Corporate veil may happen when the corporate personality of a company is use to commit fraud or improper or illegal act behind company.
Since an artificial person is not capable of doing any thing illegal or fraudulent the fract of corporate personality. It might had to remove to identify person. The person who is behind really guilty this is known as lifting the corporate veil.
Two ways to lift veil from corporate:
- Under judicial precedents
- Under statutory provision.
Cotton corporation india limited corporate veil case
In this case Cotton corporation india limited corporate the karnataka court held that lifting the corporate veil of company as role not permissible. Unless otherwise provided by clear word statute or by complying reason such as fraud.
Stautaory provision under which lifting corporate veil
- Misstatement in prospectus under section 2(70) and section 34 and 35.
- In case of misrepresentation in prospectus, the company and every director and promoter or any of the person who authorise such issue of prospectus shall be liable to corporate loss and damage.
Prospectus under 2(70) company act 2013
Prospector means any document described or issued as a perspectors and include a red herring prospectus referred to in section 32.
Or shelf prospectus referred to in section 31 or any notice circular advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.
Self prospectus meaning section 31 company act
A prospectus in respect of which the securities or class of securities included therein are issued for subscription. Subscription in one or more issues over a certain period without the issue of a further prospectus.
Red herring prospectus section 32 company act
A prospectus which does not include complete particulars of the quantum or price of the securities included therein.
Criminal liability for mis-statements in prospectus section 34 company act
Prospectus, issued, circulated or
distributed, include any statement which is untrue or misleading in form. Or context in which it is included Or where any inclusion or omission of any matter is likely to mislead. Every person who authorises the issue of such prospectus shall be liable under section 447.
Civil liability for mis-statements in prospectus section 35 company act
Where a person has subscribed for securities of a company acting on any statement included. Or the inclusion or omission of any matter, in the prospectus which is misleading and has sustained any loss or damage as a consequence thereof.
Liability for fraudulent conduct of business s/ 339 company act
Where in case winding up it appears that any business of company, has been carried on with instead of fraud creditors of company or any others.
Liability ultravires act
Ultravires means beyond law, director and other officer which they have done on behalf of a company beyond the law. Case: weeks v/s propert 1973.
For investigation of ownership of company section 216 company act
Under this section 216 of this act center govt. May approach one or more inspector to investigate the ownership of company.
Section 216 Where it appears to the Central Government that there is a reason so to do. It may appoint one or more inspectors to investigate and report on matters relating to the company. And its membership for the purpose of determining the true persons:-
- (a) who are or have been financially interested in the success or failure, whether real or apparent, of the company. Or
- (b) who are or have been able to control or to materially influence the policy of the company. Or
- (c) who have or had beneficial interest in shares of a company or who are or have been beneficial owners or significant beneficial owner of a company.
Under judicial decision & interpretation lifting of corporate veil
case: wil ford motor company vs Horne 1993 the court held that since the defendant infact controlled the company. It’s formation was rare clock and sham to unable him to break it’s agreement with plaintiff.
Investion of fraud or improper conduct
Where the medium of a company has been reported fraudulent conduct the court may lift the veil and look at the reality of the situation of transactions.
Uk Case: jones vs lipman 1962 corporate veil case
In this case jones vs lipman it was held that specific performance of contract has not registered by the contractor by selling the land to the company which rare fraud for avoidance of the contract. The specifics performance could not be avoided.
Gilford motor company vs Horne 1933 corporate veil case
In this case Gilford motor company vs Horne, the court held that since the defendant infact Controlled the company it’s formation was a rare clock and sham to unable him to break it agreement with the Plaintiff.
Protection of Revenue, corporate veil
Separate entity may be disregarded where revenue of state at stake.
Sir Dinshaw maneckji vs CJI company law Case law
It was held that the company was formed by the assessee purely and simply as of avoiding tax and the company nothing more than assessee himself.
Determination of the Enemy Character of Company
Company being an artificial cannot be enemy and friend who ever during war it may become necessary to lift the Co-operate veil and see the person behind wheather friend or enemy.
R Daimler Company limited vs Cemiters Continental Tyre and Rubber Company 1916
The court held that the payment of debt to english company would amount to trading with an enemy and the company not allowed to proceed it.
Where company is used to Avoid welfare Legislations
Where it was found that the sole purpose for the formation of the new the company was to use it as device to reduce the amount to paid by way of barrows to workman the Supreme Court up held the lifting of veil to look at the transaction.
Case: workmen of association Rubber Industry Limited v/s Association Limited.
Denial for the bonus of the employees holding companies open the subsidiary company.
In case case of Economic offences
Case: Shantanu Ray v/s Union of India 1989 It was held that in case of economic offense a court is entitled list of veil of cooperate a entity and pay regard economic reality behind the legal frand.