CHAPTER – 5
1. Pie Piercing ing
of Corpo orporrate ate
Veil un unde derr St Stat atu utor tory
Pro Provisi vision onss
ensrined under te Co!panies Act" #$1% The Veil of a company may be lifter in certain cases or pierced as per express provisions of the Act. In other words, the advantages of ‘distinct entity’ and ‘limited liability’ may not be allowed to be enjoyed in certain circmstances. The !ompanies Act, Act, "#$% itself provides for certain cases in which the directors or members of the company may be held personally liable. In sch cases, while the separate entity of the company is maintained, the directors or members are held personally liable liable along with the company. company. These cases are discssed below. below. &a'(isdescription of na!e of te co!pany)* As per &ection $", a company
shall have its name printed on bndles, promissory notes, bills of exchange and sch other docments as may be prescribed. Ths, where an officer of the company signs on behalf of the company any contract, bill of exchange, hndi, promissory note, che'e or order of money( sch person shall be personally liable to the holder if the name of the company is either not mentioned, or is not properly mentioned. The company and its officer who is in defalt shall be liable to a penalty of one thosand rpees for each day dring which sch defalt contines or for one la)h rpees, whichever is less. In Hendon v. Adelman, 1 the direct directors ors were were held held person personall ally y liable liable for for a che'e signed by them in the name of a company stating the company as 1 (1973) New LJ 637
‘*.+. Agencies *td.’ whereas the real name of the company was *-+ Agencies *td. &+'(is*state!ents in Prospectus)* nder the provisions provided /s %0 ans
%1 of the the comp compan anie iess Act, ct, "# "#$% $% that that in case case of misr misrep epre rese sent ntat atio ion n in prospects, the company and every director, promoter, promoter, expert and every other person, who athorised sch isse of prospects shall be liable to compensate the loss or damage to every person who sbscribed for shares on faith of ntre statement. 2esides, these persons may be pnished with imprisonment for a term which shall not be less than six months bt which may extend to ten years and shall also be liable to fine which shall not be less than the amont involved in the frad, bt which may extend to three times the amont involved in the frad, as per per the the prov provis isio ions ns of &ec &ec 00 003. 3. 4owe 4oweve ver, r, a pers person on may may esca escape pe the the afores aforesaid aid convic convictio tion n if he proves proves that that sch sch statem statement ent or omissi omission on was immaterial or that he had reasonable grond to believe, and did p to time of isse of the prospects prospects believe, that the statement was tre tre or the inclsion inclsion or omission was necessary. In Edgington v. Fitzmaurice, 2 the directors of a company issed a prospects inviti inviting ng sb sbscr script iption ionss for for debent debentre res. s. Th They ey stated stated in prospe prospect ctss that that the objects of debentres were to complete alterations in the bildings of the comp compan any y and and to p prc rcha hase se ho hors rses es and and vans vans to expa expand nd the the trad tradee of the the company. it was fond that the real object of the loan was to enable the directors to pay5off pressing liabilities. The plaintiff too) debentres relying pon po n the statem statement entss in the prosp prospect ects. s. The compan company y became became insolv insolvent ent,, therefore the plaintiff sed the directors for frad. The cort held that, trhe
2 (1885) 29 Ch D 459 (465)
directors had misrepresented throgh the statements in the prospects which was material to the contract.
&c' ,ailure to Return Application (oney)*
According to &ection %6, in the case of isse of the shares by a company to the pblic, if minimm sbscription, as stated in the prospects has not been received within %# days of the isse of prospects or sch other period as may be specified by the &72I, then as per rle $$ of !ompanies 89rospects and Alottment of &ecrities: +les, "#$0, the application money shall be repaid within a period of $1 days from the closre of the isse and if any sch money is not so repaid within sch period, the directors of the company who ae officers in defalt shall be held joint and severally liable to repay the money with interest at the rate of fifteen percent per annm. In case of defalt, the company and its officer who is in defalt shall be liable to a penalty of one thosand rpees for each day dring which sch defalt contines or one la)h rpees, whichever is less.
