. Ltd. may be treated as reply to the present objections. The Bank had pointed out that this property was mortgaged with the CH Bank by depositing the title deed in R.C. No. 107/2000 and R.C. No. 181/2010. Besides this, there are four other recovery cases pertaining to the same group wherein Mr. Tejwant Singh, Ms. Surender Kaur are CDs, which included present R.C as well. The plea of the Bank was that the Hon'ble Supreme Court vide its order dated 8th February, 1995 in the matter titled DDA v. Skipper Constructions DDA v. Tejwant Singh, had attached all the properties and Bank accounts standing in the name of contemners therein, i.e. Mr. Tejwant Singh and Surender Kaur and director of Skipper Constructions Co. Pvt. Ltd. and their wives, sons and unmarried daughters.
The Hon'ble Supreme Court, after lifting the corporate veil had observed that the contemnors therein were CDs before the present forum and had formed many companies to defraud creditors. 23, Jor Bagh, New Delhi standing in the name of Tej Properties Pvt. Ltd. with Tejwant Singh as its Director also stood attached under the orders of the Hon'ble Supreme Court. The Bank would point out that it is only on the application filed by the Bank that the Hon'ble Supreme Court in its order dated 21st April, 2014 gave liberty to the parties concerned to approach appropriate forums for redressal of their grievance in accordance with law. The attachment order passed qua property No. 23, Jor Bagh, New Delhi also stood removed to enable the Bank to realize its dues by approaching the appropriate forum. As already noticed, this property was attached in R.C. Nos. 107/2000 and 181/2010. The Bank would urge that the property in question would be liable to be attached in other four R.Cs. pending before the Tribunal as this in fact is the property owned by CDs as has been found by the Hon'ble Supreme Court after lifting the corporate veil.
The R.C. in the present case was issued for recovery of Rs. 41,26,933.85 with interest @ 13.5% p.a. with quarterly rests. This Tribunal had awarded interest (a. 10% simple for pendente lite and future period. As per the Bank, the property in question is an asset belonging to the CD as has been found by the Hon'ble Supreme Court and the Bank being secured creditor is entitled to exercise general Bankers lien on the said properly to recover its dues as per the R.C in all group accounts.
The R.O., after considering all the pleas, has observed that the Hon'ble Supreme Court had released this property from attachment which the Apex Court would not have done if after lifting the corporate veil it had been revealed that the property is of the CDs. The R.O. has also taken note of the order whereby the Hon'ble Supreme Court has mentioned the sale of the assets of the Skipper Group. It is observed that after verifying the claims of the investors, a sum of Rs. 9,10,59,691/- had remained as corpus after winding up of the office of the claim commission and out of that amount a sum of Rs. 5 crores was distributed to five charitable institutions. As held by the R.O., only the immovable property of the defaulted in liable to he attached in view of Second Schedule to the Income-tax Act. Observing that the property stood in the name of the objector Tej Properties Pvt. Ltd. which is an independent corporate existence and is regarded as separate entity, the R.O. has considered the plea for attachment of the property. As per the R.O. the question of lifting of corporate veil did not arise as the Bank has not been able to show anywhere that the loan amount availed in F.C. Nos. 59/2011, 5/2007, 76/2007 and 179/2010 had ever been utilized by the CDs in purchasing the company property in question. The prayer for attachment was accordingly declined.
The Tribunal below, while deciding the Appeal filed by the Bank, has held that the property is owned by Tej Properties Pvt. Ltd. company is not a borrower, mortgagor or guarantor and the cases where attachment is sought, the company is not even a CD. The Tribunal has taken note of the submission made by the Bank that the property in fact belonged to the company owned by Tejwant Singh who is a CD and the Supreme Court has lifted the corporate veil to find this fact and so the property can be proceeded against to recover the dues of the Bank. The Tribunal has ultimately upheld the order passed by the R.O. by observing that this property was purchased by the company after the filing of the Original Applications (O.As.).
It is held the case set up in these O.As. is not that the defendants had utilized the loan to purchase this property. Since the property is mortgaged in two R.Cs. the property can be proceeded against in these R.Cs. The Tribunal has observed that the company is a juristic person and had mortgaged these properties in two cases and so, the Bank could not bring a nexus with this property and the claim in the O.As. The Appeal was accordingly dismissed. Aggrieved against the same, the Bank has now filed the present second Appeal.
The Counsel for the appellant Bank has heavily relied upon the observation/finding recorded by the Hon'ble Supreme Court in the case of Delhi Development Authority (DDA) (supra). The submission by the Counsel for the Bank is that the Tribunal as well as the R.O. has failed to properly appreciate the observation and finding recorded by the Hon'ble Supreme Court in this case. The Counsel for the appellant us well as the respondent objectors have extensively read this judgment in the case of the Delhi Authority (supra) to bring their respective submissions.
