# Rakesh Mahajan v. State of U.P. & Ors - **Citation:** (2020) 1 ILRA 1123 - **Court:** High Court of Judicature at Allahabad - **Decided:** 2019-12-04 - **Case number:** Writ C No. 32727 of 2019 - **Bench:** Abhinava Upadhya, Pankaj Bhatia - **Source:** https://unisonlegal.in/judgment/allahabad-high-court/rakesh-mahajan-v-state-of-u-p-ors-45114 - **Pages:** 24 ## Headnote C.S.C., Sri Kaushalendra Nath Singh A. Money recovery - notice for recovery issued in the name of shareholder Rakesh Mahajan and the stakeholder Nirala Developers Pvt. Ltd in the Company PAN Realtors Pvt. Ltd. - Whether the dues of PAN Realtors Pvt. Ltd. be recovered from the petitioner Rakesh Mahajan being a Director of the shareholding company Nirala Developers Pvt. Ltd and from Nirala Buildicon being a sister concern of the shareholding company Nirala Developers Pvt. Ltd. The lease deed was executed between the New Okhla Industrial Development Authority and PAN Realtors Pvt. Ltd., a company which was incorporated as a Special Purpose Company. The PAN Realtors Pvt. Ltd comprises of Patel Engineering Limited, Advance Construction Company and Nirala Developers Pvt. Ltd. The Rakesh Mahajan is the director of Nirala Developers Pvt. Ltd. and Nirala Buildicon Pvt. Ltd is a sister concern of the Nirala Developers Pvt. Ltd. Over the period of time, the Nirala Developers Pvt. Ltd became a minority share holder in the PAN Realtor Pvt. Ltd. The facts of the present case demonstrate that the petitioner Rakesh Mahajan was never a Director of PAN Realtors Pvt. Ltd. and is not even a shareholder of PAN Realtors Pvt. Ltd. in his personal capacity (Para 50) Further, there is no material to suggest that the petitioner herein Rakesh or Nirala Buildcon exercised persuasive control over PAN Realtors Pvt. Ltd. The petitioners are not even a signatory to the lease deed in question and thus no case is made out for piercing the veil for recovery of alleged dues of PAN Realtors Pvt. Ltd. from the petitioners. (Para 51) B. Corporate veil - whether the corporate veil of PAN Realtors Pvt. Ltd. and Nirala Developers Pvt. Ltd. can be pierced to hold the shareholders and the sister concern of a share holder liable for the dues of a company. After observing catena of judgments, the Court has settled the legal position with respect to lifting of corporate veil in following circumstances: - a. Only in exceptional circumstances by the courts with caution and circumspection and in a restrictive manner; 1 All. Rakesh Mahajan Vs. State of U.P. & Ors. 1125 b. For lifting the corporate veil it is essential that the case falls within the exceptions as elaborated and crystallized by Munby J. in Ben Hashem v Ali Shayif and approved by the Apex Court in the case of Balwant Rai Saluja and Arcelormittal India c. Where the Statute itself permits lifting of veil. (Para 49) The statute in question being U.P. Urban Planning Development Act, 1973 does not have any provision for lifting the corporate veil. (Para 51) C. Company - has a separate and distinct legal entity from its shareholders - dues of Company cannot be recovered from its shareholders/directors. D. Article 14 - Constitution of India - Action of 'State' or an 'instrumentality of State' should be in conformity with law and should satisfy twin test - 'substantive due process of law' and 'procedural due process of law' - if not, then actions are violative of Article 14. Writ Petitions allowed. (E-10) List of cases cited: - ## Text _Characters 0–39,878 of 79,218. This is a partial read: ask again with offset=39878 for what follows._ 1124 INDIAN LAW REPORTS ALLAHABAD SERIES decision either to call a meeting or return the notice on the expiry of 7th day of the delivery of the notice unless he has reasons to be recorded, to take more time but in no case he shall have to pass order by the 13th day of the delivery of notice. (3). District Magistrate shall ensure that clear 15 days notice is published and also sent by registered post excluding the date of publication of notice and the date of the scheduled meeting. 27. Registrar General of this Court is directed to send a copy of this order forthwith to the Chief Secretary, State of U.P., Lucknow for communication and compliance to all the District Magistrates of the State of Uttar Pradesh. ---------- (2020)1ILR 1123 ORIGINAL JURISDICTION CIVIL SIDE DATED: ALLAHABAD 04.12.2019 BEFORE THE HON'BLE ABHINAVA UPADHYA, J. THE HON'BLE PANKAJ BHATIA, J. Writ C No. 33100 of 2019 Connected With Writ C No. 32727 of 2019 Rakesh Mahajan ...Petitioner Versus State of U.P. & Ors. ...Respondents Counsel for the Petitioner: Sri Rohan Gupta, Sri Kali Azad Counsel for the Respondents: C.S.C., Sri Kaushalendra Nath Singh A. Money recovery - notice for recovery issued in the name of shareholder Rakesh Mahajan and the stakeholder Nirala Developers Pvt. Ltd in the Company PAN Realtors Pvt. Ltd. - Whether the dues of PAN Realtors Pvt. Ltd. be recovered from the petitioner Rakesh Mahajan being a Director of the shareholding company Nirala Developers Pvt. Ltd and from Nirala Buildicon being a sister