Strategic Litigation Win In Director Misconduct And Unauthorized Transfer Case

Case Name: M/s BKR Capital Pvt. Ltd. v. Sh., M/S Majestic Buildcon Pvt LTD.

Court: District Judge (Commercial Court)-04, Central, Tis Hazari Courts, Delhi

Judgment Date: April 26, 2025. 

Suit: Suit for recovery for Rs. 57,38,510/- filed by plaintiff against the defendants.

Parties: 

Plaintiff: M/s BKR Capital Pvt. Ltd, a Non-Banking Finance Company (NBFC) and is duly registered with the Reserve Bank of India and carrying its business lawfully.

Defendants: 

• Plaintiff: M/s BKR Capital Pvt. Ltd. 

• Defendant: 

No. 1: Sh. Sanjay Goel, A director in the Defendant No. 2 Company. 

No. 2: M/s Majestic Buildcon Pvt. Ltd. a construction and real estate Company.

No. 3: Sh. Amit Gupta, Director in the Defendant No.2 company

Introduction 

The case of M/s BKR Capital Pvt. Ltd. v. Sh. Sanjay Goel, M/s Majestic Buildcon Pvt. Ltd., & Mr. Amit Gupta (CS (COMM) 1432/2020) presents a complex dispute involving financial transactions, unauthorized fund transfers, and the interplay of corporate governance and director liability. The plaintiff, BKR Capital, a Non-Banking Finance Company (NBFC), filed a counterclaim against the defendants, alleging that Defendant No. 1 and 3 in connivance with each other have already tendered the deposits of the Defendant No. 2 company and now to usurp more money they have filed a frivolous suit against the plaintiff company titled as CS COMM 525/2018 “M/s Majestic Buildcon vs. BKR Capital Private Limited.” The court’s analysis revolved around critical issues such as the validity of the transfer, the knowledge of co-director Amit Gupta, the applicability of the doctrine of piercing the corporate veil, and the equitable recovery of funds. This document provides a detailed examination of the case, highlighting the court’s reasoning, legal principles invoked, and the broader implications for corporate accountability and financial institutions.

Background of the case 

The case CS (COMM) 1432/2020 was filed by M/s. BKR Capital Pvt. Ltd., a registered Non-Banking Finance Company (NBFC), against the three defendants. The dispute arose from financial transactions involving deposits made by Majestic Buildcon (Defendant No. 2) with BKR Capital, which were later transferred to the personal account of Defendant No. 1 one of its directors.

In 2014 and 2015, Defendant No. 1, acting as a director of Majestic Buildcon, deposited a total of Rs. 43,90,000/- (Rs. 13,90,000/- in 2014 and Rs. 30,00,000/- in 2015) with BKR Capital at an agreed interest rate of 9% per annum. These deposits were recorded in the company’s ledger. However, in April 2016, Defendant No. 1 instructed BKR Capital to transfer the entire amount (Rs. 46,55,992/- including interest) from Majestic Buildcon’s account to his personal ledger, citing disputes with the company’s bank.

BKR Capital complied with the request without verifying proper authorization from Majestic Buildcon or informing Amit Gupta (Defendant No. 3), the other director. Defendant No. 1 subsequently withdrew the funds for personal use. It is pertinent to mention that Mr. Amit Gupta without having the knowledge that Defendant No. 1 had already sought the deposits in his personal account filed a commercial suit (CS (COMM) 525/2018) against M/s BKR Capital Pvt. Ltd. for recovery of the deposit amount.

In response, M/s BKR Capital Pvt. Ltd filed the present suit as a counterclaim, seeking to recover the amount from Defendant No. 1 , Amit Gupta and M/s Majestic Buildcon Pvt. Ltd. The court was tasked with determining whether Defendant No. 1 acted unilaterally or with Amit Gupta’s knowledge, whether the corporate veil of Majestic Buildcon should be lifted, and/or whether BKR Capital was entitled to recover the funds from Defendant No. 1.

