- Wednesday, April 24, 2019
Author: Piyush Gupta, Partner, Kochhar & Co.
1.1 The law governing companies globally, and in India, recognises a company to be a personality, distinct from its shareholders. In the celebrated case of Salomon v Salomon & Co. Ltd., Lord Halsbury LC, had stated:
“[A] company must be treated like any other independent person with its rights and liabilities [legally] appropriate to itself ... whatever may have been the ideas or schemes of those who brought it into existence.”
1.2 As a rule, a subsidiary remains a separate legal entity, distinct from its holding / parent company. However, the doctrine of ‘piercing the corporate veil’ is an exception to the rule that a company is a legal entity, separate from its shareholders.
1.3 In the Escorts case, the Indian Supreme Court had opined that “the corporate veil may be lifted where the statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern.”
1.4 Thus, it may be safe to say that the Courts lift the “corporate veil” when the device of incorporation has been used for illegal or improper purpose such as to defraud creditors, to evade an existing obligation, to circumvent a statute etc.
1.5 The Single Economic Entity doctrine (‘SEE Doctrine’), on the other hand, goes beyond the company law concept of a company having a ‘separate legal personality’ and recognises that different juristic persons may, in certain cases, be acting and behaving as one.
1.6 This paper aims to provide a brief overview as to the interplay between the applicability of the SEE Doctrine vis-à-vis the corporate separatedness doctrine (piercing the corporate veil), which has not been discussed by any regulator / authority / court in India. In fact, not just in India, there is not much commentary on the juxtaposition in international jurisprudence either.