Delhi Development Authority v Skipper Construction Co (P) Ltd

Facts

Skipper Construction, controlled by Tejwant Singh and his family, collected large sums from numerous buyers for a multi-storey building on a DDA plot while flouting court orders and diverting funds through a web of family-controlled companies and relatives. When proceedings sought to recover the monies and properties, the controllers hid behind separate corporate and individual entities to claim the assets were beyond reach. The Supreme Court was asked to reach the diverted properties to do justice to the defrauded buyers.

Issues

• Whether the corporate veil and separate identities of family members and companies could be lifted to reach properties acquired with funds fraudulently obtained.
• Whether the Court could order restitution of assets held in the names of associated companies and relatives to prevent the controllers from profiting by fraud.

Arguments

DDA and the defrauded purchasers argued the corporate structure and benami holdings were a smokescreen for fraud, justifying lifting the veil to attach the properties. The Singh family and their companies relied on separate legal personalities and distinct ownership to resist attachment of assets standing in other names.

Held

The Supreme Court held that the corporate personality could not be used as a shield to perpetrate or protect fraud and that courts have ample power to lift the veil to reach the real offenders and the fruits of their wrongdoing. Surveying English and Indian authority, the Court affirmed that where the device of incorporation is used for fraudulent or dishonest purposes the persons concerned cannot take refuge behind the company's separate personality. It directed that properties acquired with the diverted monies — whether in the names of the controllers, their relatives or associated companies — be attached and applied to compensate the defrauded buyers. The Court emphasised that no one should be allowed to enrich himself by abusing the legal process or the corporate form.

Ratio decidendi

Where the corporate form is employed as an instrument of fraud or to defeat the law, courts will pierce the veil, identify the real controllers, and reach assets held through associated entities to deny the wrongdoers any benefit of their fraud.

Significance

A leading Indian authority on the fraud/improper-purpose exception to separate personality and on the court's restitutionary power to strip wrongdoers of ill-gotten gains; widely cited for the principle that the corporate veil is no protection for fraud.

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