हिंदी समाचार पढ़े
Expand
O.P. Jindal Global University
 
Home / Articles / How to Lift Corporate Veil under Companies Act,2013? By Mitali Tiwari

How to Lift Corporate Veil under Companies Act,2013? By Mitali Tiwari

December 3,2018:

The Author, Mitali Tiwari is a 5th Year, BA.LLB (H) student of Law College Dehradun, Uttaranchal University. She is currently interning with LatestLaws.com.

INTRODUCTION

Before dealing with the lifting of corporate veil it is pertinent to define corporate veil it is pertinent to define what the meaning of a company is. A company has no particular definition but section 3(1) (i) of the Companies Act attempts to provide the meaning of the word in context of the provisions and for the use of this act. It states ‘a company means a company formed and registered under this Act or an existing company as defined in Section 3(1) (ii).

CORPORATE VEIL

A legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company’s debts and other obligations.

LIFTING OF CORPORATE VEIL

At times it may happen that the corporate personality of the company is used to commit frauds and improper or illegal acts. Since an artificial person is not capable of doing anything illegal or fraudulent, the façade of corporate personality might have to be removed to identify the persons who are really guilty. This is known as ‘lifting of corporate veil’.

It refers to the situation where a shareholder is held liable for its corporation’s debts despite the rule of limited liability and separate personality. The veil doctrine is invoked when shareholders blur the distinction between the corporation and the shareholders. A company or corporation can only act through human agents that compose it. There are two existing theories for the lifting of the corporate veil. The first is the “alter- ego” or other self theory and the other is the “instrumentality” theory.

The alter ego theory considers if there is in distinctive nature of boundaries between the corporation and its shareholders.

The instrumentality theory on the other hand examines the use of a corporation by its owners in ways that benefit the owners in ways that benefit the owner rather than the corporation. It is up to the court to decide on which theory to apply or make a combination of the two doctrines.

STATUTORY PROVISIONS

Section 5 of the Companies Act defines the individual person committing a wrong or an illegal act to be held liable in respect of offences as ‘officer who is in default’. This section gives a list of officers who shall be liable to punishment or penalty under the expression ‘officer who is in default’ which includes a managing director or a whole-time director.

Section 45 – Reduction of membership below statutory minimum: This section provides that if the members of a company are reduced below seven in the case of a public company and the company continues to carry on business for more than six months.

CASE LAWS

  1. SUBHRA MUKHERJEE V. BHARAT COKING COAL LTD.

In this case a private coal company sold its immovable property to the wives of directors prior to nationalization of the company. In fact, documents were ante- dated to show the transaction was prior to nationalization of the company. Where such transaction is alleged to be sham and collusive, the court was justified in piercing the veil of incorporation to ascertain the true nature of the transaction as to know who were the real parties to the sale and whether it was genuine and bona fide or whether it was between the husbands and wives behind the façade of the separate entity of the company.

 

  1. BAJRANG PARASAD JALAN V. MAHABIR PRASAD JALAN

Subsidiary holding company- The court, for the purpose of considering a complaint of oppression held that the corporate veil can be lifted in the cases of not merely of a holding company, but also its subsidiary when both are family companies.

 

  1. SINGER INDIA V. CHANDER MOHAN CHADHA

The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud the people. Where therefore the corporate charter is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned.

  1. B FINANCE LTD. V. SHITAL PRASAD JAIN

In this case the Delhi High Court granted to the plaintiff company an order of interim injunction restraining defendant companies from alienating the properties of their ownership on the ground that the defendant who had frequently used the money borrowed from the plaintiff company and bought properties in the name of defendant companies. The court did not in this case grant protection under the doctrine of corporate veil.

Facebook Comments

Auto Driver thrashed for no fault Auto Driver thrashed for no fault,                  source oneindia Four Pillars of Democracy Four Pillars of Democracy             by Satish TOI Acheche DIn Acheche Din     pic by sify Cartoon

TOI

Hindu Pic by Hindu Women Empowerment and Sports Women Empowerment and Sports

pinterest

TOI

Missing the Point Missing the Point pic by english blog [caption id="attachment_97474" align="alignleft" width="621"]Donald Trump’s immigration ban Donald Trump’s immigration ban[/caption]

TOI

[caption id="attachment_97477" align="alignleft" width="621"]UIDAI Leaks UIDAI Leaks[/caption] [caption id="attachment_97467" align="alignleft" width="621"]Humour with Latest Laws Humour with Latest Laws[/caption] Hindu Demonitisation Diaries 1 Demonitisation Diaries 1                                  pic by sify   Belts are for Dogs Belts are for Dogs 150425_-_farmers_a_2384764f

Hindu

Time to straighten up Time to straighten up                pic by TOI Demonitisation Diaries 2 Demonitisation Diaries 2  pic by sify Lawyers Bearing the Burden Literally Lawyers Bearing the Burden Literally pic by OMG

Hindu

TOI

Hindu Hindu

TOI

Hindu

Hindu

State of Affairs Women Safety: State of Affairs             pic by mangal

TOI

Delivery Boy Delivery Boy                    by Satish

Hindu Hindu

...as an eminent lawyer you ought to know that your action tantamount to, under Section B, sub-section G.VIX, read along with I.P.C. (A) XI (B), notwithstanding...                                        TOI

Hindu Hindu

Humour @ Latest Laws Achhey Din Humour @ Latest Laws: Achhey Din State of Two Nations State of Two Nations               pic by sandeep America First Walk Your own Talk If India takes One Step, we will take Two by Satish If India takes One Step, we will take Two ...................by Satish

Hindu

IBN IBN

Job Hazards Hindu

TOI

TOI Demonitisation Diaries Demonitisation Diaries                                                       by sify ALL_1_Theme_01A_24_2383617g

Hindu

TOI TOI Hindu

Hindu

TOI

Hindu TOI Alligator vs Litigator Alligator vs Litigator

Hindu

TOI Hindu Hindu [caption id="attachment_97462" align="alignleft" width="524"]Painting India Saffron Painting India Saffron[/caption]

Hindu

Hindu

Hindu Tax Reforms    by Hindu Tax Reforms by Hindu Soaring of Oil Prices pic by indiaone

TOI

Let Justice Be Let Justice Be
 
 
 

Check Also

What is the CSR Policy under Companies Act,2013? By Teresa Dhar

January 19,2019: The Author, Teresa Dhar is a 2nd Year, BA.LLB (H) student of Chanakya National Law University. She is currently interning with LatestLaws.com. WHAT IS CSR?  Corporate Social Responsibility (CSR) is understood as a management concept by which companies integrate social and environmental ...

Leave a Reply

Your email address will not be published. Required fields are marked *

Latest laws

Join our mailing list to receive the Latest Laws News and updates from our team.