Judicial Interpretation – corporate veil (2)


Due to the development of the nation, the number of corporations also increased and this conflicts between them. So, in order to bring this situation under control the court took a reasonable approach and lifted the corporate veil. It is not possible to enlist each case in which this principle has been used but some of the famous cases names have been listed below.


Where the corporate veil has been used for commission of fraud or improper conduct-In Jones v. Lipman, A agreed to sell certain land to B. Pending completion of formalities of the said deal, A sold and transferred the land to a corporation which he had incorporated with a nominal capital of £100 and of which he and a clerk were the sole shareholders and directors. This was done in order to escape a decree for specific performance in a suit brought by B. The Court held that the company was the creature of A and a mask to avoid recognition and that in the eyes of equity A must complete the contract, since he had the complete control of the Ltd. during which the property was vested, and was during a position to cause the accept question to be fulfilled.


Protection of revenue

In Re Sir Dinsaw Maneckjee Petit, the assessee was a millionaire earning a huge income by way of dividend and interest. He formed four private companies and transferred his investments to every of those companies in exchange for his or her shares. The dividends and interest income received by the corporate was handed back to Sir Dinshaw as a pretend loan. It was held that the corporate was formed by the assessee purely as a way of avoiding tax and corporations thus formed were nothing quite the assesee himself. It did no business and was created as a legal entity simply to increase pretend loans to Sir Dinshaw.

Determination of the enemy character of a corporation 

In times of war the court is ready to lift the company veil and determine the character of shareholding because it did in the Daimler Co. Ltd. v. Continental Tyre and Rubber Co., where a company was incorporated in London for the purpose of selling German tyres manufactured by a German company. Its majority shareholders and all its directors were German. The English Courts held it to be an enemy company on lifting the veil and trading with this company was held to amount to trading with the enemy.


Where a company acts as an agent for its shareholders

In Re. R.G. Films Ltd.16 an American company produced a film in India technically in the name of a British Company, 90% of whose capital was held by the President of the American company which financed the assembly of the film. Board of Trade refused to register the film as a British film which stated that English company acted merely because the nominee of the American corporation.


Where Company is a sham or cloak

In the leading case of P.N.B. Finance v. Shital Prasad where an individual borrowed money from a corporation and invested it into three different companies, the lending company was advised to compile the assets of all the three companies, as they were created to try to to fraud with the lending company.Where it’s found that a corporation has abused its corporate personality for an unjust and inequitable purpose, the court wouldn’t hesitate to lift the company veil. Further, the company veil might be lifted when acts of an organization are allegedly against justice, convenience and interests of revenue or workmen or are against public interest.

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