Friday, 1 July 2022

Corporate Veil

 Corporate Veil

The company has its characteristics, once a company is incorporated, holds a separate legal entity in the eyes of the law. The company has its seal, it can enter into a contract, purchase or sell of property or have a bank account and sue or get sued, thus a company is a juristic person different from the person who constitutes it.

Though the company has a separate entity it is incorporated by the person, these people are safe behind the veil, known as the corporate veil.  The corporate veil is defined as, A legal concept that separates the personalities of its shareholders, and protects them from being personally liable for the company's debts and other obligations.

Lifting the corporate veil means disregarding the corporate personality and looking behind the real person who is in control of the company.  In DDA v. Skipper Construction Co . Pvt. the supreme court referred to the principle of lifting the corporate veil. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or defraud people. The corporate veil indisputably can be pierced when the corporate personality is found to be opposed to justice, convenience, and interest of the revenue or workman or against the public interest.

Case ; Saloman v. Saloman & co. ltd. In this case, Salomon was a boot and shoe manufacturer. His business was in sound condition. He incorporated a company named Saloman & co ltd. To carry on his business. There were 7 subscribers to the memorandum were Saloman, his wife, his 2 sons, and his daughter this makes it clear that the company's owners were the family members of Saloman. The unsecured credit raised the question that there Is no company as in the board only his family members and therefore the company has no independent existence was contrary to the spirit and meaning of the company law.  The house of lords refused these arguments on the ground that after incorporation the Salomon and co. ltd became in law a different person altogether from its members with its rights and liabilities. In this case, the house of lords has made it clear that after incorporation a company is conferred on a legal entity different from the motives or conduct of its member and promoters.

There are two types of lifting of the corporate veil, one is known as statutory lifting, which means that if a company violates the companies act 2013 and the act provides for the lifting of the veil for the same then it is termed be statutory lifting and second one thing, known as, the judicial lift is known as the if the company violates the companies act 2013 and the act does not provide for the lifting of veil then the judges can order the lifting of veil which is known as judicial lifting.

Case; Re Sir Dinshaw Maneckji  Petit Bari, in this case, it was held, the company was formed by the assessee to evade tax and the company was nothing more than the assessee himself. it did undertake any business but was created simply as a legal entity to ostensibly receive the dividends and interests and to hand them over to the assessee as pretended loans.

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