The term Company is having roots from the Latin word com meaning with or together; panis that is bread.
By this we can infer that the earliest meaning of “Company” would be, “People who have their meal together”.
DEFINITION OF ‘COMPANY’
A company is; “a voluntary alliance of a definite number of people having some common interests between them that is now united by some commercial or industrial undertaking to carry out legitimate business”
Strictly speaking, the word company has no special technical or legal meaning.
Speaking in the terms of the Companies Act, 2013 “a company means a company formed and registered under” the Companies Act”
Under the common law a company is a “legal entity” or a “legal person” that is separate from the lives of its members and also capable of surviving beyond it.
In general terms, a Company is an association of persons who are together or united to attain some common objective, that would be to earn some profit, promotion of arts/science or even some charitable purpose.
A Company has to be registered under the Companies Act, 2013. A company is totally different from a “Partnership” or “Sole Proprietorship”, because their sources are very limited and their liabilities are unlimited but in the case of a company the liability is limited.
MEANING AND CONCEPT OF CORPORATE VEIL
The philosophy of a corporate personality states that as soon as the incorporation takes place, the company and its members become two separate legal identities, & this principle of corporate personality is also known as corporate veil.
Veil means a thin blanket, which acts as a curtain between the members and the company. If we lift the veil, we could see the natural person behind it.
In actual reality a company is dependent on its members, directors or partners for its better functioning. So, the philosophy of corporate personality states that, the members can use the corporate veil theory for the legitimate work functioning of the company. But, at the origin, it has been found that the promoters, members, director & partners use the principle of corporate veil to get rid of their personal liability such as fraud and illegal activities.
LIFTING OF THE CORPORATE VEIL
Before we start discussing about the concept of “Lifting of the Corporate Veil” we have to take into account the concept of “Separate Legal Entity”.
After incorporation, company and its members become “separate legal identity”, and this concept of separation is known as “Corporate Personality” or “Corporate Veil”.
A company to function, depends upon its members or directors, So the principal of “Corporate Veil” says that, “For all the legitimate purposes, the members/directors/promoters of a company can defend themselves by the use of “Corporate Veil” or “Corporate Personality”.
Now recent trends have shown that these members and/or directors, to prevent them from any liability and to conduct fraud, illegal activities, make the wrong use of “Corporate Veil”.
So, to prevent these fraud, illegal activities and misuse, the concept of “Lifting of Corporate Veil” comes into action.
Now one thing we have to understand is that if anyone misuses their Corporate Personality to do fraud or illegal activities, then our Courts can lift up this “Veil” and look into the matter that who particular “Person” has done this Act and can make the individual responsible.
So, to prevent the misuse of “Corporate Personality” we have the principle of “Lifting of Corporate Veil”.
NOW LET’S UNDERSTAND THE CIRCUMSTANCES UNDER WHICH THE CORPORATE VEIL CAN BE LIFTED
Fraud or Improper Conduct – If the corporate personality is used for conducting fraud or improper conduct, then in these circumstances the courts have the power to lift up the corporate veil and hold any person liable for such activities, be it director, manager or any other officer of the company. The purpose here is to find the real culprit disguising behind the curtain of corporate personality or separate legal entity.
Case Law – Jones v. Lipman – Lipman enters into a contract with Jones that Lipman will sell his property to Jones, but then again after sometime Lipman changes his decision, and to prevent himself from specific performance of the contract, he sells his property to his company. When Jones demands the property in order to fulfil the contract, Lipman says that the property is not with him, and that he had sold it to his company.
Held – The court held that there are only 2 members of this company Lipman, and a Clerk. The court observed that Lipman used his own company, as a mask to prevent the specific performance of the contract, and thus this is a fraudulent activity.
Hence, Lipman has to perform his contract.
2. When company is a Cloak or Sham – Lets understand this concept through a case law:
Gilford Motor Co. Ltd v. Horne – Horne is an employee at the said company, the company enters into a contract with Horne that, “Apart from our business, you’ll not solicit our customers into a different transaction”. Horne signs the contract, but to escape from this condition, Horne builds his own company which works exactly like Gilford Co. and he then starts approaching the customers of Gilford Motor.
Held – The court herein applied the principle of Corporate Veil and held that the sham company of Horne was built only for the purpose of conducting illegal activity, and thus, it is not valid.
The court applied Injunction on both Horne and his company.
Evasion of tax – If a company for the sole aim of tax evasion, builds 3-4 new companies to transfer the assets of the principal company into the new companies, then it’s not legitimate use. For example, Case law – Workmen of Associated Rubber Industries Ltd. v. Associated Rubber Industries Ltd.
