{"id":41418,"date":"2023-10-24T11:59:00","date_gmt":"2023-10-24T06:29:00","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=41418"},"modified":"2024-03-30T14:51:32","modified_gmt":"2024-03-30T09:21:32","slug":"what-is-lifting-of-corporate-veil-under-companies-act-2013","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/what-is-lifting-of-corporate-veil-under-companies-act-2013\/","title":{"rendered":"What is Lifting of Corporate Veil under Companies Act, 2013"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Due to the increasing economic growth and\nchanges within the corporate world, the corporate sector has seen many frauds,\ninsider trading, and false statements. The lifting of corporate veil came into\nexistence to protect the members from the company&#8217;s action. This article will\ndiscuss the Lifting of Corporate Veil under the Companies Act, 2013 and when\nthe corporate veil is lifted.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/what-is-lifting-of-corporate-veil-under-companies-act-2013\/#Casting_Light_on_Lifting_of_Corporate_Veil_under_Companies_Act_2013\" >Casting Light on Lifting of Corporate Veil under Companies Act, 2013<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/what-is-lifting-of-corporate-veil-under-companies-act-2013\/#Relevant_case_of_Lifting_of_Corporate_Veil_under_Companies_Act_2013-Solomon_Vs_Solomon_and_Co_ltd\" >Relevant case of Lifting of Corporate Veil under Companies Act,\n2013-Solomon Vs. Solomon and Co. ltd.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/what-is-lifting-of-corporate-veil-under-companies-act-2013\/#The_basis_on_which_Corporate_Veil_is_Lifted_under_Companies_Act2013\" >The basis on which Corporate Veil is Lifted under Companies Act,2013<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/what-is-lifting-of-corporate-veil-under-companies-act-2013\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Casting_Light_on_Lifting_of_Corporate_Veil_under_Companies_Act_2013\"><\/span>Casting Light on Lifting of Corporate Veil under Companies Act, 2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Companies Act, 2013 clarifies that a\ncompany is a separate entity distinct from its members. But practically, it is\nan association of persons who are the beneficial owners of the company and its\ncorporate assets. This fiction is created by a veil termed the corporate veil. <\/p>\n\n\n\n<p>Here, lifting the corporate veil under\nthe Companies Act, 2013 means ignoring that a company is a separate legal\nentity and has a corporate personality. Lifting of corporate veil as per\nCompanies Act, 2013 ignores the separate identity of the company and looks back\nat the true owners who are in control of the company.<\/p>\n\n\n\n<p>The separate personality is a regulatory\nadvantage, and it must be used for a lawful purpose only. Whenever and wherever\na fraudulent use is made of the legal establishment, the individuals will not\nbe permitted to hide behind the curtain of corporate personality. <\/p>\n\n\n\n<p>The concerned authority will break this\ncompany&#8217;s shell and sue the individuals who have committed such an offence.\nThis lifting of the curtain is called lifting the Corporate veil under the\nCompanies Act,2013.<\/p>\n\n\n\n<p><strong>Note- The Corporate Veil is a safeguard\nthat protects the members from the company&#8217;s action. In Layman&#8217;s terms, if a\ncompany violates any law or incurs any liability, the members cannot be held\nliable. Thus, shareholders get protection from the acts of the company.<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Relevant_case_of_Lifting_of_Corporate_Veil_under_Companies_Act_2013-Solomon_Vs_Solomon_and_Co_ltd\"><\/span>Relevant case of Lifting of Corporate Veil under Companies Act,\n2013-Solomon Vs. Solomon and Co. ltd.<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In the given case, Salomon established a\ncompany named &#8220;Salomon &amp; Co. Ltd.&#8221;, with seven subscribers\nconsisting of-<\/p>\n\n\n\n<ul>\n<li><strong>Himself,\nHis wife, <\/strong><\/li>\n\n\n\n<li><strong>Four\nsons and, <\/strong><\/li>\n\n\n\n<li><strong>One\ndaughter. <\/strong><\/li>\n<\/ul>\n\n\n\n<p>Salomon was a secured creditor and\nshareholder of the company. There were other unsecured creditors as well. After\na while, the company incurred losses and decided to wind up. During the\nwinding-up process, the unsecured creditors claimed they should be paid before\nSalomon (as a secured creditor) as it was his company.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_basis_on_which_Corporate_Veil_is_Lifted_under_Companies_Act2013\"><\/span>The basis on which Corporate Veil is Lifted under Companies Act,2013<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Below-mentioned are the grounds on which\nCorporate Veil is Lifted-<\/p>\n\n\n\n<p><strong>Under Companies Act,2013-<\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Misstatement in Prospectus<\/h3>\n\n\n\n<p>In a case where the company&#8217;s\nprospectus is misrepresented, the company and every director, promoter, and\nevery other individual, who authorized such issue of prospectus shall be liable\nto compensate the loss to every person who subscribed for shares on the faith\nof misstatement. <\/p>\n\n\n\n<p>Also, these individuals may\nbe punished with a jail term for a duration of not less than six months. This\nduration may be extended to ten years. The concerned company and person shall\nalso be liable to a fine that shall not be less than the sum involved in the\nfraud but may extend to three times the amount involved in the fraud.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Misdescription of Name<\/h3>\n\n\n\n<p>As per the Companies\nRule,2014, a company shall have its name printed on every official document,\nincluding (hundis, promissory notes, BOE, and such other documents) as may be\nmentioned. <\/p>\n\n\n\n<p>Thus, where a company&#8217;s\nofficer signs on behalf of the company any contract, BOE, Hundi, promissory\nnote or cheque or order for money, that individual shall be liable to the\nholder if the name of the company is not properly mentioned.