&d',or facilitating te tas- of an nspector appointed to investigate te affairs of a Co!pany)*
9ower of inspector to investigate affairs of another company in same grop or management; It provides that if it is necessary for the satisfactory completion of the tas) of an inspector appointed to investigate the affairs of the company for the alleged mismanagement, or oppressive policy towards its members, he may
investigate into the affairs of another related company in the same management or grop. &ection "$6 provides that if an inspector appointed nder section "$# or "$" or "$% to investigate into the affairs of a company considers it necessary for the prpose of investigation, to investigate also the affairs of5 8i:
Any other body corporate which is, or has at any relevant time been the company’s sbsidiary company or holding company, or a sbsidiary of its
8ii:
holding company( Any other body corporate which is, or has at any relevant time been managed by any person as managing director or as manager, who is, or was, at the relevant time, the managing director or the manager of the
8iii:
company( Any other body corporate whose 2oard of
8iv:
or instrctions of the company or any of its directors( or Any person who is or has at any relevant time been the company’s managing director or manager or employee,
4e shall, sbject to the prior approval of the central government, investigate into and report on the affairs of the other body corporate or the managing director or manager, in so far as he considers that the reslts of his investigation are relevant to the investigation of the affairs of the company for which he is appointed. In LIFE INSURANCE CR!RA"IN F IN#IA v. HARI #AS $UN#HRA, % a a) and &.?.
sbsidiary company, /s.2egg &therland and the !orporation controlled all its sbsidiaries th managing agency. It was fond that a member of the !orporation filed a petition nder sections %63 and %6B of the !ompanies Act for removal of certain directors of the !orporation and for appoint &pecial >fficer and for investigation of the affairs of the !orporation and some of the respondents. In that case, learned !ompany @dge held that the affairs of the !orporation were condcted in a manner prejdicial to the interest of the !orporation and its shareholders and it was necessary to settle a scheme for management of the !orporation nder section %6B of the !ompanies Act, thogh the evi was not sfficient to establish misfeasance of the directors. Ths, two appeals were preferred before the a),@. held that t company and sbsidiary company are separate legal entities and broadly spea)ing, their affairs are separate. *earned @dge a for certain prpose, the affairs of the sbsidiary company are treated as the affairs of the holding company nder sections "$0 8":, %$B8%:8e: and the deleted section %%B of the !ompanies also held that it is not necessary to decide whether in every case broght nder sections %63 and %6B of the !ompanies Act, the !ort is entitled to ma)e an in'iry into the affairs of the sbsidiary company, bt it was fond on evidence that the holding compan consider and sanction transactions relating to the prchase and sale of shares of the sbsidiary company. *earned @dge frther fond that whenever the sbsidiary company fond itself in financial difficlty, it approached the holding company for fnds. *earned @dge therefore held that the sbsidiary company is a branch or a department of the holding company and the
affairs of the sbsidiary company became the affairs of the holding company and hence, the affairs of the sbsidiary company were relevant nder sections %6B and 10% read with &chedle CI of the !ompanies Act.
&e' ,or nvestigation of /0nersip of Co!pany)*
Dnder &ection "$E, the !entral =overnment may appoint one or more inspectors to investigate and report on the membership of any company for the prpose of determining the tre persons who are financially interested in the company and who controls its policy or materially inflences it. 9blic interest may sometimes re'ire the central government to )now the persons who are financially interested in a company and who control its policy or materially inflences it. The central government may appoint inspectors for finding ot these facts. The central government has also to appoint inspectors if the tribnal in the corse of any proceeding before it directs that the affairs of the company oght to be investigated as regards its membership and other prposes. 9owers of the inspectors are to extend to investigation of any circmstances sggesting the existence of any arrangement or nderstanding, which thogh not legally binding is li)ely to be observed in practice. 0
&f' ,raudulent Conduct)*
&ometimes it may appear in the corse of winding p that the bsiness of a company has been carried on with intend to defrad creditors of the company or any other person or for any fradlent prpose. In sch a case, the Tribnal, on the 4 Avtar sinh! "#nro$%&tion to Compan' aw! 11 th e$ition! p* 12+
application of the *i'idator or any creditor or contribtory of the company, may declare that the persons who were parties to sch bsiness shall be personally responsible for sch debts of the company as the Tribnal may direct. 2esides, every person who was )nowingly a party to sch condct of bsiness, is pnishable with imprisonment or fine or both. In &illiam C Leitc' (ro) Ltd, re, * goods were prchased on credit when the managing director )new that the company was hopelessly insolvent. 4e was held liable for sch frad. 2t where a company remained in bsiness only to save certain debentres from becoming invalidE, and where an aditor failed to report a frad, 3 no responsibility arose nder the section. 2t officers gilty of filing false prchase tax retrns have been held liable.B 7ven a single act of frad can amont to fradlent trading. In Coo+er erard C'emical) Ltd, re, - a company obtained a price of certain goods to be spplied by
it in advance )nowing that it wold not be able to spply the goods and paid off a creditor with that money. This was held to be sfficient to constitte fradlent trading and both the company and the creditor, who )new how he was paid, were liable to refnd the money. 5 (1932) 2 Ch 71 6 ,atri&- . L'on Lt$! re /1933Ch 7860 7 ai$stone %i$in ,rovisions Lt$! re /(1971) 1 L 1+850 8 C'ona Distri%tors Lt$! re /(1967) 2 L 3690 9 /(1978) 2 L 8660
&g' ia+ility for 2ltra Vires Actions)*
expression ltra vires means an act beyond the powers. 4ere the expression ltra vires is sed to indicate an act of the company which is beyond the powers conferred on the company by the objects clase of its memorandm. An ltra vires act is void and cannot be ratified even if all the directors wish to ratify it. &ometimes the expression ltra vires is sed to describe the sitation when the directors of a company have exceeded the powers delegated to them. Fhere a company exceeds its power as conferred on it by the objects clase of its memorandm, it is not bond by it becase it lac)s legal capacity to incr responsibility for the action, bt when the directors of a company have exceeded the powers delegated to them. This se mst be avoided for it is apt to case confsion between two entirely distinct legal principles. !onse'ently, here we restrict the meaning of ltra vires objects clase of the company’s memorandm.
1+ (187475) L** 7 *L* 653*
The doctrine of ltra vires was recognised in Indian the case of 6a'angir R. $odi v. S'am7i Lad'a 11 and have been well established and explained by the
&preme !ort in the case of A.La8)'mana)ami $udaliar v. Li/e In)urance Cor+oration / India 12. 7ven in India it has been held that the company has power
to carry ot the objects as set ot in the objects clase of its memorandm, and also everything, which is reasonably necessary to carry ot those objects. Gor example, a company which has been athoriHed by its memorandm to prchase land had implied athority to let it and if necessary, to sell it. 4owever it has been made clear by the &preme !ort that the company has, no dobt, the power to carry ot the objects stated in the objects clase of its memorandm and also what is conclsive to or incidental to those objects, bt it has no power to travel beyond the objects or to do any act which has not a reasonable proximate connection with the object or object which wold only bring an indirect or remote benefit to the company. In &ee8) v. !ro+ert 1% , the directors of a railway company which had flly exhasted its borrowing powers advertised for money to be lent on the secrity of debentres. ‘F’ lent 1## pon the faith of the advertisement and received a debentre. The cort held that, the debentre was void bt ‘F’ wold se the directors for breach of warranty of athority since they had by advertisement warranted that they had the power toborrow which is in fact they didn’t have.
