Corporate Veil can be lifted

The circumstances in which the Corporate Veil can be lifted may
broadly be grouped under t\\'O heads:
I. On well established judicial grounds, and
II. Under statutory provisions.
I. Judicial Grounds for Lifting of Corporate Veil. The following
grounds have become well-e;established for lifting the Corporate Veil:
1. For Protection of Revenue. When a company is being used as a means of tax evasion, courts may pierce the corporate veil and ignore the corporate
entity so as to malice the individual shareholders liable as principal.For example, in reo Sir Dinshaw Manekjee Petit, the assesses earning huge dividend
and interest income, formed four private companies. He divided his income into four parts, and assigned each part to one such company. Incomes
received by companies from such assignments were later on paid to him as a pretended loan, and by availing of income exempted from Income Tax four
times (instead of once "available otherwise) he could reduce his at.'{ liability. The court lifted the corporate veil and held that the companies and the
assesses were one and the sale and should be, therefore,
taxed as one. ",
2. Determination of the "Character of Company. The courts also look behind the legal facade of the company to determine its residence for purposes of
taxation, enemy status or jurisdiction. In Daimler Co. Ltd. Vs. Continental Tyree & Rubber Co. Ltd., a company was incorporated in England to sell lyres
manufactured by a German company and all its directors were Germans. During the First World War, the company brought a case to recover a trade debt


but was debarred by the court to do so because it belonged to an alien country, Germany. The corporate veil was lifted. Permitting the company to recover


the trade debt would have meant helping the alien enemies indirectly in the guise of larger profits to the company which ultimately, would have reached the


hands of its members (i.e., Germans) in the form of dividends, etc.
3'. Prevention of Fraud or Improper Conduct. The court shall also lift the corporate veil where it finds that the company has been formed to defraud
creditors or to defeat the provisions of any law or to avoid any legal obligations. In short, the corporate veil will be pierced where the company has been
formed for any fraudulent or unlawful purpose.
This is well illustrated by the case of Gilford Motor CO. VS. Horne. In this case Horne was appointed Managing Director of Gilford
Motor Co. The appointment was made on the condition that he will not entice away the customers of the company so long as he was in the employment of


the company or afterwards. After leaving the services of the company, he started a business in the name of a company which solicited the customers of
the first company. The court issued an injection against
the company and Home to carry on such business as the company was only as cloak used by Horne to defend himself against breach of contract in his
former employment.
4. Company Acting as Agent of Shareholder's. Where-a company is acting as the agent of the shareholders under an express or implied agreement, the
corporate" entity of the company will be disregarded and shareholders will be held liable for the acts of the company. [Re. F.G. Films Ltd. 1953 All E.R.
645; Smith. Stone & Knight Ltd. v.'\'. Birmingham Corp.
(1939) All E.R. 116].
5. Against Public Policy. Where the principle of separate entity
conf1icts with .Public Policy tbe court may lift the corporate veil in. defence of the Public Policy. [Connors Bros Vs. Connors (1940)].
6. For Determination of Technical Competence of a Company [New Horizons Ltd. V. Union of India (1995) Combo 1..1 100 (SC)]. The Supreme Court in
this case held that the experience of the promoters could wetI be considered as the experience of the company in determining its technical competence.
n. Under Statutory Provisions. The Companies Act, 1956, provides the following cases when Corporate Veil can be lifted or pierced: