Delhi Development Authority vs Skipper Construction Company (P) Ltd. & Another

Author: Shraddha Patil

Edited by: Madhumita Saha 

CASE DETAILS:

ABSTRACT:

The supreme court case of Delhi Development Authority vs Skippers Construction Company Pvt. Ltd. and Another deal with the issue of the said company failing to deposit the consideration as per the conditions of the auction carried over by the Delhi Development Authority (DDA) and entering into agreements for sale and creating interest in the third parties in defiance of the orders of the Court. Moreover, it defrauded investors by selling the spaces in a proposed building against the court orders. The issue in concern was whether the corporate veil of Skipper be lifted to hold its directors, Tejwant Singh and his wife Surinder Kaur, liable for fraudulent activities.

The Court issued Suo motu contempt proceedings against Tejwant Singh and Surinder Kaur (wife of Tejwant Singh), Directors of Skipper. This Court held them guilty of contempt under Article 129 and Article 142 and the corporate veil was lifted to treat all the family members and Skipper as one entity.

The judgment showcases the court’s will to take strong measures against contempt of court, protecting the interests of innocent victims and preventing the misuse of the corporate form of treating companies as a separate legal entity.

KEYWORDS:

1. article 142
2. corporate veil
3. article 129
4. supreme court
5. contempt of court

INTRODUCTION:

Article 142 of the constitution of India grants the Supreme Court broad powers to pass any order, which will be enforceable across India, required to ensure the resolution of a case and to do “complete justice” in any matter before it.

Another key aspect concerned with the case is the lifting of the corporate veil. The corporate veil is the concept that states that the identity of any corporate firm or a company will be separate from that of its owners or directors. Thus the action of any corporate entity will be separate from that of its shareholders and directors. it protects the shareholders from being liable for the company’s actions. Lifting or piercing the corporate veil is to remove such a barrier between the company and its owners and hold the person who is accountable for the illegal activity conducted under the veil of the company, to discourage the misuse of corporate structure to commit frauds, evade laws, engage in illegal activities for personal gains or to the detriment of stakeholders, creditors, investors, etc.

Lastly, Article 129 of the constitution of India gives the supreme court the power to take punitive actions against the contempt of court. Contempt of court refers to disrespecting or disobeying the orders given by a court. In such cases, the court has full powers to punish, which acts as an important tool to maintain the dignity and integrity of the judicial proceedings.

FACTS OF THE CASE:

1. In October 1980A plot of land was put to auction by the Delhi Development Authority [D.D.A.]. Skipper became the highest bidder for purchasing a plot of land. According to the conditions of the auction, Skipper deposited the twenty-five percent but did not deposit the balance within 90 days.
2. It asked for an extension repeatedly and defaulted to pay the balance in spite of seven extensions from January 1981 to April 1982.
3. When proceedings for cancellation of the bid were in the process, Skipper moved the Court obtained a stay order on 29th May 82, and started making representations.
4. DDA appointed a Committee to work out a formula and under the recommendations of the Committee, Skipper was asked to enter into a revised agreement incorporating fresh terms wherein it was permitted to commence construction on the plot subject to the condition that the property in the land would remain with the D.D.A. until the entire consideration is paid.
5. Skipper raised objections to these proposals from 1984 till 1987 but finally, the agreement was entered into on 11th August 1987.
6. Even before permission to enter was granted under the revised agreement, Skipper started selling the space to be built in the proposed structure and started receiving money.
7. Though Skipper paid the 1st installment much beyond the time, it did not pay the second installment but furnished Bank guarantees which were found to be defective.
8. On 19th March 1990, the High Court of Delhi permitted construction by sanctioned plan subject to a deposit of Rs. 20 lakhs in two installments and 1.94 crores within one month.
9. The Delhi High Court passed a directing the payment of Rs.8.12 crores approximately in 30 days and stopped further construction w.e.f. 9th January 1991 till payment was deposited and stated that in default, the revised agreement dated 11th January 1987 would stand canceled and DDA would be entitled to re-enter the plot.
10. Skipper defaulted but approached the SC on 29th January 1991 in Special Leave Petition (SLP) when it passed an interim order for a deposit of Rs.2.5 crores in one month and Rs.2.5 crores before 8th April 1991, and Skipper was expressly prohibited from inducting any person in the building and creating any rights in favour of third parties.
11. It is stated that before 29th Jan, 1991 Skipper collected about Rs.14 crores from various parties to sell space in the proposed building. Even after 29th Jan, 1991, Skipper collected various amounts, about Rs.11 crores. The same space was sold to more than one person and monies were collected.
12. Skipper filed suit against DDA seeking an injunction restraining DDA from interfering with its alleged title and possession over the plot and sought a declaration that the re-entry by DDA was illegal and a declaration that it had validly paid all amounts due to DDA. It obtained a stay of re-auction. Against this order, DDA filed an SLP.
13. This Court issued Suo motu contempt proceedings against Tejwant Singh and Surinder Kaur (wife of Tejwant Singh), Directors of Skipper. This Court held them guilty of contempt under Article 129 and Article 142.
14. The contemners deposited Rs. 2 crores but failed to deposit the balance and also failed to furnish a Bank guarantee. They were committed to prison and they served the sentence.
15. DDA invited fresh tenders and sold the plot with the 14th-floor structure (incomplete) to M/s Banganga Investments (Videocon) for Rs.70 crores. The sale was accepted with the permission of the Court.
16. This Court felt concerned about the buyers to whom space was sold before 29th January 1991 and later. Claims of those who purchased before 29th January 1991 were estimated to amount to Rs.14 crores. DDA was therefore directed to deposit Rs.16.75 crores in this Court.

