Section 2(20) of the Companies Act, 2013 defines a company as any entity incorporated under this law or any earlier legislation. Company is a legal entity erected for the purpose of conducting business by a group of individuals. A company possesses its own rights, responsibilities, liabilities, and obligations, allowing it to initiate legal action and be subject to legal action itself. This establishes[1].

In Saloman v Saloman Co. Ltd[2] , it was held that a 'company is a legal entity ', having its own name (or identity), which is separate or segregated from members and shareholders on behalf. This principle is widely recognized across many countries, including both common law and civil law systems. The case also affirmed that once a company is incorporated, it becomes an 'artificial person,' distinct from its members. It possesses its own rights, obligations, and liabilities, allowing it to sue or be sued independently.

The concept of perpetual succession further emphasizes that a company exists as an independent and continuous entity, outlasting any individual members. While members may come and go, the company remains until it is legally wound up. This creates a 'veil' that separates the company from its individuals. However, individuals within the corporate sector sometimes abuse this protection for fraudulent activities, which can shield them from legal repercussions. In such instances, courts may choose to pierce the corporate veil to identify and hold accountable those behind the company.

It is an 'exception ' to the general corporate personality rule of corporate law reversing and lifting by courts, which take recourse for doing so under their doctrine. Corporate personality is the base of a company and hence to lift this corporate veil, courts are at dilemma while applying it since its misuse can affect a corporation's business adversely in some ways leading into suboptimal results.

Thus in this term paper the efforts are made by authors to analyse where this rule stands under Indian Law, and along with that certain provisions of statute i.e. Companies Act 2013 (hereinafter refer as The Act) which provide for lifting the corporate veil are discussed. Moreover, in this paper has been talked about some of the judicial pronouncements that give a settlement on various types of cases when veil can be lifted by the court .

Justification for Lifting the Veil: An Exception to the Corporate Personality Rule

The concept of a company's separate legal identity originated from the landmark Salomon case in England and has since been accepted in common law systems around the world. The principles from the Salomon case reaffirmed by the honourable supreme court the in t judgment of L.I.C. India v. Escorts Ltd. & Others [3](referred to as the 'LIC Case').

However, the court recognized certain exceptions to the corporate personality rule, enabling the adjudicating authority to pinpoint and hold accountable the actual wrongdoer. Since a company and its members are treated as separate entities[4], it is typically understood that "a veil separates the company from its members."

Unfortunately, this veil is often misused by members to commit fraud and avoid legal repercussions. In such situations, the court may need to lift the corporate veil to uncover the responsible individual. Once this veil is lifted and the true perpetrator is revealed, that person can be prosecuted for their fraudulent behaviour or misconduct, in accordance with established legal procedures.

The benefit of being recognized as a separate legal entity is maintained by a company only if it is not engaged in fraudulent activities and is genuinely operating, rather than being a sham or an agency. In the landmark case of Littlewoods Mail Order Stores Ltd. v. IRC[5], it was noted that simply incorporating a company does not completely shield its corporate personality, particularly for companies limited by shares.

Courts have the authority to pierce this veil and uncover the actual wrongdoer hiding behind it. The ruling indicated that while a company is generally viewed as a separate legal entity, this privilege can be disregarded if it is misused to undermine its intended purpose. In such cases, the courts may treat the company as merely an association of its members.[6]

In the case of United States v. Milwaukee Refrigeration Transit Company[7], the court stated that while a corporation is typically regarded as a legal entity, this status can be challenged when it is used to undermine public welfare, justify wrongdoing, facilitate fraud, or defend criminal acts.

The doctrine of piercing the corporate veil serves as an exception to the general principle of corporate personality. Two main reasons justify such exceptions.

First, corporations, as artificial persons, cannot always be treated as separate legal entities because they lack the capability to commit crimes or torts without the necessary intent (mens rea). Therefore, courts must sometimes set aside the principle of corporate personality to ascertain the true intentions of the company's member and directors. Second, if the rule of separate legal personality is applied rigidly, it allows interested members to effectively "hide" behind the veil of limited liability.

