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PETITIONER: SUBHRA MUKHERJEE & ANR.  C

       Vs.

RESPONDENT: BHARAT COKING COAL LTD.  & ORS.

DATE OF JUDGMENT:       08/03/2000

BENCH: S.Rajendra Babu, S.S.M.Quadri

JUDGMENT:

     Syed Shah Mohammed Quadri, J.

     This  appeal  is  directed against  the  judgment  and decree  of  the  High Court of Judicature at  Patna  (Ranchi Bench),  in  Appeal from Appellate Decree No.21 of 1979  (R) passed  on  November  11, 1997.   The  appellants-plaintiffs filed  Title  Suit  No.28(A)  of 1976 in the  court  of  the Subordinate  Judge,  Ist  Court,   Dhanbad,  praying  for  a declaration of title in respect of a bungalow and a piece of land measuring 1.38 acres consisting of survey plot Nos.  91 to  94  appertaining  to  Khatian No.2  of  mouza  Nichitpur (hereinafter  referred  to as the suit property)  and  for permanent   injunction  restraining   the  respondents  from interfering  with  their possession.  The suit property  was owned   by  M/s.Nichitpur  Coal   Company  Private   Limited (hereinafter  referred  to  as   the  Company),  which  is registered  under the Indian Companies Act.  By a resolution of the board of directors of the Company dated September 21, 1970,  it  was  resolved to sell the suit  property  to  the appellants  for a consideration of Rs.5,000/-.  However, the appellants  paid  Rs.7,000/- to one of the  directors  under receipt  dated December 30, 1970 (Ext.10).  An agreement  to sell  the  suit  property to the  appellants  for  Rs.7000/- (Rs.5000/- as consideration of the Bungalow and Rs.2000/- as price of the land) was executed by the Company on January 3, 1971  (Ext.8).  The Company executed the sale deed in  their favour   on  March  20,  1972   (Ext.9).   The  Coal   Mines (Nationalisation)  Act,  1973 (for short the Act of  1973) came into force on May 1, 1973 and from that date the right, title  and  interest of the owners in relation to  the  coal mines  specified in the Schedule appended to the Act of 1973 (the  said  Company  is mentioned at serial  No.133  of  the Schedule)  vested  in  the  Central  Government  (they  will hereinafter  be  referred  to as the  vested  properties). Thereafter  under  the order of the Central Government,  the vested  properties  stood transferred to and vested  in  the Government Company named M/s.  Bharat Coking Coal Ltd.  (for short  BCCL).   As  the appellants did not hand  over  the possession  of  the  suit  property to  BCCL,  it  initiated proceedings   under  the  Public   Premises   (Eviction   of Unauthorised  Occupants)  Act,  1971 (for  short  the  P.P. Act)  for their eviction from the suit property on  October 15,  1976.  Being faced with eviction proceedings under  the P.P.Act, the appellants filed the said suit against BCCL for declaration  of their rights in, title to and interest  over the  suit  property.  The suit was resisted by  BCCL,  inter

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alia, on the ground that with effect from the appointed date the  suit  property vested in it and that the  alleged  sale transaction  in  favour of appellants was  sham,  collusive, without  any consideration and was brought into existence to avoid  the effect of vesting of the suit property under  the Act  of  1973.  It was also stated that the  appellants  are wives  of  the  directors  of  the  Company,  who  are  real brothers.  On appreciation of the evidence placed before it, the trial court held that the appellants got no title to the suit  property  and  were, therefore, not  entitled  to  any relief  and  thus dismissed the suit on September 22,  1977. Aggrieved by the judgment and decree of the trial court, the appellants  filed  Title  Appeal No.147 of 1977  before  the learned  District  Judge,  Dhanbad.  On reappraisal  of  the evidence  on record, the learned District Judge allowed  the appeal  and  set aside the judgment and decree of the  trial court  and decreed the suit of the appellants, as prayed for on  October  6, 1978.  The BCCL then unsuccessfully  carried the  matter,  in  second appeal, before the  High  Court  of Judicature at Patna (Ranchi Bench).  The judgment and decree of the High Court dismissing the second appeal on October 7, 1985,  was challenged by BCCL in Civil Appeal No.838 of 1986 in this Court.  On August 17, 1993, this Court set aside the impugned  judgment and decree of the High Court and remitted the  matter  to the High Court to decide the  following  two points:- (1) Whether transaction in question is a bona fide and  genuine  one  or  is  a  sham,  bogus  and   fictitious transaction as held by the trial court;  and