LEGAL ISSUES RAISED:

1. Whether the corporate veil of Skipper can be lifted to gold its directors, Tejwant Singh and his wife Surinder Kaur, liable for fraudulent activities.
2. Whether the SC can exercise its powers under Article 142 of the constitution of India to provide complete justice to the defrauded investors, even in the absence of specific statutory provisions.
3. Whether the finality of the earlier orders of the SC, under which the sale proceeds vested with the DDA, can be disturbed in the exercise of the powers under Article 142.

ARGUMENTS FROM THE PETITIONER:

1. It was submitted by the counsel for the petitioner that the corporate veil should be lifted to hold Tejwant Singh and Surinder Kaur, the directors of Skippers, liable as they were involved in fraudulent activities and had diverted the money collected from investors to their front companies, directors of which were their sons.
2. It argued that the court should exercise its powers under Article 142 to provide complete justice to the investors.
3. It also submitted that the earlier orders of the court, under which the sale proceed vested with the DDA, had attained finality and should not be disturbed in the exercise of powers under Article 142.

ARGUMENTS FROM THE RESPONDENT:

1. The counsel for the respondent argued that the corporate veil should not be lifted as there was no evidence of the directors having misused it for their personal benefits.
2. It also claimed that the monies for reimbursing the defrauded investors should be borne by DDA from the sale proceeds that were vested with it as per the earlier orders of the court.

RELATED LEGAL PROVISIONS:

1. Article 142 of the Constitution of India – Enforcement of decrees and orders of Supreme Court and orders as to discovery, etc. It provides the Supreme Court with the power to pass any order required to do complete justice in any cause of matter before it.
2. Article 129 of the constitution of India – Supreme Court to be a court of record. It provides all the powers to the court to punish for contempt of itself.

JUDGEMENT:

The court held :

1. That pre-29.1.91 purchasers had to be reimbursed in full, “which means that they should also be paid interest at the appropriate rate”.
2. That the post-29.1.91 purchasers had also to be reimbursed “in full”.
3. That ignoring the corporate veil, the directors of Skipper – Tejwant Singh and Surinder Singh and their sons and unmarried daughters would be treated as one entity.
4. That the Court held them guilty of contempt and under Article 129 and Article 142, sentenced them to imprisonment and fine of Rs.50,000 each. Attachment orders were passed.
5. Later on, the sentence was deferred subject to the condition of their furnishing bank guarantee for Rs.11 crores by 31st March 1995 and a deposit of Rs.11 crores by 30th November 1995. It was also said that the list of properties given by the contemners is to be taken on record. The contemners will also file a list of properties held by their sons and unmarried daughters within one week from that day.
6. The contemners deposited Rs. 2 crores but failed to deposit the balance and also failed to furnish a Bank guarantee. They were committed to prison and they served the sentence.

CONCLUSION AND COMMENTS:

Delhi Development Authority v, Skipper Constructions Company Pvt. Ltd. Case is significant because it demonstrates India’s supreme court’s desire to use its power enshrined in Article 142 of the constitution of India to achieve complete justice. The court’s decision to disregard the corporate veil and treat Skipper, its directors – Tejwant Singh and Surinder Singh, and their sons as a single entity that defrauded investors sends out a strong message against abuse of the corporate form. Overall, this judgment is an important precedent in corporate governance concerning the judiciary’s role in protecting ordinary people.

ENDNOTES:

1. Delhi Development Authority v. Skipper Constructions Company (P) Ltd., (1996)
2. Constitution of India – Article 129, Article 136 and Article 142.
3. https://indiankanoon.org