A company is a legal person, but in reality, it is a collection of individuals who are the true owners of the assets held by the corporate body. Being an artificial person, the company is unable to act on its own and must rely on the actions of other people. The identification of the firm with its members can be interpreted as the lifting of the veil doctrine. Lifting the corporate veil is a philosophy that ignores the corporate nature of the group of people that are incorporated as a firm. In legal terms, a company and a natural person are equivalent. Since the House of Lords' ruling in Saloman v. Saloman & Co[1]. in 1897, this has been upheld as one of the pillars of Indian Company Law.

Saloman's case has established an essential notion of separate legal entity, which states that a firm has a separate legal identity from its members. It enables a business to carry out legal actions in its own name, including suing and being sued. Directors and Members are immune from personal liability. Despite the fact that this fundamental principle has a significant impact on company law around the world, including in India, it cannot be applied without allowing for some exceptions, in which case the court may overlook the legal personality of the company.

Such exceptions as there are signify hasty refusals on the part of the legislators or the courts to apply logic in cases where it is blatantly at odds with justice, practicality, or the public's financial interest. The veil of incorporation does not imply that a company's internal operations are totally hidden from the public.

Typically, a company's corporate personality should be honoured. This fundamental idea of a corporate entity continues to serve as the cornerstone of corporate law. Numerous cases exist where the courts have upheld this principle and refrained from piercing the veil. However, if the benefit is being abused, the court is not helpless and can lift the corporate personality veil in order to see the truth behind it. By doing this, the court furthers a crucial public interest, namely the prevention of the misuse or abuse of a legal benefit. In United States v. Milwaukee Refrigerator Co[2]., it was decided that while "a corporation will generally be regarded as a legal entity, the law will regard the corporation as an association of persons when the notion of legal entity is used to defeat public convenience, justify, protect fraud, or defend crime."

The development of English doctrine can be divided into three phases:

1. 1897-1966: Known as the "classical veil lifting" or "early experimentation period," this time frame saw the English courts experimenting with various doctrine-related theories. During this time, the Saloman case ruling by the House of Lords predominated.
    
2. The interventionist phase was from 1966 to 1989, which began after World War II. During this time, the House of Lords' rules were modified in Saloman's case, and the veil-lifting movement was promoted. Lord Denning observed in Littlewoods Mail Order Stores Ltd. v. IRC[3], "It is imperative to closely monitor the Saloman case's ruling on the applicable theory. It has frequently been asserted that it creates a barrier between the personality of a limited corporation and the courts. However, that is untrue. The courts have the ability and frequently do so." The spirit of the theory during this time can be directly traced to the most important jurist of the 20th century without the need for any other explanation.
    
3. From 1989 to the present: During this time, the corporate veil lifting concept started to lose favour with the courts. The only instance in which a corporate veil may be lifted, according to the court in Wolfsan v. Strathelyed Regional Council[4], was if there were unique circumstances showing that the firm was a "mere facade masking the true facts." There are only three situations, however, in which a corporation veil may be raised, according to the court of appeals' ruling in Adams v. Cape Industry Pl[5].

1. When reading a law or other document, the court may treat a group as a single entity if the law is confusing in and of itself.
2. The court may open the curtain if unique circumstances show that it is really a facade hiding the real facts.
3. The agency concept is used in the third exception. It is unusual that parent firms and subsidiaries have clear agency agreements, and it can even be challenging to establish an implicit agency. There must be proof that the main business was actively controlling its subsidiaries on a daily basis.

Lifting of corporate in the current Indian Context:
The majority of Indian company law's clauses were taken directly from English law, and as a result, it resembles English law in many ways. Since then, decisions interpreting the doctrine of Indian company cases have cited the Salomon case as the authoritative source.

In Tata Engineering Locomotive Co. Ltd. v. State of Bihar and others[6], the Supreme Court "In legal terms, a corporation is equal to a natural person and is its own legal entity. The corporate entity is wholly distinct from that of its shareholders; it has its own names and seal; its assets are distinct from those of the shareholders; the shareholders' liability is restricted to the capital they have invested; and similarly, the creditors of the shareholders have no claim to the corporate assets."