     (2)  Whether in view of Section 3(1) read with Section 2(h) (xi) and the entry at serial No.133, in the Schedule to the  Act, the property in question stood transferred to  and vested  in the Central Government free of all  encumbrances, on  the appointed day under the Coal Mines (Nationalisation) Act.

     It  was  observed that the result of the second  point would  depend on the decision of point No.1.  However, after remand,  in  view  of  the submission made  by  the  learned counsel for BCCL that point No.2 was covered by the judgment of  this  Court  in Bharat Coking Coal Ltd.   Vs.   Madanlal Agrawal [1997 (1) SCC 177], the High Court decided it first. On  point  No.1 the High Court restored the judgment of  the trial Court holding that the transaction of sale between the appellants  and  the  Company  was sham and  bogus  and  was entered  into  to avoid the vesting of the suit property  in Central Government under Section 3(1) of the Act of 1973 and thus allowed the second appeal filed by the BCCL on November 11,  1997.  That judgment and decree are under challenge  in this  appeal.   Mr.A.K.Srivastava,  learned  senior  counsel appearing  for the appellants, pointed out that contrary  to the  observation of this Court, the High Court has proceeded to decide point No.2 first and that resulted in prejudice to the  appellants.   He argued that the High Court found  that the appellants had proved three facts, namely, (i) the board of directors of the Company passed a resolution on September 21, 1970 (Ext.12) to sell the suit property in favour of the appellants;   (ii)  the appellants paid Rs.7000/- to one  of the  directors  of the Company under receipt dated  December 30,  1970  (Ext.10) and (iii) sale deed was executed by  the company on March 20, 1972 (Ext.9).  He invited our attention to  the evidence of P.W.8, the accountant of the Company, to prove  passing of the resolution, to substantiate payment of Rs.7000/-  and  its  entry in the books of accounts  of  the Company  and the execution of the sale deed dated March  20,

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1972  (Ext.9) by the Company.  In view of these proved facts and  in  the  absence  of  any  rebuttal  evidence,  it  was contended,  the High Court ought to have held that the  sale of the suit property under Ext.8 was genuine and valid.  Mr. Anip   Sachthey,   learned  counsel    appearing   for   the respondents,  has contended that the suit property is in the midst  of the colliery and that the directors of the Company and  the appellants are no other than husbands and wives and that  the  transaction  was entered into to  save  the  suit property  from  vesting  in  the  Central  Government  under Section  3  of  the  Act  of  1973.   We  have  perused  the deposition  of  P.W.8    accountant   -  and  the  impugned judgment.  There can be no doubt that the High Court in para 13  of  its  judgment mentioned that the resolution  of  the company   dated  September  21,   1970   (Ext.12),   receipt evidencing  payment  of  Rs.7000/-  on  December  30,   1970 (Ext.10)  under  which  one  of the  directors,  husband  of appellant  No.1, received the said amount and the sale  deed executed  on March 20, 1972 (Ext.9), had been proved by  the appellants.   But,  then  the  High Court  also  noted  with approval  the  following circumstances, pointed out  by  the first  Appellate  Court:   firstly,   the  resolution  dated September  21,  1970  (Ext.12) was  an  antedated  document. Mr.Srivastava submitted that the government authorities were in  possession  of all the records of the Company  and  they should have produced the original record to substantiate the allegation  that  the  resolution was antedated and  in  the absence  of such record the High Court was not justified  in confirming  the  finding of the First Appellate Court.   The fact remains that the appellants themselves took no steps to summon  the  record  from  the   custody  of  the  concerned authority.  That apart there is no mention of the resolution dated  September  21,  1970 (Ext.12) either in  the  receipt (Ext.10)  signed by one of the directors or in the agreement for  sale  of  January 3, 1971 (Ext.8) or in the  sale  deed dated  March  20,  1972,  (Ext.9).   On  the  basis  of  the intrinsic  evidence, pointed out above, the conclusion  that the  resolution  was  an antedated document, appears  to  be irresistible.  Secondly, it is pointed out by the High Court that  though the resolution mentions the sale  consideration as  Rs.5000/-,  there  is no explanation as to  why  it  was enhanced to Rs.7000/- for which receipt was signed by one of the  directors  of  the Company.  Thirdly,  a  more  telling aspect  is that the appellants did not exercise their rights as  purchasers  over the suit property till the date of  the filing  of the suit;  the water and electricity  connections were  obtained  during  the pendency of the  suit  by  them; further  till the date of vesting of the suit property under the  Act  of 1973, it was maintained by the Company for  the use  of the directors.  It is rightly commented by the  High Court  that  the  agreement  for sale (Ext.8)  of  the  suit property  is not a registered document;  it recites the suit property  will  be  sold  for   Rs.7000/-  even  though  the consideration  of  Rs.7000/- was paid on December  30,  1970 (Ext.10)  itself and neither the agreement nor the sale deed is in terms of the resolution.  Two other aspects which have weighed  with the High Court are :  the transaction of  sale was  between the husbands and the wives and that they had no independent  source of their income, which cannot be ignored altogether  as  irrelevant.   Mr Srivastava  submitted  that undue  emphasis was given to the fact that the directors  of the  Company  were  brothers and the  appellants  are  their wives.   He  argued  that the Company is  a  separate  legal entity   which   is  independent  of   its   directors   and shareholders  and  repeatedly  referred  to  the  oft-quoted