concern of the shareholding company Nirala Developers Pvt. Ltd. The lease deed was executed between the New Okhla Industrial Development Authority and PAN Realtors Pvt. Ltd., a company which was incorporated as a Special Purpose Company. The PAN Realtors Pvt. Ltd comprises of Patel Engineering Limited, Advance Construction Company and Nirala Developers Pvt. Ltd. The Rakesh Mahajan is the director of Nirala Developers Pvt. Ltd. and Nirala Buildicon Pvt. Ltd is a sister concern of the Nirala Developers Pvt. Ltd. Over the period of time, the Nirala Developers Pvt. Ltd became a minority share holder in the PAN Realtor Pvt. Ltd. The facts of the present case demonstrate that the petitioner Rakesh Mahajan was never a Director of PAN Realtors Pvt. Ltd. and is not even a shareholder of PAN Realtors Pvt. Ltd. in his personal capacity (Para 50) Further, there is no material to suggest that the petitioner herein Rakesh or Nirala Buildcon exercised persuasive control over PAN Realtors Pvt. Ltd. The petitioners are not even a signatory to the lease deed in question and thus no case is made out for piercing the veil for recovery of alleged dues of PAN Realtors Pvt. Ltd. from the petitioners. (Para 51) B. Corporate veil - whether the corporate veil of PAN Realtors Pvt. Ltd. and Nirala Developers Pvt. Ltd. can be pierced to hold the shareholders and the sister concern of a share holder liable for the dues of a company. After observing catena of judgments, the Court has settled the legal position with respect to lifting of corporate veil in following circumstances: - a. Only in exceptional circumstances by the courts with caution and circumspection and in a restrictive manner; 1 All. Rakesh Mahajan Vs. State of U.P. & Ors. 1125 b. For lifting the corporate veil it is essential that the case falls within the exceptions as elaborated and crystallized by Munby J. in Ben Hashem v Ali Shayif and approved by the Apex Court in the case of Balwant Rai Saluja and Arcelormittal India c. Where the Statute itself permits lifting of veil. (Para 49) The statute in question being U.P. Urban Planning Development Act, 1973 does not have any provision for lifting the corporate veil. (Para 51) C. Company - has a separate and distinct legal entity from its shareholders - dues of Company cannot be recovered from its shareholders/directors. D. Article 14 - Constitution of India - Action of 'State' or an 'instrumentality of State' should be in conformity with law and should satisfy twin test - 'substantive due process of law' and 'procedural due process of law' - if not, then actions are violative of Article 14. Writ Petitions allowed. (E-10) List of cases cited: - 1. Dr. Subroto Roy vs. UOI and ors 2014(8) SCC 470 2. Gillete India Limited Vs. Delhi Development Authority 260 (2019) DLT 416 3. Balwant Rai Saluja and anr Vs. Air India Limited and ors (2014) 9 SCC 407 4. Bacha F. Gauzdar Vs. Commissioner of Income Tax, Bombay AIR 1855 SC 74 5. Meekin Transmission Ltd. Vs. State of U.P. 2008 4 All LJ 789 (DB) 6. The Tata Engineering and Locomotive Co. Ltd. And anr vs. State of Bihar and ors AIR 1965 SC 40 7. Arcelormittal India Private Limited vs. Satish Kumar Gupta and ors (2019) 2 SCC 1 8. Vodafone International Holdings B.V Vs. UOI (2012) 6 SCC 613 9. Ashish Gupta Vs State of U.P. and 5 ors Writ C No.25554 of 2019 10. Jagbir Singh Vs. State of U.P. and ors Writ Tax No. 1464 of 2005 (distinguished) 11. Salomon Vs. Salomon and Co. 1897 AC 22 12. Ben Hashem Vs. Ali Shayif [2008] EWHC 2380 (Delivered by Hon'ble Pankaj Bhatia, J.) 1. Heard Sri Rohan Gupta, learned counsel for the petitioner in Writ Petition No. 33100 of 2019 and Shri Gagan Mehta learned counsel for the Petitioners in Writ Petition No. 32727 of 2019, learned Standing Counsel for the State-respondent and Sri Kaushalendra Nath Singh, learned counsel, on behalf of Noida Authority. 2. The above two petitions are filed challenging same recovery certificate and on similar grounds and as such are being decided by this common judgment 3. The Petition No. 33100 of 2019 has been filed challenging the acts of the respondent authorities in trying to recover the amounts in default against PAN Realtors Pvt. Limited from the petitioner being a Director in the Company known as Nirala Developers Pvt. Limited which is a shareholder in Pan Realtors Pvt Ltd. 4. The Petition No. 32727 of 2019 has been filed challenging the acts of the respondent authorities in trying to recover the amounts in default against PAN Realtors Pvt. Limited from the petitioner company being a sister concern of the Company known as Nirala Developers 1126 INDIAN LAW REPORTS ALLAHABAD SERIES Pvt. Limited which is a shareholder in Pan Realtors Pvt Ltd. 5. The brief facts leading to the filing of the present petitions are as under: 6. The respondent no. 2, New Okhla Industrial Development Authority (hereinafter referred to 'Authority') floated a Scheme of allotment of plots for Group Housing at Noida for interested developers. In pursuance of the said Scheme/announcement made by respondent-Authority, one Consortium of Companies in the name of style of Pan Ventures filed an application showing interest in allotment of the land for Group Housing at Noida. In pursuance of the said application, a letter of allotment dated 21.7.2009 was issued by the respondent no. 2Authority proposing to allot Group Housing Plot No. GH-01, Sector 70, Noida under the Group Housing Scheme GH2009(ii). The said allotment letter is on record as Annexure-1 and was issued in the name of Consortium known as PAN Venture. 