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In India the law relating to company is governed by the Companies Act, 1956. The word
company is derived from the latin word com meaning with or together and panis
meaning bread. Thus, company means together for bread or meals. But, company in its
ordinary sense, means an association or group of person, associated together with a
common objective, may be for profit making by doing business or for attainment of any
social or economic objective, or for any other charitable purpose. In other words we can say
that the company is a group of common minded people grouped together for common goal,
for promoting business, research, religion, trade, commerce or any other charitable
A company acquires the corporate personality on its incorporation, i.e. when it comes into
existence. A company comes into existence by registration at the office of the registrar of
companies. Section 33 of the Act provides for registration of the memorandum and articles.
The Registrar under Section 34 certifies that the company is incorporated. From the date of
incorporation, the subscribers of the memorandum and other persons, namely, the
members, shall be a body corporate by the name contained in the memorandum, capable of
exercising all the functions of an incorporated company and having perpetual succession
and a common seal.
One of the characteristics of the company thus is that it is an incorporated body of persons.
Incorporation is the formation of a legal body. It is not mere aggregate of its members. The
company is constituted into a distinct and independent person in law and is endowed with
special rights and privileges; it is in law a person distinct from its members. The advantage
of incorporation is that a company never dies. It has perpetual succession and remains in
existence however often its members change, until its dissolution. This prevents the
dissolution of the company by the death, bankruptcy, or lunacy of any of its members. This
characteristic offers to a company and its shareholders various special advantages; more
particularly, the company is permitted to acquire and hold property in its corporate name,
and enables the company to use a common seal, to contract with its shareholders and
others. In the event of the winding up of the company as stipulated in the Act, the members
shall have a limited liability to contribute to the assets of the company.
Incorporation of a company by registration was introduced in 1844 and the doctrine of
limited liability of a company followed in 1855. Subsequently in 1897 in Salomon v. Salomon
& Company [1] , the House of Lords effected these enactments and cemented into English
law the twin concepts of corporate entity and limited liability. In that case the apex Court
laid down the principle that a company is a distinct legal person entirely different from the
members of that company. This principle is referred to as the veil of incorporation.

Meaning of Lifting the Corporate Veil
Lifting or piercing the veil is corporate laws most widely used doctrine to decide when a
shareholder or shareholders will be held liable for obligations of the corporation. Lifting the
veil doctrine exists as a check on the principle that, in general, investor shareholders should
not be held liable for the debts of their corporation beyond the value of their investment. The
corporate evil is said to be lifted when the court ignores the company and concerns itself
directly with the members or the managers. It is impossible to ascertain the factors which
operate to break down the corporate insulation. The matter is largely in the discretion of the
courts and will depend upon the underlying social, economic and moral factors as they
operate in and through the corporation.
The human ingenuity however started using the veil of corporate personality blatantly as a
cloak for fraud or improper conduct. Thus it became necessary for the Courts to break
through or lift the corporate veil and look at the persons behind the company who are the
real beneficiaries of the corporate fiction.
Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or
duties of a corporation as the rights or liabilities of its shareholders. Usually a corporation is
treated as a separate legal person, which is solely responsible for the debts it incurs and the
sole beneficiary of the credit it is owed. Common law countries usually uphold this principle
of separate personhood, but in exceptional situations may "pierce" or "lift" the corporate veil.
A simple example would be where a businessman has left his job as a director and has signed
a contract to not compete with the company he has just left for a period of time. If he sets up
a company which competed with his former company, technically it would be the company
and not the person competing. But it is likely a court would say that the new company was
just a "sham", a "fraud" or some other phrase, and would still allow the old company to sue
the man for breach of contract. A court would look beyond the legal fiction to the reality of
the situation.
Despite the terminology used which makes it appear as though a shareholder's limited
liability emanates from the view that a corporation is a separate legal entity, the reality is that
the entity status of corporations has almost nothing to do with shareholder limited
liability.For example, English law conferred entity status on corporations long before
shareholders were afforded limited liability.
A corporation is clothed with a distinct personality by fiction of law, yet in reality it is an
association of persons who are in fact, in a way, the beneficial owners of the property of the
body corporate. A company being an artificial person cannot act on its own. It can act only
through natural persons. The whole theory of incorporation is based on the theory of
corporate entity but the separate personality of the company and its statutory privileges
should be used for legitimate purposes only. Where the legal entity of the company is being
used for fraudulent and dishonest purposes, the individuals concerned will not be allowed to
take the shelter behind the corporate personality. The court in such cases shall break through
the corporate shell and apply the principle of what is known as lifting or piercing the
corporate veil. The corporate veil of a company may be lifted to ascertain the true character
and economic realities behind the legal personality of the company. The doctrine laid down in
Salomon v. Salomon & co. ltd. has to be watched very carefully. It has often been supposed to
cast a veil over the personality of a limited company through which the courts cannot see. But
that is not true. The courts can and often do draw aside the veil. They can, and often do, pull
off the mask. They look to see what really lies behind.