Undoubtedly, the Supreme Court in the above-noted case has made very pertinent observation on the plea raised before it. The issue of Tej Properties Pvt. Ltd. was also considered by the Hon'ble Supreme Court. The issue in the SLP before the Hon'ble Supreme Court arose out of an auction conducted by DDA in October 1980. Skipper Construction Company (Skipper) gave the highest bid of Rs. 9.82 crores. Twenty-five per cent of the amount WPS payable immediately and the rest within 90 days. Skipper deposited 25% of the amount, but did not deposit the balance. The company sought and was repeatedly granted extension of time for depositing this amount. Thus, seven extensions were granted spread over the period January 1981 to April 1982. Since Skipper failed to deposit the balance consideration even within the last extended period, proceedings were taken by the DDA for cancelling the bid. Skipper went to Court and obtained stay of cancellation. DDA applied for vacating the stay but nothing happened. Skipper simultaneously made representation to the DDA to give further time to deposit the amount. DDA constituted a committee to consider the request of Skipper and other similar requests and to devise a formula for ensuring timely payments. It was decided that the purchaser be given permission to commence development/construction on the plot, though possession as such be not delivered, subject to the condition that the property in the land would remain with the DDA. The committee recommended that revised agreement be obtained from the purchasers. Skipper raised all sorts of objections and executed agreement only in the year 1987.
Even before permission to enter the plot and to make construction was granted, Skipper apparently had been selling the place in the proposed building to various persons and receiving money. Once it got permission to make construction, it became easier for the Skipper to sell the space. Skipper did not pay instalment under the revised agreement. Every time the DDA thought of cancelling the agreement, argument was put forward it would cause great hardship to hundreds of persons who have purchased space. While the endless correspondence and discussions were in progress between the DDA and Skipper when the Skipper was making small token payments from time-to-time, it went to Delhi High Court seeking writ of mandamus to the DDA to sanction the building plan. High Court passed an order permitting Skipper to commence construction on deposit of Rs. 20 lacs in two instalments and Rs. 1,94,40,000/- within one month, against which the DDA filed an SLP. Delhi High Court in the meantime made an order directing Skipper to pay to DDA a sum of Rs. 8,12,88,798/- within 30 days and to stop all further construction. Skipper failed to deposit this amount and approached the Supreme Court through SLP. The Court accordingly granted an interim order subject to Skipper depositing Rs. 2.5 crores within one month and another sum of Rs. 2.5 crores before 8th April, 1991. Skipper was expressly prohibited from inducting any person in the building and from creating any rights in favour of third parties. Despite this, Skipper issued an advertisement in leading newspapers of Delhi inviting person to purchase the space. Such advertisements were published repeatedly. The SLP was ultimately dismissed on 25th January, 1993". DDA re-entered into the plot and took physical possession of property along with the building thereon. DDA also forfeited the amount deposited by Skipper. Skipper had collected about Rs. 14 crores from various persons agreeing to sell the space before 29th January, 1991. Even after 29th January, 1991 Skipper had issued various advertisements and had collected substantial amounts. As noticed by the Supreme Court, some space was sold to more than one persons and amount collected violating the orders of the Supreme Court. Skipper not only violated the orders passed by the Supreme Court, but also filed a Suit before the Delhi High Court seeking injunction and restraining DDA. Skipper obtained an interim order staying re-auction of the plot. DDA filed an SLP against this order. The Supreme Court, while noticing the conduct of Skipper, initiated suo motu contempt proceedings against Tejwant Singh and his wife, Surender Kaur. This is how the judgment came to be passed in the above-noted case.
The Hon'ble Supreme Court by invoking the provisions of Article 129 and Article 142 of the Constitution sentenced Tej want Singh to undergo simple imprisonment for six months and to pay a fine of Rs. 50,000/- and Surender Kaur to undergo simple imprisonment of one month and to pay a fine of Rs. 50,00/-. All the properties and the Bank accounts standing in the names of contemners and the Directors of Skipper Construction Co. (Pvt.) Ltd. and their wives, sons and unmarried daughters were also ordered to be attached.