7. A perusal of the allotment letter dated 21.7.2009 shows that the said allotment letter was issued to PAN Venture, a Consortium comprising of Patel Engineering Limited (leading member), Advance Construction Company (relevant member), Nirala Developers Pvt. Limited (relevant members) at their office situate at H-13, First Floor, Main Market, Vijay Chowk, Lakshmi Nagar, Delhi. 8. The said allotment letter envisaged the allotment of a plot for Group Housing Rights and manner of payment specified in the letter of allotment itself. Peculiar feature of the said allotment letter as under: "You are also requested to form the SPC duly registered in ROC and also submit the Memorandum of Article of Association of SPC, List of Directors and Shareholders duly certified by CA and Board of director's Resolution of Constituted Special Purpose Company." 9. It was further specified that the Special Purpose Company to be created would be comprised of following Company: 10. It was further provided that in the event of default in payment the allotment offer would be considered as cancelled and the registration money shall be forfeited and no interest shall be paid to the proposed allottee. 11. It was further specified that the proposed allottee shall issue an indemnity bond indemnifying the Authority against all disputes arising out of non-completion of project, quality of construction and any dispute arising out of allotment/lease to the final purchaser. The other conditions relevant for the purposes of the present case, as contained in the allotment letter, were as under: "In case the Lessee does not construct building within the time provided including extension granted, if any, for above, the allotment/lease deed as the case may be, shall be liable to be cancelled. Leasee shall lose all rights to S. No. Name of Member Share holding Status 1 Patel Engineering Ltd. 51% Lead Member 2 Advance Construction Co. Pvt. Ltd. 24% Relevant Member 3 Nirala Developers Pvt. Ltd. 25% Relevant Member 1 All. Rakesh Mahajan Vs. State of U.P. & Ors. 1127 the allotted land and buildings appurtenant thereto. The Authority's right to the recovery of the unearned increase and the preemptive right to purchase the property as mentioned herein before shall apply equally to involuntary sale or transfer, be it bid or through execution of decree of insolvency/court. The Lessee will not make, any alteration of additions to the said building or other erections for the time being on the demised premises, erect or permit to erect any new building on the demised premises without the prior written consent of the Lessor and in case of any deviation from such terms of plan, shall immediately upon receipt of notice from the Lessor requiring him to do so, correct such deviation as aforesaid. If the Lessee fails to correct such deviation within a specified period of time after the receipt of such notice, then it will be lawful for the Lessor to cause such deviation to be corrected at the expense of Lessee who hereby agrees to reimburse by paying to the lessor such amounts as may be fixed in that behalf. In case of non-compliance of terms and directions of Authority, the Authority shall have the right to impose such penalty as the Chief Executive Officer may consider just and expedient." Cancellation of lease deed "In addition to the other specific clauses relating to cancellation, the Authority/Lessor, as the case may be, will be free to exercise its right of cancellation of lease/allotment in the case of: 1. Allotment being obtained through misrepresentation/suppression of material facts, mis-statement and/or fraud. 2. Any violation of directions issued or rules and regulation framed by any Authority or by any other statutory body. 3. Default on the part of the Allottee/allottee for breach/violation of terms and conditions of registration/allotment/lease and/or nondeposit of allotment amount. 4. If at the same time of cancellation, the plot is occupied by the Lessee thereon, the amount equivalent to 25% of the total premium of the plot shall be forfeited and possession of the plot will be resumed by the Authority with structure thereon, if any, and the Lessee will have no right to claim compensation thereof. The balance, if any shall be refunded without any interest. The forfeited amount shall not exceed the deposited amount with the Authority and no separate notice shall be given in this regard. 