Lifting the corporate veil:

The term corporate veil refers to the concept that a company’s members are
shielded from liability connected to the company's action. Corporate veil is said
to be lifted when the court ignores the company and concerns itself directly with the
members or managers. Thus, the lifting of the corporate veil means disregarding the
corporate entity and paying regard instead to the individual members behind the legal
façade.
There are a number of factors which operate to breakdown the corporate
insulation. These can be divided into two heads:
(1) Under Statutory Provisions, and
(2) Under Judicial Interpretations.
• In case of Statutory Provisions, the separate entity of the company is remain,
but the directors and members are held personally liable for the acts of the
company.
• In case of Judicial Interpretation, the separate entity of the company is ignored,
and the façade of the corporate personality is removed to identify the persons who
are really guilty.
Lifting the corporate veil:

Statutory provision:-
Under statutory provisions, we discuss sections where the statue/the companies act
itself contemplates lifting the veil of corporate personality.
1) Membership falling below statutory minimum. The companies(amendment)
act, 2017 has inserted new sec.3A
2) Misrepresentation in prospectus (sec 34&35) persons shall also be criminally
liable under section 34, and punishable under section 447 which provides that any
person who is found guilty of fraud involving an amount of at least 10 lakhs or one
percent of the turnover of the company, which over is lower, shall be punishable
with imprisonment ranging from 6 months to 10 years and liable to be fined which
will not be less than the amount involved in the fraud but which could not extend to
3 times the amount involved in the fraud. However the fraud involves public
interest, the term of imprisonment shall not be less than 3 years.
but where the fraud is of less than 10 lakhs or one percent of the turnover of
the company, whichever is lower, and does not involve public interest, guilty person
shall be punishable with imprisonment up to 5 years or with fine up to 50 lakhs or with
both.
3) Failure to return application money( sec.39 and SEBI guidelines) as per rule 11 of the
companies ( prospectus and allotment rules) 2017, the money should be repaid within 15
days of the close of the issue and if the amount is not repaid, then directors will be jointly and
severally liable to pay the money along with interest at the rate of 15% per annum.
4) Holding and subsidiary companies (sec 129)
a subsidiary company may, however lose its separate identity to a certain extent in two cases.
• the legislature may brush aside the legal forms and require the companies in a group to
present a joint picture.
• The court may on facts of a case refuse to grant a subsidiary an independent status.
Circumstances such as the profits of the subsidiary company being treated as those of the
parent company, the control and conduct of business of the subsidiary company resting
completely in the nominees of the holding company.
5) for facilitating the task of an inspector appointed under section 210( investigation into
affairs of company) sec 212( investigation by central government into affairs of company
by serious fraud investigation office) sec.213 (investigation into affairs of company on
application received by tribunal)
6) Investigation of ownership of company under section 216 to find out the identity of the
people who are financially controlling the company.
7) Fraudulent conduct of business( sec. 339)
8) Directors with unlimited liability
9) Liability of promoters for pre- incorporation contracts
10) Directors are personally liable for all acts which are ultra vires the company, the
directors and those in the nature of torts.
Under Judicial Interpretations:

Under judicial interpretations, we discuss cases where courts have found it necessary to lift the
corporate veil, identify the persons behind the corporate entity and penalise them.
1)Determination of the ‘enemy’ character of the company.
Daimler Co. Ltd v. Continental Tyre and Rubber Co.( Great Britain) Ltd.(1916)
2) Tax evasion.
Sir Dinshaw Maneckjee Petit(1927)
3) Fraud or Improper Conduct.
• To a avoid legal obligation.
• Commitment of fraud
• To defraud creditors.
Gilford Motor Co. v. Horne( 1933)
4) To Avoid welfare Legislation.
5) Formation of subsidiaries to act as Agents
6) Where the company is a sham or cloak.
7)Where company is used for some illegal or improper purpose.