Source: http://mywallpapers.mobi/supertracker-food-gilford-motor-company-limited-v-horne-1933-ch-935-1933-all-er/
Timestamp: 2019-04-25 12:39:15+00:00

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From the juristic point of view, a company is a legal person distinct from its members [Salomon v. Salomon and Co. Ltd. (1897) A.C 22] . This principle may be referred to as the ‘Veil of incorporation’. The courts in general consider themselves bound by this principle. The effect of this Principle is that there is a fictional veil between the company and its members. That is, the company has a corporate personality which is distinct from its members. But, in a number of circumstances, the Court will pierce the corporate veil or will ignore the corporate veil to reach the person behind the veil or to reveal the true form and character of the concerned company. The rationale behind this is probably that the law will not allow the corporate form to be misused or abused. In those circumstances in which the Court feels that the corporate form is being misused it will rip through the corporate veil and expose its true character and nature disregarding the Salomon principal as laid down by the House of Lords. Broadly there are two types of provisions for the lifting of the Corporate Veil- Judicial Provisions and Statutory Provisions. Judicial Provisions include Fraud, Character of Company, Protection of revenue, Single Economic Entity etc. while Statutory Provisions include Reduction in membership, Misdescription of name, Fraudulent conduct of business, Failure to refund application money, etc. This article at first introduces to the readers the concept of “Veil of incorporation”, then it explains the meaning of the term-‘Lifting Of The Corporate Veil’, it then points out the Judicial as well as the Statutory provisions for Lifting of The Corporate Veil with the help of various case-laws.
FRAUD OR IMPROPER CONDUCT- The Courts have been more that prepared to pierce the corporate veil when it fells that fraud is or could be perpetrated behind the veil. The Courts will not allow the Salomon principal to be used as an engine of fraud. The two classic cases of the fraud exception are Gilford Motor Company Ltd v. Horne and Jones v. Lipman. In the first case, Mr. Horne was an ex-employee of The Gilford motor company and his employment contract provided that he could not solicit the customers of the company. In order to defeat this, he incorporated a limited company in his wife’s name and solicited the customers of the company. The company brought an action against him. The Court of appeal was of the view that "the company was formed as a device, a stratagem, in order to mask the effective carrying on of business of Mr. Horne" in this case it was clear that the main purpose of incorporating the new company was to perpetrate fraud. Thus the Court of appeal regarded it as a mere sham to cloak his wrongdoings.
In the second case of Jones v. Lipman, a man contracted to sell his land and thereafter changed his mind in order to avoid an order of specific performance he transferred his property to a company. Russel judge specifically referred to the judgments in Gilford v. Horne and held that the company here was "a mask which (Mr. Lipman) holds before his face in an attempt to avoid recognition by the eye of equity" .Therefore he awarded specific performance both against Mr.Lipman and the company.
Lord Denning has remarked that ‘we know that in many respects a group of companies are treated together for the purpose of accounts, balance sheet, and profit and loss accounts. Gower too in his book says, "There is evidence of a general tendency to ignore the separate legal group". However, whether the Court will pierce the corporate veil depends on the facts of the case. The nature of shareholding and control would be indicators whether the Court would pierce the corporate veil. The Indian Courts have held that a ‘single economic unit’ argument could work in certain circumstances. These circumstances would depend on the factual control exercised. This view is strengthened by the Supreme Court decision (cited in Novartis v. Adarsh Pharma) in New Horizons v. Union of India. State of UP v. Renusagar was decided in 1988. Back in the year 1988 also, in Renusagar case, the Court proceeded, on the basis of prior English law which had accepted the ‘single economic unit’ argument. Thus, Renusagar case seems to support the conclusion that a ‘single economic entity’ argument would succeed in India for lifting the corporate veil.
PREMATURE TRADING- Another example of personal liability is mentioned in Section 117 (8) of The English Companies Act. Under this section a public limited company newly incorporated as such must not "do business or exercise any borrowing power" until it has obtained from the registrar of companies a certificate that has complied with the provisions of the act relating to the raising of the prescribed share capital or until it has re-registered as a private company. If it enters into any transaction contrary to this provision not only are the company and it’s officers in default , liable to pay fines but if the company fails to comply with its obligations in that connection within 21 days of being called upon to do so, the directors of the company are jointly and severally liable to indemnify the other party in respect of any loss or damage suffered by reason of the company’s failure.
“Lifting Of The Corporate Veil.” LawTeacher.net. 11 2013. All Answers Ltd. 12 2018 <https://www.lawteacher.net/free-law-essays/business-law/article-on-lifting-of-the-law-essays.php?vref=1>.
“Lifting Of The Corporate Veil.” LawTeacher. LawTeacher.net, November 2013. Web. 4 December 2018. <https://www.lawteacher.net/free-law-essays/business-law/article-on-lifting-of-the-law-essays.php?vref=1>.
LawTeacher. November 2013. Lifting Of The Corporate Veil. [online]. Available from: https://www.lawteacher.net/free-law-essays/business-law/article-on-lifting-of-the-law-essays.php?vref=1 [Accessed 4 December 2018].
LawTeacher. Lifting Of The Corporate Veil [Internet]. November 2013. [Accessed 4 December 2018]; Available from: https://www.lawteacher.net/free-law-essays/business-law/article-on-lifting-of-the-law-essays.php?vref=1.

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