&' ia+ility 2nder /ter Statutes)* 11 (1867) 4 om C 185 12 A# 1963 C 1185 13 /18730 L* 8 C*,* 427
2esides the !ompanies Act, "#$%, the directors and other officers of the company may be held personally liable nder the provisions of other stattes. •
Dnder the Income Tax Act, $6E$, where any private company is wond p and if tax arrears of the company in respect of any income of any previos year cannot be recovered, every person who was director of that company at any time dring the relevant previos year shall be jointly liable for the
•
payment of tax.$0 &imilarly nder Goreign 7xchange +eglation Act, $63%, the directors and other officers may be proceeded individally or jointly for violations nder the Act. The leading example here is the IT! &cam !ase, $1 where the 7nforcement ctober $66E. The agencies had solid evidences against the company for J$## million foreign exchange and +s. $31# !rores tax evasion frad. 2t the prosection coldn’t be started de to the complexity of case where the alleged accsed persons were spread in more than ten contries. 2t the enforcements have showed signs to register a case against the company in ay "#$1. $E
14 e&tion 179 15http::i&mrin$ia*or:;ree<2+reso%r&es:&asest%$ies:%siness<2+=thi&s:#>C <2+<=2<8+<93<2+>he<2+?=A<2+@ioation<2+Controvers'*htm 16http::ar&hive*nan&iaeBpress*&om:news:en;or&ement$ire&toratema'initiateprose &%tionaainstit&*shawwaa&e:38269
#. Piercing of Corporate Veil under 3udicial nterpretations)* It is difficlt to deal with all the cases in which corts have lifted or might lift the corporate veil. &ome of the cases where the veil of incorporation was lifted by jdicial decisions may be discssed to form an idea as to be )ind of circmstances nder which the faKade of corporate personality will be removed or the persons behind the corporate entity identified and penaliHed, if necessary. &a' ,or Protection of Reveue)*
In Sir #in)'a $anec87ee !etit, Re 19 , the assessee was a millionaire earning hge income by way of dividend and interest. 4e formed for private companies and transferred his investments to each of these companies in exchange for their shares. The dividends and interest income received by the company was handed bac) to &ir
17 A# 1927 om* 371
In CI" v. Sri $eena8)'i $ill) Ltd., 1: where the veil had been sed for evasion of taxes and dties, the cort pheld the piercing of the corporate veil to loo) at the real transaction.
In 6uggilal ;amla+at ;an+ur v. Commr. / Income "a<, 1- The assessee firm sed to promote companies. It prchased all the shares of a !ompany at the rling rates with borrowed money and very soon thereafter disposed of all of them at a profit. 2efore the Income5tax athorities the assessee claimed that it had ta)en over the shares with a view to secre the managing agency of that !ompany and had thereafter distribted the shares to its allied concerns, that the transaction was only to facilitate ac'isition of a capital asset and the profit realised from the sale of sch a capital investment was a capital gain. It was, fond by the
18 A# 1967 C 819 19 (197+) A# 529
fond by the Tribnal on which the tax5payer cold be treated as a dealer or an investor in shares has to be determined. In the present case, on the facts fond, there was a well planned scheme for earning profit. Therefore, all the transactions were impressed with the character of a commercial transaction entered into with a view to earn profits and were not capital investments and hence were liable to tax.
In (ac'a F. uzdar v. Commi))ioner o/ Income "a<, (om0a 25 , the agricltral income was exempted from tax nder the Income Tax Act. The income of a Tea company was exempt to the extent of sixty percent as agricltral income and forty percent was taxed as income from manfactre and sale of tea. The plaintiff, a member of the tea company received certain amont as dividend in respect of the shares held by her in a tea company. &he claimed that sixty percent of her income shold be exempted from the Income Tax being from agricltral income. The &preme !ort rejected the argment of the plaintiff and held that althogh the income in the hands of the company was partly agricltral, yet the same income when received by the shareholders as dividend cold not be regarded as agricltral income.
