Finding that the Directors were directly in charge of managing the judgment-debtor company, and there are serious allegations of diversion of funds against them, backed by the report of the Forensic Auditor, the Delhi High Court affirmed lifting of the corporate veil and held that once the forensic auditor has opined the same, it cannot be said that the Directors have not siphoned off or diluted the assets of the judgment-debtor company.
Briefly, the Decree Holder, i.e., Entertainment City Limited, sought several reliefs against the Judgement Debtor, i.e., Aspek Media Pvt Ltd., and prayed for lifting the corporate veil of the Judgement Debtor to execute an Arbitral Award, as well as impleading related parties of the Judgement Debtor for the satisfaction of the award. This led the Court to appoint a Forensic Auditor, who reported diversion of funds through unsecured loans and advances to group companies; wrongful disclosure of trade receivables in the Affidavits of Assets; and diversion of tax refunds by transferring them to related entities as advances.
The Judgement Debtor’s objections, primarily that the fund transfers occurred before the disputes arose, were rejected by the Forensic Auditor, who found that the Judgement Debtor, controlled by Dharamvir Singh and Harish Choudhary, appeared to be diverting funds to related entities through questionable agreements that did not seem genuine. The auditor also noted wrongful reporting of the asset position concerning receivables from CVPL.
Therefore, referring to the reports of the forensic auditor, which showcased the diversion of funds by the Directors of the judgment-debtor company, a Single Judge Bench of Justice Jasmeet Singh found that the said diversion of funds pertained to the financial year 2014-15 to the financial year 2019-20, which clearly includes the period when the decree-holder had filed its petition under Section 9 of the Arbitration and Conciliation Act, 1996.
Hence, the Bench directed the Decree Holder to file an amended memo of parties to implead the directors, Harish Choudhary and Dharamvir Choudhary, and issued notice to the directors directing them to file affidavits disclosing their assets from the financial year 2014-15 to the present, in accordance with Form 16A of Appendix E under Order XXI Rule 41(2) of the Code of Civil Procedure, 1908, within four weeks. The Bench listed the matter for the next hearing on February 24, 2026.
Case Distinguished:
Balmer Lawrie & Company Ltd. vs. Saraswathi Chemicals [2017 SCC OnLine Del 7519]
Appearances:
Advocates Siddharth Batra, Shivani Chawla, Rohit Gupta, Chinmay Dubey, and Preetika Shukla, for the Decree-Holder
Advocates Sanchit Garg and Shashwat Jaiswal, for the Judgment Debtor
