PIERCING THE CORPORATE VEIL

Submitted to: Submitted by:

Dr. Geetika Walia Harsh Mangal

Assistance Professor of Law Roll No. 18008 (Group 2)

RGNUL, Punjab RGNUL, Punjab

1
INTRODUCTION

Lifting the veil of incorporation or piercing the corporate veil means the judicial act of
imposing personal liability or otherwise immune corporate officers, directors or shareholders
for the corporation's wrongful act. The company is equal in law, to natural person. This is one
of the cornerstones of Indian Company Law and has been followed since 1897 when House of
Lords handed down its decision in Saloman v. Saloman & Co. Although this fundamental rule
has considerable influence in Company Law across the globe, including India, it cannot be
absolute and must allow some exceptions, where the court may disregard the legal personality
of the company.

CHAPTER PLAN

Following is a chapter plan for the project:

1. INTRODUCTION

1. Meaning: Lifting the corporate veil means disregarding the corporate personality
and looking behind the real person who are in the control of the company. In other
words, where a fraudulent and dishonest use is made of the legal entity, the
individuals concerned will not be allowed to take shelter behind the corporate
personality.

2. Origin: In incorporated company has a legal entity distinct from its members from
the date of its incorporation. In England the legal personality of a company was
recognized in 1867 but it was firmly established in 1897 in the case of Saloman v.
Saloman & Co. Ltd. The most of the provisions of Indian company law were
borrowed from English law, it more or less resembles the English law. The
Salomon's case has been the authority since in the decisions of the doctrine of Indian
company cases.

2. DISTINCT LEGAL PERSONALITY OF A COMPANY

The fundamental attribute of corporate personality, from which all other consequences
flow if that the corporation is a legal entity distinct from its members. Hence, it is
capable of enjoying rights and of being subjects to duties which are not the same as
those enjoyed or borne by its members. In other words, it has a “legal personality” and
is often described as an artificial person in contrast with a human being, a natural
person.
2
3. LIFTING OF CORPORATE VEIL: MEANING AND SCOPE

Piercing or lifting the veil is corporate law’s most widely used doctrine to decide when
a shareholder or shareholders will be held liable for obligations of the corporation. It
continues to be one of the most litigated and most discussed doctrines in all of corporate
law. The term “piercing the corporate veil” has also been described as, “the Court’s
unwillingness to permit corporate presence and action to divert judicial course of
applying law to ascertain facts”. When this principle is invoked, it is permissible to
show that the individual hiding behind the corporation is liable to discharge the
obligations ignoring the concept of corporation as a separate entity.

4. LEGAL STANDARDS FOR PIERCING THE CORPORATE VEIL

As early as Solomon, judgments have indicated possible exceptions to the separate

entity concept. Lord Halsbury recognised the separate entity providing there was “no
fraud and no agency and if the company was a real one and not a fiction or myth.” As
noted by Lord Denning in Littlewoods Mail Order Stores Ltd. v. IRC, “cast a veil over
the personality of a limited company through which the courts cannot see. The courts
can, and often do, pull off the mask. They look to see what really lies behind.”

The circumstances under which the Courts may lift the corporate veil may broadly be
grouped under the following two heads:

• By Statutory Provisions

• By judicial interpretation
5. CONCLUSION

The doctrine of piercing the corporate veil is not subject to any bright line tests. Courts
have struggled for years to develop and refine their analysis of these claims. However,
each new action brings a different set of facts and circumstances into the equation and
a separate determination must be made as to whether the plaintiff has adduced sufficient
evidence of control and domination, improper purpose, or use and resulting damage.
The decision whether to pierce the corporate veil may be assisted, at least in part, upon
the opinion of qualified experts. Ultimately, however, the judgment whether to
disregard the corporate entity will be based upon a balancing of various factors all or
some of which are necessary but may not be sufficient to pierce the veil.