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Lifting the Corporate Veil

Courtesy/By: Joanna Lisa Mathias | 2021-01-22 16:33     Views : 211

Corporate personality is the most fundamental principle of company law. It is on this fundamental and fundamental principle that a company becomes an entity that is completely separate from its shareholders, promoters, directors, etc. Thus, a legal entity is created when a company is incorporated, which is separate from its members, employees, shareholders, directors, promoters, etc., which has led to the 'corporate veil' concept. The purpose of creating this doctrine was to provide efficiency and convenience for business. A limited liability that is offered to its shareholders is the main stimulus behind the formation of a corporation or a company and, because of this limited liability, the liability of each shareholder is limited to what he or she has contributed to the company as shares. The law goes behind the mask or veil of incorporation in the Doctrine of 'Lifting the Corporate Veil' to decide the real individual or group of people behind the company. The Courts and Jurists have considered the 'lifting the corporate veil' concept. According to Gower's common dictum, the courts would lift the veil if the company's corporate personality is blatantly used as a means of committing fraud, improper behavior or where the protection of the public interest is of paramount concern or where tax evasion was the sole purpose of forming the company. Where the same legal entity is used to defeat public convenience, excuse wrongdoing, or defend crime, the company is considered to be an association of individuals rather than a legal entity. In order for the idea of 'corporate veil lifting' to be simple, it is important to understand the corporate personality of an organization. Previously, the courts did not place any criminal responsibility on the corporation on the basis that they are an artificial personality, fully unable to have any menstruation, however, later the courts adopted an entirely different approach in which they held that the corporate section can be criminally prosecuted by judicial pronouncements. The concept of an organization having a separate legal entity was strongly established in the Salomon v. Salomon& Co. landmark case. The Indian courts use the term "veil" as a metaphor, but in various situations, it describes the practice of raising the veil differently. There are three distinct views taken by the court when deciding various cases. These are piercing the veil, penetrating the veil, and extending the veil.

Statutory Provisions for lifting the corporate veil- When the   membership is reduced (Under section 45 of the Companies Act),  Improper use of Name (Section 147(4), Fraudulent conduct (Section 542), Failure to refund application money (Section 69(5), Misrepresentation in the prospectus (Section 62), Holding Subsidiary companies (Section 212),  For facilitating the task of an inspector to investigate the affairs of the company (Section 239)   

It is thus abundantly clear that incorporation at all times and under all cases does not cut off personal liability. A separate entity's sanctity is only maintained to the degree that the entity is compatible with the underlying policies that give it existence.



This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.

Courtesy/By: Joanna Lisa Mathias | 2021-01-22 16:33