In the case of Bacha F. Guzdar vs. CIT, Bombay (1952), The Supreme Court of India recognized that a company possesses a juristic personality and a distinct identity separate from its shareholders.

Once incorporated, a company enjoys various rights, including perpetual succession, the ability to sue, transferable shares, limited liability, and, crucially, its status as a separate legal entity. As an artificial person, a company cannot engage in illegal activities independently. However, if a member commits fraud and attempts to evade accountability by invoking the corporate personality, the adjudicating authority may, in exceptional cases, lift the corporate veil to hold the true wrongdoer accountable.

The concept of the corporate veil serves to separate shareholders from the company, allowing them to operate without unforeseen liabilities. This veil protects shareholders from personal loss, with any costs arising from mishaps being borne by the company's assets.

However, if shareholders misuse the principle of corporate personality for personal gain and seek to limit their liabilities to the company, the court has the authority to pierce the corporate veil. This allows the court to identify the individual behind the company and hold them responsible for any fraudulent actions or undue benefits, following the established legal procedures.

Evolution of the Concept
In the landmark case of Bacha F. Guzdar vs. CIT, Bombay (1952), [8] the Supreme Court of India acknowledged that a company has a juristic personality, distinct from its shareholders.

Once incorporated, a company is granted several rights, including perpetual succession, the ability to initiate lawsuits, the transferability of shares, limited liability, and, crucially, its recognition as a separate legal entity. Since a company is considered an artificial person, it cannot engage in illegal activities by itself.

If a member of the company commits fraud and tries to evade legal repercussions by leveraging corporate personality, the adjudicating authority may, in exceptional cases, lift the corporate veil to hold the actual perpetrator accountable.
The corporate veil serves to differentiate shareholders from the company, allowing them to operate without unexpected liabilities. This veil protects shareholders from personal financial loss, with any liabilities being borne by the company's assets. However, if shareholders exploit the concept of corporate personality for personal gain, thereby limiting their liabilities, the court has the authority to pierce this corporate veil.

This action allows the identification of the individual behind the company, enabling them to face legal consequences for any fraudulent actions or undue benefits, in accordance with established legal processes.

Elements Required for Lifting the Veil
Aggrieved party have to establish these three important elements in court for lifting the veil:
Control and Domination: The party must prove that the shareholder exercises complete control over the company, influencing not just its finances but also its policies and business practices related to the transaction in question. The corporate entity should be shown to lack an independent mind, will, or existence.

Improper Purpose or Use: The second criterion requires demonstrating that the shareholder utilized their dominant position to commit fraud or deceive others, violating established legal provisions and affecting the rights of the aggrieved party. The plaintiff must show that the corporation's misconduct infringed upon their rights, going beyond mere control and dominance.

Resulting Damage or Harm: Finally, the aggrieved party needs to establish that the wrongful or illegal actions of the dominant shareholder caused harm. If the corporation itself did not cause the damage, the defendant may not be held liable. It is crucial to understand that while the corporate veil may be disregarded for specific purposes, this does not mean it must be disregarded universally.

L.I.C. India vs. Escorts Ltd. & Others (1985)[9], Supreme Court of India, in the case of reaffirmed that although a company is recognized as a distinct corporate entity, the court can pierce the corporate veil under certain exceptional circumstances. These include statutory provisions and judicial interpretations.

Position As Per Indian Law
The concept of a company's separate legal entity is also encompassed within the Fundamental Rights outlined in the Constitution of India. In the case of Charanjitlal Chaudhary v. Association of India[10], the Supreme Court noted that the fundamental rights enshrined in the Constitution are not limited to individual citizens but also extend to corporate entities. Article 21 asserts that no person shall be deprived of their life and liberty except in accordance with a procedure established by law.

While a corporate entity is entitled to the rights associated with life and liberty under Article 21, these rights can be revoked under specific exceptional circumstances as defined by law.