5. If the allotment is cancelled on the ground mentioned in para S.1 above, the entire amount deposited by the Lessee, till the date of cancellation shall be forfeited by the Authority and no claim whatsoever shall be entertained in this regard." Other Clauses "The Authority/Lessor reserves the right to make such additions/alternations or modifications in the terms and conditions of allotment/lease deed from time to time, as may be considered just and expedient. Any dispute between the Authority and Lessee/Sub-Lessee shall be subject to the territorial jurisdiction of the Civil Courts having jurisdiction over District Gautam Budh Nagar or the Courts designated by the Hon'ble High Court of Judicature at Allahabad. 1128 INDIAN LAW REPORTS ALLAHABAD SERIES The Lease agreement/allotment will be governed by the provisions of the U.P. Industrial Area Development Act, 1976 (U.P. Act No. 6 of 1976) and by the rules and/or regulations made or directions issued, under this act." 12. In terms of the said allotment letter, a Company was incorporated in the name and style of 'PAN Realtors Pvt. Limited' on 26.8.2009, as a Special Purpose Company. The first Directors in the said Company i.e. PAN Realtors Pvt. Limited were Shri Danish Mohd. Ali Merchant, Shri Bhimsen Prabhudayal Batra, Shri Shitul Dhirajlal Patel, Sri Suresh Kumar Garg and Sri Anil Kumar Sharma. 13. In terms of the allotment letter and on incorporation of the Special Purpose Company, a lease deed was executed on 12.10.2009 in between New Okhla Industrial Development Authority and PAN Realtors Pvt. Limited in respect of Plot No. GH-01, Sector-70, Noida for a total consideration of Rs. 155,06,27,787/-. The said lease deed detailed the entire installment plan for payment of the consideration. 14. A perusal of the lease deed filed on record as Annexure-3 reveals that the lease was to abide by the regulations byelaws, direction and guidelines of the lessor, framed under Sections 8, 9 and 10 or any other provision of U.P. Industrial Area Development Act, 1976. It further provides: "In case of non-compliance of terms and directions of Lessor, the Lessor shall have the right to impose such penalty as the Chief Executive Officer may consider just and expedient." 15. The lease deed also provides for the eventuality in which the lease deed should be cancelled and are as under: Cancellation of lease deed "In addition to the other specific clauses relating to cancellation, the Lessor, as the case may be, will be free to exercise its right of cancellation of lease in the case of:- 1. Allotment being obtained through misrepresentation/suppression of materials facts, mis-statement and for fraud. 2. Any violation of directions issued or rules and regulation framed by Lessor or by any other statutory body. 3. Default on the part of the lessee for breach/violation of terms and conditions of registration/allotment/lease and/or non-deposit of allotment amount. 4. If at the same time of cancellation, the plot is occupied by the Lessee thereon, the amount equivalent to 25% of the total premium of the plot shall be fortified and possession of the plot will be resumed by the Lessor with structure thereon, if any, and, the lessee will have no right to claim compensation thereof. The balance, if any shall be refunded without any interest. The forfeited amount shall not exceed the deposited amount with the Lessor no separate notice shall be given in this regard. 5. If the allotment is cancelled on the ground mentioned in sub-clause 1 above, then the entire amount deposited by the lessee, till the date of cancellation shall be forfeited by the Lessor and no claim whatsoever shall be entertained in this regard;. In all cases of cancellation a proper show cause notice to the lessee will be sent by the lessor." 1 All. Rakesh Mahajan Vs. State of U.P. & Ors. 1129 16. It has been submitted by learned counsel for the petitioner that subsequently the share holding pattern was mutually shuffled and Nirala Developers Pvt. Limited became a minority shareholder, subsequently, a few of the Directors resigned from the Company, a chart showing change of shareholding pattern of PAN Realtors Pvt. Limited over the years as under: Company Name 2015 20 16 2017 2018 Patel Engineering Ltd. 36% 38 % 37.57% 37.57% Advance Cont. Co. 39% 37 % 37.43% 37.43% Nirala Developers Pvt. Ltd. 25% 25 % 25% 25% 17. It is also stated that on 31.3.2007 the Directors of PAN Realtors Pvt. Limited were Shri Pravin Arjunbhai Patel and Sri Dhirajlal Nathalal Patel and no Director of Nirala Developers Pvt. Limited were on board. 18. On 28.9.2019, a recovery certificate dated 12.9.2019 was affixed on the rented premises of the petitioner Rakesh Mahajan i.e. House No. H-121, Sector 63, Noida, Uttar Pradesh, a copy whereof has been filed as Annexure-9 to the Writ Petition No. 33100/2019. 19. A perusal of the recovery certificate shows that the same was issued in the name of "PAN Realtors Pvt. Limited, shareholder, Rakesh Mahajan". 20. The petitioner Rakesh Mahajan claims that on coming to know of the said recovery certificate petitioner moved a detailed representation on 4.10.2019 before the respondents no. 2, 3 and 4 seeking withdrawal of the recovery certificate as against the petitioner, however, nothing was done and no orders have been passed on the said representation. 