Lifting the corporate veil
Lifting corporate veil may happen that the corporate personality of the company is use to commit fraud or improper or illegal act since an artificial person is not capable of doing any thing illegal or fraudulent the facade of corporate personality might had to remove to identifing the person who are behind and who are really guilty this is known as lifting the corporate veil.
Case: Cotton corporation India limited
The karnataka court held that lifting the corporate veil of the company as role not a permissiable unless otherwise provided by clear words statute or by compeling reason such as fraud.
There are two ways through which the lifting veil from the corporate can be :
- under judicial precedents
- under statutary provision.
Statutory provision under which lifting corporate veil
- Misstatement in prospectus in section 2(70), section 34, and section 35.
- In case of mispresentation in prospectus , the company and every director and promoter or any of the person who authorised such issue of the prospectus shall be liable to corporate loss and damage.
- Failure to reform application money section 39
- rule 11 of the companies (prospectus alotment security) rule 2014.
- fraudulent conduct section 399
- where in the case winding up it appears that any bussiness of the comapny has been created on the instead of fraud creditors of the company or any others.
- liability ultravires act
- Ultravires means beyond the power and of the law.
- direction and other officers will are personally liable such as directors and others officers will are personally liable for all those which theys have done on behalf of the company if the same are ultravires the company.
- Case: weeks v/s propert 1973.
- direction and other officers will are personally liable such as directors and others officers will are personally liable for all those which theys have done on behalf of the company if the same are ultravires the company.
- For the investigation of ownership of the company
- section 216(A) for investigation the central government has only power and right to investigate.
- under this section 216 the central government may approach one or more inspector to investigate the ownership of the company.
- Ultravires means beyond the power and of the law.
Under judicial precedent decision and Interpretation, lifting corporate veil
- Intervention of fraud or Impropewr conduct
- Where the medium of the company has been used for committing from fraud, for this the court will have lifting the veil and will look what is the reality of the situation.
- Case: Gil ford motor company v/s horne 1933
- The court held that since, the defendent infact controlled the company its, formation was a rare clock and sham to unable him to break it agreement with the plaintiff.
- Case: Jones v/s Lipman 1962
- It was held that specific performance of contract can ot registered by the alendor by selling the land to the company which rare fraud for avoidance of the contract.
- Case: Gil ford motor company v/s horne 1933
- Protection of the revenue
- separate entity may be disregarded where revenue of state at stake.
- Case: sir dinshaw manek ji v/s CJI
- It was held that the company was formed by the arressee purely and simply as known or means of avoiding tax and company was noting more arressee himself.
- Case: sir dinshaw manek ji v/s CJI
- separate entity may be disregarded where revenue of state at stake.
- Determination of the enemy charter of the company
- company being an artificial person can not be the enemy and friend who ever during war it may become necessory to lift the co-operate veil and see the person behind wheather they are friend and enemy.
- Case: r daimlar company limited v/s continental tyer and rubber company 1916
- It was held that the court held that the payment of debt to english company would amount to trading with an enemy and the comapny was not allowed to proceed it.
- Case: r daimlar company limited v/s continental tyer and rubber company 1916
- company being an artificial person can not be the enemy and friend who ever during war it may become necessory to lift the co-operate veil and see the person behind wheather they are friend and enemy.
- Where company is used to avoid welfare legislation
- Where it was found that the sole purpose for the formation of the company was to use it as the device to reduce the amount to paid by way of borrows to workman the to look at the transaction.
- Case: workmen of association rubber industry limited v/s association limited
- Deny for the bonus of the employees holding companese open another subsidary company to evasion the tax amount.
- Case: workmen of association rubber industry limited v/s association limited
- Where it was found that the sole purpose for the formation of the company was to use it as the device to reduce the amount to paid by way of borrows to workman the to look at the transaction.
- In case of the economic offences
- Case: Shantanu ray v/s union of india 1989.
- It was held that in this case of the economic offences a court is entitled list of veil of cooperate a entity and regard economic reality behind the legal fraud.
- Case: Shantanu ray v/s union of india 1989.
- Where the medium of the company has been used for committing from fraud, for this the court will have lifting the veil and will look what is the reality of the situation.
Reference: original note were written by Riya tiwari student of LLB from united university prayagraj uttar pradesh