In LIC case , major exceptions to overlook corporate personality & lift of the corporate veil is held by supreme court . The conditions under which a tribunal may lift the corporate veil can be categorized broadly into two areas: "Statutory Provisions" and "Judicial Interpretations."

Statutory Provisions
Section 2(60) [11]of the Companies Act, 2013 defines an "officer who is in default" as any officer or member of the company who has committed a wrongful or illegal act, making them liable for penalties such as imprisonment or fines as prescribed by law. Although the Act does not explicitly mention provisions for lifting the corporate veil, it grants courts and tribunals the authority to disregard the corporate personality in cases involving fraud or misconduct by any member of the organization.

For instance, Section 7(7) [12]states that if a company is incorporated based on false or misleading information, or if material facts were concealed during incorporation, the tribunal has the authority to take appropriate actions, including regulating the company's management or initiating winding up. Additionally, under Section 7(6)[13], if it is proven that false information was provided during incorporation, the promoters and first directors can be held liable under Section 447[14], which outlines penalties for wrongful or fraudulent acts.

Section 248(2) [15]allows a company to apply for its name to be removed from the register of companies under specified circumstances. However, this application can only be made after settling all liabilities and obtaining approval from 75% of the members based on paid-up capital. If the application is found to be fraudulent or intended to deceive creditors, the responsible officers may face joint or individual liability under Section 251[16] and may be prosecuted under Section 447.[17]

Liabilities arising from fraudulent business conduct are addressed in Section 339[18]. If a company is found to have acted fraudulently during winding up, the tribunal can hold any director, manager, or officer personally liable for the company's debts.

Judicial Interpretations
In numerous judicial instances supreme court has applied the lifting up the corporate veil principal to scrutinize a company's identity . While a company is generally recognized as a separate legal entity, it can be held accountable for the actions of its members and shareholders when it acts as their agent. Courts assess whether a company has misused its separate identity to commit fraud or misconduct, allowing them to pierce the corporate veil to identify and penalize the actual wrongdoer.

Courts may lift the veil to ascertain the true nature and intent of a company, particularly in matters of public interest. In Daimler Co. Ltd v. Continental Tyre and Rubber Co. Ltd, [19]the House of Lords lifted the corporate veil to determine the company's character, concluding that it was acting against public interest. Similarly, in Jyoti Limited v. Kanwaljit Kaur Bhasin[20], the Supreme Court applied this principle to hold the company in contempt of court.

Companies sometimes exploit their corporate status to evade tax obligations. Courts have the authority to look beyond the corporate structure in such cases to ascertain if the entity has been used for tax avoidance. The Supreme Court has applied this principle in Re: Dinshaw Maneckjee Petit, [21]where it was found that the company had engaged in tax evasion. In Santanu Ray v. UOI, [22] court has applied this doctrine to make the director accountable for authorizing tax evasion.

In Jones v. Lipman[23], the veil was lifted to investigate potential fraud, while in Gilford Motor Company v. Horne[24], the court determined that the company was a sham created for fraudulent purposes. In Re: R.G Films Ltd[25], the court found that the company acted merely as an agent for another entity.

In The Workmen of Associated Rubber Industries Ltd., Bhavnagar v. The Associated Rubber Industries Ltd., Bhavnagar[26], the Apex Court ruled that actions taken by a company to circumvent welfare legislation justified piercing the veil.

In all these cases, the courts have exercised their discretion to lift the corporate veil to reveal the true intentions and realities behind the corporate facade. However, the Supreme Court emphasized in the case State of U.P. v. Renu Sagar Power Co[27]. that lifting the corporate veil should only occur in exceptional circumstances and is not a universally applicable rule.

Lifting Of Corporate Veil For The Benefit Of A Company

The Hon'ble Supreme Court has, on occasion, lifted the corporate veil to benefit companies. A notable example is the case of Uttar Pradesh v. Renusagar Power Company[28]. In this case, the Uttar Pradesh Electricity Duty Act included a provision that allowed companies generating electricity from their own sources to benefit from reduced duty rates. Hindalco Ltd. was utilizing electricity from Renusagar Limited, its wholly-owned subsidiary.