21. The petitioner claims that in terms of the recovery certificate the respondents no. 3 and 4 are threatening to adopt coercive measures against the petitioner for the alleged dues of PAN Realtors Pvt. Limited and thus approached this Court by filing the present petition seeking the following reliefs: "(i) To issue a suitable writ, order or direction nature of certiorari quashing the impugned recovery certificate dated 12.9.2019 (served on the petitioner on 28.9.2019) (Anneure-7) issued by the Tehsildar Dadri, Gautam Budh Nagar. (ii) To issue a suitable writ, order or direction nature of mandamus restraining the respondents no. 3 and 4 from taking any coercive action against the petitioner in pursuance of recovery certificate dated 12.9.2019 (Annexure-7)." 22. Similarly the said Recovery certificate was also pasted at the Leased Registered office of Nirala Buildcon Pvt. Ltd. at H-121, sector 63, Noida. 23. The said Nirala Buildcon Pvt. Limited have filed Petition No 32727 of 2019 for following reliefs; "(i) To issue appropriate writ, order or direction nature of certiorari quashing the Recovery/Demand Notice dated 12.9.2019 (Annex-2) issued by Tehsildar, Dadari, District Gautam Budh Nagar." 1130 INDIAN LAW REPORTS ALLAHABAD SERIES "(ii) To issue appropriate writ, order or direction nature of certiorari directing the respondents authorities not to seal the premises of M/s Nirala Buildcon Private Limited, Office-H-121, Sector-63, Noida". 24. Sri Rohan Gupta and Shri Gagan Mehta, learned counsels appearing for the petitioners, submit as under: 25. The dues of the Company PAN Realtors Pvt. Limited cannot be recovered from the petitioner as the petitioners are neither a shareholders nor stakeholders in the Company PAN Realtors Pvt. Limited. 26. No recovery can be initiated against the petitioners for the dues of PAN Realtors Pvt. Limited as the petitioner Rakesh mahajan is only a minority shareholder in the Company Nirala Developers Private Limited which in turn is a minority shareholder of PAN Realtors Pvt. Limited. He submits that PAN Realtors Pvt. Limited is a separate and distinct entity in the eyes of law, distinct from its shareholders and it is well settled that the amounts due against a Company cannot be recovered against its shareholders/Directors and in the present case, the petitioner being neither a shareholder nor a Director of PAN Realtors Pvt. Limited cannot be proceeded against for the recovery of alleged dues against the PAN Realtors Pvt. Limited. 27. No notice/opportunity was accorded to the petitioner in his personal capacity prior to initiating the recovery proceedings against the petitioner in his personal capacity and as such on that count also the steps being taken against the petitioner are wholly arbitrary and illegal. 28. Counsel appearing for Nirala Buildcon Pvt Lts adds to the submissions and argues that Nirala Buildcon is neither a share holder nor a member of Pan Realtors Private Limited and is a seperate and distinct legal entity even from Nirala Developers Pvt. Limited as such cannot be proceeded against. 29. Sri Kaushalendra Nath Singh, learned counsel appearing on behalf of Noida Authority has filed a counter affidavit bringing on record the fact that the Noida Authority had executed a lease deed in favour of PAN Realtors Pvt. Limited. He further states that in terms of the lease deed an amount of Rs. 15,50,62,778.78 being 10% of the total amounts was paid by the Special Purpose Company PAN Realtors Pvt. Limited at the time of execution of the lease deed and the remaining amount was to be paid in installments along with interest at the rate of 11% per annum, compounded half yearly, with a further provision for default penal interest and as PAN Realtors Pvt. Limited defaulted in making the payments of the installments on time, several letters were issued, which have been collectively filed and marked as (CA1) to the counter affidavit. 30. A perusal of the said show cause notices (CA-1)reveals that all the notices were sent to PAN Realtors Pvt. Limited, S-406 (LG), Greater Kailash-II, New Delhi. None of the said notices filed as CA-1 have been sent to both the petitioners. 31. Sri Kaushalendra Nath Singh, learned counsel for Noida Authority, further states that as the amounts were not paid by PAN Realtors Pvt. Limited, a letter was written to the Collector, Gautam 1 All. Rakesh Mahajan Vs. State of U.P. & Ors. 1131 Budh Nagar for collecting the amounts as arrears of land revenue from the shareholders and Directors of the lessee Company PAN Realtors Pvt. Limited. The said letter dated 26.8.2009 is on record as CA-2, along with the said letter details of the Directors of the lessee Company were disclosed which included the names of the Directors of PAN Realtors Pvt. Limited, Directors of Patel Engineering Pvt. Limited, Directors of Nirala Developers Pvt. Limited (including the name of the petitioner) and the names of the Directors of Advance Constructions Limited.The said letter made no mention of Nirala Buildcon Pvt. Ltd. 32. Sri Kaushalendra Nath Singh also submits that all the companies, who are the shareholders, have the entire share holding of PAN Realtors Pvt. Limited and as such all are liable for payment of dues. He further tried to justify as to how recovery was being processed against the petitioner Rakesh Mahajan and Nirala Buildcon Pvt. Limited, a sister concern of Nirala Developers Pvt. Limited.Justifying the steps being taken for recovery against Nirala Buildcon, Mr. Singh argued that the two companies are one and the same and have similar shareholding and are in control of Mr Rakesh Mahajan and his family. 