INSTITUTE : University School of

Business
DEPARTMENT : Commerce
Bachelor of Commerce
Company Law & Secretarial Practice
21CMT-210

Lifting of a Corporate Veil DISCOVER . LEARN . EMPOWER

 Company Law &
Secretarial
Practice
Course Outcome
CO Title Level
Number

CO-1 The student will acquaint himself/ herself with company Understanding
laws and its relevance
CO-2 Understanding
The student will also get overview about new and
contemporary developments in Indian Corporate Law
and will have in-depth knowledge about the share
capital.Law and will have in-depth knowledge about the
shares

CO-3 Understanding
The student will be able to demonstrate knowledge of
the theories, concepts and findings of the various
https://thumbs.dreamstime.com/b/lawyers-
specializations in designing different policies and office-background-law-symbols-composition-gray-stone- 2
strategies of various types of organizations
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 Lifting of
Corporate Veil

Doctrine of Lifting the Veil

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Meaning of lifting or piercing of the Corporate Veil

• The human resourcefulness, however, began utilizing the veil of

corporate personality explicitly as a shroud for misrepresentation or
despicable direct. In this way, it ended up noticeably important for the
Courts to get through or lift the corporate veil and take a gander at the
people behind the organization who are the real beneficiaries of the
corporate fiction.

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Contd.
• The lifting of the corporate veil implies neglecting the corporate
personality and looking for the genuine individual who is in the
control of the organization.

• At the end of the day, where a false and deceptive utilize is made of
the legitimate entity, the people concerned won’t be permitted to take
shield behind the corporate personality. In this respects, the court will
get through the corporate shell and apply the guideline of what is
known as “lifting or piercing the corporate veil.” 
Example- Puppet show
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Judicial provisions or grounds for lifting The
Corporate Veil
• Fraud Or Improper Conduct

Gilford Motor Company Ltd v. Horne

Jones v. Lipman. 

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Contd.
Jones v. Lipman, a man contracted to offer his territory and after that
point altered his opinion with a specific end goal to keep away from an
order of specific performance, he transferred his property to an
organization. The court, in this case, held that the organization here
was “a veil which (Mr. Lipman) holds before his face trying to
maintain a strategic distance from acknowledgment by the eye of
equity” Therefore the court ordered for specific performance both
against Mr.Lipman and the organization.

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For Benefit Of Revenue
• “The Court has the ability to ignore corporate substance in the event
that it is utilized for tax evasion or to dodge tax commitments. A
reasonable outline is Dinshaw Maneckjee Petit, Re;
• The assessee was a rich man enjoying gigantic profit and interest
income. He formed four privately owned businesses and concurred
with each to hold a piece of speculation as an operator for it. Income
received was credited in the accounts of the organization however the
organization gave back the sum to him as a pretended loan. Along
these lines, he separated his income into four sections in an offer to
lessen his tax liability.

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 For Benefit Of Revenue
• “It was held that “the organization was formed by the assessee
absolutely and basically as a method for maintaining a strategic
distance from super tax and the organization was just the assessee
himself. It did no business, yet was made basically as a legitimate
entity to apparently get the profits and interests and to hand them over
to the assessee as pretended loans”.

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• Enemy Character
In Daimler Co.Ltd V. Continental Tyre And Rubber Co.Ltd, An
organization was incorporated in England with the end goal of selling
in England, tires made in Germany by a German organization which
held the majority of shares in the English organization. The holders of
the rest of the shares, aside from one, and every one of the chiefs was
Germans, living in Germany. Amid the First World War, the English
organization commenced an action for the recuperation of a trade debt.
Held, the organization was an outsider organization and the payment
of debt to it would add up to trading with the foe, and in this manner,
the organization was not permitted to continue with the activity.

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Avoidance Of Welfare Legislation
• Workmen of Associated Rubber industries Ltd.
v

Associated Rubber Industries Ltd.

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Punishment
• To punish for the contempt of Court.

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• Reduction of number of members below the statutory minimum: If at any time
the minimum number of members of a company falls below two, in case of
Private company or below seven, in case of Public company; then the company
can carry on the business for a period of six months while the number is so
reduced, every person who is a member of the company during the time that it still
continues to carry on the business, knowing the fact that the minimum number of
members is reduced and the grace period of six months is also finished, then as
the case may be, the company and its members will be held liable and can sue an
amount which they made during those six months or else the company may be
severally sued, therefore

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• Failure to refund application fee: The directors of the company shall be jointly
and severally liable to repay the money (application money) with an interest of six
percent per annum from the date of expiry of one hundred and thirtieth day if they
fail to repay the application money without interest within one hundred and
twenty days when the company fails to allot shares.

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• Misdescription of company’s name: An officer of an organization (company) who
signs any bill of trade, promissory note, check wherein the name of the
organization isn’t referenced in the recommended way, such official can be held
personally liable to the holder of the bill of trade, hundi, etc. except if it is
properly paid by the company. 

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• Fraudulent trading: Under section 339 of the Companies Act, 2013, If in the
course of the winding-up of a company, it appears that any business of the
company has been carried on with intent to defraud creditors of the company or
any other persons or for any fraudulent purpose, the Tribunal, on the application of
the Official Liquidator, or the Company Liquidator or any creditor or contributory
of the company, may, if it thinks it proper so to do, declare that any person, who is
or has been a director, manager, or officer of the company or any persons who were
knowingly parties to the carrying on of the business in the manner aforesaid shall
be personally responsible, without any limitation of liability, for all or any of the
debts or other liabilities of the company as the Tribunal may direct. Every person
who had the knowledge of such fraud will be punishable with imprisonment for a
term which may extend to two years or with a fine which can extend up to fifty
thousand or with bot
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• For investigating company’s ownership: Under section 216 of the Companies
Act, 2013, the Central Government may appoint Inspectors to investigate and
report on the membership of the company for the purpose of determining the true
individuals who are financially interested in the company and who control its
policy. Thus, the Central Government may ignore the Corporate veil

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Statutory Provisions For Lifting The
Corporate Veil
• A. Misstatement in Prospectus:
• Under Section 26 (9), Section 34 and Section 35 of the Companies Act, it is a
punishable offence to furnish untrue or false statements in prospectus of a
company offering securities for sale. Prospectus issued under Section 26 contains
key notes of the company containing details of shares and debentures, names of
directors, main objects and present business of the company. If any person
attempts to furnish false or untrue statements in prospectus, he is subject to
penalty or imprisonment or both, as prescribed under the aforesaid sections.