Justice O. Chinnapa Reddy had emphasised that the corporate veil should be lifted where the linked firms are so closely related as to be, in reality, a part of one concern in LIC of India v. Escorts Ltd[7]. The case involving the Bhopal Gas Leak tragedy case has intensified the removal of corporate veil.

Furthermore, the Supreme Court lifted the curtain in the case of state of UP v. Renusagar Power Company [8]and determined that Hindalco, the holding company, and Renusagar, a subsidiary, must be considered the company's own source of generation. As a result, Hindalco would be responsible for paying the electric duty. The theory has been taken into consideration in a number of situations since the Renusager case ruling.[9]

The lifting of the corporate veil is governed by six criteria articulated by Munby, J. in Ben Hashem v. Ali Shafif[10].

The following six concepts can be found in paragraphs 159-64 of the case:

1. Ownership and control were insufficient grounds for penetrating the corporate veil.
2. Even in the absence of third-party interests in the firm, the court cannot breach the corporate veil solely because it is deemed necessary in the interest of justice.
3. The corporate veil can only be penetrated if there is misconduct;
4. The improper conduct in question must be connected to the use of company structure to avoid or hide liabilities.
5. To justify penetrating the corporate veil, both control of the company by the wrongdoer(s) and improper use or misuse of the corporation as a mechanism or facade to conceal their wrongdoing are required; and
6. The firm may be a "facade" even if it was not originally formed with the goal to deceive, so long as it is being utilised for dishonest purposes during the relevant transactions. However, the court would only pierce the corporate veil to the extent necessary to give redress for the specific wrong committed by the company's controlling parties.

In additional precedent-setting decisions, it was determined that there must be convincing evidence that the Directors are guilty of fraud by allegedly syphoning off cash to thwart decree execution.

The courts have repeatedly lifted this curtain based on the specific circumstances and facts of each case. In the case of Farmosa Plastic Corporation Ltd. v. Ashok Chauhan[11], a foreign decree was enacted for India. The Delhi High Court ruled that the application of the power to lift the veil in an execution proceeding is discretionary. The Honorable Delhi Court added that the Courts have the authority to strip Corporations of their anonymity if they are implicated in fraud. In Sai Sounds Private limited v. Kiran Contractors PVT. LTD[12], the ruling was upheld.

In Bhatia Industries v. Asian Natural Resources & Anr[13], an international arbitration award was decided in favour of a foreign business and against the Indian entity. The award holder, a foreign business, challenged before the Bombay High Court that the judgement debtor, an Indian entity, is part of a broader conglomerate of companies formed in India and is involved in illegally syphoning off its funds to prevent the execution of the foreign award. In light of this, the foreign entity (award holder) argued with the court to remove the judgement debtor's corporate veil.

In the instant case, the court stated that the corporate veil in the execution proceeding could be lifted if it could be demonstrated that the companies are in fact a single economic entity, and based on the facts of the case, the court determined that the judgement debtor and its Indian group are a single economic entity attempting to thwart the execution of the award.

The Bombay High Court had a different approach in Mitsui OSK Lines vs. Orient Ship agency[14]. In this case, a foreign award was issued in 2009, and the Bombay High Court accepted it as a decree in 2014. Nonetheless, in 2019, the award holder petitioned the court for authorization to change the execution procedure in order to make some subsidiary firms of the judgement debtor personally accountable.

In this instance, the Honorable Bombay High Court refrained from applying this concept on the grounds that the third-party entities were not a part of the original claim and can therefore only be held liable through a separate substantive suit.

The Court distinguished the present case from Bhatia Industries v. Asian Natural Resources & Anr. by noting that the award holder in the Bhatia case implicated companies that were affiliated with each other and were part of a single entity, whereas in the present case of Mitushi, the award holder sought the Court's permission to hold personally liable third parties who were not originally parties to the suit.[15]

Conclusion
This doctrine seems to be very popular these days. As 'Scams' is the new word on the block, whether it's Satyam's Ramalinga Raju or the band waggon incarcerated in Tihar Jail for the 2G Scam, the philosophy has revealed the underlying culprit behind the company's acts. The doctrine ensures that those behind the corporate veil do not introduce personal motive into company affairs. The legal status of the firm as a juristic person may need to be distinguished from the tax evader, fraudster, etc.

