Document Fragment View

Matching Fragments

14. Here the first petitioner admittedly has no experience. It is deriving its strength from its shareholders who also have no experience of yellow pages. Mr. Chidambaram would appear to be right in his sub-mission that to collect advertisements for yellow pages is different than to get advertisements for magazines in which the shareholders of the first petitioner claim to be the leaders.

15. It is difficult to understand the argument of the petitioners that authorities should have pierced the veil of corporate ness of the first petitioner to come to the conclusion that it satisfied the eligibility conditions. Mr. Venugopal, appearing also for the fourth respondent, said that concept of piercing the veil is creation of the courts and only the court can pierce the veil of corporate ness. This does not appear to us to be a correct submission. Executive can in given circumstances and in public interest embark upon the exercise of piercing the veil of corporate ness of a company. For example, if for some wrongful act a company is blacklisted by a certain department of the Government and the directors of that company from another company the department can pierce the veil to find out who are in fact lurking behind the newly formed company, and thus, deprive the newly formed company to deal with the department.

17. A company unlike partnership is a legal person set apart fom its members. House of Lords in England as far back as at the turn of this century set its seal on the reality of corporate existence when it gave to a debenture-holder, who was virtually the proprietor of the company, priority over unsecured creditors in a winding up, despite the protest of those creditors that Salomon and his company were in truth the same person (see Saloman v. Saloman and Co. Ltd., (1897) AC 22). Corporate veil is certainly not, however, an impregnable screen. The courts have to an increasing extent shown themselves to be prepared to strip aside (for lift, pierce, remove, put aside, or tear as the different terms go) the veil in order to perceive the real person in the corporate entity. Palmer in his Company Law (Twenty Fifth Edition) gives, with reference to case law, twelve instances where corporate veil was lifted. The learned author however, observe as under :--

"In practice, the ability to choose between the application of the rule in Salomon's case and the jurisdiction to pierce the veil of corporate ness gives the courts a considerable degree of discretion and enables them to do justice and to decide individual cases in accordance with equitable considerations. But it should be emphasised that the rule in Saloman's case is still the principle and the instances of piercing the veil are the exceptions, though their number is growing."

18. The Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. , and State of U. P. v. Renusagar Power Co., , examined in depth the circumstances under which corporate veil can be lifted. The court said that generally and broadly speaking corporate veil might be lifted (i) where a statute itself contemplates lifting the veil, or (2) fraud or improper conduct is intended to be prevented, or (3) a taxing statute is sought to be evaded, or (4) where associated companies are inextricably connected as to be, in reality, part of one concern. The Supreme Court in Renusagar Power Company case again observed as under :--

"It is high time to reiterate that in the expanding of horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It mus, however, depend primarily on the realities of the situation. The aim of the legislation is to do jutice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding...."

19. Nevertheless the fact remains that it has to be seen if from the share holdings of the company, the inevitable inference in any event is if the company is merely Mr. so-and-so in corporate form.