CORPORATE VEIL

Corporate Veil
AGENDA
&

Lifting the Corporate Veil

WHAT IS CORPORATE
VEIL?
•A corporate veil is a legal concept that separates the
action of an organization from the action of the
company’s members or shareholders.
•Some members of the company sometimes indulge in
fraudulent activities and their ingenuity, and dishonesty
let them take advantage of the corporate personality or
separate legal entity of the company and earn their profit.
In this case, the corporate veil concept is ignorant, and
lifting or piercing of the corporate veil is done and
looking at the person behind the company who is the real
beneficiary of the corporate fiction.
 LIFTING OF
CORPORATE VEIL
LAW WILL LIFT THE CORPORATE VEIL
UNDER:

 STATUTORY PROVISIONS

 JUDICIAL INTERPRETATION
 JUDICIAL INTERPRETATION

 Determination of Character or Nature of Company:

If a company is found to be owned by enemies of the country, the court can lift the corporate veil to
investigate the real controllers. Alien enemies are prohibited from trading.
Case Law: Daimler Co. Ltd. v. Continental Tyre and Rubber Co. (1916)
In the case of Daimler Co. Ltd. v. Continental Tyre and Rubber Co. (1916), a Daimler company incorporated
in England was found to be controlled by German residents during World War I. As the company was
deemed to be owned by enemies of the country, the court lifted the corporate veil to investigate the real
controllers. Despite the company itself being neutral, its ownership led to it being classified as an enemy
company. This case underscores that a company's nationality is determined by the nationality of its
controllers, not its legal persona.
 JUDICIAL INTERPRETATION

 Benefits or Protection of Revenue:

If a company is formed with the intention of evading taxes or removing tax obligations, which is detrimental to
government revenue, the court may dismantle the corporate structure.
Case Law: Sir Dinshaw Maneckjee Petit (1927)
In the case of Sir Dinshaw Maneckjee Petit (1927), the court lifted the corporate veil when it was found that the
company was formed solely to evade taxes. Sir Dinshaw used multiple private companies to distribute his
investments and income, disguising it as loans to himself to reduce tax liability. The court determined that the
companies were merely tools for tax evasion, and thus broke the corporate shell to hold Sir Dinshaw personally
responsible for tax obligations.
 JUDICIAL INTERPRETATION
 Evasion of Personal and Statutory Obligation/Prevention of Fraud:
Courts may set aside the principle of separate legal entities when individuals use it to evade their contractual
or statutory obligations.
Case Law: Jones Vs Lipman
In the case of Jones v. Lipman, the court lifted the corporate veil when Lipman, the defendant, transferred
property to a newly formed company to avoid fulfilling his contractual obligations. The court deemed the
company a sham or facade, allowing it to look beyond its legal entity to hold Lipman personally liable for
the transaction.
 JUDICIAL INTERPRETATION

 Avoidance of welfare Legislation:

Courts won't tolerate using company incorporation to evade welfare laws. They're tasked with uncovering
the true intentions behind such maneuvers.
Case Law: Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd
In the case of Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd., the company
created a subsidiary and transferred its assets to reduce its obligation to pay bonuses to workers. The
Supreme Court ruled that the separate existence of the subsidiary would be disregarded if it was used to
evade paying bonuses to workers.
 JUDICIAL INTERPRETATION

 Where the company is acting as the agent of the shareholders:

This means that the actions and decisions of the company are attributed directly to its shareholders, revealing
their true involvement and responsibilities.
Case Law: Re FG Films Ltd (1953)
In the case of Re FG Films Ltd. (1953), the court lifted the corporate veil to hold the company's shareholders
personally liable for the company's debts. The court found that the company was used as a mere façade to
defraud creditors, and the shareholders were deemed to be the true controllers of the company. As a result,
the shareholders were held responsible for the company's liabilities.
 JUDICIAL INTERPRETATION

 Diversion of Business Opportunities:

When a company is to divert the business of another company then the corporate veil is lifted.
Case Law: Gencor ACP Ltd. V. Dalby (2002)
In the case of Gencor ACP Ltd. V. Dalby (2002), the corporate veil was lifted when Dalby, a director of
Gencor Co., diverted assets and materials from a public company to his private company, the British Virgin
Islands. The court deemed this diversion of business opportunities inappropriate and held Dalby personally
responsible for benefiting from the improper conduct, disregarding the separate legal entity of the private
company.
THANK YOU