Take the example of company loss caused by embezzlement, something engineered and tailored on the lines of the Satyam case, where a Managing Director (or agent/employee) of a corporation, along with his confidants in top positions, cheat a company of its finances and business chances. The courts have ruled that the loss is deductible under the 1961 Income Tax Act. The example in this essay gives corporate veil a new perspective.

In Badridas Daga v. CIT[16], the Supreme Court ruled that embezzlement losses are deductible if they arise in the course of business and are incidental. The misappropriation must also be unknown to the company. After Badridas Daga, many decisions added criteria like a fair likelihood of restoration, a year of allowance, etc.

Above, the company is distinguished from the fraudster. Even with corporate veil, the company's unique identity from its directors is not lost. Identity is strengthened. In such circumstances, the director's expertise is separate from the company's. The courts will prosecute the corporation's director and his confidants, not the entire company.

The corporation must prove it didn't know about the embezzlement. Determining knowledge depends on each case, but when a corporation fails to do so, as in Curtis v. J. & G. Oldfield Limited[17] and Plas-Flab Pvt. Ltd. v. Commissioner of Income Tax[18], the loss is not deductible. The legal concept of the doctrine's application is strengthened by declaring the corporation and the director independent juristic persons. The foregoing aspects of corporate veil are a non-exhaustive list of legal precedents. As said, the principle is ever-expanding and varies each case.

The doctrine will be applied based on the facts of each case, the company involved, and the person(s) responsible. Even in taxation instances, a company's identity may be disregarded to identify the real offender, or it may be reinforced to separate the fraudster's knowledge from the company's.[19]

References:

1. Salomon v. Salomon [1897] A.C. 22
2. United States v. Milwaukee Refrigerator Transit Co., 145 F. 1007 (1906)
3. Littlewoods Mail Order Stores v Inland Revenue Commissioners [1969] 1 WLR 1241
4. Woolfson v Strathclyde Regional Council [1978] UKHL 5
5. Adams v Cape Industries plc [1990] Ch 433
6. Tata Engineering and Locomotive Co. Ltd. v. State of Bihar (1964) 6 SCR 885
7. LIC of India v. Escorts Ltd, (1986) 1 SCC 264
8. State of U.P. & Ors v. Renusagar Power Co. & Ors. (1988) 4 SCC 59
9. India, legal Service. Lifting of Corporate Veil: Indian Scenario, http://www.legalservicesindia.com/article/1876/Lifting-of-Corporate-Veil:-Indian-Scenario.html
10. Ben Hashem v. Ali Shayif, 2008 EWHC 2380 (Fam)
11. Review Petition No. 506/2011 in Execution Petition No. 38/1998
12. Sai Sounds Private limited v. Kiran Contractors PVT. LTD CR No. 3991 of 2013
13. Bhatia Industries v. Asian Natural Resources & Anr [2017] 201 CompCas 46 (Bom)
14. Mitsui OSK Lines vs. Orient Ship agency 2020 SCC OnLine Bom 217
15. Nagpal, Nihit. "Lifting of Corporate Veil in Execution Proceedings - Shareholders - India." Lifting Of Corporate Veil In Execution Proceedings - Shareholders - India, S.S. Rana & Co. Advocates, 20 May 2022, https://www.mondaq.com/india/shareholders/1194552/lifting-of-corporate-veil-in-execution-proceedings
16. Badridas Daga v. CIT [1958] 34 ITR 10 (SC)
17. Curtis v. J. & G. Oldfield Limited [1925] 9 Tax Cas. 319
18. Plas-Flab Pvt. Ltd. v. Commissioner of Income Tax [1994] 208 ITR 154
19. Jha, Nimisha. "The Judicial Approach to the Doctrine of Lifting of Corporate Veil." Academia.edu, 31 Aug. 2015, https://www.academia.edu/15314107/The_Judicial_Approach_to_the_Doctrine_of_Lifting_of_Corporate_Veil