33. Counter affidavit filed also states that the shareholding of Nirala Developers Pvt. Limited and Nirala Buildcon Pvt. Limited show that they are basically run/managed by similar set of people including the petitioner Rakesh Mahajan. He further relied upon the orders of the Hon'ble Supreme Court in the case of Dr. Subroto Roy vs. Union Of India & Ors, 2014 (8) SCC 470 and in case of Amarpali and states that in view of the said amounts can be recovered from the shareholders and Directors. Thus, in sum and substance, the submission of Kaushalendra Nath Singh is that the petitioner Rakesh mahajan being a Director in one of the shareholding Company i.e. Nirala Developers Private Limtied is liable to pay the outstanding dues of the Company PAN Developers (Pvt.) Ltd and Nirala Buildcon being a sister concern of Nirala developers is also liable for payment of dues of Pan Realtors Pvt. Ltd. 34. It is also admitted at the bar that the Lease granted to the lessee Pan Realtors has not been determined and further that the Authority had granted part completion certificate on the strength of which the lessee company has sold certain plots and created third party rights. 35. In view of the submissions made at the bar, what is to be considered is that : a) Whether the dues of PAN Realtors Pvt. Limited can be recovered against the petitioner Rakesh Mahajan being a Director of the shareholding company Nirala Developers Private Limited and from Nirala Buildcon being a sister concern of the shareholding company Nirala Developers Private Limited, And: b) Whether in the facts of the case corporate veil of Pan Realtors Pvt Ltd and Nirala Developers Pvt Ltd can be pierced to hold the shareholders and sister concern of a share holder liable for the dues of a company. 36. Both the counsels for the Petitioners have extensively relied upon the following judgements: 1132 INDIAN LAW REPORTS ALLAHABAD SERIES 1.Gillete India Limited vs. Delhi Development Authority, 260 (2019) DLT 416 2. Balwant Rai Saluja and another vs. Air India Limited and others, (2014) 9 SCC 407 3. Bacha F. Gauzdar vs. Commissioner of Income Tax, Bombay, Air 1855 SC 74 4. Meekin Transmission Ltd. vs. State of Uttar Pradesh, 2008 4 All LJ 789 (DB) 5. The Tata Engineering and Locomotive Co. Ltd. And another vs. State of Bihar and others, AIR 1965 SC 40 6. Arcelormittal India Private Limited vs. Satish Kumar Gupta and others, (2019) 2 SCC 1 7. Vodafone International Holdings B.V vs Union of India (2012) 6 SCC 613 37. Sri Kaushalendra Nath Singh, learned counsel for the Noida Authority, on the other hand, has relied upon an order of this Court dated 7.8.2019, passed in Writ C No. 25554 of 2019 (Ashish Gupta vs. State of U.P. and 5 others) and the judgement of this Court in Writ Tax No. 1464 of 2005 (Jagbir Singh vs. State of U.P. and others) to argue that the recovery against the petitioners is justified. 38. Coming to the judgements cited by the petitioners, the Delhi High Court in the case of Gillete India Limited vs. Delhi Development Authority (supra) was called upon to consider the question of demand of unearned increase and the consequential refund. The petitioner company came into possession of certain lands in terms of the Scheme sanctioned by BIFR and were called upon to pay the dues of a Company which was declared as a sick Company by the Board of Industrial Financial Reconstruction. The Delhi High Court observed as under: 39. It is trite law that an incorporated company is an entity separate from its shareholders. In Bacha F. Guzdar v. Commissioner of Income Tax: AIR 1955 SC 74, the Constitution Bench of the Supreme Court had held that the nature of income in the hands of a company was not the nature of income in the hands of its shareholders. It held that dividends in the hands of the shareholders of a company declared from agricultural income received by that company could not be considered as agricultural income. The said decision rested on the fundamental principle that a company is a separate juristic entity distinct from its shareholders. 40. In the aforementioned case, the Supreme Court referred to the Halsbury‟s Laws of England, Vol. 6 (3rdEdn.), p. 234 and set forth the following passage regarding the attributes of shares:- "A share is a right to a specified amount of the share capital of a company carrying with it certain rights and liabilities while the company is a going concern and in its winding up. The shares or other interest of any member in a company are personal estate transferable in the manner provided by its articles, and are not of the nature of real estate." 