5 Lifting of Corporate Veil.pptx

company law

1. Corporate Veil

2. THE VEIL OF CORPORATE PERSONALITY After incorporation a company becomes a legal person separate and distinct from its members. It has a corporate personality of its own with rights, duties and liabilities separate from those of its individual members. A veil of incorporation exists between the company and its members and due to this a company is not identified with its members.

3. The most illustrative case in this regard is the case decided by House of Lords-  Salomon v. A Salomon & Co. Ltd . In this case, Mr. Salomon had the sole proprietorship business of shoe and boots manufacture. later a company (Salomon & Co. Ltd .) was incorporated by Salomon with seven subscribers-Himself, his wife, a daughter and four sons . All shareholders except him held only one share each. The company purchased the business of Salomon for 39000 pounds.

4. The company in less than one year ran into difficulties and liquidation proceedings commenced.  The assets of the company were not even sufficient to discharge the liabilities of the company. The House of Lords unanimously held that the company had been validly constituted, since the Act only required seven members holding at least one share each and that Salomon is separate from Salomon & Co. Ltd. Thus Saloman was not personally liable

5. LIFTING THE VEIL OF CORPORATE PERSONALITY It may be understood that sometimes in order to protect themselves from the liabilities of the company its members often take the shelter of the corporate veil. Sometimes these corporate veils are used as a vehicle of fraud. To prevent unjust and fraudulent acts, it becomes necessary to lift the veils to look into the realities behind the legal face and to hold the individual member of the company liable for its acts. The corporate veil has been lifted by the courts and legislatures both for the interest of equity, justice and good conscience.

6. Lifting of Corporate veil: At times it may happen that the corporate personality of the company is used to commit frauds or illegal acts . Since an artificial person is not capable of doing anything illegal or fraudulent, the veil of corporate personality might have to be removed to identify the persons who are really guilty . This is known as ‘lifting of corporate veil’.

7. It refers to the situation where a shareholder is held liable for its corporation’s debts despite the rule of limited liability and/of separate personality. The veil doctrine is invoked when shareholders blur the distinction between the corporation and the shareholders. A company or corporation can only act through human agents that compose it.

8. The entity of the corporation is entirely separate from that of its shareholders; it bears its own name and has a seal of its own; its assets are distinct and separate from those of its members; it can sue and be sued exclusively for its purpose; liability of the members are limited to the capital invested by them .

9. In course of time, the doctrine that a company has a separate and legal entity of its own has been subjected to certain exceptions by lifting of the veil . It is when we look behind the smoke-screen of the company and find the individual who can be identified with the company. As a consequence of the lifting of the corporate veil, the company as a separate legal entity is disregarded and the people behind the act are identified irrespective of the personality of the company. So, this principle is also called  “disregarding the corporate entity”.

10. LIFTING THE CORPORATE VEIL Lifting the corporate veil refers to the possibility of looking behind the company’s framework (or behind the company’s separate personality) This is done to make the members liable, as an exception to the rule that they are normally shielded by the corporate veil i.e . they are normally not liable to outsiders or they are normally liable to pay the company what they agreed to pay by way of share purchased or guarantee).

11. The principle of veil of incorporation is a legal concept that separates the personality of a corporation from the personalities of its shareholders and protects them from being personally liable for the company’s debts and other obligations . While a company is a separate legal entity, the fact that it can only act through human agents that compose it, cannot be neglected. Since an artificial person is not capable of doing anything illegal or fraudulent, the face of corporate personality might have to be removed to identify the persons who are really guilty . This is known as lifting of the corporate veil.

12. The circumstances under which corporate veil may be lifted can be categorized broadly into two following heads: Statutory Provisions Judicial interpretation

13. STATUTORY PROVISIONS Section 5 of the Companies Act states that the individual person committing a wrong or an illegal act to be held liable as ‘officer who is in default’. This section gives a list of officers who shall be liable to punishment or penalty under the expression ‘officer who is in default’ which includes a managing director or a whole-time director.

14. Section 45 – Reduction of membership below statutory minimum: This section provides that if the members of a company is reduced below seven in the case of a public company and below two in the case of a private company and the company continues to carry on the business for more than six months, while the number is so reduced, every person who knows this fact and is a member of the company is severally liable for the debts of the company contracted during that time.

