CHANAKYA NATIONAL LAW UNIVERSITY,

PATNA

CORPORATE LAW - 1

PROJECT WORK SUBMITTED IN FULFILLMENT OF THE COURSE OF

CORPORATE LAW-1

“DHN FOOD DISTRIBUTOR V. LONDON BOROUGH OF TOWER

HAMLETS,[1976] 3 ALL E.R.462

SUBMITTED TO: SUBMITTED BY:

MR. SHANTANU BRAJ CHOUBEY SHASHI BHUSHAN KUMAR

(FACULTY OF CORPORATE LAW) ‘1431’ “BBA-LLB”

FOURTH YEAR

02/09/2018

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 DECLARATION BY THE CANDIDATE

I hereby declare that the work reported in the BBA.LL.B (Hons) Project Report entitled
“DHN FOOD DISTRIBUTOR V. LONDON BOROUGH OF TOWER
HAMLETS,[1976] 3 ALL E.R.462” submitted at “CHANAKYA NATIONAL LAW
UNIVERSITY, PATNA” is an authentic record of my work carried out under the
supervision of “MR. SHANTANU BRAJ CHOUBEY” I have not submitted this work
elsewhere for any other degree. I am fully responsible for the contents of my Project Report.

(SHASHI BHUSHAN KUMAR)

CHANAKYA NATIONAL LAW UNIVERSITY

Date (02/09/2018)

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 ACKNOWLEDGEMENT

Any project completed or done in isolation is unthinkable. This project, although prepared by
me, is a culmination of efforts of a lot of people. Firstly, I would like to thank our teacher
“MR. SHANTANU BRAJ CHOUBEY” for his valuable suggestions towards the making of
this project. Further to that, I would also like to express my gratitude towards my seniors who
were a lot of help for the completion of this project. The contributions made by my
classmates and friends are, definitely, worth mentioning. I would like to express my gratitude
towards the library staff for their help also. Last, but far from the least, I would express my
gratitude towards the Almighty for obvious reasons.

SHASHI BHUSHAN KUMAR

‘1431’

BBA-LLB

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AIM AND OBJECTIVES OF THE STUDY:

1. To present detailed study on the topic of “DHN FOOD DISTRIBUTOR V. LONDON

BOROUGH OF TOWER HAMLETS”.

2. To present detailed study on company and coroporate veil.

3.To study various landmark cases.

RESEARCH METHODOLOGY:

For the purpose of research, the researcher has followed the doctrinal method of research.
The researcher has relied upon various primary and secondary sources to look for information
related to the information about“DHN FOOD DISTRIBUTOR V. LONDON BOROUGH OF
TOWER HAMLETS.

SCOPE AND LIMITATIONS:

Though this is an immense project and pages can be written over the topic but because of
certain restrictions and limitations I was not able to deal with the topic in great detail.

METHOD OF WRITING:

The method of writing followed in the course of this research paper is primarily descriptive.

MODE OF CITATION:

The researcher has followed a uniform mode of citation throughout the course of this research
paper.

SOURCES OF DATA:

Sources of data include primary as well as secondary sources of data.

PRIMARY SOURCE:-

SECONDARY SOURCE:-

 BOOK
 WEBSITE
 ARTICLE

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 TABLE OF CONTENTS

INTRODUCTION .................................................................................................................................. 6
DHN FOOD DISTRIBUTOR V LONDON BOROUGH OF TOWER ................................................. 8
HELD ...................................................................................................................................................... 9
Leagal principal : corporate veil ........................................................................................................... 10
Case law ................................................................................................................................................ 13
CONCLUSION ..................................................................................................................................... 14
BIBLIOGRAPHY:- .............................................................................................................................. 15

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 INTRODUCTION

A company is an artificial person being created by the law that has an existence separate and
apart from its owners. In other words, a company is an artificial person created by law, with a
distinctive name, a common seal and perpetual succession of members. It can sue and be sued
in its own name. and it must incorporated under company act 1956.

Main features of company are as:-

 Artificial Legal Person:

A company is an artificial person created by law. Though it has no body, no conscience, still
it exists as a person. Like a person, it can enter into contracts in its own name and likewise
may sue and be sued in its own name.

 Separate Legal Entity:

A company has a distinct entity separate from its members or shareholders. Therefore, a
shareholder of the company can enter into contract with the company. He/she can sue the
company and be sued by company.

 Common Seal:

Being an artificial person, company cannot sign the documents. Hence, it uses a common seal
on which its name is engraved. Putting the common seal on papers relating to company’s
transactions makes them binding on the company.

 Perpetual Existence:

Unlike partnership, the existence of a company is not affected by the death, lunacy,
insolvency or retirement of its members or directors. This is because the company enjoys a
separate legal existence from that of its members. It is said, “Members may come, members
may go but the company goes for ever”. It is created by law and is dissolved by law itself.

 Limited Liability:

The liability of the members of a company is normally limited to the amount of shares held or
guarantee given by them.

