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    3.notes On Lifting of The Corporate Veil

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    ram
    The document discusses the judicial and statutory circumstances under which a court may lift the corporate veil and disregard the separate legal entity of a company. Under judicial interpretation, courts have lifted the veil in cases of determining character or nationality during war, avoiding welfare legislation, where a company is acting as an agent of shareholders, for fraud or improper conduct, to protect revenue, where the company is a sham, or to protect public policy. Statutorily, courts may lift the veil when a company has fewer than the minimum number of members, when the company name is not properly stated on bills of exchange, for failure to refund application money, fraudulent trading, for group accounts, to recover tax arrears, for holding/subsidiary

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    3.notes On Lifting of The Corporate Veil

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    ram
    189 views4 pages
    The document discusses the judicial and statutory circumstances under which a court may lift the corporate veil and disregard the separate legal entity of a company. Under judicial interpretation, courts have lifted the veil in cases of determining character or nationality during war, avoiding welfare legislation, where a company is acting as an agent of shareholders, for fraud or improper conduct, to protect revenue, where the company is a sham, or to protect public policy. Statutorily, courts may lift the veil when a company has fewer than the minimum number of members, when the company name is not properly stated on bills of exchange, for failure to refund application money, fraudulent trading, for group accounts, to recover tax arrears, for holding/subsidiary

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    3.Notes on Lifting of the Corporate Veil

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    The document discusses the judicial and statutory circumstances under which a court may lift the corporate veil and disregard the separate legal entity of a company. Under judicial interpretation, courts have lifted the veil in cases of determining character or nationality during war, avoiding welfare legislation, where a company is acting as an agent of shareholders, for fraud or improper conduct, to protect revenue, where the company is a sham, or to protect public policy. Statutorily, courts may lift the veil when a company has fewer than the minimum number of members, when the company name is not properly stated on bills of exchange, for failure to refund application money, fraudulent trading, for group accounts, to recover tax arrears, for holding/subsidiary

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    189 views4 pages

    3.notes On Lifting of The Corporate Veil

    Uploaded by

    ram
    The document discusses the judicial and statutory circumstances under which a court may lift the corporate veil and disregard the separate legal entity of a company. Under judicial interpretation, courts have lifted the veil in cases of determining character or nationality during war, avoiding welfare legislation, where a company is acting as an agent of shareholders, for fraud or improper conduct, to protect revenue, where the company is a sham, or to protect public policy. Statutorily, courts may lift the veil when a company has fewer than the minimum number of members, when the company name is not properly stated on bills of exchange, for failure to refund application money, fraudulent trading, for group accounts, to recover tax arrears, for holding/subsidiary

    Copyright:

    © All Rights Reserved
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    of 4

    Lifting of the Corporate Veil?

    As per the judicial point of view, a company is a separate legal entity different
    from its members (saloman Vs. Saloman & co. Ltd.). When there are cases of
    dishonesty and fraudulence in incorporation, the law lifts the veil. This veil is a
    fictional veil and not a wall between the company and its members. Lifting the
    corporate veil may be defined as looking behind the company as a legal person and
    identifying the persons who are behind the scene and are responsible for the
    preparation of fraud.

    The circumstances under which the court may lift the corporate veil may be broadly
    divided into following two heads: -

     Judicial Interpretation
     Statutory Provision

    I. Judicial Interpretation:

    Following are the cases under which the court has lifted the corporate veil: -

    A. Determination of character:

    Test of control is adopted in the cases when the trade is conducted with enemy
    country. In such cases the court will lift the veil at the times of war to see whether a
    company is controlled by enemy aliens. Consequently a company registered in
    England may be alien enemy if its agents or the persons in default controls of its affair
    are alien.

    Case: Daimler Co.Ltd. Vs. Continental Tyre &Rubber Co. Ltd.

    B. Avoidance of welfare legislation:

    Where the device of incorporation is used for reducing the amount to be paid by way
    of bonus to the workmen, the Supreme Court can upheld the lifting of the veil to look
    at the real transactions:

    Case: workmen of Associated Rubber Industry Vs. Associated Rubber Co. 

    C. Where the company is acting as the agent of the shareholders:


    Where a company is devised to act as an agent of its shareholders or of another
    company it will be responsible for its acts. However, it will be a question of fact every
    case whether the company is acting as agent for its shareholders.

    Case: Gilford Motor Co. Ltd. Vs. Horne

    D. Provision of fraud or improper conduct:  

    The court will disregard the separate existence of the company, where it is shown the
    company is formed for evading contractual and statutory obligations.

    Case: Gilford Motor Co. Ltd. Vs. Horne

    Case: Subhra Mukherjee Vs. Bharat Coking Coal Ltd.

    E. Protection of Revenue:

    Where the medium of the company has been used for tax evasion or to circumvent tax
    obligation, courts have lifted the veil and looked at the realities of situation.

    Case: In Sir Dinashaw Mancekjee Petit

    F. Where company is a sham:

    When the court finds that company is a mere cloak or sham and is used for some
    illegal or improper purpose, it may lift veil.

    Case: Gilford Motor Co. Ltd. Vs. Horne

    G. Protecting Public Policy:

    The court invariably Lift the corporate veil or disregard the corporate personality of a
    company to protect the public policy and prevent transactions contrary to public
    policy.

    Case: Kapila Hingorani Vs. State of Bihar


    II. Statutory Provision:

    Provisions are as follows: -

    A. Number of member below statutory minimum [sec. 45]

    When at any time the number of member of a company is reduced below two in case
    of a private company or below seven in case of a public company and then too it
    continues it s business for more than six months, the every member who knows the
    fact will become liable to an unlimited extend for the payment of the whole debt of
    the company done during that time. The reason behind this is to withdraw the
    advantage of incorporation when the conditions are not fulfilled.

    B. Company not mentioned on the bills of exchange [sec. 147]:

    When the bills of exchange, promissory note, cheque or order for money or goods are
    signed by officer of the company or any other person on behalf of the company, and
    the name of company is not fully or properly mentioned. Then the person who signed
    the instrument will be personally liable. Unless the amount is paid by the company

    C. Failure to refund application money [sec. 69 of Companies Act 1956 and sec.
    39 of Companies Act 2013];

    In case of issue of shares by a company to the public, if the company is unable to


    receive minimum subscription within 120 days from the first issue of the prospectus
    than all money received from application shall have to be returned. If the amount is
    not refunded within 10 days, the directors shall be liable to repay the money with
    interest at the rate of 6% per annum.

    D. fraudulent trading [sec. 542 of Companies Act 1956 and sec. 339 of
    Companies Act 2013];

    On the winding up procedure of the company, if it is found that any business of the
    company has been carried on to defraud creditors, the court shall declare those
    persons personally liable for the debts and other liabilities of the company

    E. Group accounts [sec. 212]:

    Where the company has subsidiaries and group accounts, than the principle of
    separate legal entity may be disregarded. Along with the own profit and loss account
    and balance sheet, subsidiaries and group accounts have also to be laid down.
    F. Arrears of Tax [sec. 179 of Income Tax Act 1961]:

    In case of private company is being wound up and any tax payable by the company
    cannot be recovered then, every person who was a director at anytime during the
    relevant previous year shall be jointly and severally liable for the payment of tax.

    G. Holding and Subsidiary companies [sec. 212 to 214 of Companies Act 1956]:

    At times subsidiary company may lose its separate identity under the provision in sec.
    212 to 214 of Companies Act 1956

    H. Ultra Vires Act:

    The Directors of a company shall be personally liable for all the ultra vires acts done
    by them on behalf of the company.

    Thus, these are the circumstances where the veil can be lifted.

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