lifting the corporate veil

A company is a legal person distinct from its members (Salomon v. Salomon & Co., House of Lords, 1897), so its members are not ordinarily liable for its debts. Courts nevertheless lift or pierce this corporate veil when the company is a sham or façade, used for fraud or improper conduct, to evade tax or legal obligations, or where the public interest requires it; enemy character in wartime is another classic instance.

Statute also lifts the veil: under the Companies Act, 2013, persons knowingly party to fraudulent conduct of business may be made personally liable (Section 339), and misstatements in a prospectus or fraudulent incorporation attract personal liability. Indian courts treat veil-lifting as an exception to be used sparingly.

Example

Finding that the new company was formed only to defeat the decree, the court went behind the corporate veil and attached the directors’ assets.

In Indian law

• Section 339, Companies Act, 2013
• Delhi Development Authority v. Skipper Construction Co. (P) Ltd., 1996 INSC 619: veil lifted where corporate form used for fraud

See also

corporate personality · legal personality · memorandum of association · winding up

Read more in the study notes

• Lifting the corporate veil (Company Law)
• Legal personality: natural and juristic persons (Jurisprudence)