LIFTING OF CORPORATE VEIL

A Company in law is equal to a natural person and has a separate legal entity of its own. The entity of a Company in entirely separate from that of its shareholders; it bears its own name, its assets are separate and distinct from those of its members; it can sue and be sued exclusively for its own purpose; its creditors cannot obtain satisfaction from the assets of its members; the liability of the members or shareholders is limited to the capital invested by them; similarly, the creditors of the members have no right to the assets of the corporation. This position has been well-established in the case of Salomon v. Salomon & Co. (1897) A.C. 22, H.L. which was pronounced in 1897 by the House of Lords. But the concept of Corporate Veil was established to encourage and promote trade and commerce, not to defraud people, evade obligations of law or to commit illegalities which are otherwise not permissible in law. Therefore, where a Company is established with the purpose of defrauding others, evading obligations of law or committing illegalities which are otherwise impermissible in law, the courts have lifted the Corporate Veil and looked at the reality behind the Corporate veil in the interest of justice. Various instances when the Supreme Court of India has lifted the veil of incorporation under statutes to ensure justice are as follows:

In State of UP v. Renusagar Power Corporation: AIR 1988 SC 1737 it was held that "In the expanding horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation."

In Juggi Lal Kamlapat v. C.I.T. MANU/SC/0091/1968: AIR 1969 SC 932 the Supreme Court held that the veil of corporate entity could be lifted to pay regard to the economic realities behind the legal facade, for example, where the corporate entity was used for tax evasion or to circumvent tax obligation.

In Life Insurance Corporation of India v. Escorts Limited and Ors.: (1986) 1 SCC 264, Supreme Court held that the corporate veil may be lifted where a statute itself contemplates lifting of the veil or fraud or improper conduct intended to be prevented or a taxing statute or a beneficial statute is sought to be evaded or where associated companies are inextricably as to be, in reality part of one concern.

In Commissioner of Income Tax. v. Meenakshi Mills (supra), the corporate veil was lifted and evasion of income tax prevented by paying regard to the economic realities behind the legal facade.
In Estate Officer, UT Chandigarh And Others V. Esys Information Technologies (P.) Ltd (CA No. 3765 of 2016) Supreme Court held that the doctrine of lifting corporate veil can be applied by the court and it is entitled to lift the mask of corporate veil when under the grab of transfer of shares, plot of land was sold in violation of relevant rules and conditions of allotment.

It may be said that Corporate Veil can be lifted where fraud or improper conduct is intended to be prevented or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be in reality, part of one concern, where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law, when the Company is being blatantly used as a cloak for fraud or improper conduct, the court will disregard the corporate veil. Class of cases where the lifting the veil is permissible cannot be enumerated as lifting the veil depends on the relevant statutory or other provisions, the objects sought to be achieved by a Corporate entity, impugned conduct, the involvement of public interest and the effect on the parties who may be affected etc.