The plaintiff, Condor Maritime Dienstleistung GmbH & Co KG (Condor), alleged that it was owed money in relation to a ship management agreement concluded with Emily Shipping Inc (Emily), owners of the Eastern Light. The plaintiff threatened to arrest the Western Light, owned by Kimiya Shipping Inc (Kimiya), alleging that it was a sister ship. Condor's claim was that Kimiya and Emily were alter egos of one another for the following reasons: (i) they enjoyed the same shareholders; (ii) they operated out of the same office and/or business establishment in Panama City; (iii) the decision to purchase the Eastern Light and the Western Light was made by Emily and Kimiya at the same time and in the same premises, and the board resolutions appointed the same person to conduct the transactions on their behalf. The payments for both vessels was made and accounted for together. In the light of the above, Condor argued that Emily and Kimiya are, as a matter of fact, one and the same. Thus, the person who would be liable in an action in personam when the cause of action arose against the Eastern Light was also the owner/beneficial owner of the Western Light. Hence, as a matter of law (both under the Arrest Convention 1952 and/or otherwise), the Eastern Light and the Western Light are sister ships. 

Kimiya put up security to prevent the arrest of the Western Light. Kimiya now applies for the return of its security, alleging that Condor was not entitled to arrest the Western Light in the first place.

Held: Condor's claim dismissed, and the security that Kimiya had previously put up released.

Following Universal Marine and Ramanand Padiyar v MT Hartati (notice of motion no 1080 of 2013 in admiralty suit no 77 of 2012), for two ships to be called sister ships, both the ships have to be registered in the same ownership. If the two ships are owned by two different owning companies, they can only be sister ships if the corporate veil is pierced. For this to happen, not only must common beneficial ownership be established but: (a) fraud has to be alleged in the pleadings; (b) a mere bald allegation of fraud is not sufficient; and (c) it has to be alleged with sufficient material to show that the allegation will be sustained at the time of trial. In the present case, the Eastern Light and the Western Light were not owned by the same legal entity, ie they were in separate ownership, and Condor admitted as much. Therefore, the only point to be decided was whether the corporate veil ought to be pierced in this case.

Having considered the requirements for piercing the corporate veil under US and English law, the court held that as a matter of Indian law:

• A company is a separate legal (juristic) entity distinct from its shareholders; its assets are separate and distinct from those of its members; it can sue and be sued exclusively for its own purpose; its creditors cannot obtain satisfaction from the assets of its members; the liability of the members or shareholders is limited to the capital invested by them; similarly, the creditors of the members have no right to the assets of the corporation. Unless fraud is asserted or at least alleged in such a way that it will be sustained at trial, the question of lifting a corporate veil does not arise.
• To accept the plaintiff’s submissions that there need not be any fraud or underlying element of dishonesty in the formation of the corporate entities would amount to violating and shaking fundamental tenets of Indian corporate law.
• Just because the shareholders (the directors in this case were not common), and the address of the two companies that own the two ships were common, or the attorney who was appointed to buy the vessels was the same, or that both the ships were purchased pursuant to a board meeting on the same day, does not mean that the efforts of the subscribers were to conceal facts, and does not automatically mean that the intention to register the two ships in different names was to play a fraud.
• There is no bar to purchasing ships in different names if that is the way a person wants to do its business, although there is an exception where the intention was to mask the true ownership and the companies are a sham.
• Under O VI r 4 of the Code of Civil Procedure, if a party seeks to rely on fraud, particulars with dates and times and the nature of the fraud have to be stated in the pleadings.
• On the facts of this case, no such particulars have been furnished.
• Further, the plaintiff always knew about the dual ownership, it accepted this, and entered into the contracts ‘with eyes wide open’. As a result, it cannot now ask for the corporate veil to be pierced.

The court thus confirmed that, while it was not possible to evolve a rational, consistent and inflexible principle which could be invoked in determining whether the corporate veil should be lifted, broadly speaking it might be appropriate where fraud was intended to be prevented or there was an underlying element of dishonesty. In the present case, fraud had not been alleged, yet alone proved, and Condor had not made out a case for arresting the Western Light. Condor was accordingly not entitled to the security furnished by Kimiya, and the security previously furnished was ordered to be returned.