Bombay High Court Orders Oral Examination of Director in Arbitral Award Enforcement: “Inadequate Financial Disclosures and Discrepancies Justify Scrutiny Under Order XXI Rule 41 CPC”

Court’s Decision:
The High Court of Bombay, in its order dated November 27, 2024, directed Mr. Arun Chanda, one of the directors of the Judgment Debtor company, to appear for an oral examination under Order XXI Rule 41 of the Civil Procedure Code (CPC). The court took this step in light of discrepancies in the disclosure affidavits and financial documents submitted by the company, which were found to be inadequate for determining how the company could satisfy the arbitral award.

Facts:
The applicant, Bajaj Auto Limited, sought execution of an arbitral award dated June 17, 2021, which had ordered the original respondent (the Judgment Debtor) to pay Rs. 2,91,84,812 with interest at the rate of 10% on the outstanding principal amount of Rs. 2,63,78,178 from March 1, 2020, onwards. The original respondent had filed a counterclaim for Rs. 4,85,77,976, but it was dismissed by the arbitral tribunal. Despite the arbitral award, the Judgment Debtor did not make the payment, prompting the applicant to file a Commercial Execution Application to enforce the award.

Following the application, the court had passed various orders, including one directing the original respondent to make disclosures. In response, the original respondent filed a disclosure affidavit and, later, an affidavit from their Chartered Accountant. However, the applicant claimed that these documents were fraught with discrepancies, including signs of forgery and fabrication.

Issues:
The primary legal issue was whether the court should exercise its powers under Order XXI Rule 41 of the CPC to conduct an oral examination of the directors of the Judgment Debtor company. This was particularly important since the decree had not been satisfied, and the disclosure affidavits did not provide adequate information on the company’s assets or means of satisfying the decree.

Petitioner’s Arguments:
The applicant argued that the disclosure affidavits filed by the Judgment Debtor were insufficient, citing discrepancies, including fabricated documents and forged financial statements. The applicant submitted that the company’s balance sheets appeared to be copy-pasted from year to year, suggesting manipulation of accounts. The applicant further argued that the discrepancy in the 2020 balance sheet, which had been signed in 2021, demonstrated irregularities in the company’s financial filings. As a result, the applicant requested the court to direct the oral examination of the company’s directors to uncover the real financial condition of the company and ascertain how the decree could be satisfied.

Respondent’s Arguments:
The respondent, represented by counsel, contended that the applicant’s request for an oral examination was not justified. They argued that the applicant had failed to demonstrate a sufficient case to seek the examination of the directors. They also contended that the disclosure affidavits, which had been filed in compliance with previous court orders, were adequate and that no further examination of the directors was necessary unless a case was made to lift the corporate veil. The respondent maintained that the applicant had not shown any substantial reason for questioning the truthfulness of the filed affidavits.

Analysis of the Law:
The court referenced Order XXI Rule 41 of the Civil Procedure Code (CPC), which allows the decree-holder to apply for the oral examination of a judgment debtor or an officer of a corporate debtor if the decree is for the payment of money and remains unsatisfied. According to this rule, the court may examine the debtor or corporate officer about the debtor’s assets, debts, or means to satisfy the decree. The court emphasized that even though the Judgment Debtor had filed disclosure affidavits, the disclosure was insufficient to provide a clear indication of the debtor’s financial position. Hence, it was within the court’s powers to examine the directors of the company, especially since the company is a juristic person acting through its directors.

Precedent Analysis:
The court’s decision was guided by established precedents concerning the enforcement of monetary awards. The court acknowledged that previous judgments had recognized the power of the court to examine judgment debtors and their officers under Order XXI Rule 41 of the CPC. This precedent affirms that the examination of the debtor’s officers is permissible even in cases where the judgment debtor is a corporation, provided the court seeks information about how the judgment can be satisfied.

Court’s Reasoning:
The court’s reasoning was based on the fact that the decree had not been satisfied, and the disclosure affidavits filed by the Judgment Debtor were found to be inadequate. The court emphasized that, under Order XXI Rule 41, the decree-holder has the right to request the examination of the debtor or any of its officers. In this case, the company, being a juristic entity, could be represented by its directors. The court clarified that directing the examination of a director did not equate to piercing the corporate veil; it was simply a means to gather necessary information about the company’s ability to satisfy the decree.

The court rejected the respondent’s argument that further examination was unwarranted, pointing out that discrepancies in the disclosure affidavits warranted a more thorough investigation into the company’s assets and means to satisfy the arbitral award.

Conclusion:
The court concluded that Mr. Arun Chanda, a director of the Judgment Debtor company, should be ordered to appear for an oral examination on December 19, 2024, at 4:00 p.m. He was directed to bring information about the company’s assets and means to satisfy the decree, along with all relevant books and documents. The court also instructed the registry to issue the appropriate notice to Mr. Arun Chanda, and the respondent’s counsel assured the court that the director would attend.

Implications:
This decision reinforces the judiciary’s ability to conduct oral examinations of corporate officers to ensure the enforcement of decrees. It underscores that even if a disclosure affidavit has been filed, the court can demand further scrutiny if the disclosure is found to be inadequate. It also clarifies that the examination of a company’s directors does not imply an intention to pierce the corporate veil, but is a tool for ensuring that the judgment is satisfied. This ruling may have broader implications in cases where companies attempt to evade payment by providing inadequate financial disclosures.

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