Corporate veil pierced and Benami proved

Disclosures are significant. Section 13(1) (e) of the Prevention of Corruption Act suggests law will treat the apparent as real. If a company purchases any property, law believes it as owner. This principle of legality is settled interpretation norm. Burden is on prosecution to prove that accused amassed wealth beyond known sources of income and kept in the name of companies for and on behalf of accused. A close examination of facts and circumstances, compliance or otherwise of reporting norms can nail the culprits, as done in DA case of Jayalalithaa. Certain facts like Jayalalithaa accommodating three co-accused persons in her residence during her first stint as Chief Minister, performance of opulent marriage of Sudhakaran by the CM, lack of any lawful source of income to three co-accused led the Judge to conclude that all the four conspired to acquire and hold properties for and on her behalf. The undisclosed aspects of ‘disclosures’ can effectively prove the benami possessions of accused politicians.

The essence of Benami is the intention of the parties and often such intention is shrouded in a thick veil which cannot be easily pierced through. (Krishnan and Agnihotri vs. State of M.P. AIR 1977 S.C. 796) Source of money, nature and possession of property after purchase, motive, position and relationship of parties, custody of title deeds, conduct of parties in dealing with property after sale have to be tested to determine ‘benami’ nature of properties. (Dayal Poddar vs. Bibi Hajara AIR 1974 SC 171)

Disclosures exposed the hidden facts
Mandatory disclosures expose the hidden assets without express mention! The unstated brings out the truth. In Jayalalithaa case it is proved that properties in the name of companies had never assumed the character of the assets of those companies and did not vest with them. No funds of the named companies were utilised for the acquisition of the properties. None of the companies had filed returns either before the Registrar of Companies or before the Income Tax Authorities declaring the funds for the purchase of those alleged properties.

As per Section 209 of Company Act the incorporated company has to keep proper books of accounts of money received and expended, all sales and purchases of goods, assets and liabilities of company at the Registered Office. The books of account relating to 8 years immediately preceding the current year along with vouchers relevant to any entry shall be preserved in good order [Section 209(4)]. As per section 210, in every Annual General Meeting such accounts, balance sheet, profit and loss account need to be presented. They have to be signed (s. 215) and before that they have to approved by Board of Directors (Sec. 215 (3) and then by AGM.

Special Judge John Michael D’Cunha of Benguluru concluded that none of these provisions were complied with and no returns were filed by them pursuant to the notifications by the Government of Tamil Nadu in 1997. It is not the case of accused Sasikala Nararajan, VN Sudhakaran and J Ilavarasi (A2 to 4) that during their tenure as the sole Directors of the above Companies, they had complied with any of these legal requirements. There is nothing on record to show that, A-2 to A-4 had convened any annual general meeting or to show that regular returns were filed before the Registrar.

These companies did not have their own auditor appointed as per Sec.224 of the Act, instead, the auditors of A-1 to A-4 themselves submitted the returns after the properties of the companies were attached. These facts show that except using the name of the company, the acquisitions were never intended to be the company assets and they were never treated to be company properties. It is only after the attachment of the properties, the accused denied the benami nature of properties. On the otherhand the funds for purchasing these properties have flown from Jayalalithaa and all through they were treated as private properties of A-3 & A-4. It was proved that A-3 and A-4 obtained loan for effecting improvements in these properties and not by companies. The certified copy of the orders in Misc. Ptn. 768/2014 dt. 18. 06. 2014 and Misc. Ptn. 289/2014 dtd. 26.06.2014 passed u/Sec. 5 (3) of the Criminal Law Amendment Ordinance, by the Special Court in exercise of the powers under the said Ordinance, revealed that after the resignation of A-3 and A-4, there was no proper appointment of Directors. The order of attachment passed in 1997 was not questioned before the District Judge for nearly two years. The consideration for purchase of the properties did not represent the funds of the respective companies. Thus contention that these properties belonged to companies was rejected. (94.17)

Since the Company has no physical existence, it must act through its agents by contracts mandatorily under the company-seal, which is its official signature. In this case Court found hardly any document of title registered in the name of the above Companies bear the seal of the Company. Worse still, the above Companies are not even represented by either the Secretary or Director and in 90% of the registered deeds did not bear address of the Companies. In some documents names of purchasers were not included and almost all documents were undervalued. Registrar who registered these properties and witness who negotiated for the purchase of the properties bent the rules only to help the A-1. All these factors led to conclude that shoddy and murky deals had taken place in the names of the Companies solely with a view to screen the properties acquired through illegal means. (94.18)

Lifting Corporate Veil
Company is legally distinct from its members. Its assets are distinct from those of its members. Judge D’Cunha held: But, when this notion of the Company or its Corporate identity is used to circumvent law, to defeat public policy, perpetuate fraud or illegality and used as a cover or façade to justify wrong, defend crime, to lend a name to private dealing, law will not regard the Company as a corporate entity and afford the protection which it otherwise entitled under the Company Law.

When camouflaged transactions are carried on behind the legal façade, the Court has to lift this veil and look behind the artificial personality to identify the natural persons operating behind the veil. (94.20). Special Judge has identified four accused tried to hide behind the corporate veil who amassed wealth during A1’s term as the CM and it was undoubtedly established that the accused shielded the properties acquired through illegal means, for instance, 3,000 acres of land is parked in these shell Companies. It was chosen as leeway to enjoy and dispose them of merely by passing a resolution. Thus the Crime of Disproportionate assets and conspiracy of four to commit it was proved.