2. CONCEPT
• In the eyes of law, a company is a legal person with a
separate entity distinct from its members of shareholders.
In essence it means that there is a veil or curtain separating
the legal entity of the company from its members or
shareholders.
• When any fraudulent and dishonest use is made of the
legal entity, the individuals concerned will not be allowed
to take shelter behind the corporate personality. The
Courts will break through the corporate shell and apply the
principle of ‘lifting or piercing the corporate veil’. The
Court will make the members or the controlling persons
liable for debts and obligations of the company.
3. law will lift the
corporate veil:
Under statutory provisions
Under judicial interpretation
4. UNDER STATUTORY
PROVISIONS
Reduction of the number of members
below statutory minimum
For establishing the relationship of
holding and subsidiary company
For facilitating the task of an
inspector to investigate the affairs of
the company
For investigation of the ownership of
the company
5. UNDER JUDICIAL
INTERPRETATION
Protection of revenue
Example Case
Re Sir Dinshaw Maneckjee Petit: In this case, the assessee
formed four companies and transferred his investments to each
of these companies in exchange for shares. Now the companies
received his income but they handed back the amount to him as
pretended loan. His income was divided into four parts
reducing his tax liability. It was held that the companies did no
business and were created by the assessee simply as the means
for avoiding tax.
6. Prevention of fraud or improper conduct
Example Case
Gilford Motor Co. vs. Horne: In this case, Horne was appointed as
the Managing Director of Gilford Motor Co., under an agreement
that contained a condition that he shall not solicit away the
customers of the company. But Horne formed a company which
resorted to solicitation in violation of the contract. The court
restrained the company.
7. Determination of the enemy character of
a company
Example Case
Daimler Co. Ltd. vs. Continental Tyre and Rubber Co. (Great
Britain) Ltd.: In this case, a company was incorporated in
England for the purpose of selling their tyres manufactured in
Germany by a German company. Its majority shareholders and
all the directors were Germans. On declaration of war between
England & Germany in 1914, the persons in control of its
affairs became alien enemies and accordingly the company
was declared to be an enemy company. During the war period
the company filed a suit to recover a trade debt, which was
dismissed by the court and observed that such payment would
be a trading with an enemy company and to allow alien
enemies to trade under the corporate façade will be against
public policy.