The Counsel representing Tejwant Singh and Sprender Kaur took a stand that all purchasers, whether pre or post 29th January, 1991 should undoubtedly be duly reimbursed. DDA had filed a list of properties of Tejwant Singh, his wife, sons and daughters which, according to them, really belonged to and were properties of Tejwant Singh and his wife. The plea of DDA was that various companies created by Tejwant Singh and his wife and children were merely fronts and devices to defraud and defeat the claims of the purchasers and that for doing complete justice between the parties, the corporate veil should be lifted and all the said properties, which had already been attached, should be proceeded with to realize the amounts necessary for paying the pre 29th January, 1991 purchasers in full and also the post 29th January, 1991 purchasers. The Counsel appearing for the DDA pointed out that the transaction of lease relating to the property at No. 3, Aurangzeb Road, New Delhi. The fact brought to the notice of the Court was that on 1st October, 1993, Tej Properties (P) Limited through its Chairman and Managing Director, Tejwant Singh executed a lease agreement in favour of Maple Leaf Trading Company Ltd., a company having its office at 111, Claremont Road, Dublin, Ireland for a period of five years (with an option to the lessee to have it extended for another four years) at a rent of Rs. 1 lac per month. The lease agreement was to take effect from 8th October, 1993. On this date, Maple Leaf executed a lease deed in respect of the said property in favour of the Embassy of Israel in India, New Delhi for a period of nine years (a, Rs. 8,78,360/- per month. Tejwant Singh and his wife were the only two directors of Tej Properties and that in 1988 and 1991 one H.S. Sarna and Prabhjit Singh (one of the sons of Tejwant Singh) were brought in as its directors. The plea before the Supreme Court that the property belonged to the contemnors and that this property alone was sufficient to realize all the monies due to the persons defrauded by the said contemnors. Thus, the issue of properties of Tej Properties being those of CD did arise before the Supreme Court and it was duly considered. In this context the Hon'ble Supreme Court considered various issues which arose before it.
The Hon'ble Supreme Court considered the nature and ambit of Court's power under Article 142 of the Constitution. One of the issues considered by the Hon'ble Supreme Court was that contemnor should not be allowed to enjoy or retain the fruits of his contemptuous act. The Supreme Court has clearly held that the question before it was not what could be done but what should be done.
The Court also considered the claim of two sons of Mr. Tejwant Singh and Prabhjit Singh, Prabhjit Singh who was respondent had filed a separate counter-affidavit stating that he and his wife were the Directors of the companies, i.e., Tej Properties Private Limited and Skipper Properties Private Limited. Tej Properties was said to be an investment company which was not carrying on any activity. Skipper Properties was said to be running in loss. Prabhjit Singh accordingly stated that he had no connection with the other companies pointed out by the DDA. He further admitted that the transaction relating to the properly at No. 3, Aurangzeb Road, New Delhi but submitted that he in no way connected with the affairs of his father or with Skipper Construction Private Limited. The Supreme Court specifically noticed that it is a significant fact that Prabhjit. Singh neither said that he was separated or divided from his father nor he explained how he and his wife had become directors of Tej properties of which his parents were the sole directors at the time of grant of the aforesaid lease.
The Supreme Court then considered the doctrine of lifting the corporate veil and noticed the observation in Salomon v. Salomon and Co. Ltd., 1897 AC. 22. Supreme Court has noticed the several exception to the rule which have been recognized. One of the relevant rule to which Supreme Court has referred to and relevant for the purpose was "when the corporate personality is being blantatly used as a cloak for fraud or improper conduct" and "where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law", the Court will disregard the corporate veil. Quoting a Professor of Law, S. Ottolenghi in his article "From peeping behind the Corporate Veil, to ignoring it completely", the Court has recorded:
"The concept of 'piercing the veil' in the United States is much more developed than in the UK. The motto, which was laid down by Sanborn, J. and cited since then as the law, is that 'when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as the association of persons'. The same can be seen in various European jurisdictions."
After referring to various other precedents, the Court has held as under:
"28. 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 Took at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for omitting illegalities and/or to defraud people."
These are the observations which have been relied upon by the Counsel for the appellant Bank to plead that the Supreme Court has already lifted the corporate veil to hold that Tejwant Singh and members of this family had created several corporate bodies but this did not prevent the Court from treating all of them as one entity belonging to and controlled by Tejwant Singh if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people.