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Fraudulent Conduct<\/h3>\n\n\n\n<p>In case of <a href=\"https:\/\/corpbiz.io\/winding-private-limited-company\"><strong>winding up of a company<\/strong><\/a>, it comes out that any business has been carried on with intent to cheat the creditors or any other individual, or for any illicit purpose, if the Tribunal thinks it proper so to do, be directed in person liable without limitation to obligation for all or any debts or other obligations of the company.<\/p>\n\n\n\n<p>&nbsp;Liability under the fraudulent conduct may be\nimposed if it is proved that the company&#8217;s business has been carried on\nmisguiding the creditors.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Ultra-Vires Acts<\/h3>\n\n\n\n<p>Directors and other officers of a company will be held liable for all those acts they have performed on the company&#8217;s behalf if the same is ultra vires the company. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Failure to Return the Application Money<\/strong><\/h3>\n\n\n\n<p>In case of Public Issue, if\nminimum subscription, as per the prospectus, has not been received within\nthirty days of the issue of prospectus or such other period as may be mentioned,\nthe application money shall be returned within fifteen days from the closure of\nthe issue. <\/p>\n\n\n\n<p>However, suppose any the\napplication money is not so repaid within such specified time. In that case,\nthe directors\/officers of the company shall jointly and severally be liable to\npay that money with 15% per annum.<\/p>\n\n\n\n<p>Additionally, the defaulter company and\nits officer shall be liable for a penalty of 1000rs\/day during which such\ndefault continues or Rs 100000, whichever is less.<\/p>\n\n\n\n<p><strong>Under other Statues-<\/strong><\/p>\n\n\n\n<p>Apart from the Companies Act,2013, the directors &amp; other officers of the company may be held personally accountable under the provisions of other statutes. For Instance, under the Income-tax Act, 1962, where any <strong><a href=\"https:\/\/corpbiz.io\/company-registration\" target=\"_blank\" rel=\"noreferrer noopener\">private company<\/a><\/strong> is wound-up and if tax arrears in respect of any income of any previous year cannot be recovered, every individual who was director of that company during the relevant preceding year shall be jointly and severally accountable for payment of tax. <\/p>\n\n\n\n<p><strong>Under Judicial Interpretation<\/strong><\/p>\n\n\n\n<p>While initially the court, based on the\nprinciple of the separate entity as well as a district corporate persona,\nrefused to lift the veil of corporate governance, However, due to the rise of\ncorporations and the ever-growing conflict between corporations and their different\nstakeholders, courts have taken a more pragmatic strategy and have lifted the\nveil of corporate governance.<\/p>\n\n\n\n<p>It isn&#8217;t easy to record every court\ndecision in which the veil was lifted. However, there are various circumstances\nwhere the veil of corporate character can be taken off, and the people who are\nbehind the corporate entities could be found out and punished.<\/p>\n\n\n\n<ol>\n<li><strong>Improper conduct and Prevention of Fraud.<\/strong><\/li>\n\n\n\n<li><strong>Formation of the Subsidiary company to\nact as Agent.<\/strong><\/li>\n\n\n\n<li><strong>Economic offence<\/strong><\/li>\n\n\n\n<li><strong>Revenue Protection<\/strong><\/li>\n\n\n\n<li><strong>The company used it for illegal purposes.<\/strong><\/li>\n\n\n\n<li><strong>Company ignoring welfare legislations.<\/strong><\/li>\n\n\n\n<li><strong>Company\nacting a mere fraud.<\/strong><\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Lifting of Corporate veil under the <strong>Companies Act 2013<\/strong><sup><a href=\"https:\/\/www.mca.gov.in\/content\/mca\/global\/en\/acts-rules\/ebooks.html\"><strong>[1]<\/strong><\/a><\/sup> helps ensure that corporate personality is used for legal purposes and not on fraudulent practices or illegal activity.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our Article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/audit-under-companies-act-2013\/\">Audit under Companies Act, 2013: Explained\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Due to the increasing economic growth and changes within the corporate world, the corporate sector has seen many frauds, insider trading, and false statements. The lifting of corporate veil came into existence to protect the members from the company&#8217;s action. This article will discuss the Lifting of Corporate Veil under the Companies Act, 2013 and [&hellip;]<\/p>\n","protected":false},"author":85,"featured_media":41422,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[120,3570],"tags":[2200,3960],"acf":{"service_id":"321"},"authorName":"Shuchi Saxena","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2024\/03\/suchi.png","authorDescription":"Shuchi Saxena is an experienced business advisor with 10+ years of experience in management consulting. Maintaining a creative flow while writing content comes naturally to her. 99.2% of her writeups are problem-solving and help readers get what they intend to look out for. Her expertise lies in Startup Advisory, Regulations, Consulting, Environmental Advisory, etc.","postViews":136611,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/41418"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/85"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=41418"}],"version-history":[{"count":12,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/41418\/revisions"}],"predecessor-version":[{"id":61340,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/41418\/revisions\/61340"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/41422"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=41418"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=41418"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=41418"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}