If we look into the foreign laws, we will find out that the concept of piercing the veil in the
United States is much more developed than in the UK. The motto, which was laid down by
Sanborn, J. and cited since then as the law is that when the notion of legal entity is used to
defeat public convenience, justify wrong, fraud, or defend crime, the law will regard the
corporation as an association of persons. The same can be seen in various European
The general nomenclature of the subject in England is lifting the veil, although veil is but
one of the metaphors selected by the court. Other labels include cloak, alias, alter ego,
agent, fiction, instrumentality, puppet, and sham.

The principle is of general application. Lifting can be resorted to in all cases depending

The relevant statutory or other provisions;

The object sought to be achieved;

The impugned conduct;

The involvement of public interest; and

The interest of the affected parties.

As regards the true legal position of a company or corporate body and the circumstances
under which its entity as a corporate body will be ignored and the corporate veil lifted, so
that the individual shareholder may be treated liable for its acts, the Supreme Court has
expressed itself as follows:

The true legal position in regard to the character of a corporation or a company which owes
its incorporation to a statutory authority is not in doubt or dispute. The corporation in law is
equal to a natural person and has a legal entity of its own. This principle is well established
ever since the decision in case of Salomon v. Salomon & Co. and indeed it has always been the
well recognized principle of common law. However, in course of time, the doctrine that a
corporation or company has legal and separate entity of its own has been subjected to certain
exceptions by the application of the fiction that the veil of the corporation can be lifted and its
face examined in substance. The doctrine of the lifting of the veil thus marks a change in the
attitude that la w had originally adopted towards the concept of the separate entity or
personality of the corporation. As a result of the impact of the economic factors, judicial
decisions have sometimes recognized exceptions to the rule, about the juristic personality of
the corporation. It may be that in course of time these exceptions may grow in number and to
meet the requirements of different economic problems, the theory, about the personality of
the corporation may be confined more and more.

The doctrine of lifting of the veil has been applied in five categories of cases:
Where companies are in relationship of holding and subsidiary companies;
Where a shareholder has lost the privilege of limited liability and has become directly
liable to certain creditors of the company on the ground that, with his knowledge, the
company continued to carry on business six months after the number of its members was
reduced below the legal minimum;
In certain matters pertaining to the law of taxes, death duties and stamps, particularly
where the question of the controlling interest is in issue;
In the law relating to exchange control, and
In the law relating to trading with the enemy where the test of control is adopted.