From the above-noted facts, the Counsel for the appellant would contend that the Tribunal below as well as the R.O. were totally misconceived in considering that the Bank was asking them to lift the corporate veil. As per the Counsel, corporate veil has been lifted by Supreme Court to find that Tej Property was a cloak behind which the CDs and their family members had devised this as ploy to commit illegalities. It is on this basis, the Bank had urged that Tej. Properties Pvt. Ltd. was only a device and ploy adopted for committing illegalities and in fact this property was owned by Tejwant Singh. In this regard, the Counsel would also refer to the observations of the Hon'ble Supreme Court where it is noticed that Prabhjit Singh claiming to be the owner of Tej Properties had never claimed that he was separated or divided from his father Tejwant Singh. He did not explain how he and his wife became directors of Tej Properties of which his parents were the sole directors at some stage. Counsel for the appellant Bank would accordingly urge that the Tribunal as well as the R.O. has clearly missed this important aspect of the case and that in this context Tej Properties Pvt. Ltd. was held to be inadequate fig-leaf to cover up the reality. This, the Supreme Court has observed, while considering what directions are called for in the matter before it. In regard to Tej Properties Pvt. Ltd. the Supreme Court has observed as under:
"34........We ignore the corporate veil and we ignore the fact that at present their son, Prabhjit Singh and his wife are the directors. (We have already held that Prabhjit Singh has not explained in his affidavit how did he and his wife became directors in the place of his parents.) Tej Properties Private Limited, which is said to own the said property, was initially having two directors, viz., Tejwant Singh and his wife, Surinder Kaur. It is Tejwant Singh who executed the lease deed in respect of the said property in favour of "Maple Leaf" on 1st October. 1993 effective from 8th October, 1993. On 8th October, 1993 itself Maple Leaf executed a lease deed in respect of the said property in favour of an Embassy of Israel in India, New Delhi for a period of nine years at a rent of Rs. 8,38,360 per month. It is crystal clear that the property belongs to Tejwant Singh find the corporate veil and the change of directorship 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 contemnor, who is the author of all these deals and devices. The transfer of shareholding, if any, between the father of the son (and their respective wives) must also be treated as a sham transaction. The above course appears justified and necessary looked at from any angle, viz. (a) that the contemnors should not be allowed to enjoy or retain the fruits of their contempt; (b) the interests of justice, which call for the lifting of the corporate veil-the said property is in truth and effect the property of Tejwant Singh and members of his family and must be available to satisfy the claims of the persons defrauded by him; (c) that while acting under Article 142 of the Constitution, this Court must do complete justice between the parties and for the purpose, it is necessary to ensure that a person who has defrauded a large number of persons by issuing advertisements in the leading newspapers published from the capital inviting people to come and purchase space in the said building in open and brazen violation of clear and specific orders of this Court should not be allowed to benefit from his fraud and/or contemptuous acts."
The Counsel in the background would urge that the order passed by the Tribunal below and the R.O. cannot be sustained.
The Counsel for the appellant would also submit that the appellant had raised an issue of general Bankers lien over the property in question which is in the name of an entity created by Tejwant Singh to defraud his creditors. The plea accordingly was that the said property could be deemed to be the estate of respondent CDs in all recovery cases and the Bank was entitled in law to seek attachment of that property. As per the Counsel, the Tribunal as well as the R.O. failed to consider this plea by the appellant and thus the order suffered on this count as well.
The Counsel for the respondent, however, would refer to the plea of general Bankers lien as raised in ground 'G' of the Appeal. As per the Counsel, the lien could be on the property and not on the title documents. As per the Counsel, this concept is unknown to the law that the Bank could claim lien on the title deed. Counsel would concede that had Tej Properties Pvt. Ltd. been a defendant, this question may have arisen.
In support of his plea, the Counsel for the Bank relied upon a Single Bench decision of the Hon'ble High Court in the case of Sadhna Gupta v. Sh. R.C. Gupta, CS (OS) No. 1731/2001 decided on 10th August, 2009. The Court in the case has considered the provisions of Section 171 of the Indian Contract Act, which talks of general lien of Bankers, factors, wharfingers, attorneys and policy-brokers. This section provides:
"Bankers, factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect."
Section 171 of the Contract Act gives statutory recognition to the concept of "Banker's general lien". As per Halsbury 's Law of England, 4th Edition, lien, in its primary or legal sense, means a right at common law in one man to retain that which is rightfully and continuously in his possession belonging to another until present and accrued claims of the person in possession are satisfied. Section 171 of the Act provides that the Bankers may in the absence of a contract to the contrary retain as a security for a general balance of account any goods bailed to them. General lien of Bankers attaches to all goods and security deposited with them as Bankers by a customer or by a third person on a customer's account provided there is no contract, express or implied, inconsistent with the said lien. Thus, the Bankers can look to general lien as a protection against loss on account, or loss on loan or overdraft Where a Banker has advanced money to another, he has a lien on all securities which come into his hand for the amount of his general balance, unless there is a contrary intention. Lien is a right to retain property belonging to another until a debt due from the latter is paid.
In the case of Sadhna Gupta (supra), the plaintiff had disputed the right of the defendant to claim lien on the Suit property under Section 171 of the Contract Act The Court has held that this section creates a general lien as distinguished from a particular lien of Bankers. This section, however, limits the right to a general lien, i.e., a right of the Bankers to retain goods in their possession as a security for a general balance of account to them. The Court had observed that this general lien can be excluded by special agreement whether express or implied from the circumstances but such agreement must be clearly inconsistent with the existence of general lien. The Court has further observed that when a person has a number of accounts kept in the books of the Bank, the customer cannot take the plea, in the absence of any special contracts to say that securities which he deposited are only applicable to one particular account and not subject to a general lien. The Court has held that Section 171 of the Act is clear and categoric that, unless a contract to the contrary is established by the plaintiff Banks right of lien Has to be accepted.