&+',or Prevention of ,raud or !proper Conduct)*
Fhere the medim of the company has been sed for committing frad or improper condct, corts have lifted the veil and loo)ed at the realities of the sitation.
2+ A# 1955 C 74
In il/ord $otor Com+an v. Horne, 21 4orne had been employed by the company nder an agreement that he shall not solicit the cstomers of the company or compete with it for a certain period of time after leaving its employment. After ceasing to be employed by the plaintiff, 4orne formed a company which carried on a competing bsiness and cased the whole of its shares to be allotted to his wife and an employee of the company, who were appointed to be its
In the year $6B", the landlord filed an eviction petition on the grond, inter alia, that the American !ompany, withot obtaining any written consent from the landlord, had parted with the possession of the premises in dispte in favor of Indian &ewing achine !ompany *imited, incorporated nder the Indian !ompanies Act and it was the said company which was in exclsive possession of the premises and thereby it was liable for eviction in view of &ection $08$:8b: of the
!@I athr =.9. observed that, ="'e conce+t o/ cor+orate entit a) evolved to encourage and +romote trade and commerce 0ut not to commit illegalitie) or to de/raud +eo+le. &'ere, t'ere/ore, t'e cor+orate c'aracter i) em+loed /or t'e +ur+o)e o/ committing illegalit or /or de/rauding ot'er), t'e Court ould ignore t'e cor+orate c'aracter and ill loo8 at t'e realit 0e'ind t'e cor+orate veil )o a) to ena0le it to +a)) a++ro+riate order) to do 7u)tice 0eteen t'e +artie) concerned *
Grthermore, the cort pierced the corporate veil and ordered the tenant to vacate the premises. In I.;.$. (a)'eer v. Lona C'a8ola 2> , the 4igh !ort of Nerala held that the re'irement of premises for rnning the bsiness of the company is altogether different from its re'irement for the personal se of the director. Therefore, a sit for eviction against the tenant occpying the premises wold not lie and he cannot be compelled to vacate the same to ma)e it available for residential se of the
&c' ,or te 4eter!ination of te Real Caracter of a Co!pany)*
!ompany being an artificial person cannot be an enemy or friend. 4owever, dring war, it may become necessary to lift the veil and see the persons behind as to whether they are enemies or friends. It is becase, thogh a company enjoys a distinct entity, its affairs are essentially rn by individals.
24 (2++3) 115 Comp* Cas 127 (er*)
In #aimler Com+an Ltd. v. Continental "re Co. 3reat (ritain4 Ltd., 2* a company was incorporated in *ondon by a =erman company for the prpose of selling tyres manfactred in =ermany. Its majority shareholders and all the directors were =ermans. >n declaration of war between 7ngland and =ermany in $6$0, it was held that since both the decision ma)ing bodies, the 2oard of
persons who are gilty of sch disobedience for pnishing them for the contempt of the cort. The &preme !ort of India observed in Li/e In)urance Cor+oration v. E)cort) Ltd.2: that; =enerall and 0roadl )+ea8ing, e ma )a t'at t'e cor+orate veil ma 0e li/ted 'ere a )tatute it)el/ contem+late) li/ting t'e veil, or /raud or im+ro+er conduct i) to 0e +revented, or a ta
&d'ere ,or!ation of Su+sidiaries is only to Act as an Agent for te Holding Co!pany)*
A company may sometimes be deemed to have lost its individality in favor of its principal and treated merely as an agent or trstee. In Smit', Stone ;nig't v. (irming'am Cor+n. 2- , it was observed that it is well settled that the mere fact that a man holds all the shares in a company does not ma)e the bsiness carried on by that company his bsiness, nor does it ma)e the company his agent for the carrying of bsiness. This proposition is jst a tre if the 28 (1986) 1 CC 264 29 /19340 4 A = 116()