Issues framed by the court:

1. Whether defendant no.3 was having knowledge about the settlement of account by defendant no.1 with the plaintiff company? (OPD1)
2. Whether the corporate veil of defendant No.2 Company is liable to be lifted? (OPP and OPD1)
3. Whether defendant no.1 without information of defendant no.2 and 3 got the amount transferred to his personal account instead of ledger account of defendant No.2 Company? (OPD2) 
4. Whether the plaintiff is entitled to recover a sum of Rs.57,38,510/- from the defendants as prayed for? (OPP) 
5. Whether the plaintiff is entitled for the interest on the aforesaid amount, if so, at what rate and for which period? (OPP)

Legal Provisions- 

• Companies Act, 2013 (Section 179 – Board’s Powers)
  Directors must act under Board resolutions for financial transactions. 

1. 1. Doctrine of Piercing the Corporate Veil
      The Doctrine of Corporate Veil is invoked when shareholders blur the distinction between the corporation and the shareholders or in other words, under specific dire events and conditions, this corporate cover is eliminated and it is known as the ‘piercing of Corporate Veil’, which empowers the organization to check frauds committed by individuals.

• Civil Procedure Code, 1908 (Order VII – Plaint & Section 34 – Interest)
  The suit was filed as a counterclaim under CPC provisions. The court awarded 9% interest (contractual rate) under Section 34 for wrongful withholding of funds.

1. Indian Evidence Act, 1872 (Section 65B – Electronic Evidence)
   Emails sent by Amit Gupta (Ex. D2W1/2) were admitted as evidence under Section 65B, proving he had no knowledge of the fund transfer.

Analysis of the Case 

Issue 1 And 3 

The court’s analysis of Issue 1 (whether Amit Gupta knew of the fund transfer) and Issue 3 (whether Defendant No.1 acted without authorization) was deeply interconnected, hinging on credibility of evidence and corporate governance norms. The court dismissed Defendant No.1’s claim that Amit Gupta consented to the transfer, noting material contradictions: while Defendant No. 1 and BKR Capital’s director, Mr. Bajrang Lal Periwal, alleged Amit Gupta’s involvement, however, the emails demonstrated Amit Gupta’s lack of awareness, and the plaintiff’s own plaint initially stated Amit Gupta was “not in the picture.” The court emphasized the absence of a board resolution or written authorization under Sections 179 and 186 of the Companies Act, 2013, rendering Defendant No. 1’s instructions legally invalid. By cross-referencing these findings, the court concluded that Defendant No. 1 unilaterally diverted company funds under the pretext of a “bank dispute,” breaching his fiduciary duty as a director (Section 166) and exposing BKR Capital to liability for failing to verify his authority. This dual assessment underscored a failure of internal controls in both Majestic Buildcon and BKR Capital, while absolving Amit Gupta due to insufficient proof of collusion. The reasoning reinforced that directors cannot bypass corporate formalities, and financial institutions must exercise due diligence to prevent misuse of authority (This issue is decided in favour of Defendant No.2 &3). 

Issue 2 

The court’s examination of whether the corporate veil of Majestic Buildcon (Defendant No. 2) should be pierced was grounded in a strict interpretation of the doctrine’s limited applicability. While the plaintiff and Defendant No. 1 argued that the company functioned as a quasi-partnership between its directors—citing informal financial dealings and familial control—the court emphasized that mere ownership overlap or lax corporate formalities does not justify disregarding legal entity status. Relying on precedents like Balwant Rai Saluja v. Air India (2014), the court clarified that piercing the veil requires proof of fraud, evasion of legal obligations, or blatant misuse of the corporate structure—none of which were substantiated. Critically, the court noted that Defendant No. 1, as a long-standing director, had participated in and benefited from the company’s operations without prior complaints, undermining his belated allegations of impropriety. The dismissal of his earlier NCLT petition (for lacking evidence of oppression) further weakened his claims. By refusing to lift the veil, the court upheld the sanctity of corporate identity under Section 34 of the Companies Act, 2013, while signaling that those internal disputes between directors—without broader fraudulent intent—do not warrant erasing the distinction between a company and its members. This ruling reinforced the principle that corporate governance lapses must meet a high threshold to justify personal liability (This issue is decided in favour of Defendant No.2 &3). 