At present the judicial approach in cracking open the corporate shell is somewhat cautious
and circumspect. It is only where the legislative provision justifies the adoption of such course
that the veil has been lifted. The courts have only construed statutes as cracking open the
corporate shield when compelled to do so by the clear words of the statute; indeed they
have gone out of their way to avoid this construction whenever possible. It is only where the
legislative provision justifies the adoption of such a course that the veil has been lifted. In
exceptional cases where courts have felt themselves able to ignore the corporate entity and
to treat the individual shareholder as liable for his acts the same course has been adopted.
Statutory Provisions wherein the Members/directors shall be individually
The Act itself provides for circumstances when corporate veil will be lifted and the individual
member/directors will be made liable for certain transactions. The statutory provisions are
as follows:
1. Reduction of membership below statutory minimum (Section 45):This Section provides
that if the number of a company is reduced below 7 in the case of a public company or
below in the case of a private company and the company continues to carry on the business
for more than 6 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.
The increased liability of a member under this Section can be avoided by the existing
members by transferring some of their shares to some nominees or other persons and thus
increasing the number of members of the company, up to or more than the minimum
number required within the time prescribed.
2.Liability for the payment of debts under this Section extends to the liabilities under
various tax statutes.
A member of a company became liable severally and jointly with the company for the debts
incurred during the period when he was the sole member of the company. He had himself
purchased the shares of the only other member of the company. All the members would be
necessary parties even if they contend that they would not be severally liable under the
circumstances of the case.

3. Improper use of name (Section 147): Under sub-section (4) of this section, 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
Where, through an oversight, however innocent and honest, an officer of the company fails
to comply with any one requirement of the provisions of sub-section (4), the personal
liability of such officer cannot be avoided even though the creditor or other person knows
that the bill, cheque, or promissory note was executed only for and on behalf of the
Liability for fraudulent conduct of business (Section 542): If in the course of the winding up
of a 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.
A) What are the motives of the fraudulent person relevant-
Whether some level of deception is necessary needs to be determined. In the case of Hilton
v.plustile ltd the plaintiff and the defendant agreed to use a medium of a company in a
tenancy arrangement in order to evade the application of the rent act 1977.The court of
Appeal held that the plaintiff was not entitled to lift the veil since he had full knowledge of
the matter at all times. However another interesting question that arises is what is the effect
of deception on the other party. The issue came up for discussion in the case of Adams
V.Cape industries plc.In considering whether the corporate form has been used in such a way
as to justify the lifting of the corporate veil, the court stated that the correct test in relation to
groups of companies was whether the company had been used as a "mere faade concealing
the true facts" applying this test Slade J. said that the "motives of the perpetrator may be
highly material" in both the classic cases intention to deceive the plaintiff was very much
present how ever it was not so in Adams V.Cape industries. So the point that needs to be
determined is whether motive is necessary for the fraud exemption to exist. However to get
any answer it is also important to find out the nature of legal right that is being denied to the

b) Is the character of the legal obligation being evaded relevant?
What the court wants is to prevent limited companies from using the corporate form to
evade a contractual or legal obligation. However one needs to question whether the nature
of this obligation will affect the ability of the court to lift the corporate veil. In the classic
cases the defendants sought to avoid the legal obligations that existed prior to their
incorporation, the main motive of incorporation was to avoid the performance of the legal
obligation in Adams v. Cape there was some discussion about the need to allow the veil to be
lifted in order to prevent Cape avoiding publicity as to its involvement in the sale of asbestos
to America and to prevent cape from having any practical benefit of the group's asbestos
trade in the states without the attendant risks of tortuous liability. However the tortuous
liability was purely speculative. For the fraud exception to exist the defendant must deny the
plaintiff some preexisting legal right. In case no legal right is existent the intention on part of
the defendant to deceive the plaintiff must be speculative and hence less substantial in
nature. if the legal right crystallizes before the incorporation of the company then the mental
element is satisfied if however the reverse then question arises if whether in such
circumstances the mental element can be satisfied. A suitable answer to this is if the legal
right crystallizes after the incorporation but before the use of the corporate form to evade
the legal right, the fraud exception should be satisfied.


