In the case of Subhra Mukherjee & Anr. C vs Bharat Coking Coal Ltd. & Ors on 8 March, 2000, the Supreme Court of India delivered a judgment that has since been a point of reference in matters concerning the validity of transactions and the concept of ‘lifting the corporate veil’. The case was presided over by Justices S. Rajendra Babu and S.S.M. Quadri.
Facts of the Case
The appellants, Subhra Mukherjee & Anr. C, filed a suit against Bharat Coking Coal Ltd. & Ors (BCCL) for a declaration of title in respect of a bungalow and a piece of land measuring 1.38 acres, which was owned by M/s. Nichitpur Coal Company Private Limited (the Company). The Company had resolved to sell the property to the appellants for a consideration of Rs. 5,000/-, but the appellants paid Rs. 7,000/- to one of the directors. An agreement to sell the property to the appellants for Rs. 7000/- was executed by the Company on January 3, 1971. The Company executed the sale deed in their favour on March 20, 1972.
However, the Coal Mines (Nationalisation) Act, 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 vested in the Central Government. 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. (BCCL). As the appellants did not hand over the possession of the property to BCCL, it initiated proceedings under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 for their eviction from the property on October 15, 1976.
Issues Raised
The primary issues raised in this case were:
- Whether the transaction in question was a bona fide and genuine one or a sham, bogus, and fictitious transaction as held by the trial court.
- 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.
Court’s Observations and Judgment
The Supreme Court observed that the appellants had proved three facts, namely, the resolution of the board of directors of the Company to sell the property in favour of the appellants, the payment of Rs.7000/- to one of the directors of the Company, and the execution of the sale deed by the Company. However, the Court also noted several suspicious circumstances, including the fact that the resolution was an antedated document, the unexplained enhancement of the sale consideration from Rs.5000/- to Rs.7000/-, and the fact that the appellants did not exercise their rights as purchasers over the property till the date of the filing of the suit.
The Court held that in cases 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, the Court will be justified in piercing the veil of incorporation to ascertain the true nature of the transaction. The Court found that the sale, in favour of the appellants, was neither bona fide nor genuine and confers no right on them. Therefore, 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.
The Court also noted that 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. The Court referred to the principle laid down in Salomon Vs. Salomon, which established that a company is at law a different person altogether from the subscribers who have limited liability. However, the Court also noted that the veil of incorporation can be lifted 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.
In conclusion, the Supreme Court dismissed the appeal, upholding the judgment of the High Court that the sale of the suit property to the appellants was neither bona fide nor genuine and confers no right on them. The Court also affirmed that 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 judgment has since been a point of reference in matters concerning the validity of transactions and the concept of ‘lifting the corporate veil’.