IN THE HIGH COURT OF DELHI AT NEW DELHI SUBJECT : CODE OF CIVIL PROCEDURE EXECUTION APPLICATION NO. 297 OF 2004 IN EXECUTION PETITION NO. 99 OF 1997 Judgment reserved on: July 31, 2007 Judgment delivered on: December 4, 2007. M/s. Microland Ltd.... Decree Holder Through: Mr. Pankaj Gupta, Advocate versus Microworld Electronics Pvt. Ltd and Others. Through: Mr. J.K. Sharma with Mr. Rajiv Kumar, Advocates for Judgment Debtor 2 and 3.... Judgment Debtors VIPIN SANGHI, J. 1.By this order I propose to dispose of E.A. No.297/1994 in Execution petition No.99 of 1997. 2.Brief factual matrix of the case is that the Decree Holder in the Execution Petition 99/1997 had filed a summary suit under Order XXXVII CPC for recovery of Rs.32,06,164 along with pendente lite and future interest against the Judgment Debtor company. The suit was decreed vide judgment and order dated 22.5.1996. The said order was challenged up to the Supreme Court wherein the SLP preferred by the Judgment Debtor came to be dismissed on 24th January 1997. The above execution petition was filed on 5.5.1997 for recovery of the said decretal amount of Rs.32,06,164/- along with interest @ 24% both pendente lite and future. Pursuant thereto warrants of attachments were issued in respect of the property and assets as disclosed by the decree holder. However, the money could not be recovered and the Judgment Debtor gave assurance on various dates to the court
that the decretal amount would be deposited in the court. E.A. No.273 of 1997 was filed on 30.8.1997 under Order 21 Rule 41 in which one Shri Darshan Kumar and one Shri Rajiv Kumar were also arrayed as Judgment Debtors since they were the Directors of the Judgment Debtor company. On 10.8.1998 during his examination before the Court, the said Shri Rajiv Kumar deposed that he owned movable property worth Rs.5 lakhs and had a deposit of only Rs.6,000 in the Punjab and Sind Bank Branch of Kailash Colony, New Delhi. It was also deposed that he neither had his own house nor any share in any immovable property. He further deposed that his father owned a plot in Uttam Nagar. 3.In the meanwhile, various part payments were made from time to time in partial satisfaction of the decree. On 12.11.2003, Mr. Rajiv Kumar appeared before the court and had requested for final opportunity for making the payment. Time was again sought on 24.11.2004 pleading financial constraint. EA No.297 of 2004 was preferred by the Decree Holder praying for the arrest and detention of Shri Darshan Kumar and Shri Rajiv Kumar, Directors of the Judgment Debtor Company who were arrayed as Judgment Debtors 2 and 3 in the applicationf, in civil prison in exercise of the Court's powers in execution of a decree under section 55 read with Order 21 Rule 37 and section 151 of CPC. Since none appeared on 23.4.2007 on behalf of the Judgment Debtor Company when the said application was listed, the Court ordered issuance of warrants of arrest against the said Directors of the Judgment Debtor company. Thereafter EA Nos.307-308/2007 were preferred by the said directors praying for cancellation and stay of the said warrants of arrest. Same were allowed subject to payment of costs. However, I find that due to a typographical error there applications continue to be shown in subsequent orders as well. Thereafter, arguments were advanced and orders reserved in EA No.297/2004 4.The main contention of the Petitioner is that the Judgment Debtor company is being managed by the respondent No. 2 and 3 being the Managing Director and/or Director of the said company. The said company is de-facto owned and controlled by these Directors who belong to the same family and the company is functioning more like a partnership firm. When the warrants of attachments were issued against the Judgment Debtor company, the Judgment Debtor 2 and 3 obstructed the said warrants of attachments. They also made statements before the court giving assurance of payment and undertaking the payment of the decretal amount. The funds of the company have been siphoned off by these Judgment Debtors and they are now falsely claiming that the company is sans any funds. Therefore, these Judgment Debtors being the real owners, who have siphoned of the funds of the company are liable to be proceeded against in accordance with law by lifting the corporate veil.