shareholder is itself a limited company. it is also well settled that there may be sch an arrangement between the shareholders and a company as will constitte the company the shareholder’s agent for prpose of carrying on the bsiness and ma)e a bsiness, the bsiness of shareholders. Ths, where an arrangement, as aforesaid, prevails, the individal shareholders may be identified for fixing their liability. In Re F.. 3Film)4 Ltd., %5 an American company prodced a film called ‘A?&>>?’ in India technically in the name of a 2ritish !ompany. The 2ritish company had a capital of $## in $ shares, 6# of which were held by the 9resident of the American company which financed the prodction of the film. In these circmstances the 2oard of Trade refsed to register the film as a 2ritish film on the grond that in the instant case the 2ritish company acted merely as the nominee of the American company. In Canada Enter+ri)e) Cor+oration Ltd. v. $ac Na0 #i)tillerie) Ltd., %1 three different debentre holders of a company transferred their debentres to their self controlled companies, which demanded repayment of the debentres. The defendant company was granted a stay against them on the grond that they were treated being identical with their companies and the cort considered the sbstance of the transaction more important than the legal form. In Som !ra8a)' Re8'i v. Union o/ India, %2 the assets and bsiness of 2rmah &hell was ac'ired and vested in the !entral =overnment. The aggrieved employee, who had certain rights as to 9rovident Gnd etc. against the former company, claimed them against the =overnment by means of a writ petition. 4is claim was resisted 3+ (1953) A = 615 31 (1987) 1 L 813 32 (1981) 1 CC 449
on the plea that the nderta)ings had been vested to a company which was registered nder the !ompanies Act and therefore the 'estion of writ against a private company wold not arise. 2y rejecting the contention r. @stice Nrishna Iyer held that since whole nderta)ing had been vested in !entral =overnment, it had become a state nderta)ing. The learned jdge emphasiHed that law shold not go by the fact that whether the company is registered nder the !ompanies Act or otherwise, bt by the natre of the fnctions which the nderta)ing was performing.
&e' n Case of Econo!ic /ffences)*
It is the obligation of every citiHen to pay the taxes honestly withot resorting to sbterfges. It is p to the cort to ta)e stoc) to determine the natre of the new and sophisticated legal devices for economic offences and to expose the devices for what they really are and to refse to give jdicial benediction. %% In Santanu Ra v. Union o/ India, %> it was held that in the case of economic offences a cort is entitled to lift the veil of corporate entity and pat regard to the economic realities behind the legal faKade. 4ere, it was alleged that the company had violated &ection $$8a: of the !entral 7xcises - &alt Act, $600. The cort held that the veil of the corporate entity cold be lifted by adjdicating athorities so as to determine as to which of the directors was concerned with the evasion of the excise dty by reason of frad, concealment or willfl mis5statement or sppression of facts or contravention of the provisions of the Act and the rles made therender. 33 ?reewhees (#n$ia) Lt$* @* @e$a itra(Dr*) 34 /19890 65 Comp* Cas* 196 (Dehi)
In Boda/one International Holding) (B v. UI, %* 4tchinson International 8non5 resident company: held $##O shares of !=9 Investments 4oldings *td. 8non5 resident company: which in trn held E3O shares in the Indian company 4tchinson57ssar. 4tchinson57ssar was a joint ventre between 4tchinson International and 7ssar. Vodafone International 4oldings 2V 8non5resident company: ac'ired the entire share capital of !=9 Investments 4oldings *td. from 4tchison International. This reslted in an indirect transfer of E3O shareholding in 4tchinson57ssar to Vodafone. The 'estion which arose was, whether the income accring to 4tchinson as a reslt of the transaction cold be deemed to accre or arise in India by virte of &ec. 6 of the Income Tax Act. The Income Tax
&f' ere Co!pany is used to avoid elfare egislation)* 35 Vodafone Internat ional 4oldings 2V v. D>I, inistry of Ginance and Asst.