15. In the case of  Madan lal v. Himatlal & Co .  the respondent filed suit against a private limited company and its directors for recovery of dues. The directors resisted the suit on the ground that at no point of time the company did carry on business with members below the legal minimum and therefore, the directors could not be made personally liable for the debt in question. It was held that it was for the respondent being  dominus litus ,  to choose persons of his choice to be sued.  

16. Section 147-   Mis description of name: An officer of a company who signs any bill of exchange, hundi , promissory note, cheque wherein the name of the company is not mentioned in the prescribed manner, such officer can be held personally liable to the holder of the bill of exchange, hundi etc. unless it is duly paid by the company.

17. Failure to Deliver Share Certificate [Section 113(2)] I n case a company fails to deliver the share certificate within 3 months of allotment and within 2 months of application for transfer, then the company as well as every officer of the company who is at fault shall be punishable with fine upto Rs. 5000 per day till such default continues.

18. Failure to return application money (Section-39) In the case of issue of share by a company, whether to the public or by way of rights if, minimum subscription as stated in the prospectus has not been received directors shall be personally liable to return the money with interest, in case application money is not repaid within a prescribed period.

19. Misrepresentation in prospectus (Section- 34 and 35) In case of misrepresentation in a prospectus, every director, promoter and every other person who authorizes such issue of prospectus incurs liability towards those who subscribed for shares on the faith of untrue statement.

20. Fraudulent Conduct (Section 339): Where in the case of winding-up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or any other person, or for any fraudulent purpose, those who are knowingly parties to such conduct of business may be made personally liable for all or any debts or other liabilities of the company.

21. CRIMINAL LIABILITY FOR MISSTATEMENTS IN PROSPECTUS  Where a prospectus, issued, circulated or distributed, includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, then every person who authorizes the issue of such prospectus shall be liable under section 447.  But this section shall not apply to a person if he proves that such statement or omission was immaterial or that he had reasonable grounds to believe that the statement was true or the inclusion or omission was necessary.

22. Civil liability for misstatement in prospectus: where a person has subscribed for securities of a company acting on any statement included in the prospectus which is misleading and the person has sustained any loss or damage as a consequence thereof, Then the company and every person who-   is a director of the company at the time of the issue of the prospectus; has authorized himself to be named and is named in the prospectus as a director of the company, or has agreed to become such director; is a promoter of the company; has authorized the issue of the prospectus, and is an expert (Chartered Accountant etc) referred to section26 (5) Shall, be liable to pay compensation to every person who has sustained such loss or damage.  

23. Punishment for Fraudulently Inducing Persons to Invest money: any person who, either knowingly or recklessly makes any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter into- any agreement for, or with a view to, acquiring, disposing of subscribing for or under- writing, securities, or

24. any agreement, the purpose or the pretend purpose of which is to secure a profit to any of the parities from the yield of securities or by reference to fluctuation in the value of securities; or any agreement for, or with a view to, obtaining credit facilities from any bank or financial institutions, shall be liable for action under section 447.

25. Investigation of Ownership of Company- Sec 216 empowers the central government to appoint one or more inspectors to investigate and report on matters relating to the company, and its membership for the purpose of determining the true persons- who are or have been financially interested in the success or failure of the company; or Who are or have been able to control or to materially influence the policy of the company.

26. Liability for ultra vires acts: An act, legal in itself, but not authorized by the object clause of the Memorandum of Association of a company or statute, is Ultra Vires the company. Hence, it is null and void. Directors and other officers of a company will be personally liable for those acts which they have done on behalf of a company if the same are ultra vires the company.

27. The doctrine of ultra- vires acts evolved in the case  Ashbury Railway Carriage & Iron Company Ltd v. Hector Riche here a company entered into a contract for financing construction of railway lines, and this operation was not mentioned in the memorandum. The House of Lords held this action as ultra- vires and contract, null and void.

28. Judicial Provisions For Lifting The Veil

29. FRAUD OR IMPROPER CONDUCT- The Courts pierce the corporate veil when it is felt that fraud is or could be committed behind the veil. The Courts will not allow the Corporate Veil to be used as an engine of fraud. Gilford Motor Company Ltd v. Horne Mr. Horne was an ex-employee of The Gilford motor company and his employment contract provided that he could not solicit the customers of the company. In order to defeat this, he incorporated a limited company in his wife’s name and solicited the customers of the company. The company brought an action against him. The Court of appeal was of the view that “the company was formed as a device, to mask the effective carrying on of business of Mr. Horne” it was clear that the main purpose of incorporating the new company was to perpetrate fraud.

