Lifting Or Piercing Of Corporate Veil

Owing to the rising economic development and advancements within the corporate framework, the corporate world has witnessed various false statements, frauds, and insider trading. The concept of 'Corporate Veil' came into being in order to safeguard the members from the actions of the company. This piece of writing will discuss the "Piercing of Corporate Veil" underneath the "Companies Act of 2013". Concept Of Corporate Veil: "Salomon V. Salomon And Co. Ltd": The Salomon case comprehensibly stated that a company possesses its own existence and hence, a shareholder cannot be held accountable for the company's acts although he virtually holds the complete share capital. The entire law relating to a corporation is set up on the essence of a 'separate legal entity'. It is a statutory entitlement which ought to be utilised for lawful purposes only. However, with merits come demerits too. Therefore, the doctrine of piercing or lifting of Corporate Veil was established in order to hold the members accountable in instances involving dishonest or fraudulent utilisation of the separate legal entity. Grounds For Lifting Or Piercing Of Corporate Veil: Wherever and whenever a fraudulent advantage pertaining to the legal setup is taken, the members will no longer be permitted to cover themselves with the aid of the corporate veil or personality. The necessary authority will do away with the company's veil and hold the individuals accountable for commission of such an offence. This piercing of the veil is called the "Lifting of Corporate Veil" as per the Companies Act of 2013. Statutory Grounds For Lifting Of The Corporate Veil: Since the lifting of Corporate Veil is an evolving concept, there is not a pre-defined or exhaustive list of the grounds or basis under which the veil can be pierced. However, there are certain statutory as well as judicial grounds for piercing of the Corporate Veil. Let us first discuss the statutory grounds related to the lifting of the veil. 1. Misstatement in the Company's Prospectus: Companies provide their securities for sale through publishing of its prospectus. The prospectus established under Section 26 of the Companies Act, 2013 mentions significant notes regarding the firm, such as facts about debentures and shares, the information about directors, the current activity, and principal goals of the company. If a person tries to give wrongful, inaccurate, or misleading information in the prospectus of the company, he is accountable for imprisonment, penalty, or both mentioned under Sections 26 (9), 34, and 35 of the Act, relying on the facts and situations. 2. Reduction of Membership below the Prescribed Limit: In case the minimum quantity of a company's membership goes below 2 (private companies), or below 7 (public companies), the corporation can further its operation for a time interval of 6 months while such quantity is decreased, and each individual who is a 'member' at that time, being aware of the fact that the quantity has been negatively affected. In instances where the grace period comprising 6 months has passed, the corporation alongside its members will be accountable and can be claimed for the amount they generated out of the 6 months, or it might be severally sued. 3. No Refund as to Money of Application: As per Section 39 (3) of the Companies Act, in instances where the company's directors fail to refund the "application money" without interest within 120 days in case the corporation fails to allot shares, they will be severally and jointly liable to refund the money in addition to an interest of 6% per annum, from the date of passing of 130 days. 4. Misperception of Company's Name: As per Section 12, an officer pertaining to a company signing any promissory note, bill of trade, or check wherein the corporation's title is not provided in the suggested or advocate manner, he can personally be accountable to the receiver of the bill of trade, check, etc., unless it is rightly provided by the company. 5. For Investigation of the Company's Ownership: As per Section 216, the "Central Government" may choose certain inspectors to scrutinize and check on the company's membership so as to find out the actual people financially involved in the corporation and those who are influencing its policies. Consequently, the Central Government might lift the concerned veil. 6. Inducing Persons to Invest Money in the Company: As per Section 36, someone who makes fraudulent, false, inaccurate or misleading promises or representations to another person or conceals appropriate information from a person so as to induce him to perform or enter into (A) an agreement to underwrite, subscribe to, acquire or dispose of securities, (B) an agreement to assure profits to any such party on the basis of return of securities or on the advances in the values of the securities, (C) an...

Lifting Or Piercing Of Corporate Veil

Rishi Pandey

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