C) Is the timing of the incorporation of the device company relevant?
In Creasey v. Breachwood Motors Limited, the reason for the failure of the fraud exception
was the timing of incorporation of the sham company. Here Mr. Creasey brought an action
against wrongful dismissal against his employers BW. BW served a defence but four months
later he was served a notice saying that the company was insolvent .BM took over all the
business except the plaintiff's claim. The plaintiff obtained an order for damages and interest
however before he received anything BW went was dissolved without going into liquidation.
The plaintiff sought an order substituting BM for BW on the grounds of justice. In this case
the facts may look similar to Adams v. Cape Industries however Richard Southwell sitting as
distinguished Gilford and Horne and Jones v. Lipman on the basis that in those cases the sham
companies are had been formed with the view to carry out the fraud .in the present case the
device company BM was already in business and caring on it's own business. This a very
controversial case and should have been decided on the basis of the classic cases as it should
not matter whether device companies were created to avoid the legal obligation or whether
they were in existence. Creasey should have been otherwise decided maybe on the grounds
of justice.
In Shri Ambica Mills Ltd., Re, it was held that when the question of fraud by some officers is
on the anvil, the court cannot be precluded from tearing off the veil to reach the substance of
the matter. Likewise where unjust enrichment has resulted from a transaction the veil would
be pierced by Court to prevent that.
2. Group Enterprises
Sometimes in the case of group of enterprises the Solomon principal may not be adhered to
and the court may lift the veil in order to look at the economic realities of the group itself. In
the case of D.H.N.food products Ltd. V. Tower Hamlets it has been said that the courts may
disregard Solomon's case whenever it is just and equitable to do so. In the above-mentioned
case the court of appeal thought that the present case where it was one suitable for lifting
the corporate veil. Here the three subsidiary companies were treated as a part of the same
economic entity or group and were entitled to compensation.
Lord Denning has remarked that 'we know that in many respects a group of companies are
treated together for the purpose of accounts, balance sheet, and profit and loss accounts.
Gower too in his book says, "There is evidence of a general tendency to ignore the separate
legal group" however whether the court will pierce the corporate veil depends on the facts of
the case. The nature of shareholding and control would be indicators whether the court
would pierce the corporate veil. In the case of Woolfson the house of lords held that there
was "no basis consonant with the principle upon which on the facts of this case the corporate
veil can be pierced to the effect of holding Woolfson to be the true owner of Campbell's
business or the assets of solfred "the two subsidiary companies that were jointly claiming
compensation for the value of the land and disturbance of business. The House of Lords in the
above mentioned case had remarked "properly applied the principle that it is appropriate to
pierce the corporate veil only where special circumstances exist indicating that it is a mere
faade concealing the true facts" In the figurative sense faade denotes outward appearance
especially one that is false or deceptive and imports pretence and concealment. That the
corporator has complete control of the company is not enough to constitute the company as
a mere faade rather that term suggests in the context the deliberate concealment of the
identity and activities of the corporator.
The separate legal personality of the company, although a "technical point" is no matter of
form it is a matter of substance and reality and the corporator ought not, on every occasion,
to be relieved of the disadvantageous consequences of an arrangement voluntarily entered
into by the corporator for reasons considered by the corporator to be of advantage to him. In
particular "the group enterprise" concept must obviously be carefully limited so that
companies who seek the advantages of separate corporate personality must generally accept
the corresponding burdens and limitations
In some cases the corporate veil has not been lifted prime examples of that are Adams
V.Cape Industries. This was a case involving a foreign judgment against a company. the court
in this case held that each company in the group is a separate entity. However one area
where the courts have been particularly reluctant to recognize the concept of group entity is
with relation with corporate debts. Though it is not possible to in absence of agency or trust
to hold one group liable for the debts of another in America equitable doctrines are applied
and in New Zealand as well as Ireland there are statutory provisions for pooling of assets.

3. Agency
In the case of Bodrip v. Solomon Justice Vaughan Williams expressed that the company was
nothing but an agent of Solomon " That this business was Mr. Solomon's business and no one
else's; that he chose to employ as agent a limited company; that he is bound to indemnify
that agent the company and that this agent, the company has lien on the assets"
however on appeal to the house of lords it was held that a company did not automatically
become an agent of the shareholder even if it was a one man company and they other
shareholders were dummies.
A company having power to act as an agent may do so as an agent for its parent company or
indeed for all or any of the individual members if it or they authorize it to do so. If so the
parent company or the members will be bound by the acts of its agent so long as those acts
are within actual or apparent scope of the authority. But there is no presumption of any such
relationship in the absence of an express agreement between the parties it will be difficult to
establish one. In cape attempt to do so failed. In cases where the agency agreement holds
good and the parties concerned have expressly agreed to such a agreement them the
corporate veil shall be lifted and the principal shall be liable for the a acts of the agent.