30. PROTECTION OF REVENUE- The Court has the power to disregard corporate entity if it is used for tax evasion or to circumvent tax obligations. Dinshaw Maneckjee Petit, Re; The assessee was a wealthy man enjoying huge dividend and interest income. He formed four private companies and agreed with each to hold a block of investment as an agent for it. Income received was credited in the accounts of the company but the company handed back the amount to him as a loan. This way he divided his income into four parts in a bid to reduce his tax liability. But it was held that, “the company was formed by the assessee simply as a means of avoiding tax and the company was nothing more than the assessee himself. It did no business, but was created simply as a legal entity to receive the dividends and interests and to hand them over to the assessee as loans”.

31. ENEMY CHARACTER- A company may assume an enemy character when persons in control of its affairs are residents in an enemy country. In such a case, the Court may examine the character of persons in real control of the company, and declare the company to be an enemy company. Daimler Co.Ltd V. Continental Tyre & Rubber Co.Ltd , Continental Tyre & Rubber Co.Ltd was incorporated in England The holders of all shares, except one, and all the directors were Germans, residing in Germany. Continental Tyre & Rubber Co.Ltd supplied tyres to Daimler Co.Ltd in england . Meanwhile First world war started and Diamler Co. Ltd refused the payment on the ground that Continental Tyre & Rubber Co.Ltd was an enemy company Held, the company was an alien company and the payment of debt to it would amount to trading with the enemy, and therefore, the company was not allowed to proceed with the action.

32. WHERE THE COMPANY IS A SHAM- The Courts also lift the veil where a company is a mere cloak or sham (hoax). The Courts are empowered to lift the corporate veil if they are of the opinion that such companies are mere cloaks and their personalities can be ignored in order to identify the real culprit. This principle can be seen in the prior discussed case of Gilford Motor Co Ltd vs. Horne where it was held that the newfound company was mere cloak or sham, for purpose of enabling Horne to commit breach of his agreement of not solicitating clients of his ex employer.

33. If trying to avoid a Legal Obligation. Sometimes the members of a company create another company to avoid certain legal obligations. In such cases, piercing the corporate veil allows the Courts to understand the real transactions. Eg . a company had an agreement with employees to share 20 percent of its profits with its employees as a bonus. To avoid this, the company opens another company and transfers its investment to it. The new company formed has no assets of its own and no business income either. By doing so, the principal company reduced the amount of bonus liable to be paid to its employees. The Courts, by piercing the corporate veil, can understand the real intention of the principal company and ensure that it fulfils its legal obligations

34. AGENCY OR TRUST- Where a company is acting as agent for its shareholder, the shareholders will be liable for the acts of the company. F.G.Films ltd, An American company gave loan to a British company for financing the production of a film in India The president of the American company held 90 per cent of the capital of the British company. The Board of trade of Great Britain refused to register the film as a British film. Held, the decision was valid in view of the fact that British company acted merely as the nominee of the American Company.

35. AVOIDANCE OF WELFARE LEGISLATION- Avoidance of welfare legislation is as common as avoidance of taxation and the approach of the Courts in considering problems arising out of such avoidance is generally the same as avoidance of taxation. It is the duty of the Courts in every case where welfare legislation is being avoided to get behind the smokescreen and discover the true state of affairs.

36. Workmen of Associated Rubber Industry ltd., v. Associated Rubber Industry Ltd “A Limited” purchased shares of “B Limited”. The dividend in respect of these shares was shown in the P&L account of the company, year after year and was taken into account for the purpose of calculating the bonus payable to workmen of the company. Sometime later the company transferred the shares of B Limited, to C Limited a subsidiary, wholly owned by it. Thus, the dividend income did not find place in the Profit & Loss Account of A Ltd., with the result that the surplus available for the purpose for payment of bonus to the workmen got reduced.   Here a company created a subsidiary and transferred its investment to it, in a bid to reduce its liability to pay bonus to its workers. Thus, the Supreme Court brushed aside the separate existence of the subsidiary company.  

37. THANK YOU!

38. To protect public policy and prevent transactions contrary to public policy. Where the conduct of the company is in conflict with public interest or public policies, Courts are empowered to lift the veil and hold such persons liable who are guilty of the act. Protecting public policy is a just ground for lifting the corporate veil.

