Under Section 241(2) of the Companies Act, 2013, the Central Government, if it is of the opinion that the affairs of the Company are being conducted in a manner prejudicial to public interest, may apply itself to the Tribunal for orders under the said Chapter, which is headed “prevention of Oppression and Mismanagement”. Apart from the vast powers that are given to the Tribunal under Section 242, powers under Sections 337 and 339 are also given in aid of this power, which will apply mutatis mutandis. Section 337 of the Companies Act refers to penalty for frauds by an officer of the Company in which mismanagement has taken place. Likewise, Section 339 refers to any business of the company which has been carried on with intent to defraud creditors of that company. Obviously, the persons referred to in Section 339(1) as persons who are other than the parties “to the carrying on of the business in the manner aforesaid” which again refers to the business of the company which is being mismanaged and not to the business of another company or other persons. Usha Ananthasubramanian v. Union of India, (2020) 4 SCC 122.
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Section 16-G(1)(c) of the Tea Act, 1953 refers to the proceedings under Section 9 Insolvency and Bankruptcy Code shall not be limited to winding up and/or appointment of receiver only. The winding up/liquidation of the company shall be the last resort and only on an eventuality when the corporate insolvency resolution process fails. As observed by the Hon’ble Apex Court in Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17, the primary focus of the legislation while enacting Insolvency and Bankruptcy Code, 2016 is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate debt by liquidation and such corporate insolvency resolution process is to be completed in a time bound manner. Therefore, the entire corporate insolvency resolution process as such cannot be equated with winding up proceedings. Duncans Industries Ltd. v. A.J. Agrochem, (2019) 9 SCC 725.
A trade union is certainly an entity established under a statute – namely, the Trade Unions Act and would therefore fall within the definition of “person” under Section 3(23) of the Insolvency and Bankruptcy Code. That being so, it is clear that an “operational debt”, meaning a claim in respect of employment, could certainly be made by a person duly authorized to make such claim on behalf of a worman. Rule 6, Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 also recognizes the fact that claims may be made not only in an individual capacity, but also conjointly. Further, a registered trade union recognized by Section 8 of the Trade Unions Act, makes it clear that it can sue and be sued by a body corporate under Section 13 of that Act. Equally, the general fund of the trade union, which inter alia is from collections from workmen who are its members, can certainly be spent on the conduct of disputes involving a member or members thereof or for the prosecution of a legal proceeding to which the trade union is a party, and which is undertaken for the purpose of protecting the rights arising out of the relation of its members with their employer, which would include wages and other sums due from the employer to workmen. J.K. Jute Mill Mazdoor Morcha v. Juggilal Kamlapat Jute Mills Co. Ltd., 2019 (4) AWC 3160.
In the case of M/s Videocon International Ltd. v. S.E.B.I., (2015) 4 SCC 33 a right of appeal has been understood to be a substantive right and not a mere procedural right so as to affect it’s applicability upon any amendment. The forum of appeal as provided under Section 483 of the Companies Act would not stand altered as no such provision in such a situation is contemplated so as to transfer the right of appeal before the Company Appellate Tribunal.
The enforcement of Section 303 of the Companies Act w.e.f. 15.12.2016 would not repeal the right or abrogate the right of a person to file an appeal against the order of a learned Single Judge in a company petition for which the High Court continues to have jurisdiction to decide the matter. The Company Appellate Tribunal has not been conferred with any such authority specifically as an alternative, granting a right of appeal as against an order of a learned Single Judge passed in a company petition. In the absence of any such specific conferment of power on the Company Appellate Tribunal the powers statutorily granted under Section 483 of the Companies Act would stand revealed, cannot be repealed. The doctrine of implies repeal, therefore, will have no application in view of the aforesaid background of the legislation as no such express intention can be gathered from the same. J.R. Organics Ltd. v. Jupiter Dyechem Pvt. Ltd., 2017 (1) AWC 751.
The principle of lifting the corporate veil as an exception to the distinct corporate personality of a company or its members is well recognized not only to unravel tax evasion, CIT v. Sri Meenakshi Mills Ltd., AIR 1967 SC 819 but also where protection of public interest is of paramount importance and the corporate entity is an attempt to evade legal obligations and lifting of veil is necessary to prevent a device to avoid welfare legislation, Workmen v. Associated Rubber Industry Ltd., (1985) 4 SCC 114.
The concept of “piercing the veil” in the United States is much more developed than in the U.K. The motto, which was laid down by Sanborn, J and cited since then as the law, is that “when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons”. The same can be seen in various European jurisdictions.
In Palmer’s Company Law, this topic is discussed in Part II of Vol. 1. Several situations where the court will disregard the corporate veil are set out. The eighth exception runs as under:
‘the courts have further shown themselves willing to “lifting the corporate veil” where the device of incorporation is used for some illegal or improper purpose….where a vendor of land sought to avoid the action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the court treated the company as a mere “sham” and made an order for specific performance against both the vendor and the company.’
It is thus clear that the doctrine of lifting the veil can be invoked if the public interest so requires or if there is allegation of violation of law by using the device of a corporate entity. State of Rajasthan v. Gotan Lime Stgone Khanij Udyog Pvt. Ltd., (2016) 4 SCC 469.