Case Note & Summary
The matter concerned a Chamber Summons filed by the Award Holder in an Execution Application seeking leave to amend the application to enforce a foreign award against additional respondents. The Award Holder, a Japanese shipping company, had obtained a foreign award on 2 February 2009 against the Respondent, an Indian shipping agency, for wrongfully withholding freight and other monies. After the award was declared enforceable as a decree by the Bombay High Court on 28 January 2014, the Award Holder filed the present execution application. The Award Holder alleged that during the prolonged litigation from 2002 to 2014 and thereafter, the Respondent’s directors (the Jalalis) and associated companies systematically stripped the Respondent of all its assets, properties, business, and funds, diverting them to the associate companies and the Jalalis personally, thereby leaving the Respondent a shell company with no assets to satisfy the award. Specific instances included the sale of immovable properties under SARFAESI proceedings for loans availed by an associate company, voluntary sale of another premises to a bank under private negotiations, and non-disclosure and misrepresentation in court-mandated affidavits. The Award Holder contended that the corporate veil should be lifted to hold the additional respondents jointly and severally liable for the awarded sums. The judgment recorded the facts and arguments but the provided text was truncated before the court's decision and analysis, leaving the outcome unknown.
Headnote
A) Execution of Foreign Award – Amendment of Execution Application – Addition of Parties – The Award Holder sought leave to amend the Execution Application to enforce the Foreign Award dated 2 February 2009 not only against the original Judgment Debtor but also against its associate companies and directors as jointly and severally liable, alleging that they had systematically denuded and stripped the Judgment Debtor of all assets, properties, business, income and monies to leave a shell company and defeat the award. (Paras 1, 7)
B) Company Law – Lifting of Corporate Veil – Liability of Directors and Associate Companies – Companies Act, 1956, Section 301 – The Award Holder referred to transactions between the Judgment Debtor and entities listed in the register under Section 301 to argue that the associated companies and directors were alter egos who siphoned off funds, thereby warranting the court to pierce the corporate veil and hold them personally liable for the award dues. (Paras 10)
Issue of Consideration
Whether leave to amend the Execution Application should be granted to enforce the Foreign Award against additional respondents (associate companies and directors) on the ground that they systematically stripped the judgment debtor of its assets to frustrate enforcement of the award
Law Points
- amendment of execution application under inherent powers or Civil Procedure Code
- enforcement of foreign award against third parties
- lifting of corporate veil
- fraudulent transfer of assets
- abuse of corporate form
- joint and several liability for award debts
Case Details
2020 LawText (BOM) (02) 44
Chamber Summons No. 157 of 2019 in Execution Application No. 809 of 2014
Kevic Setalvad, Gaurang Mehta, Poorva Garg, Parikshit Barpujari, Jehan Lalkaka, Sanjay Jain, Prathamesh Kamat, Aditi Pawar, Rahul Narichania, Harsh B. Buch
Mitsui OSK Lines Ltd. (Japan)
Orient Ship Agency Pvt. Ltd. & Additional Respondents (1 Ornate Multi Modal Carriers Pvt. Ltd., 2 I.K. Marine Agencies Pvt. Ltd., 3 Pan Orient Shipping & Logistics Pvt. Ltd., 4 Fulcrum Shipping & Logistics Pvt. Ltd., 5 Jalal S. Jalali, 6 Jamil S. Jalali, 7 Mehdi S. Jalali, 8 Jalil S. Jalali)
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Nature of Litigation
Chamber Summons filed by Award Holder seeking leave to amend Execution Application to enforce a foreign award against additional parties (associate companies and directors) on grounds they stripped the original judgment debtor of assets to frustrate recovery.
Remedy Sought
Award Holder sought to amend the Execution Application to add the Additional Respondents as judgment debtors jointly and severally liable for the foreign award, and to attach/execute against their assets.
Filing Reason
Award Holder alleged that the Judgment Debtor and its directors and associate companies systematically denuded the Judgment Debtor of all assets, business, and income between 2002 and 2014 and beyond, leaving it a shell company with no assets to satisfy the award.
Previous Decisions
Foreign Award dated 2 February 2009 against Respondent; Award recognized and made enforceable as decree by Bombay High Court on 28 January 2014 in Arbitration Petition No. 842 of 2009; status quo orders on immovable properties of Respondent dated 4 February 2010 and 25 February 2014; disclosure orders against Jalalis in Chamber Summons No. 292 of 2014.
Issues
Whether leave to amend the Execution Application should be granted to enforce the foreign award against the additional respondents on the ground of fraudulent asset transfers and abuse of corporate form.
Submissions/Arguments
Award Holder contended that from 2002 to 2014 and during pendency of execution, the Judgment Debtor's directors (Jalalis) and associated companies systematically stripped the Judgment Debtor of all its assets, properties, and business by transferring or diverting them, leaving it a shell company with no assets to satisfy the award, and therefore the corporate veil should be lifted to hold them jointly and severally liable for the award sums.
Judgment Excerpts
The Award Holder has by way of the amendment sought enforcement and execution of the Foreign Award dated 2nd February 2009 that was passed against the Respondent, against the third parties/entities mentioned therein as the “Associate Companies” and “the Jalalis” in their personal capacity as being jointly and severally liable to pay the awarded dues.
It is the case of the Award Holder that the Jalalis used and utilised the period between the years 2002 to 2014 and even thereafter, during the pendency of the Execution Application to systematically denude and strip the Respondent of all its assets, properties, business, income and monies, inter alia, by transferring and/or diverting the same to the Associate Companies and Jalalis themselves and/or by siphoning off the monies and funds of the Respondent to leave the Respondent a shell company without any assets and without any business.
Procedural History
Agency agreement dated 1 April 1964 between Award Holder and Respondent; disputes arose regarding withheld freight amounts; Award Holder terminated agreement and invoked arbitration in April 2002; Tokyo District Court appointed arbitrator on 9 February 2005 after Respondent's non-cooperation; Respondent's appeal failed; arbitration concluded with Foreign Award dated 2 February 2009; Award Holder filed Arbitration Petition No. 842 of 2009 in Bombay High Court seeking enforcement of award; by order dated 28 January 2014, the Foreign Award was declared enforceable as decree; Execution Application No. 809 of 2014 filed; Chamber Summons No. 292 of 2014 filed for disclosure by directors; multiple affidavits filed by directors under court orders; present Chamber Summons No. 157 of 2019 filed to amend Execution Application.
Acts & Sections
- Companies Act, 1956: 301
- Arbitration and Conciliation Act, 1996: 9