41. It is well settled that shares of a company are a separate asset wholly distinct from the assets held by the company. 42. In the present case, there was dilution of the share capital of TGC 1 All. Rakesh Mahajan Vs. State of U.P. & Ors. 1133 as well as transfer of shares held by the TGC in the petitioner company. The transfer of shares of the petitioner company cannot be construed as transfer of the assets of the petitioner company. 43. In Rustom Cavasjee Cooper vs. Union of India: (1970) 1 SCC 248, the constitution bench of the Supreme Court reiterated the above settled principle in the following words: "11. A company registered under the Companies Act is a legal person, separate, and distinct from its individual members. Property of the Company is not the property of the shareholders. 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 distributed profit. Again a director of a Company is merely its agent for the purpose of management. The holder of a deposit account in a Company is its creditor: he is not the owner of any specific fund lying with the Company. A shareholder, a depositor or a director may not therefore be entitled to move a petition for infringement of the rights of the Company, unless by the action impugned by him, his rights are also infringed." 44. In a recent decision of the Supreme Court in Vodafone International Holdings B.V. v. Union of India and Anr.: (2012) 6 SCC 613, the Supreme Court rejected the contention that a transfer of shares of an overseas holding company would amount to transfer of assets held by the subsidiary in India. In the said case, the Supreme Court applied the "look at" test to view the transaction relating to transfer of shares by overseas holding companies. The transaction must be viewed as it looks and a dissecting approach is not warranted. 39. The next judgment cited by Sri Rohan Gupta is the case of Balwant Rai Saluja and another vs. Air India Limited and others (supra), wherein the Apex Court was considering whether the workman engaged in statutory canteens through a Contractor should be treated as employees of the principal establishment. The Supreme Court made the following observations in para nos. 67 to 74 which is as under: "67. The Companies Act in India and all over the world have statutorily recognized subsidiary company as a separate legal entity. Section 2(47) of the Companies Act, 1956 (for short "the Act, 1956") defines ''subsidiary company' or ''subsidiary', to mean a subsidiary company within the meaning of Section 4 of the Act, 1956. For the purpose of the Act, 1956, a company shall be, subject to the provisions of sub-section (3) of Section 4, of the Act, 1956, deemed to be subsidiary of another. Clause (1) of Section 4 of the Act, 1956 further imposes certain preconditions for a company to be a subsidiary of another. The other such company must exercise control over the composition of the Board of Directors of the subsidiary company, and have a controlling interest of over 50% of the equity shares and voting rights of the given subsidiary company. 68. In a concurring judgment by K.S.P. Radhakrishnan, J., in the case of Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613, the following was observed: "Holding company and subsidiary company .... 257. The legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the 1134 INDIAN LAW REPORTS ALLAHABAD SERIES assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors. ... 258. Holding company, of course, if the subsidiary is a WOS, may appoint or remove any Director if it so desires by a resolution in the general [pic]body meeting of the subsidiary. Holding companies and subsidiaries can be considered as single economic entity and consolidated balance sheet is the accounting relationship between the holding company and subsidiary company, which shows the status of the entire business enterprises. Shares of stock in the subsidiary company are held as assets on the books of the parent company and can be issued as collateral for additional debt financing. Holding company and subsidiary company are, however, considered as separate legal entities, and subsidiary is allowed decentralized management. Each subsidiary can reform its own management personnel and holding company may also provide expert, efficient and competent services for the benefit of the subsidiaries." 69. The Vodafone case (supra), further made reference to a decision of the US Supreme Court in United States v. Bestfoods [141 L Ed 2d 43: 524 US 51 (1998)]. In that case, the US Supreme Court explained that as a general principle of corporate law a parent corporation is not liable for the acts of its subsidiary. The US Supreme Court went on to explain that corporate veil can be pierced and the parent company can be held liable for the conduct of its subsidiary, only if it is shown that the corporal form is misused to accomplish certain wrongful purposes, and further that the parent company is directly a participant in the wrong complained of. Mere ownership, parental control, management, etc. of a subsidiary was held not to be sufficient to pierce the status of their relationship and, to hold parent company liable. 