The Court in the case of Sadhna Gupta (supra) has also taken note of the law laid down by the Hon'ble Supreme Court in the case of Syndicate Bank v. Vijay Kumar, 1991 (SLT Soft) 141 : AIR 1992 SC 1066, to observe that as per mercantile custom recognized by the judiciary the Banker has general lien over all forms of deposits or securities made on behalf of the borrower in the ordinary course of Banking business. As per the High Court, the documents on record placed by the Bank as well as by the plaintiff clearly created a general lien of the Bank on the title deeds by the defendant No. 1 in the said case in his individual capacity as sole proprietor of defendant No. 2 for the loan raised by him.
In Syndicate Bank's case (supra), the Hon'ble Supreme Court has laid down a law on "Banker's lien". It has been held after a detailed survey of various authorities on English Law on the subject that by mercantile system the Bank has a general Hen overall forms of securities or negotiable instruments deposited by or on behalf of the customer in the ordinary course of Banking business and that the general lien is a valuable right of the Banker judicially recognized and in the absence of an agreement to the contrary, a Banker has a general lien over such securities or bills received from a customer in the ordinary course of Banking business and has a right to use the proceeds in respect of any balance that may be due from the customer by way of reduction of customer's debit balance. Such a lien is also applicable to negotiable instruments including FDRs which are remitted to the Bank by the customer for the purpose of collection. Such a lien, as per the Supreme Court, extends to FDRs also which are deposited by the customer.
The Court in the case of Sadhna Gupta (supra) while relying upon this judgment and the judgments in the cases of Tilendranath Mahanta v. United Bank of India, AIR 2002 Gauhati 1, and State Bank of Mysore v. Lakshmi Construction P. Ltd., (2001) 103 Company Case 258 (Madras), has held that defendant Bank has general lien over the papers deposited by defendant No. 1 with the Bank at the time of raising loan for and on behalf of the defendant No. 2. Title deeds are held to be goods within the meaning of Section 171 of the Contract Act and cannot be considered as immovable properties. Relying on the ratio of law emerging from these judgments, Counsel for the Bank would contend that the Bank has a right of general lien in terms of Section 171 of the Indian Contract Act and that neither the Tribunal below nor the R.O. has considered this issue raised.
Counsel for the respondent, however, continues to stick to his stand that the title deed cannot be subject to lien and went to the extent of submitting that he would differ with the view expressed by the learned Single Judge of the High Court. As per the Counsel, immovable property cannot be bailed. The Counsel may have the liberty to say so, but this Tribunal will find itself bound to follow the law laid down by the Hon'ble Supreme Court as well as Delhi High Court taking these binding precedent.
Otherwise, Counsel for the respondent has made a number of other submissions to contest the plea raised on behalf of the Bank.
Since the Counsel for the appellant Bank had mainly relied upon the order passed by the Hon'ble Supreme Court, the Counsel for the respondent pleaded that the order being under Article 142 of the Constitution, cannot act as precedent. In support of this, the Counsel relies upon the Rajasthan High Court Judgment in the case of Mr. M.L. Bishnoi v. Unknown passed in Criminal Appeal No. 517/2010 and decided on 22nd April, 2014. The Division Bench of the High Court in this case was considering a reference made by a Single Bench which has sought guidance from Larger Bench as to which one principle of law from among the two cases taking contrary view decided by the Supreme Court should be adhered to while examining the application seeking release on bail/suspension of sentence. In one of the cases before the Court, the Hon'ble Supreme Court had passed an order in exercise of extraordinary power available under Article 142 of the Constitution of India. In the second case this Court clarified that the expression "cause or matter" must be construed in a wide sense to effectuate the purpose of conferment of power. In this context, the Court has held that the authority of the Hon'ble Supreme Court under Article 142 of the Constitution is an extraordinary authority and that is not to abide by any statutory limits. The power available can very well be exercised beyond statutory limits if that is required for dispensing complete justice in any case. The Court has further observed that it shall be pertinent to notice here that as per Article 141 of the Constitution of India the law declared by the Supreme Court shall be binding on all Courts within the territory of India, as such, the binding effect in the form of precedent is available to the judgments declaring law by the Apex Court. It is observed that Article 142 of the Constitution of India nowhere refers to judgments but to decree or order. The Court has held that the decrees or orders passed by the Apex Court while exercising its extraordinary authority under Article 142 of the Constitution of India cannot be taken as precedent. The Counsel for the respondent has relied upon this observation to say that the order passed in Delhi Development Authority's case (supra) being under Article 142 of the Constitution cannot act as precedent.