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decision  in Salomon Vs.  Salomon.  The principle laid  down in  Salomons  case more than a century ago in 1897  by  the House of Lords that the company is at law a different person altogether  from the subscribers who have limited liability, is  the  foundation  of  joint stock  company  and  a  basic incidence of incorporation both under English law and Indian law.   Lifting the veil of incorporation under statutes  and decisions  of the courts is equally settled position of law. This  is  more readily done under American law.  To look  at the realities of the situation and to know the real state of affairs  behind the facade of the principle of the corporate personality,   the   courts  have   pierced  the   veil   of incorporation.  Where a transaction of sale of its immovable property  by  a  Company  in  favour of  the  wives  of  the directors  is  alleged to be sham and collusive, as  in  the instant  case,  the Court will be justified in piercing  the veil  of  incorporation to ascertain the true nature of  the transaction  as to who were the real parties to the sale and whether  it  was  genuine and bona fide or  whether  it  was between  the  husbands  and the wives behind the  facade  of separate  entity  of the Company.  That is what was done  by the High Court in this case.  There can be no dispute that a person  who  attacks  a  transaction   as  sham,  bogus  and fictitious  must  prove  the same.  But a plain  reading  of question  No.1 discloses that it is in two parts;  the first part  says,  whether the transaction, in question, is  bona fide  and  genuine  one  which  has to  be  proved  by  the appellants.   It  is only when this has been done  that  the respondent  has to dislodge it by proving that it is a  sham and  fictitious transaction.  When circumstances of the case and  the intrinsic evidence on record clearly point out that the  transaction  is  not  bona  fide  and  genuine,  it  is unnecessary for the court to find out whether the respondent has  led any evidence to show that the transaction is  sham, bogus  or  fictitious.  For the afore-mentioned reasons,  we are  unable  to say that the High Court erred in taking  the view  that the sale, in favour of the appellants, is neither bona fide nor genuine and confers no right on them.  In view of the finding on point No.1, the suit property remained the property  of  the Company and, therefore, it vested  in  the Central  Government  under Section 3(1) of the Act of  1973. This  is  what the High Court held on point No.2.  which  is supported  by  the judgment of this Court in  Bharat  Coking Coal Ltd.  Vs.  Madanlal Agrawal [1997 (1) SCC 177].  In the result,  we find no merit in the appeal.  It is  accordingly dismissed  with  costs.