Issue 4

The court’s analysis of BKR Capital’s recovery claim centered on corrective equity rather than contractual entitlement. While the plaintiff sought Rs. 57,38,510/-, the court awarded only the principal sum of Rs. 46,55,992/-, aligning with the amount wrongfully transferred to Defendant No. 1. This partial decree reflected a balancing of liabilities—acknowledging BKR Capital’s negligence in processing unauthorized transfers under RBI’s NBFC guidelines, while holding Defendant No. 1 accountable for unjust enrichment under Section 65 of the Contract Act. The judgment strategically linked this relief to the parallel suit (CS(COMM) 525/2018), ensuring BKR Capital could recover from Defendant No. 1 only if it first compensated Majestic Buildcon, thereby preventing circular liability. By denying pre-suit interest, the court implicitly penalized BKR Capital’s due diligence failures while preserving its right to restitution—a nuanced approach that prioritized equitable resolution over strict contractual enforcement. The court awarded the principal sum of Rs. 46,55,992 in favor of BKR Capital Pvt Ltd and against Defendant No. 1. The court discharged Mr. Amit Gupta as well as Majestic Buildcon Pvt. Ltd. The court also made clear that BKR Capital will not be entitled to the said amount if Defendant No. 1 has paid the amount to Majestic Buildcon Pvt. Ltd (This issue is decided in favour of Defendant No.2 &3). 

Issue 5 

The court’s determination on interest entitlement balanced contractual obligations with equitable considerations. While BKR Capital sought interest at 9% p.a. (matching the deposit rate), the court exercised discretion under Section 34 CPC to award simple interest only from the suit’s filing date, not retrospectively. This limited award served dual purposes: (1) it recognized the plaintiff’s contractual expectation of interest, while (2) mitigating the reward for BKR Capital’s own contributory negligence in processing unauthorized transactions. The judgment drew an implicit distinction between pre-suit period (where plaintiff’s lax due diligence contributed to the dispute) and post-filing period (where funds were wrongfully retained). By pegging the rate to the original 9% deposit terms, the court maintained commercial consistency without absolving either party’s lapses – a calibrated approach that discouraged speculative litigation while ensuring basic compensation for delayed recovery.

Conclusion 

The judgment in CS (COMM) 1432/2020 exemplifies a meticulous balancing act between corporate governance obligations, director liability, and equitable restitution. By holding Defendant No. 1 personally liable for the unauthorized transfer of funds, the court reinforced the fiduciary duties of directors under the Companies Act, while refusing to pierce the corporate veil demonstrated judicial restraint in preserving the separate legal entity doctrine absent clear fraud. The partial decree—awarding BKR Capital recovery of the principal amount but denying retrospective interest—signaled that negligent financial institutions cannot fully shift liability for their oversight. The Court also made clear that if Defendant No. 1 makes the payment to Majestic Buildcon in the original suit then BKR Capital will not be entitled to the same in the present counter suit. 

Critically, the court’s linkage of this suit with CS (COMM) 525/2018 created a self-executing justice mechanism: Defendant No. 1’s liability here was contingent on BKR Capital’s prior payment to Majestic Buildcon, preventing double recovery while ensuring both wrongful actors (the negligent NBFC and the rogue director) bore consequences. This nuanced approach underscored that commercial disputes require solutions beyond rigid contractual enforcement, prioritizing fairness without undermining corporate legal frameworks.

Ultimately, the judgment served as a cautionary tale for NBFCs to verify director authority and for directors to respect corporate formalities, while affirming that courts will intervene to prevent unjust enrichment—but not to rescue parties from their own failures of due diligence. The ruling’s pragmatic symmetry makes it a noteworthy precedent for complex financial disputes involving intertwined corporate and personal liabilities.

Represented the Plaintiff Company– Adv. Akhand Pratap Singh Chauhan (Partner), Adv. Shantanu Garg (Senior Associate), Adv. Namanveer Singh Sodhi (Associate)