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  Transferability of Shares:

The member of a public limited company can sell his shares to others without the consent of
other shareholders. Yes, he has to follow the procedure laid down in the Companies Act for
transferring his shares. However, there are restrictions for transferring shares to others in case
of a private limited company.

 Separation of Ownership from Management:

The shareholders, i.e., owners being scattered all over country give right the directors to
manage the affairs of the company. The directors are the representatives of the shareholders.
Thus, ownership is separated from management.

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 DHN FOOD DISTRIBUTOR V LONDON BOROUGH OF TOWER

In this case there was an company formed in 1965 as DHN to carry the business of importing
and distributing groceries. To carry there business they need premises from which to trade ,
DHN made some arrangement with a bank while bank agree on a certain condition that bank
would buy the such property and then sell it DHN for 120,000 pounds.but DHN must paid
20,000 pound immediately on exchange of contract and rest amount with in one year.

The premises were bought by bank on 115,000 pound and then transfer to bronze , a wholly
owned subsidiary of the bank. DHN went into possession and begain trading

In may 1964 bronze contracted to sell that property to DHN, the date wa subsequently
postpent untill 1966 but the contract was not completed. But in meantime DHN arrange a
loan amount of 1,00,000 pound from another sources to save the satmp duty on a conveyance
by bronze but meanwhile DHN agree with bank to purchase the share of bronze and then to
repay the loan amount for a total um of 120,000 pound.

The transcation wa carried out and the director of DHN and BRONZE was same.bronze
retain the legal title to the premises and DHN continue to use them for the purpose of the
business.

In 1969 the local authority made a compulsory purchase order and paid bronze compensation
for the value of the land under ‘r(2) of a s 5 a’1 of the land compensation act 1961.

DHN claimed that to be entitled by virtue of s5,r(6), of the 1961 act to compensation for
diturbances.but local authority contend that DHN was only license holder of bronze and
therefore he is not entitled to compenation of disturbance except for the value of the interest
in the land as a tenent from yer to year within the section of 20(i)2b of the compensation
purchase act 1965.

1
Section 5, compensation in respect of any compulsory acquisition shall be assessed in accordance with the
following rule(2)the value of the land shall subject hereinafter provided, be taken to be the amount which the
land if the sold in the open market by a willing seller might be expected to realize..(6)the provision of the rule
(2)shall not affect the assessment of compensation for disturbances or any other matter not directly based on
the value of the land.
2
Section 20(i): if any of the land subject to compulsory purchase is in the possession of a person having no
greater interest in the land than as tenent for a year or from year to year, and if that person is required to give
up possession of any land before the expiration of his term or interest in the land, he shall be entitled to
compensatin for the value of his unexpired term or interest in the land.

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HELD

DHN was entitled to compenation for disturbance for the following reasons:-

A. Since bronze was purchased by bank and after a year its share was purchased by DHN
hence the director of both the company was same , DHN were to be treated as having
an irrevocal contractual license to carry on the business on the premises. That license
empower the DHN to a ‘constructive trust’ under which bronze could not turn out
DHN. so DHN had a sufficent interest in the land to qualify them for compensation
for disturbance.
B. In the circumstance the court was entitled to look at the reality of the situtation and
accordingly pierce the corporate veil .the group was virtually a partnerhip and for the
purpose of compansation the two company should be treated as one which was
effectively DHN. hence DHN was entitled to compensation for disturbance.
C. The effect of conveyance to bronze in 1964 was to create a resulting trust in favour of
the bank but at the time when DHN repaid the loan amount and purchased the share of
bronze in 1966 an equitable interest setteled on them.DHN could have called for an
assignment at any time and had , therefore, a sufficent interest in the land to make a
competent and proper claim for compenation for disturbance.

The Court of Appeal held that DHN and Bronze were part of single economic entity.
Therefore as if DHN had owned the land itself, it was entitled to compensation for the loss of
business.

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Leagal principal : corporate veil

In dhn food case the corporate veil was used and pierce it to know that the single economic
entity of DHN food distributors to claim the compensation of disturbance which is made by
local authority.

CORPORATE VEIL

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. This protection is not ironclad or impenetrable. Where a court determines
that a company's business was not conducted in accordance with the provisions of corporate
legislation (or that it was just for illegal activities) it may hold the shareholders personally
liable for the company's obligations under the legal concept of lifting the corporate veil.

Lifiting the coroporate veil

The chief advantage of incorporation from which all others follow is, of course , the separate
legal entity of the company. However it may happen that the corporate personlity of the
company is used to commi fraud or improper or illegal acts.

Since an artificial person is not capable of doing anything illegal or fraudulent, the façade of
corporate personlity might have to be removed to identify the persons who are really guilty.
This Is known as ‘lifiting the corporate veil’.

Although, in general,the courts do not interfere and essentially go by the principal of separate
legal entity as laid down in saloman’s case3 and endorsed in many others, it may be in the
interest of the menbers in general or in public interest to identify and punish the persons who
misuse the medium of corporate personlity.

