Question

What is lifting of Corporate with explain the statutory provisions under which corporate veil of company may be lifted​

Answer 1

Corporate Veil is a legal principle that distinguishes a corporation's identity from its shareholders' identities and prevents them from being personally responsible for the debts and other responsibilities of the company.

Explanation:

Often it may happen that the company's corporate personality is used to conduct theft or misconduct. Given that an artificial person is not able to do something unlawful or dishonest, the corporate identity (the veil) may need to be removed to identify the real culprits. This is called ‘lifting of corporate veil’.

Corporate veil can be lifted under

(A) Judicial Provisions

1. Prevention of fraud or improper conduct
2. When the purpose of forming a company is purely profit driven, and the company does not intend to/attempt to do  any good towards society consciously, and instead,  it opt to cause impairment to society.
3. When any acts of the compnay  that are undertaken is beyond the "memorandum of association, articles of association, & the Companies Act, 2013" purview such acts are  “ultra-vires” or improper/beyond the legitimate scope. These acts are also  subjected to penalty.
4. Any individual is obligated to pay taxes. In the eyes of law, the corporation is nothing more than an individual. If someone illegally seeks to circumvent this requirement, he commits a crime, that incudes a company too, and in such case corporate veil can be lifted
5. Where the conduct of the business is contrary to public polices or public interest , courts may lift the corporate veil and hold those individuals directly accountable for the act. 
6. Where the person and agent should be identified in the case of an inappropriate behaviour carried out by the agent, the corporate veil is overlooked. Where subsidiary companies have been implicated in corrupted activities, courts are allowed to make holding companies responsible for their subsidiaries' actions and for their violation of their responsibility and negligence.
7. The Court will also raise the corporate veil if it suspects if companies are are mere sham or fraudulent. Such firms are mere cloaks and the true culprit can be found by ignoring their identities.
8. Where a company is intentionally attempting to circumvent legal responsibilities or where the company's incorporation is used in order to avoid legal duties, the courts shall have the power to ignore this company's legal personality and behave as if there were no company. The liabilities should be levied on the people involved immediately.

(B)Statutory Provisions

1. When companies furnish a prospectus of the business offering securities for sale to produce and such prospectus comprise false or untrue claims, then the corporate veil can be lifted  The Prospectus released pursuant to Article 26 includes main company statements, descriptions of the shares & debentures, names of management, principal things and existing company business.
2. The Companies Act allows for securities  (share) allotment by a company. However, if the minimum amount specified above has not been subscribed  and the application money/amount paid is not  returned by the company within 30 days of issue, the defaulting officer is fined 1000 rupees for each day till such time as the default persists or one lakh Rupee, whichever is lower. 
3. The company name is of considerable importance, and attention should be paid to every detail.   The use of the authorised name permits the organisation to enter into and legally binding contracts. Therefore, if any business official receives a bill or signs for the corporation, and enters wrong company information, he or she is personally responsible to do so.
4. In order to decide the actual individuals who are financially involved in a performance or failure of the company, the Central Government may assign inspectors to investigate and report matters relevant to the company and its members; control or to materially influence the policies of the company

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