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Statutory Provisions For Lifting The
Corporate Veil
• B. Failure to return application money:
• Under Section 39 (3) of the Companies Act,gives provision against allotment of
securities. If the minimum stated amount has not yet been subscribed and the sum
payable on application is not received within a period of thirty days from the date
of issue of the prospectus, then the officers in default are fined with an amount of
one thousand rupees for each day till the time the default continues or one lakh
rupees, whichever is less.

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Statutory Provisions For Lifting The
Corporate Veil
• C. Misdescription of Company’s name:
• The name of the company is very important. Attention should be paid to every
detail in the spelling and pronunciation of the name of company. Usage of
approved name entitles the company to enter into contracts and make them legally
binding. The name of the company requires prior approval as under Section 4 and
printed under Section 12 of the Companies Act. Thus, if any representative of the
company collect bills or sign on behalf of the company, and enter in incorrect
particulars of the company, then he is personally liable.
Case Law: Hendon vs. Adelman, signatory directors were held personally liable
for stating company’s name on a signed cheque as “L R Agencies Ltd” while the
original name was “L & R Agencies Ltd.”

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Statutory Provisions For Lifting The
Corporate Veil
• D. For investigation of ownership of company:
• Under Section 216 of the Act, the Central Government has authority to
appoint inspectors to investigate and report  matters relating to the
company, and its membership for the purpose of determining the true
persons, financially interested in the success or failure of the company;
control or to materially influence the policies of the company.

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Statutory Provisions For Lifting The
Corporate Veil
• E. Fraudulent conduct:
• Under Section 339 of the Act, in case of winding up of the company, it is
found that company’s name was being used for carrying out a fraudulent
activity, the Court is empowered to hold any such person be liable for such
unlawful activities, be it director, manager, or any other officer of the
company.
• Case Law: Delhi Development Authority vs. Skipper Construction
Company,  determined that, where, corporate character is employed for the
purpose of committing illegality or for defrauding others, the court would
ignore the corporate character and will look at the reality behind the
corporate veil.
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Statutory Provisions For Lifting The
Corporate Veil
• F. Inducing persons to invest money in company:
• Under Section 36 of the Companies Act, any person making false, deceptive,
misleading or untrue statements or promises to any other person or concealing
relevant data from other person with a view to induce him to enter into either of
following:-
i. An agreement of acquiring, disposing, subscribing or underwriting securities.
ii. An agreement to secure profits to any of the parties from the yield of securities
or by reference to fluctuations in the value of securities.
iii. Agreement to obtain credit facilities from any bank or financial institution.
In such circumstances, the corporate personality can be ignored with a view to
identify the real culprit making him personally liable under Section 447 of the Act
accordingly.

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Statutory Provisions For Lifting The
Corporate Veil
• G. Furnishing false statements:
• Under Section 448 of the Act, if in any return, report, certificate, financial
statement, prospectus, statement or other document required, any person
makes false or untrue statements, or conceals any relevant or material fact,
then he is liable under Section 447 of the Act.
• H. Repeated defaults:
• Under Section 449 of the Act, if a company or an officer of a company
commits an offence punishable either with fine or with imprisonment and
this offence is being committed again within period of 3 years, such
company and officer are to pay twice the penalty of that offence in addition
to any imprisonment provided for that offence.
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• Conclusion A company has a legal personality just like all other natural
individuals, the only difference between the two is that a company even with its
legal personality cannot run or conduct its affairs as a natural person does. The
company acts on the concept of the corporate veil, this veil when misused for
fraudulent acts will reveal the true nature and real beneficiaries of the company,
thus, called the lifting of the corporate veil. The courts from time to time
implemented this rule and also brought in a few changes suitable for the situations
and for future reference

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Conclusion
• The doctrine acts as a watchdog over companies, which barks at and
bites whosoever attempts to illegally trespass the owner’s house.

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Summary
• We studied the doctrine of lifting veil with all the examples in it .

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Assessment Pattern

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 APPLICATIONS

Helps in understanding the role of lifting the corporate veil .

It helps to impart skills to remember the thin difference of the veil that
when it should be lifted up.

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 REFERENCES
• Text Books:
1.  Buy book ,Taxmann , “Companies Act 2013”ISBN-13: 978-9350713143,Taxmann
Publications Private Limited; 2013 edition (29 August 2013).
2.      Buy book Avtar Singh, “Introduction to Company Law”, 12th ed., Eastern Book
Company, Lucknow , ISBN: 9789351453505, 9789388822480.
Website:
• Lawteacher.net. (n.d.). Lifting Of The Corporate Veil | Law Teacher. [online] Available at:
https://www.lawteacher.net/free-law-essays/business-law/article-on-lifting-of-the-law-essays.
php
• https://blog.ipleaders.in/corporate-veil/
http://kanoon.nearlaw.com/2017/10/16/lifting-corporate-veil-lifting-means/
• Journal
• Journal of Corporate Law Studies: Vol 20, No 1
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THANK YOU

For queries
Email: geetika.e5562@cumail.in