The Counsel for the respondent has also referred to some precedents while responding to the plea of doctrine of lifting the corporate veil. He would first refer to the case of Krishi Foundary Employees Union v. Krishi Engines Limited (In Liquidation), (2003) 117 Company Case 340 (AP). In this case, a subsidiary company was incorporated and later the same was treated as part and parcel of the holding company. This issue was whether employees and workmen of subsidiary company can be treated as workmen of holding company. The question of lifting the corporate veil in this background arose. Plea before the Court was that the Company incorporated under the Companies Act is entirely different from its shareholder. The Court while considering the case of Aron Salomon v. Salomon and Co. Ltd. (supra) has held that legal position in India is no different and has gone on to refer to Spencer and Co. Ltd. 's case (1969) 39 Comp. Case. 212 : AIR 1969 Mad. 359 where it has held that--
"It is well settled that an incorporated company is a legal person and it cannot be equated to its shareholders. The position continues to be the same even if the number of the shareholders is reduced to one by accident or otherwise. The act of the company cannot, therefore, be regarded as that of any of the shareholder and vice versa. It is true that occasionally the corporate veil of a company is pierced through in order to find out the substance but that is only where it is permitted by a statute or in exceptional cases of fraud."
In the case of LIC of India v. Escorts Ltd., (1986) 59 Comp Cas. 548, the Court has held that:
"Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since, that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected, etc."
Reliance is then placed on Skyamal Purohit v. Jagannath Ray, AIR 1969 Cal. 424. After taking note of various decisions, the Court in this case has summarized as follows:
"(1) In the case of a public limited company registered under the said Act, the company is a separate entity from its shareholders. It is the company which is the owner of its assets, including immovable properties, and not the shareholders.
(2) The shareholder in such a company has a right to share in the profits, by way of receipt of dividends. He has a right, in an appropriate rase, to apply for the winding up of the company and to take part in the distribution of the surplus assets after payment of the debts and liabilities, which must of course be done in accordance with the Articles of Association and the provisions of the said Act.
(3) As long as the company continues to exist, that is to say before its dissolution, no shareholders can be said to have any interest in the properties and assets of the company, either legal or equitable. Shareholders in a company are certainly interested in the properties and assets of the company in the sense that a wastage or frittering away of the assets might affect their rights to enjoy the profits and eventually the distribution of surplus assets in a winding up. This, however, is too remote an interest and cannot be included within the definition of "interest", within the meaning of Order 21, Rule 90 of the Civil Procedure Code.
(4) The words "or whose interests are affected by the sale" in Order 21, Rule 90, are no longer confined to an interest in immovable property or to proprietary or possessory rights. The word 'interest' must be given a wide meaning, and may include a contingent interest, but the right may be exercised by one who is directly and immediately affected by the sale of an immovable property. Rights which are likely to be affected or interest which may hypothetically or remotely be affected cannot be considered as coming within the four corners of Order 21 Rule 90."
Reference is then made to the decision of the Hon'ble Supreme Court in the case of Raghunath Rai Bareja v. Punjab National Bank, I (2007) SLT 245 : 1 (2007) CLT 1 (SC) : (2007) 2 SCC 230. The issue under consideration before the Hon'ble Supreme Court related to transfer of a Suit and other pending proceedings before a Court to DRT under the provisions of Section 31 of the RDDBFI Act. In this case, on a company petition, the High Court ordered winding up of the company on 23rd October, 1983. Official Liquidator was appointed to take possession of the property of the company. The Bank had filed a Suit against the company for recovery of Rs. 14,53,577/- with pendente lite and future interest. Final decree was passed on 15th January, 1987. In this background, the Bank filed three execution petitions. The first was dismissed on 8th November, 1990 on the ground that the Bank has not filed list of properties to be attached. The Bank, however, was granted liberty to file a fresh execution application. The second application was filed in 1994, which was dismissed on 18th August, 1994 holding that the decree passed against the company could not be satisfied by attachment and sale of the properties belonging to the other companies. The Court had observed that the other companies are different and distinct juristic personalities with different set of shareholders. The Bank then filed another company petition on 4th September, 1998 seeking leave of the Court to commence execution proceedings before the Tribunal which, in the meantime, had come into existence in 1983. That petition was allowed by the Company Court on 18th December, 1998. The Bank filed fresh execution petition on 11th January, 1999 before the High Court without impleading the appellant in the case before the Supreme Court. This execution petition was disposed off by granting liberty to the Bank to file appropriate petition against other judgment-debtors. The Bank, instead, filed company application for restoration of execution petition filed in 1999 along with fresh memo of parties. The High Court issued notice on the application and recalled me order dated 1st April, 1999. Decree-holder Bank filed another company petition on 3rd January, 2005 for transfer of execution petition to the Tribunal. The High Court observed that the procedure to transfer of execution proceedings under the Act was applicable only with regard to the proceedings pending on the relevant date i.e., 24th June, 1993, but, still, while exercising inherent powers, the High Court transferred the execution petition to DRT. Against this order, Appeal was filed where the Hon'ble Supreme Court held that transfer of petition to DRT was clearly beyond the scope of Section 31 of the RDDBFI Act.