36 @o$a;one #nternationa o$ins @ v* nion o; #n$ia! /2++90 179 >AEAN 129 (C)*
In cases where it is fond that the sole prpose of the formation of a new company was to se it as a device to avoid liability nder any welfare legislation, the cort may lift the corporate veil to loo) at the real transaction and prpose behind it. In &or8men o/ A))ociated Ru00er Indu)tr Ltd. v. "'e A))ociated Ru00er Indu)tr Ltd., ('avnagar ,%9 a new company was created wholly owned by the principal
company, with no assets of its own except those transferred to it by the principal company, with no bsiness or income of its own except receiving dividends from shares transferred to it by the principal company and serving no prpose whatsoever except to redce the gross profit of the principal company. The &preme !ort fond that the creation of nw company was intended as a device to redce amont of bons payable to wor)men of the principal company and therefore the separate existence of the two companies had to be ignored while compting the bons. The cort frther observed; =It i) t'e dut o/ t'e Court, in ever ca)e 'ere ingenuit i) e<+ected to avoid ta
In #el'i "ran)+ort Cor+oration v. #.".C. $azdoor Congre)), %: respondents were reglar employees of the appellant
37 A# 1986 C 1* 38 1991 A# 1+1
!orporation on the grond that they became inefficient in their wor) and started inciting other members not to perform their dties. The respondents and their Dnion filed writ petition in 4igh !ort, challenging the constittional validity of +eglation 68b:, which gave the management right to terminate the services of an employee by giving one monthLs notice or pay in lie thereof. The
&g' ere a co!pany is used for llegal or !proper Purpose)*
!orts have shown themselves willing to lift the veil where device of incorporation is sed for some illegal or improper prpose.
In !N( Finance Limited v. S'ital !ra)ad 6ain, %- in prsance to a re'est made by ‘&’, the financial advisor of a financing pblic limited company, granted a loan of fifty la)h rpees to ‘&’ on his representation that he wold tiliHe the said amont for the prchase of immovable property in 5 2ombay 4igh !ort allowed the property ac'ired nder fradlent schemes to be chased even in the hands of third persons.
&'To Punis for te Conte!pt of te Court)*
The doctrine of lifting of the corporate veil can also be sed to prevent abse of process of !ort, and pnish for the contempt.
39 /19830 54 Comp* Cas* 66 (Dehi) 4+ /19990 95 Comp* Cas* (om*)
In #el'i #evelo+ment Aut'orit v. S8i++er Con)truction Co. 3!.4 Ltd., >1 the &preme !ort has observed that the lifting or piercing the corporate veil can be nderta)en by !ort to see the real men behind the veil who are involved in defrading others by corrpt and illegal means in deliberate
defiance of the
!ort’s order. In the instant case, the company was defrading others in deliberate disobedience of &preme !ort’s orders which amonted to contempt of the cort. 2 a firm of two partners agrred to sell two floor to parties bt cancelled the agreement. *itigation followed and the 4igh !ort restrained the firm from selling the property. In the meantime, a private company was floated by the two partners who being the only two shareholders became the chairman and the managing director respectively and the property was transferred to the company. In spite of the 4igh !ort restraint order the company sold off two floors. In answering to the contempt proceedings, the partners of the firm too) the
41 A# 1996 C 2++5 42 %pra note 27
plea that the sale had been made by the company and therefore the firm had not disobeyed the cort’s order. The !ort held that, once the corporate veil is lifted, it is crystal clear that the orders of the cort were disobeyed by the respondents. The company was admittedly promoted by the respondents alone. They only were its shareholders and directors. >ne of the respondents was its chairman and the other respondent, anaging
&i' ,or te 4eter!ination of Tecnical Co!petence of te Co!pany)*
The &preme !ort in Ne Horizon) Ltd. v. Union o/ India, >% heald that the experience of the promoters cold well be considered as the experience of the company in determining its technical competence.
43 /19950 1 Comp* L*J* 1++(C)