3
1897 AC 22

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The circumstances under which the courts may lift the corporate veil may brodly be
grouped under the following two heads:

1. Under statutory provisions.

2. Under judicial interpretation.

Under statutory provision:

The veil of corporate personlity may be lifited in certain cases or pierced as per express
provision of the act.In other word, the advantage of ‘distinct entity’ and ‘limited liability’
may not be allowed to be enjoyed in certain circumstances.

The company act,2013 itself provide for certain cases in which the director and the member
of the company may be held personally liable. In such cases while the separate entity of the
company is maintained, the director and member are held personally liable along with
company .

 Mis – Statement in prospectus (section 34-35)

If any misrepresentation in company prospectus then the company and all other persons who
are authorise to issue such prospectus are held to be liable to compansate the losses and
damages to every subscriber which act in good faith.

If any person found guilty they may be punished with imprisonment for a term not less than
six month but which may extend to ten years and also liable to fine which shall be not less
then amount which is involved in fraud. But he may escape from these liability if he proved
that the act was in good faith and show some reasonable ground to believe .

 Failure to return application money:

In case of issue of shares by a company to a public if he not receive minimum subscription as

stated in prospectus within thirty days and such other perioud as given by SEBI, then under
the rule of 11of company rule 2014, the application money must paid within the fifteen days
of such clousre of the issue and in failed to repay the subscription money then the authorise
person generally the directors of the company jointly or severally liable to repay the money
with interest at rate of fifteen percent per annum.

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  Misdescription of name:

Under section 12 of company act the company name is mentioned and printed all over
document like promissiory note, cheque book , bill of exchange etc .when any authorise
person sign on behalf of company name then such person is liable to that holder if the
company is misrepresent or not mentioned.

 Fraudulent conduct:

When the company is winding up and it was found that the purpose of such company is to
defraud creditors or any third perosn or any fradulent purpose those who are knowlingly
parties to such conduct of business is personally liable if tribunal thinks without any
limitation.

Under judicial interpretations:

It is very difficult to deal with all cases that in which cases court lifted the corporate veil or
might be lifited. Some case in which corporate veil are lifited by judicial decision in the kind
of circumstamces to remove the corporate personlity and remove the person which is behind
the corporate entity to penalised.

 Protection of revenue:

The separate entity of a company may be removed while revenue of the state is on stake.

 Determination of the enemy charcter of the company:

A company is neither a friend or nor a enemy it is an artifical person but in the time of war it
become necessary to lift the corporate veil to see the person behind the company wheather
it’s a friend or enemy because the daily affairs of a company is run by a individual person.

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Case law:

Saloman v saloman case law:-

In this case saloman was a leather marchent in sole proprietorship later they converted into
limited company saloman & co ltd. Incorporated with member comprising himself and wife
and children and other family member. The company purchased business of the saloman for
39,000 pound, the purchase consideration was paid in terms of 10,000 pound debenture
confering a charge over company asests,20,000 pound in fully paid 1pound each share and
the balance in cash the company in less than a year ran into difficulty and liquadation
procedding commenced.the assest of the company Is not sufficent to discharge the debentures
and nothing was left for the unsecured creditors.

It was held that the company is validly constituted becaue it requires only seven member
holding at lest one share each.hence the business belong the company not saloman. Saloman
was its agents.

It was the first case in which corporate veil is piercing to find out that wheather the company
is duly incorporated or not and to find that wheather the saloman and its company is different
or is there any intention of fraud .

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 CONCLUSION:-

Lord denning Moore‘s stated that this case might be called the (three in one) three company
in one company here in this case it find that the both company was directy or indirectly
owned by DHN because in bronze company they purchase their share and both director were
same and othe company is created for the purpose of transporation to sell their goods and the
vechiles they used is from one another company name of himself.

What Moore does not set out to do is to give guidance on whether the veil should ever be
lifted on the grounds of the single economic unit argument or on the grounds of justice. In
saloman case it was clear that company was validly constituted , since the act only require
seven members holding at least one share each. it said nothing about being there
independent,or anything like a balance of power in the constitution of the company. Hence
the business belong to the company and not to saloman. Saloman was its agent.

Finally the court of appel held that DHN and bronze was part of same company and entity
therefore, the DHN itself purchase the land by purchasing the share of bronze by bank .
hence it was entitled to the compensation for the losses of business.

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 BIBLIOGRAPHY:-

 PRIMARY SOURCES:
 Ashok K. Bagrial, Company Law, Vikash Publishing, 11th Ed. 2007.
 Avtar Singh Company law, Eastern Book Company, 16th Ed.2015.
 Dr. G.K. Kapoor & Sanjay Dhamija, Company law, university 17th Edition,
Taxmann Publications Pvt Ltd
 Companies Act, 2013.

 SECONDARY SOURCES:

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