4. Trust
The courts may pierce the corporate veil to look at the characteristics of the shareholders. In
the case of Abbey and Planning the court lifted the corporate veil. In this case a school was
run life a company but the shares were held by trustees on educational charitable trusts. They
pierced the veil in order to look into the terms on which the trustee held the shares.
5. Tort
Usually the English courts have not lifted the veil on the ground of tort it is a phenomenon
not witnessed in most common law jurisdictions apart from Canada
6. Enemy character-
In times of war the court is prepared to lift the corporate veil and determine the nature of
shareholding as it did in the Daimler case where germen shareholders held the shares of an
English company during the time of world war 1.
7. Tax-
At times tax legislations warrant the lifting of the corporate veil. The courts are prepared to
disregard the separate legal personality of companies in case of tax evasions or liberal
schemes of tax avoidance without any necessary legislative authority.

Statutory support of lifting the veil( English law)
1) Reduction of number of members
Under section 24 of the companies act if a public company carries on business for more than
six months may become liable jointly and severally with the company for the payment of
debts the right that this section confers on creditors is limited. it is only that member who
remains after 6 months that can be sued. The anomaly of this section is that the liability
attaches to a member and not a director unless the director also happens to be a director as
well. This section has very little practical utility because of the limitation.

2) Fraudulent or wrongful trading: -
a) Criminal liability: -
If any business of a company is carried on with the intend to defraud creditors of the
company or creditors of any other person or for any fraudulent purpose who was knowingly a

party to the carrying on of the business in that manner is liable to imprisonment or fine or

This applies whether or not the company has been or is in the course of being wound up.
The civil liability for the same offence in now a part of the Insolvency Act.
b) Sections 213-
(1) If in the course of winding up of a company it appears that any business of the company
has been carried on with the intend to defraud creditors of the company or creditors of any
other person or for any fraudulent purpose...then
(2) The court on application of the liquidator may declare that person in who were knowingly
parties to the carrying on of business in that manner are liable to make such contributions (if
any) as the court thinks proper.
In the case of P.N.B. Finance Ltd. v. Shital Prasad Jain, a Division Bench of the Delhi High Court
granted to the plaintiff company an order of interim injunction restraining defendant
companies from alienating the properties of their ownership on the ground that the
defendant companies were merely nominees of 1st defendant who had fraudulently used the
money borrowed from the plaintiff company and bought properties in the name of defendant
companies. Protection under the doctrine of corporate veil could not be invoked in the facts
and circumstances of the case.
The court can lift the corporate veil so as to find out and expose persons who were floating
fraudulent investment schemes at high returns in the name of the company. The fraud is
criminal offence of cheating. The court ordered police investigation. The property acquired by
fraud, cheating, etc. was ordered to be followed and seized from wherever it was lying.

According to a decision of the Supreme Court, corporate veil can be lifted so as to expose any
person to liability who has committed a fraud upon the public from his sheltered position. In
this case a large number of persons were deceived by a company in a scheme of booking
plots-flats which was operated with utter dishonesty and fraud towards persons coming into
the scheme. Persons playing such frauds, though in the name of a company, can be held
personally liable

Wrongful trading is dealt with in section 214 of the insolvency act and has similar provisions
to section 213.however this section operates only in cases of insolvent liquidation and the
declaration can be made only against a person who at some time before the commencement
of winding up, was a director of the company and knew or ought to have concluded at that
time that there was no reasonable prospect that the company would avoid going into
No such declaration will take place is the court is satisfied that the person took all the
possible steps to minimize the losses.

These sections have been considered to be opposed to the Solomon principle: -

1) Abuse of company names or employment of disqualified directors
Section 216 of the Insolvency Act now makes it an offence for anyone who was a director or a
shadow director of the original company at any time during the 12 months preceding its going
into insolvent liquidation to be in any way concerned (except with leave of court) during the
next five years in the formation, management, of a company or business with a name by
which the original company was known or one so similar as to suggest an association with
that company.
A person acting in violation of 216 is under 217 personally liable, jointly and severally with
that company and any other person so liable, for the debts and other liabilities of that
company and any other person so liable, for the debts and liabilities of that company incurred
while he was concerned in its management n breach of section 216.

