NOTE ON LIFTING OF CORPORATE VEIL DURING EXECUTION PROCEEDINGS

1. Case Name: M/S Sai Sounds Private Limited vs M/S Kiran Contractors Private

High Court : Punjab and Haryana High Court.

Judgment :

5. The proposition and hold that the scope for lifting the veil will be available even at the

execution stage, if a fraud was being committed to defeat the process of court and for

realization of the decree, in case of a closely held company.

2. Case Name : Formosa Plastic Corporation Limited v. Ashok Chauhan & Ors., 1998
Court: The Delhi High Court.

Facts:
Brief facts in the said case were 'Formosa' and 'KOA' entered into agreement for supply of

Resin. As per the said agreement, Formosa began delivering Resin but no payment was

made by KOA. One Chavan had signed individual guarantee in 1993 in which he

personally vouched for the "existence and future qualified claims of Formosa". The suit

was filed by Formosa in District Court of Texas, USA. Decree was passed in favour of

Formosa. Appeal filed against it was dismissed. Application was filed in execution of the

decree before High Court of Justice, London. Leave was granted by the High Court,

London to enforce the decree in India. In the execution proceedings various objections

were raised and in that context Delhi High Court held that it was open for the Court in

execution proceedings to resort to the power of lifting the corporate veil.

Judgment:

45. The Court has always the power of lifting the corporate veil or mere cloaks where device

is employed and the properties have been acquired fictitiously in others names for the purpose
 of committing illegalities or for defrauding others so as to enable it to pass appropriate orders

to do justice between the parties concerned.

3. Case Name: Bhatia Industries & Infrastructure Limited v. Asian Natural Resources Limited

and Ors.

Court: The Bombay High Court.

Judgment:

15. From the conspectus of the judgments which are referred to hereinabove, it is now quite

well settled that the doctrine of piercing or removing corporate veil is applicable not only in

the case of holding of subsidiary companies or in the case of tax evasion but can be equally

applied in execution proceedings. It can be seen from these judgments that the doctrine has

been referred to also in cases:

(i) where "two separate corporate entities are functioning as if they are in partnership with

one company as an alter-ego of the other company, where one company is bound hand and

foot by the other";

(ii) where "parent company's management has steering influence on the subsidiary's core

activities that the subsidiary can no longer be regarded to perform those activities on the

authority of its own executive directors"; and

(iii) where "the company is the creature of the group and the mask which is held before its face

in an attempt to avoid recognition by the eye of equity or is a mere cloak or sham and in truth

the business was being carried on by one person and not by the company as a separate entity".

(iv) where "two companies are inextricably inter-linked corporate entities"

4. Case Name: Tata Engineering and Locomotive Company Limited v. State of Bihar
 Court : Supreme Court of India

Judgment:

9. But, it would not be possible to evolve a rational consistent and inflexible principle which can

be invoked in determining the question as to whether the veil of the corporation should be lifted or

not. Broadly, where fraud is intended to be prevented, or trading with enemy is sought to be

defeated, the veil of corporation is lifted by judicial decisions and the shareholders are held to be

'persons who actually work for the corporation.

5. Case Name: Delhi Development Authority v. Skipper Construction

Court: The Supreme Court of India

Judgment:

12. “Where, therefore, the corporate character is employed for the purpose of committing

illegality or for defrauding others, the court would ignore the corporate character and will

look at the reality behind the corporate veil so as to enable it to pass.”