Lifting Of The 'Corporate Veil'

1.2 LIFTING OF THE “CORPORATE VEIL”

Ø    Company is a person distinct and separate from its members, and subscribers of the memorandum.

Ø    The company is not agent of the subscribers or trustees for them.

Ø    Members are not liable for any act of the company except to the extent and in the manner provided by the Act.

The above concept is called corporate veil.

When the above concept in case of any company ceases, it is called lifting of corporate veil. (i.e. looking behind the company as a legal separate person)

The following are the cases where corporate veil can be lifted.

1)     for determining whether a company is a enemy co., considering the shareholding of it, As trading with an enemy company is void. [as company is called enemy company, if the control of its affairs is with the persons who are enemy.] {Daimler Co. Ltd. vs. Continental Tyres & Rubber Co.}

2)       if a company is formed for the purpose of reducing the tax liability or any other liability. {(Juggilal v. Commissioner of Income tax).}

3)       formation of a company as an agent (transport license to subsidiary co.)

4)       Where the number of the shareholders falls below the minimum no. of members.

5)       Where incorporation is adopted for some illegal or improper purpose.

6)       Company for avoiding legal obligation (contract not to do similar business in case of sale of business)

7)       for investigation of ownership.  (e.g. govt. co. or non govt. co.)