39. Section 239 – Power of inspector to investigate affairs of another company in same group or management: It provides that if it is necessary for the satisfactory completion of the task 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 group. Section 275-  Subject to the provisions of Section 278, this section provides that no person can be a director of more than 15 companies at a time. Section 279 provides for a punishment with fine which may extend to Rs. 50,000 in respect of each of those companies after the first twenty.

40. Section 299-  This Section gives effect to the following recommendation of the Company Law Committee: “It is necessary to provide that the general notice which a director is entitled to give to the company of his interest in a particular company or firm under the proviso to sub-section (1) of section 91-A should be given at a meeting of the directors or take reasonable steps to secure that it is brought up and read at the next meeting of the Board after it is given .  The section applies to all public as well as private companies. Failure to comply with the requirements of this Section will cause vacation of the office of the Director and will also subject him to penalty under sub-section (4).   Sections 307 and 308-  Section 307 applies to every director and every deemed director. Not only the name, description and amount of shareholding of each of the persons mentioned but also the nature and extent of interest or right in or over any shares or debentures of such person must be shown in the register of shareholders.

41. Section 314-  The object of this section is to prohibit a director and anyone connected with him, holding any employment carrying remuneration of as such sum as prescribed or more under the company unless the company approves of it by a special resolution. Section 542-  Fraudulent conduct: If in the course of the winding up of the company, it appears that any business of the company has been carried on with intent to defraud the creditors of the company or any other person or for any fraudulent purpose, the persons who were knowingly parties to the carrying on of the business, in the manner aforesaid, shall be personally responsible, without any limitation of liability for all or any of the debts or other liabilities of the company, as the court may direct. In  Popular Bank Ltd., In re  it was held that section 542 appears to make the directors liable in disregard of principles of limited liability. It leaves the Court with discretion to make a declaration of liability, in relation to ‘all or any of the debts or other liabilities of the company’. This  section postulates a nexus between fraudulent reading or purpose and liability of persons concerned.

42. JUDICIAL INTERPRETATIONS By contrast with the limited and careful statutory directions to ‘lift the veil’ judicial inroads into the principle of separate personality are more numerous. Besides statutory provisions for lifting the corporate veil, courts also do lift the corporate veil to see the real state of affairs. Some cases where the courts did lift the veil are as follows: United States v. Milwaukee Refrigerator Transit Company –   In this case, the U.S. Supreme Court held that “where the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud or defend crime, the law will disregard the corporate entity and treat it as an association of persons.” Some of the earliest instances where the English and Indian Courts disregarded the principle established in Salomon’s case are:

43. Daimler Co. Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd – This is an instance of determination of the enemy character of a company. In this case, there was a German company .  It set up a subsidiary company in Britain and entered into a contract with Continental Tyre and Rubber Co. (Great Britain) Ltd. for the supply of tyres . During the time of war, the British company refused to pay as trading with an alien company is prohibited during that time. To find out whether the company was a German or a British company, the Court lifted the veil and found out that since the decision making bodies, the board of directors and the general body of share holders were controlled by Germans, the company was a German company and not a British company and hence it was an enemy company.  

44. Gilford Motor Co. v. Horne –  This is an instance for prevention of façade or sham. In this case, an employee entered into an agreement that after his employment is terminated he shall not enter into a competing business or he should not solicit their customers by setting up his own business. After the defendant’s service was terminated, he set up a company of the same business.

45. As a result, there are two main ways through which a company becomes liable in law: firstly through direct liability (for direct infringement) and secondly through secondary liability (for acts of its human agents acting in the course of their employment). There are two existing theories for the lifting of the corporate veil. The first is the “alter-ego” or other self theory, and the other is the “instrumentality” theory. The alter-ego theory considers if there is in distinctive nature of the boundaries between the corporation and its shareholders. The instrumentality theory on the other hand examines the use of a corporation by its owners in ways that benefit the owner rather than the corporation. It is up to the court to decide on which theory to apply or make a combination of the two doctrines.

