Shares of Guarantor in Another Co. can’t be Attached Unless an Attachment Order was Passed by DRT: NCLAT

Case Details: Mcdonald’s India (P.) Ltd. v. Vikram Bakshi - [2023] 150 taxmann.com 87 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Justice Ashok Bhushan, Chairperson & Dr Alok Srivastava, Technical Member
  • Arun Kathpalia, Sr. Adv., Ms Niti Dixit, Abhishek Tewari, Ms Raunaq B. Mathur & Ms Ishita Mathur, Advs. for the Appellant.
  • Tejas Karia, Guahra Mirza, Prakhar Deep, Nishant Doshi & Rohit Sharma, Advs. for the Respondent.

Facts of the Case

In the instant case, a Joint Venture Agreement was entered into inter alia by Connaught Plaza Restaurants Pvt. Ltd. (CPRPL) and the respondent (Vikram Bakshi) for the purpose of setting up McDonald’s Restaurants. The respondent stood as a guarantor to a lender (i.e. HUDCO) against a loan of Rs. 62.38 crores provided to its related party.

Due to a default in payment, the loan account was declared as a Non-Performing Asset (NPA). The Debt Recovery Tribunal (DRT) passed an order to attach 3100 shares of the CPRPL in the name of the respondent. The amount corresponding to the share value had been deposited by the respondent before the DRT.

The Housing and Urban Development Corporation Ltd. (HUDCO) filed an instant petition claiming that the deposit of amount made towards the shares was not sufficient compliance with the order of DRT and that the corporate veil of another company, in which the respondent was a shareholder i.e. Bakshi Holdings need to be lifted and shares held by Bakshi Holdings in CPRPL was also to be covered by a direction issued by the DRT.

It was noted that the lifting of the corporate veil can be invoked when a corporate entity attempts to evade legal obligation or when there is a need to uncover tax evasion. Further, the order was passed only with regard to 3100 shares held by the respondent in CPRPL and it was not the case of either of the parties that any more shares apart from 3100 shares were owned by the respondent in CPRPL.

NCLAT Held

The NCLAT observed that Bakshi Holdings was a separate entity for which no order was issued by the DRT. The direction given by the DRT was specifically for the respondent with regard to 3100 shares and the sale proceeds of those shares had already been deposited before the DRT.

The NCLAT held that the order issued by the DRT had to be held to be confined to 3100 shares. Thus, HUDCO was not right in its submission that the corporate veil of Bakshi Holdings should also be lifted. Therefore, the instant petition filed by HUDCO was to be rejected.

List of Cases Reviewed

• • Vikram Bakshi v. Connaught Plaza Restaurants (P.) Ltd. [2017] 83 taxmann.com 203 (NCLT – New Delhi) (para 21) reversed.

List of Cases Referred to

• • State of Rajasthan v. Gotan Lime Stone Khanij Udyog (P.) Ltd. [2016] 66 taxmann.com 72 (SC) (para 9).