Lifting of the veil - Company

“lifting the veil” - “piercing the veil”

In law, a company is a legal entity distinct from its members. It was so laid down by the House of Lords in 1897 in the leading case of Salomon v. Salomon & Co. [1897 AC 22 :(1895-9) All ER Rep 33] Ever since this decision has been followed by the courts in England as well as in this country. But there have been inroads in the doctrine of corporate personality propounded in the said decision by statutory provisions as well as by judicial pronouncements. By the process, described as “lifting the veil”, the law either goes behind the corporate personality to the individual members or ignores the separate personality of each company in favour of the economic entity constituted by a group of associated companies. This course is adopted when it is found that the principle of corporate personality is too flagrantly opposed to justice, convenience or the interest of the Revenue. (See : Gower's Principles of Modern Company Law, 4th Edn., p. 112.) This concept, which is described as “piercing the veil” in the United States, has been thus put by Sanborn, J. in JJ.S. v. Milwaukee Refrigerator Transit Co. [(1905) 142 Fed 247, at p 255]:

“When the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.”

30. In a number of decisions, departing from the narrow legalistic view, courts have taken note of the realities of the situation.

In Scottish Coop. Wholesale Society Ltd. v. Meyer [1959 AC 324, a case under Section 210 of the Companies Act, 1948, Viscount Simonds has quoted with approval the following observations of Lord President Cooper:

“In my view, the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view.”

M/s New Horizons Limited v. Union of India, 1995 (1) SCC 478