46. The doctrine of the lifting the veil of corporate personality is a doctrine that advocates going behind and looking behind the juristic or corporate personality of a body corporate. In exceptional cases, that veil of corporate personality can be lifted; and looking behind the veil, one could see the corporate personality fading away. Courts have lifted the veil, with the objective of preventing fraud. In such cases the members of the corporation are considered as persons working for the corporation. In England, the problem was faced soon after War. The court may lift the veil of personality for a number of reasons- Firstly- it may be done to ascertain whether a company is to be treated as an “Enemy Company” in times of War. During the First World War in Dalmer Co. Ltd. V Continental Tyre & Rubber Co. ( Great Britain) Ltd ., a company which was registered in England and which should normally be treated as

47. an English Company was nevertheless held by the House of Lords to be an enemy company because, all its directors and its shareholders except one were Germans. This is, however, not a departure from the general rule that a company is distinct from its members, it only shows that its character whether friendly or enemy is to be ascertained by looking behind the veil.

48.   The Income Tax Act, 1961 Under the income tax act, there are some section where the principal of lifting of the corporate veil is applied. Section 178 applies to a company in liquidation. The liquidator of any company shall be personally liable for tax due from the company and remaining unpaid if he has failed to give notice to the income tax officer having jurisdiction to assesses the company of the fact of his appointment as liquidator of the company within 30 days of his becoming such liquidator or fails to set aside amounts equal to the amounts notifies to him by the income tax officer. The Income Tax officer’s notice notifying the amount to be set apart by the liquidator has to issue within three months of receipt by the income tax officer of the intimation of appointment of the liquidator. The liquidator personal liability is limited to the amount notified by the Income Tax officer under section 178 ( 2 ) if so notified. This is strictly not a case of lifting the corporate veil but one where for non- compliance with certain provisions in the

49. I.T. Act, the liquidator is personally held liable for the tax obligations of the company in liquidation. Sec- 1 79 ( 1 ) of the Income Tax Act is the one provision which fit in well with the concept of a lifting the corporate veil. It provides for personal liability of directors of a private company for the taxes due from a private company and becoming irrecoverable from the company, in respect of the income of the private company for any period during which it was a private company, unless the person who was a private company, unless the person who was a director during that period proves that the irrecoverability cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to

50. the affairs of the company. This is a negative provision throwing the onus on the director to prove his non- culpability. According to section 278 , where an offence under the income Tax has been committed by a company, not only the company, but also every person who, at the time of commission of the offence was incharged of and responsible to the company for the conduct of its business will also be personally liable deeming him to be guilty of such offence unless he proves that the offence was committed without his knowledge or could not be prevented in spite of all due diligence exercised by him. This does not involve the principle of lifting the corporate veil as personal guilt of the individuals is itself proved.

51. Foreign Exchange Regulation Act, 1973: Sec- 63 of this Act deems guilty for contravention of the provisions of the Act, every person in charge of and responsible to the company for its affairs. JUDICIAL APPROACH The theory of piercing the corporate veil cannot be ignored in the circumstances where in fraud, oppression and misconduct, etc is required to be detected by the court. These are the situations when the court will lift the corporate veil of the company with the view to examine the actual persons who stand behind the corporate mask. The doctrine of lifting the veil is a device which is developed to avoid the hardships of the doctrine of corporate personality.

52. The corporate veil is said to be lifted when the court ignores the company and concerns itself directly with the members or managers. In Union of India and others v. Play world electronics private limited and another the Supreme Court held that the legislature cannot be expected to enumerate each and every device which may be used by the members of the company to evade tax etc. It is at the discretion of the Court whether to lift the corporate veil of the corporation or not, because it depends on the different situations, but in some circumstances it is highly desirable for the Court to lift the corporate veil. There are various situations in which the judiciary has used this doctrine.

53. Evasion of Tax : The corporate device is often used as a means of avoiding forms of tax. It is very difficult for the legislature to plug all the gaps in the law and thus the judiciary has to stop it. The Courts very often resort to lifting of the veil in order to find out the true intent of the company. Bacha F. Guzdar v. Commissioner of Income tax, Bombay, In this case, the agricultural income was exempt from tax under the income tax Act. The income of a tea company was exempt to the extent of 60% as agricultural income and 40% was taxed as income from manufacture and sale of tea. The plaintiff, a member of the tea company received certain amount as dividend in respect of shares held by her in the company. She claimed that 60% of her dividend income should be exempt from the income tax being an agricultural income. The Supreme Court rejected the argument of the plaintiff and held that although the income in the hands of the company was partly agricultural, yet the same income when received by the shareholders as dividend could not be regarded as agricultural income. .

