Doctrine of Lifting Corporate Veil can be applied when under the Grab of Transfer of Shares, property is sold



[2016] 134 CLA 303 (SC)
CA No. 3765 of 2016
V Gopala Gowda & Arun Mishra, JJ
11th May 2016


Chandigarh Administration allotted 6-acres of land to Esys Information Technologies Pvt. Ltd. for setting up a Small Campus Site in Chandigarh. As per Rules, allottee was not allowed to transfer the land for a period of 10 years. As per Rules it was also necessary to raise the construction within 3 years from the date of allotment.

Director, Information Technology noticed that allottee had transferred a major portion of shares to one other company namely, M/s. Esys Global Holdings, Dubai, without seeking necessary permission as was required under Rule 9 and under clause 15 of the allotment letter.

So Director, Information Technology sought clarifications from the allottee and on finding the unsatisfactory reply, the estate officer issued show-cause notice to Esys Information Technologies (P) Ltd. Singapore for violating Rule-9 and clause 15 of the allotment letter.  After the show cause notice, the Estate Officer cancelled the allotment and ordered resumption of site and also ordered for forfeiture of 10% of the total premium.

Aggrieved by the said order allottee preferred an appeal which was dismissed then allottee preferred a revision before the Adviser to Administrator, UT Chandigarh.This revision was also dismissed and there after the allottee filed the writ petition before the High Court.

High Court allowed the writ petition and thereby set aside the order of estate officer, appellate and revisional authorities.

This order of the High Court came under challenge before the Apex Court.

Apex Court made the following observations and opined that:

  1. Allottee has suppressed the facts with respect to its deal with Teledata Ltd.
  2. Allottee considered its option to sell its assets for paying its creditors and Esys Global Holdings was prepared to buy it on its book value.
  3. Under the garb of transfer of shares, allottee have completed the sale.
  4. Allottee has concealed the facts with respect to Teledata, while Teledata in its unaudited results had published that Teledata alongwith its subsidiary Esys Technologies is setting up a TBO facility over the allotted land.

Thus Apex Court concluded that:

  1. Esys Singapore had entered in some transactions with Dubai Company and further rights were created in favour of Teledata.
  2. Provisions of Rule 9 and Clause 15 of the allotment letter have been violated.

With these findings Apex Court held that order passed by the High Court is not sustainable and resumption of allotted land was legal and proper.

Appeal was allowed and order of the High Court was set aside.