The Supreme Court ruled in favor of Hindalco, lifting the corporate veil to demonstrate that the two companies were closely interconnected and could be treated as a single entity. This ruling enabled Hindalco to benefit from the provisions of the Uttar Pradesh Electricity Duty Act. This case illustrates how the apex court has applied the principle of lifting the corporate veil for the advantage of a company.

Indian courts have consistently upheld the idea that companies possess a distinct identity separate from their shareholders and directors. They typically refrain from lifting the corporate veil unless absolutely necessary, as seen in Vodafone International Holdings B.V. v. Union of India & Another[29]. In this case, Vodafone, a Netherlands-based company, acquired CGP Investments, a company from the Cayman Islands, which was controlled by Hutchison, a Hong Kong firm. CGP Investments held a 67% stake in Hutchison-Essar Ltd., which operated Hutchison's mobile business in India.

The Indian income tax authorities claimed that since capital gains were realized by Hutchison in India, Vodafone was liable for withholding tax and should pay 110 billion rupees. The Bombay High Court ruled in favour of the tax authorities, prompting an appeal to the Supreme Court. The Supreme Court's decision was favourable to business, clearly outlining the conditions under which the corporate veil could be lifted in cases involving cross-border transactions and tax matters.

Conclusion
An examination of the statutes and judgments discussed reveals that there is no fixed framework for lifting the corporate veil in India. The legal principle of lifting the corporate veil is not codified in a specific statute that outlines the precise conditions for its application. In India, this principle is broad, granting courts substantial discretion in deciding whether to lift the veil.

Judicial decisions regarding this matter should strike a balance; they cannot be excessively lenient or overly strict, as either extreme could harm the public interest. While this principle continues to evolve across various legal systems, it has proven to be an important safeguard for companies.

Companies also enjoy rights to life and liberty under Article 21 of the Constitution. Courts must be cautious and avoid lifting the veil as a first resort. As emphasized by the Supreme Court in Balwant Rai Saluja & Anr. v. Air India Ltd. & Anr., [30] The identity of corporate entities should be respected, and the principle of lifting the veil should be applied restrictively, only in instances where it is clear that the company is being used as a facade to evade liabilities.

End Notes:

1. The Company Act, 2013 (Act 18 of 2013), s. 2.
2. AIR 1897 AC 22.
3. AIR 1985 SC 0015.
4. Lee v. Lee [1961] UKPC 33.
5. AIR 1969 WB 0281
6. Aditya Vikram Singh, Understanding Lifting of Corporate Veil” In The Light Of State Of U.P. v. Renusagar Power Corporation Ltd., 124 Taxxmann 311 (4 Feb 2021).
7. 142 F.247 (1906)
8. AIR 1955 SC 74
9. AIR 1986 SC 1370
10. AIR 1950 SC 009
11. The Company Act, 2013 (Act 18 of 2013), s. 2 (60)
12. The Company Act, 2013 (Act 18 of 2013), s. 7 (7)
13. The Company Act, 2013 (Act 18 of 2013), s. 7 (6)
14. The Company Act, 2013 (Act 18 of 2013), s. 447
15. The Company Act, 2013 (Act 18 of 2013), s. 248(2)
16. The Company Act, 2013 (Act 18 of 2013), s. 251
17. The Company Act, 2013 (Act 18 of 2013), s. 447
18. The Company Act, 2013 (Act 18 of 2013), s. 339
19. [1916] 2 A.C. 307.
20. AIR 1987 DE 0245
21. AIR 1926 MH 0196
22. 1989 65 COMPCAS 196
23. [1962] 1 W.L.R 832
24. [1933] Ch. 935.
25. (1953) All E.R 615
26. AIR 1985 SC 0236
27. AIR 1985 SC 0236
28. AIR 1988 SC 0505
29. AIR 2012 SC 0051
30. AIR 2014 SC 0732