CASE LAW REVIEW: VTB CAPITAL PLC v. NUTRITEK INTERNATIONAL CORP & ORS INTRODUCTION
The concept of forming of corporations by registration and restricted liability of stake holders of corporations dates back to mid nineteenth century. The concept in its very basic sense means that a company is a separate legal entity, in other words, it is a juristic person. The company can buy and sell property, can sue and can be sued; these are some of the basic legal implications of separate legal entity. A very direct consequence which arises with the concept of separate legal identity of a corporation is the misuse of it by people. In reality a company is nothing but an association of persons, who are its beneficiaries, governed by the directors and shareholders of the company. It is nothing but a sum of its members. Thus a lot of times situations arise, when these beneficiaries try to misuse this veil and in such situations the corporate veil of separate legal entity of the company has to be removed and the members of the company are made liable directly. Lifting of corporate veil is one of the most highly debated topics in the business world. The concept of incorporation was introduced only to promote high risk involving but at the same time more profitable businesses among common people as company means limited liability(in its most common form), thus people can limit the risk by forming companies. So if we look at the main purpose behind formation of companies we can easily understand why lifting of corporate veil is such a debatable issue. If the conditions for lifting of corporate veil are made too lenient then the whole purpose behind the concept is defeated and also if the conditions are kept very rigid and narrow then there is a very high risk of misuse of the corporate veil, which would be against the public interest at large. Which is why time and again the issue keeps coming up to the judiciary. The researcher has dealt with the judicial trend on the issue of “lifting of corporate veil” in this project.
WHEN COULD THE CORPORATE VEIL BE REMOVED?
Before going into the detailed discussion of various case laws, let us look into various scenarios when the corporate veil would be needed to be lifted. Fraud is one of the most common reasons for which court have to lift the corporate veil. The companies might be formed to defraud creditors. Jones v. Lipmanis a landmark case in which the defendant first agreed to sell the land to the plaintiff and then changed his mind and to avoid the consequences he tried to take protection behind the cover of his company. The plaintiff brought a suit of specific performance against the defendant. The court in this case lifted the corporate veil and ordered the defendant to make the transfer. Improper conduct such as if the company is being used for tax evasion. Tax planning is allowed until and unless it is done within the four walls of law. A lot of times people try to evade tax using the corporate veil. If the companies are formed by a person purely for the purpose of evading tax then the courts have the power the remove the corporate veil. Daimler Co. Ltd. v. Continental tyre & rubber Co. Ltdgives another interesting scenario when the courts may remove the corporate veil. If the directors and major shareholders of the company belong to an enemy country then to determine whether really the governing control of the company falls in the hands of enemy country the corporate veil could be removed. Gilford Motor Co. Ltd. v. Home if a company is formed only for the purpose of carrying on an activity which a person would otherwise be barred for doing or in other words if a company is just a sham then the corporate veil could be lifted. In re F.G Film Ltd.is a case in which the court held that if a company is acting as an agent for its shareholders then the shareholders will be liable for the acts of the company. The corporate veil may also be lifted in the interest of public policy and...
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