Counsel for the appellant, however, is relying on the observation made in this case to the effect that the decree passed against the company could not be satisfied by attachment and sale of the properties belonging to the other companies, as these other companies are different and distinct juristic personalities with different set of shareholders. This proposition of law may not have much relevance in the fact-situation in the present case. The Bank in this case is relying upon the finding returned by none other than the Hon'ble Supreme Court that Tej Properties is a company of the CDs and was created just to avoid recovery and payment. In the background of this factual finding, the observation relied upon by the Counsel would be of no help to the Counsel for the respondent.
On this basis, the Counsel for the respondent would plead that the company registered under the Companies Act is a legal person, separate and distinct from its individual members. The property of the company is not property of the shareholders and a shareholder has merely an interest in the company arising under its Articles of Association, measured by a sum of money for the purpose of liability, and by a share in the profit Reference is made to Western Coalfields Limited v. Special Area Development Authority, Korba, 1981 (SLT Soft) 47 : (1982) 1 SCC 125.
The issue in the present case, in my view, does not relate to consideration of lifting the veil. There is substance in the submission made by the Counsel for the appellant that having regard to the peculiar facts and circumstances of the case the Hon'ble Supreme Court in the case of Delhi Development Authority (supra) had itself lifted the veil of secrecy to find out that Tej Properties Pvt. Ltd. was nothing but a cloak by Mr. Tejwant Singh and in fact, the property belonged to the CDs. The Hon'ble Supreme Court has clearly noticed that the concept of corporate entity was evolved to encourage and promote trade and commerce, but not to commit illegalities or to defraud people. It is held that where the corporate character is employed for the purpose of committing illegalities 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. The specific finding of fact recorded by the Supreme Court in Delhi Development Authority's case (supra) is that Tejwant Singh and his family members had created several corporate bodies did not prevent the Court from treating all of them as one entity belonging to and controlled by Mr. Tejwant Singh and members of his family. Thus, it is not a case where the R.O. or the Tribunal was required to lift the veil to find out this fact. That has been clone by the Supreme Court as can be made out from the observations recorded and reproduced above.
Could the R.O. and the Tribunal below ignore this finding of fact recorded inter se parties? The Counsel for the respondent would rely upon the observation recorded in M.L. Bishnoi (supra) to say that these observations recorded in exercise of power under Article 142 of the Constitution of India would not lay down a binding precedent for the Tribunal to follow. The observations by the Division Bench of the Rajasthan High Court were in a different context. The Hon'ble High Court was considering the issue of contrary principles laid down by the two different Benches of the Hon'ble Supreme Court and which out of these was required to be followed. The observation that decree or order passed by exercising extraordinary authority under Article 142 of the Constitution of India could not be made a precedent, was made in this context. In the instant case, this principle would have no application. The observation in case of M.L. Bishnoi (supra) were made when the Court was considering the issue regarding preferring a precedent. That is not the case here. What is under consideration here is the finding recorded in respect of an issue which is before this Tribunal. Here, the Bank is not citing this judgment as a precedent but is relying, upon a finding of fact returned by the Supreme Court that the property sought to be attached is not of a different entity but is of the CDs who have created this as a sham transaction. Once the Supreme Court has held that Tej Properties Pvt. Ltd. was nothing but a property which belonged to Mr. Tejwant Singh and members of his family, was created to prevent the recovery, the Court was not prevented from treating this as property belonging to and controlled by Mr. Tejwant Singh. In this background it is rather difficult for any Court or Tribunal to ignore this finding or to record any finding contrary to the finding recorded by the Apex Court. It is not a case where a law laid down under Article 142 of the Constitution of India is being sought to be relied as precedent, but a case where the property sought to be attached is the one with regard to which finding of fact has been recorded by the Supreme Court and is being relied on by the Bank. The said property was attached being property of Mr. Tejwant Singh and his wife, CDs in the present recovery proceedings. In this regard, the question of property being independent or company being an independent entity would really not arise. The Supreme Court had ignored the corporate veil and also the fact that son and his wife of Mr. Tejwant Singh were the directors at present by holding that this property initially was owned by Mr. Tejwant Singh and his wife. The finding by the Court is:
"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 figleaf--and that too an inadequate one--to cover up the reality. The reality is Tejwant Singh, the contemnor, who is the author of all these deals and devices. The transfer of shareholding, if any, between the father and the son (and their respective wives) must also be treated as a sham transaction."
That being the findings of the fact is required to be followed. It is not a case of treating this judgment as a precedent. This finding of fact cannot be ignored by any Forum or Tribunal dealing with Tej Properties Pvt. Ltd. and recovery of the amount from Mr. Tejwant Singh who is CD. The ratio of law laid down in M.L. Bishnoi (supra) in my view, is not at all applicable to the facts-situation in the present case. The Tribunal below was not required to consider or to lift the corporate veil which already stood lifted by the Hon'ble Supreme Court finding that Tej Properties Pvt. Ltd. vas nothing but a property which belonged to and controlled by Mr. Tejwant Singh. If that be the binding finding of fact, then it would follow that Tej Properties Pvt. Ltd. cannot be treated as different entity and thus entitling the Bank to claim a general lien over this property as well.