5.Judgment Debtors have in their reply stated that they have the intention of honouring the decree and have taken all possible steps to pay the principal amount and Rs.10,50,000/- have been paid to the Decree Holder uptil now. It is submitted that respondent No. 3 Rajiv Kumar has been taking a petty job at a meager salary of Rs.7,000-8,000/- per month and is without any means to pay the decretal amount. Therefore, the question of willful refusal to honour the decree does not arise. It is argued that it would be against the mandate of Section 51 read with Order 21 Rule 37 CPC to arrest and detain him and his arrest and detention would be violative of Article 21 of the Constitution of India. It is also contended that the application itself is an abuse and of process of law, inasmuch as, the respondent No.2 and 3 were not parties in the suit as filed and neither any relief was claimed against them in the said suit, nor has the court while pronouncing its judgment and preparing a decree granted any relief against the said respondents personally. Therefore, the application, inasmuch as, it labels the respondents as Judgment Debtors/respondents is misconceived and no relief can be granted against them. Reliance has been placed upon M/s. Maruti Limited Chandigarh vs. Pan India Pvt. Ltd., New Delhi, reported as AIR 1993 PandH 215. Judgment Debtor and the respondents have no intention to avoid the payment of the decretal amount. In that view of the matter, the application is liable to be rejected. 6.Under Section 51 CPC before the court can order a Judgment Debtor to be detained in prison, the court has to be satisfied (a) that the Judgment Debtor, with the object or effect of obstructing or delaying the execution of the decree, - (i) is likely to abscond or leave the local limits of the jurisdiction of the court, or (ii) has, after the institution of the suit in which the decree was passed, dishonestly transferred, concealed, or removed any part of his property, or committed any other act of bad faith in relation to his property, or (b) that the judgment debtor has, or has had since the date of the decree, the means to pay the amount of the decree or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same, or (c) that the decree is for a sum for which the Judgment Debtor was bound in a fiduciary capacity to account. 7.Order 21 Rule 11A requires the Decree Holder to state, in his application under Section 51 read with Order 21 Rule 37 CPC, the grounds on which arrest of the Judgment Debtor is being sought. In the present case, the grounds stated in the application of the Decree Holder are that the said respondents are liable to satisfy the decree; that they have the means to do so and they are avoiding to satisfy the decree. It is further stated that they are liable to be arrested for not complying to the undertaking given to the court. The Decree Holder has sought to rely on various financial statements of the Judgment Debtor company to make out a case of siphoning of the funds by its Directors with a view to dishonestly remove the assets and commit acts in bad faith in relation to the property of the company with a view to defeat the impending decree in favour of the Decree Holder during the
pendency of the suit. No doubt, the statement of affairs of the Judgment Debtor company shows that not only prior to filing of the suit, but even thereafter its debts kept on mounting. That by itself is not enough to reach to the conclusion that there was a dishonest transfer or removal of the assets and funds of the company, or that the Directors of the company acted in bad faith in relation to the property of the company. In business, an enterprise may suffer losses, and it cannot be assumed that the losses are a result of deliberate siphoning or defalcation of funds and assets of the company by its Directors and Managers. The stand of the Directors of the Judgment Debtor company is that it suffered business losses over the years and slipped into the red. It is worth noting that the shareholders of the company, in fact, infused funds into the company by raising the share application money of the company from 1.4.2000 onwards. It rose from 1,58,000/- to Rs.5,58,000 on 31.1.2001 and to Rs.7,20,000/- as on 31.3.2003. 8.In my view, the Decree Holder has not disclosed sufficient material on record to enable me to give a finding that the Judgment Debtor company and its Directors, who are defendant No. 2 and 3 in the aforesaid application, have acted with the object of obstructing or delaying in execution of the decree. Though averments have been made that the said respondents have started another business in the name of M/s. Infonet India Pvt. Ltd; that they are maintaining high standard of living and that they own properties in Uttam Nagar, New Delhi. The decree holder has failed to establish on record that the business of M/s. Infonet India Pvt. Ltd was started by siphoning off the funds from the Judgment Debtor company. The contention that the breach of undertakings given to the Court also tantamounts to contempt of Court and, therefore, the said individuals be detained in prison can be dealt with in a duly instituted contempt petition. The decree holder may, if it is so advised, prefer such a petition. However, the breach of an undertaking to the Court cannot be a ground to involve Section 51 CP.C. Consequently, in my view the present application is liable to be dismissed and I do so accordingly. 9.In my view, the reliance placed by the Judgment Debtor/ Respondent on M/s. Maruti Limited, Chandigarh (supra) would not be relevant, in case the Respondents Directors of the Judgment Debtor company have, in fact, siphoned off the funds of the Judgment Debtor company for the purpose of delaying or obstructing the execution of the decree in question as there cannot be hard and fast rule that in no case the Directors of Judgment Debtor company can be held to be liable under Section 51 C.P.C for the non compliance of the decree against the company. 10.However, the dismissal of the application will not preclude the Decree Holder from filing further applications for similar relief with better particulars. Considering the fact that the Decree Holder has disclosed that the Directors of the Judgment Debtor company have started a new business in the name of M/s. Infonet
India Pvt. Ltd. I direct the Judgment Debtor company and its directors, namely Shri Darshan Kumar and Shri Rajiv Kumar to file affidavit disclosing the following : i) The date of incorporation of M/s. Infonet India Pvt. Ltd and the name of the promoter shareholders and the initial Directors of the said company. ii) The names of the present shareholders and Directors of M/s. Infonet India Pvt. Ltd. iii) The annual accounts and balance sheets and income tax returns of M/s. Infonet India Pvt. Ltd filed from inception till date. 11.With the aforesaid directions, the present application is dismissed. VIPIN SANGHI JUDGE