54. CIT v. Associate Clothiers Ltd . in this case a company was incorporated by certain assess who held all its shares. Thereafter the assess sold certain premises to the company. The question arose whether the difference between the selling price and the cost of the property should be regarded as the profits received by the assesses and therefore, taxable income because the transfer of the premises by the assesses was merely a transfer from self to self and it was not a commercial sale from person to another person, but the contention of the assesses was rejected by the Court on the ground that a company after incorporation becomes a legal person district from its shareholders and thus the sale of the premises by the assesses to the company should be regarded as a sale from one entity to another entity and the difference between the selling price and the cost of the property should be treated as the taxable income in the hands of the assesses.

55. Fraud or Improper Conduct: Where the medium of a company has been used for committing fraud and improper conduct, courts have lifted the veil and looked at the realities of the situation.. In Delhi Development Authority v . Skipper Construction Company Pvt Ltd. the DDA ad entered into a contract for construction on a piece of land. After prolonged delays and problems, the DDA had to finally order the construction company to stop the construction and hand over the land to DDA. The company inspite of a Court order to this effect, had already collected various monies from parties, agreeing to sell the space and had infact , sold the same space to more than one party in the situations. The Supreme Court stated that this was a fit case for lifting of the corporate veil and the veil must be lifted when the device of incorporation is being used for some illegal or improper purpose. The Court thus found the individual members behind the corporate body liable for the acts that they attempts to carry on through the guise of the company.

56. Avoidance of Welfare Legislation: Where it was found that the sole purpose for the formation of the new company was to use it as a device to reduce the amount to be paid by way of bonus to workmen, the supreme court uphold the piercing of the veil to look at the retranslation.   In Cases of Economic Offences: In Santanu Ray v. Union of India, it was held that in case of economic offences a Court is entitled to lift the veil of corporate entity and pay regard to the economic realities behind the legal facade.

57. In this case, it is alleged that the company had violated section 11 (a) of the central excises and salt act, 19 44. The Court held that the veil of corporate entity could be lifted by adjudicating authorities so as to determine as to which of the directors was concerned with the evasion of the excise duty by reason of fraud, concealment or willful mis - statement or suppression of facts or contravention of the provisions of the act and the rules made there under.

58. AGENCY According to this classification, the Courts examine whether or not the company is acting as an agent of some of its shareholders or other members of the company. In such a situations the veil may be lifted to make these persons liable for the companies acts.

59. In Smith Stone and knight v. Birmingham Corporation , a company required a partnership concern and registered it as a company and continued to carry on the acquired business as subsidiary company. The parent company held all the shares except five which were held in trust for the company by its directors. When the Birmingham corporation compulsorily acquired the premises for the subsidiary, the parent plaintiff corporation claimed compensation. The contention for the respondent, however was that the proper party for claiming compensation was the subsidiary and not the parent corporation as they were two separate legal entities. The Court held that the subsidiary company was nothing more than an agent of the parent company, and therefore all the acts of the subsidiary were attributable to the parent company. The subsidiary, not operating in its own behalf but on that to the parent was sufficient reason for the parent to claim compensation on behalf of the subsidiary. Thus though the separate legal entity of the subsidiary was recognised . The agency principle was applied to identify the parent company as the principle and the subsidiary as its.

60. Conclusion : The study finds that, this device merely seeks to strike a balance between the interest of the public and the concept of a separate personality. Thus the device is essentially used as a flexible tool to ensure justice. It would be defeat the object of the device if it were to be applied rigidly with no scope at all left for judicial discretion. There can be no single unifying principle that underlines the decisions of the Courts. Although on ad hoc explanation may be offered by a Court which so decides, there is no principle approach to be derived from the authorities. Thus it is not possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether the veil of corporation should be lifted or not. Courts and Legislature must adopt a single set of statutory standards as to when limited liability should be disregarded. This will provide the certainty in this area of law and will allow uniformity, applying the doctrine of lifting the corporate veil.

61. Concept of limited liability: One of the main motives for forming a corporation or company is the limited liability that it offers to its shareholders . By this doctrine, a shareholder can only lose what he or she has contributed as shares to the corporate entity and nothing more. This concept is in serious conflict with the doctrine of lifting the veil as both these do not co-exist.