Incidentally, this property was attached under the orders of the Supreme Court, being property of Mr. Tejwant Singh, it is only on an application filed by the Bank that this property was released to enable the Bank to recover its dues in the recovery proceedings where the said property was mortgaged or otherwise available for recovery. The order passed by the Hon'ble Supreme Court for releasing this property 23, Jor Bagh, New Delhi was done on an application filed by the Bank. Unless this was done, the Bank could not have been able to seek recovery of its dues from this property as it had been attached under the orders of the Supreme Court.
The finding by the R.O., that the property would not have been released if there had been something like lifting of corporate veil, is not a proper appreciation of factual position noticed above. After lifting the corporate veil, the Hon'ble Supreme Court had attached this property. The release was sought by the Bank to recover its dues. The corporate veil stood lifted. Thus, release of the property from the attachment under the orders of the Supreme Court was with the aim that the Bank could recover its due from the said property. The observation of the R.O. and the Tribunal below that company is a separate entity would have had a meaning if the Hon'ble Supreme Court had not found this property to be that of Mr. Tejwant Singh, after lifting the corporate veil. The Tribunal below as well as the R.O., in my view, have missed the legal and factual position in reaching their finding in this case.
The Tribunal and the R.O. also failed to deal with the submission made by the Counsel for the appellant on the strength of Section 171 of the Indian Contract Act. A serious issue regarding general lien of the Bank over the title document has been completely glossed over. Section 171 of the Contract Act is clear and categoric that unless contract to the contrary is established, the Bank's right of lien will have to be accepted. The Hon'ble High Court in the case of Smt. Sadhna Gupta (supra) has clearly held that Bank has a general lien over the papers deposited with the Bank at the time of raising the loan and the title deeds are goods within the meaning of Section 171 of the Contract Act and cannot be considered as immovable properties. The Tribunal below as well as R.O. was required to consider this legal issue arising in this case, but has failed to consider it. Once this property is held to be of the CD's, the Bank would be fully and legally entitled to claim its statutory right of Banker's general lien under Section 171 of the Contract Act.
Incidentally, it may need a notice here that the Bank has pressed for sale of the impugned property in recovery proceedings in two accounts where this property is mortgaged. Tej Properties Pvt. Ltd. has come forward to make payment of the dues on the condition that the title deed deposited with the Bank be released. Since the R.O. was sitting over this prayer, directions were issued on 19th October, 2015 to the R.O. to consider and decide the plea made with a condition advanced by the mortgagor. The said application has now been rejected and the property is being put to sale. Since this property was found to be that of CDs, the right of the Bank to seek attachment of the same even in the present recovery proceedings may have to be considered in the light of the legal and factual position noticed above. The plea of the Bank to claim general lien over the Tej Properties in terms of the provisions of Section 171 of the Indian Contract Act has not at all been considered by the Tribunal below as well as the R.O. In view of the law laid down by the Hon'ble Delhi High Court in the case of Smt. Sadhna Gupta (supra) it can conveniently be observed that in mercantile system the Bank has a general lien over all forms of the securities or negotiable instruments deposited by or on behalf of the customers in the ordinary course of Banking business. As already observed, the title deeds are held to be goods within the meaning of Section 171 of the Contract Act and cannot be considered as immovable property. That being the position of law, the right of the Bank to claim general lien over this property is well made out. Apart from this, the factual finding returned by the Hon'ble Supreme Court that Tej Properties Pvt. Ltd., is nothing but an inadequate fig-leaf to cover up the reality, which, in fact, belonged to Mr. Tejwant Singh, cannot be ignored. The Hon'ble Supreme Court has already lifted the corporate veil and has found that Tej Properties Pvt. Ltd. is a property belonging to Mr. Tejwant Singh and his wife who are CDs in these cases. The Tribunal as well as the R.O., therefore, was not justified in ignoring this factual finding to hold that this property belonged to Tej Properties which is an independent corporate existence and is regarded as separate entity which is not CDs in the proceedings in the R.Cs. in question.
In any case, this property stands mortgaged and so recovery can be effected by sale of this property at least in two R.C. Nos. 107/2000 and 181/2010. If the entire claim in these two R.Cs. is satisfied and any surplus amount is left thereafter, the same can be made available for the recovery in the remaining R.Cs. as well as the claim of the Bank of having a general lien over the property has been upheld In view of the above, the present Appeals are allowed. The order passed by the Tribunal below as well as the R.O. are set aside. The plea of the Bank for attachment of the property bearing No. 23, Jor Bagh, New Delhi in R.C. Nos. 59/2011, 5/2007, 76/2006 and 179/2010 is allowed.