2) Misdiscription of the company
Section 349(4) of the companies act provides that if any officer of the company or other
person acting on its behalf
Signs or authorizes to be signed on behalf of the company any bill of exchange, promissory
note, endorsement, cheque or order for money or goods in which the companies name is not
mentioned in legible letters..He is liable to a fine and he is personally liable to the holder of
such as mentioned above.
3) Premature trading.
Another example of personal liability is section 117 (8). Under this section a public limited
company newly incorporated as such must not "do business or exercise any borrowing
power" until it has obtained from the registrar of companies a certificate that has complied
with the provisions of the act relating to the raising of the prescribed share capital or until it
has re-registered as a private company. if it enters into any transaction contrary to this
provision not only are the company and it's officers in default ,liable to pay fines but it the
company fails to comply with its obligations in that connection within 21 days of being called
upon to do so, the directors of the company are jointly and severally liable to indemnify the
other party in respect of any loss or damage suffered by reason of the company's failure.

The case of Saloman v. Saloman & Co
The principle of the independent corporate existence and the principle of corporate
personality of a company was recognized in the case of Saloman v. Saloman & Co. The facts
of the case are as such:
Mr. Aron Salomon was a British leader merchant who for many years operated a sole
proprietorship, specialized in manufacturing leather boots. In 1892, his son, also expressed
interest in the businesses. Salomon then decided to incorporate his businesses into a limited
company, which he did in the name of Salomon & Co. Ltd.
However, then an important requirement for incorporation of a company into a limited
company was that at least seven persons must subscribe as shareholders or members.
Salomon honored the clause by including his wife, four sons and daughter into the
businesses, making two of his sons the directors of the company, and he himself acted as
the managing director. Interestingly, Mr. Salomon owned 20,001 of the companys 20,007
shares the remaining six were owned by the other six shareholders. Later, the company
went into liquidation. Mr. Salomon sold his business to a new corporation for almost
39,000, of which 10,000 was a debt to him. He was thus simultaneously the companys
principal shareholder and its principal creditor.
At the time of liquidation of the company, the liquidators argued that the debentures used
by Mr. Salomon as security for the debt were invalid, and that they were based on fraud.
Vaughan Williams J. accepted this argument, ruling that since Mr. Salomon had created the
company solely to transfer his business to it, the company was in reality his agent and he as
principal was liable for debts to unsecured creditors.
The lord justices of appeal variously described the company as a myth and a fiction and said
that the incorporation of the business by Mr. Salomon had been a mere scheme to enable
him to carry on as before but with limited liability.

However, the House of Lords later quashed that Court of Appeal (CA) ruling, upon critical
interpretation of the 1862 Companies Act. The court unanimously ruled that there was
nothing in the Act about whether the subscribers (i.e. the shareholders) should be
independent of the majority shareholders. The Court ruled that the company was duly
constituted under the Act by fulfilling all the necessary requirements. The 1862 Act created
limited liability companies as legal persons separate and distinct from the shareholders.
It was held that even if one individual held almost all the shares and debentures in a
company, and if the remaining shares were held on trust for him, the company is not to be
regarded mere shadow of that individual. Lord Mac Naughten stated that:
The company is at law a different person altogether from the subscribers of the
Memorandum, and although it may be that after incorporation the business is precisely the
same as it was before, and the same persons are managers, and the same hands receive the
profits, the company in law is not the agent of the subscribers or the trustee for them.
Nor are subscribers as members liable, in any shape or form, except to the extent and the
manner provided for in the Act.
In other words, by the terms of the Salomon case, members of a company would not
automatically, in their personal capacity, be entitled to the benefits nor would they be liable
for the responsibilities or the obligations of the company. It thus had the effect that
members rights and/or obligations were restricted to their share of the profits and capital
invested. The rule in the Salomon case that upon incorporation, a company is generally
considered to be a new legal entity separate from its shareholders is recognized till date.
The case is of particular significance and a landmark in company law because firstly, it

