Piercing / Disregarding the Corporate Veil II

The doctrine of piercing the corporate veil is as well settled as the Salomon, [1897] AC 22 principle itself. In Life Insurance Corporation of India v. Escorts Ltd., (1986) 1 SCC 264, this Court held:

Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern.

This statement of the law was followed in Union of India v. ABN Amro Bank, (2013) 16 SCC 490. Similarly in Balwant Rai Saluja v. Air India Ltd., (2014) 9 SCC 407, this Court in following Escorts Ltd., held:

The doctrine of “piercing the corporate veil” stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with its own legal rights and obligations. It seeks to disregard the separate personality of the company and attribute the acts of the company to those who are allegedly in direct control of its operation. The starting point of this doctrine was discussed in the celebrated case of Salomon. Most of the cases subsequent to Salomon attributed the doctrine of piercing the veil to the fact that the company was a ‘sham’ or a ‘façade’. However, there was yet to be any clarity on applicability of the said doctrine. In recent times, the law has been crystallized around the six principles formulated by Munby J. in Ben Hashem v. Ali Shayif, 2008 EWHC 2380 (Fam). The principles laid down by Ben Hashem have been reiterated by the UK Supreme Court by Lord Neuberger in Prest v. Petrodel Resources Ltd., (2013) 2 AC 415, UKSC.

Similarly in Delhi Development Authority v. Skipper Construction Company (P) Ltd., (1996) 4 SCC 622…

It is thus clear that, where a statute itself lifts the corporate veil, or where protection of public interest is of paramount importance, or where a company has been formed to evade obligations imposed by the law, the Court will disregard the corporate veil. Further, this principle is applied even to group companies, so that one is able to look at the economic entity of the group as a whole.

Hon’ble Justice R.F. Nariman, Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta, [Civil Appeal Nos. 9402-9405 OF 2018].

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When the history of the corporate veil is written, the year 2013 will perhaps be given as much prominence as the year 1897. Judgment of Lord Sumption contains a masterly analysis and is likely to become the definitive authority on corporate veils, in the years ahead. 

It is evident, especially after Petrodel Resources, that the law in India could not be more different. However, since the Supreme Court is yet to deeply examine the question in the light of recent developments, the scope of the corporate veil remains an open question in India.