70. The doctrine of ''piercing the corporate veil' stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with its own legal rights and obligations. It seeks to disregard the separate personality of the company and attribute the acts of the company to those who are allegedly in direct control of its operation. The starting point of this doctrine was discussed in the celebrated case of Salomon v. A Salomon & Co Ltd., [1897] AC 22. Lord Halsbury LC (paragraphs 31-33), negating the applicability of this doctrine to the facts of the case, stated that: "...a company must be treated like any other independent person with its rights and liabilities legally appropriate to itself ..., whatever may have been the ideas or schemes of those who brought it into existence." Most of the cases subsequent to the Salomon case (supra), attributed the doctrine of piercing the veil to the fact that the company was a ''sham' or a ''façade'. However, there was yet to be any clarity on applicability of the said doctrine. 71. In recent times, the law has been crystallized around the six principles formulated by Munby J. in Ben Hashem v. Ali Shayif, [2008] EWHC 2380 (Fam). The six principles, as found at paragraphs 159- 164 of the case are as follows- (i) ownership and control of a company were not enough to justify piercing the corporate veil; (ii) the Court cannot pierce the corporate veil, even in the absence of third party interests in the 1 All. Rakesh Mahajan Vs. State of U.P. & Ors. 1135 company, merely because it is thought to be necessary in the interests of justice; (iii) the corporate veil can be pierced only if there is some impropriety; (iv) the impropriety in question must be linked to the use of the company structure to avoid or conceal liability; (v) to justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and (vi) the company may be a ''façade' even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The Court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done. The principles laid down by the Ben Hashem case (supra) have been reiterated by UK Supreme Court by Lord Neuberger in Prest v. Petrodel Resources Limited and others, [2013] UKSC 34, at paragraph 64. Lord Sumption, in the Prest case (supra), finally observed as follows: "35. I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The Court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil." The position of law regarding this principle in India has been enumerated in various decisions. A Constitution Bench of this Court in Life Insurance Corporation of India v. Escorts Ltd. & Ors., (1986) 1 SCC 264, while discussing the doctrine of corporate veil, held that: "90. ... 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." 74. Thus, on relying upon the aforesaid decisions, the doctrine of piercing the veil allows the Court to disregard the separate legal personality of a company and impose liability upon the persons exercising real control over the said company. However, this principle has been and should be applied in a restrictive manner, that is, only in scenarios wherein it is evident that the company was a mere camouflage or sham deliberately created by the persons exercising control over the said company for the purpose of avoiding liability. The intent of piercing the veil 1136 INDIAN LAW REPORTS ALLAHABAD SERIES must be such that would seek to remedy a wrong done by the persons controlling the company. The application would thus depend upon the peculiar facts and circumstances of each case." 40. The next judgement relied upon by Sri Rohan Gupta is the case of Bacha F. Gauzdar vs. Commissioner of Income Tax, Bombay (supra), wherein the Apex Court was called upon to decide the question of exemption under section 4 (3)(viii) of the Income Tax Act the Constitution Bench of the Supreme Court held that the nature of income in the hands of a company was not the nature of income in the hands of its shareholders. It held that dividends in the hands of the shareholders of a company declared from agricultural income received by that company could not be considered as agricultural income. The said decision rested on the fundamental principle that a company is a separate juristic entity distinct from its shareholders. 41. Referring to the leading pronouncement of the Constitution Bench of the Apex court in the case of Tata Engineering and Locomotive Co. Ltd. And another vs. State of Bihar and others (supra). The Apex court following the cherished judgement of Salomon vs. Salomon & Co., 1897 AC 22 observed held as under: "24. The true legal position in regard to the character of a corporation or a company which owes its incorporation to a statutory authority, is not in doubt or dispute. The corporation in law is equal to a natural person and has a legal entity of its own.