established the canon that when a company acts, it does so in its own name and right, and
not merely as an alias or agent of its owners. Secondly, it established the important doctrine
that shareholders under common law are not liable for the companys debts beyond their
initial capital investment, and have no proprietary interest in the property of the company.
Another important landmark case is Macaura v. Northern Assurance Co. Ltd. The facts of
the case are that Mr. Macaura owned an estate and some timber. He agreed to sell all the
timber on the estate in return for the entire issued share capital of Irish Canadian Saw Mills
Ltd. The timber, which amounted to almost the entire assets of the company, was then
stored on the estate. On 6 February 1922 Mr. Macaura insured the timber in his own name.
Two weeks later a fire destroyed all the timber on the estate.
Mr. Macaura tried to claim
under the insurance policy. The insurance company refused to pay out arguing that he had
no insurable interest in the timber as the timber belonged to the company. Allegations of
fraud were also made against Mr. Macaura but were never proven. Eventually in 1925, the
case arrived before the House of Lords which decided that:
The timber belongs to the company and not to Mr. Macaura. Even though he owns all the
shares in the company, he had no insurable interest in the property of the company. Just as
corporate personality facilitates limited liability by making the corporation liable for the
debts and not the members, in a similar manner the companys assets belongs to it and not
to the shareholders.
The principle of distinct and independent existence of company consequent to its
incorporation was recognized in India even before the decision in Salomon case. The High
Court of Calcutta in a case observed that the company was altogether a separate person,
different from its shareholders and therefore the transfer was as much a conveyance, a
transfer of the property, as if the shareholders had been totally different persons. In this
case, the members transferred a Tea Estate to a company and claimed exemption from ad
valorem duty on the ground that they themselves were the shareholders in the company. It
was in fact a transfer to themselves in another name. The Court, however, rejected their
contention and ruled that in the eyes of law the company was a distinct independent
person, separate from its shareholders.


The doctrine of piercing the corporate veil is not subject to any bright line tests. Courts have
struggled for years to develop and refine their analysis of these claims. However, each new
action brings a different set of facts and circumstances into the equation and a separate
determination must be made as to whether the plaintiff has adduced sufficient evidence of
control and domination, improper purpose, or use and resulting damage. The decision
whether to pierce the corporate veil may be assisted, at least in part, upon the opinion of
qualified experts. In particular, expert testimony would be helpful to the trier of fact in
determining whether the corporation has been adequately capitalized for its intended
purpose. Ultimately, however, the judgment whether to disregard the corporate entity will
be based upon a balancing of various factors all or some of which are necessary but may not
be sufficient to pierce the veil. The Judgment of the Court Of Appeal in the Adams case can
be said to be the current law, which is nothing more than a reiteration of the law laid down
by the House of Lords in Solomons case. The bottom line being only the court will lift the
veil in the face of grave abuse of the corporate form and not otherwise. Also the trend
regarding the increase or decrease in the judicial pronouncement regarding lifting of veil of
a corporate entity cannot be ascertained as each the courts view on lifting of corporate veil
depends on the facts of each case. The Judgment of the Court Of Appeal in the Adams case
is the current law, which is nothing more than a reiteration of the law laid down by the
House of Lords in Solomon's case. The bottom line being only the court will lift the veil in the
face of grave abuse of the corporate form not otherwise.
The two significant reasons as to why exceptions to the separate entity principle exist is that
firstly, although a corporation is a legal person, it cannot always be treated like any other
independent person. For example, a corporation is not capable of committing a tort or a
crime requiring proof of mens rea unless courts disregard the separate entity and determine
the intention held by the directors and/or shareholders of the corporation. Secondly, strict
recognition of the principle may lead to an unjust or misleading outcome if interested
parties can hide behind the shield of limited liability. Judicial discretion and also legislative
action allows the separate entity principle to be disregarded where some injustice is
intended, or would result, to a third party (either internal or external to the company) with
whom the company is dealing.