War – If India goes into war with any country then the citizens of that country will become India’s Alien Enemies. And normal laws don’t apply to alien enemies.
CASE LAW: DAMLER CO LTD VS CONTINENTAL TYRE & RUBBER CO LTD
Some German Citizens form a tyre company to manufacture rubber and tyres. These German Citizens incorporate a company in England namely – “Damler Co. Ltd.”. Only one shareholder of this new company was English, and all others were Germans. The sole purpose of this Damler company was to sell the tyre and rubbers manufactured by the Tyre & Rubber Company of Germany. And in conducting the business, Damler Company was doing some transactions with “Continental Tyre and Rubber Co. Ltd”. Now World War 1 happens in which Germany and England become enemies and go into war. Damler Company already did many transactions with Continental Company and demanded payment for the same. Now, Continental Tyre Company said that during the WW1 if I give any money to Damler Company then it will be inferred that I am giving money to an enemy of the country, which is an offence. After that Damler Company approaches the courts and submits that our company is incorporated in England then what is its relation with the German Company.
Held – To which courts applied the principle of, “Corporate Veil” and held that all the administration and management of the company is being done by the German Company, and all its transactions are related with Germany, and Continental Tyres company has no need to do transactions with this company in the time of war.
Statutory provisions – The Companies Act, 2013 has been mixed with numerous provisions to point out the persons who are liable for any improper/illegal activity. The Companies Act. 2013 consists of various sections and rules for this purpose.
Judicial Pronouncements – We have separate statutes but still the judiciary plays a vital role through setting up of precedents and ensures that no guilty person walks free merely because of some technicality.
Mis-statement in Prospectus – Prospectus is the heart and soul of a company. Pursuant to Section 26 (3), Section 34 and Section 35 of the Companies Act, 2013, furnishing untrue or false statements in prospectus is punishable.Failure to return application money – According to the Section 39(3) of the Act, against the allotment of securities, if the already stated minimum amount has not been subscribed and the sum due on application is not received within the deadline of 30 days.
Misdescription of Company’s name – As the company does many transactions and contracts it is important that the name of the company is prior approved by Section 4 and is printed under Section 12 of the act.For investigation of ownership of the company – The Central Government under Section 216 of the act is authorized to appoint inspectors to investigate and report on matters of the company, its membership to determine the true persons who are financially interested in the company.
Furnishing false statements – If any person furnishes false statements, financial statement, prospectus or any other document then he/she shall be liable under Section 447 of the Act.
Repeated defaults – Section 449 – If any company or an officer commits this offence then he/she will be punishable either with fine or with imprisonment.Liability for Ultra Vires Acts – Every company is bound to comply with its memorandum of association, articles of associations and Companies Act, 2013.
This concept was evolved in the case of – Ashbury Railway Carriage & Iron Company Ltd. v. Hector Riche – Herein, the company entered into contract for financing construction of railway lines, and this operation was not mentioned in the memorandum. The House of Lords held that this action is “Ultra-Vires” and the contract is null and void.Public interest/Public policy – If the conduct of the company is in conflict with the larger public interest or public policy then the Court can lift the corporate veil and personally hold that person liable.
After reading the basics of Company Law and the relatively unique concept of “Lifting of the Corporate Veil” we learnt about how no one can take advantage of “Corporate Personality” and do improper/illegal conduct.
We can infer that the courts along with the legislature are quite active in this aspect of company law and they work on the principle that no guilty person should be set free just because of some technicality.
We all know that Company has a separate legal entity, thus has a corporate personality. But this “Corporate Personality” should not become the means of doing fraud/illegal activities, it is like a cloak that is covering the company for all legal purposes, but if the same cloak is used as a defence for committing fraud/illegal activities then the cloak will be lifted, either by the statutory provisions, as read already or by the various judicial pronouncements.
Thus, if a company is created only for the purpose of committing frauds then then the promoters/directors/members cannot be saved from the action of law. It will be deemed that it was not a company as per The Companies Act, 2013 and the person whoever did the fraud will be accountable. An important concept herein is that the company will be deemed to have not been existed. Its whole existence will be scrapped off.
After reading the basics of Company Law and the relatively unique concept of “Lifting of the Corporate Veil” we learnt about how no one can take advantage of “Corporate Personality” and do improper/illegal conduct.
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GAUHATI HIGH COURT QUASHES NO-CONFIDENCE MOTION AGAINST GRAM PANCHAYAT PRESIDENT CITING PARTICIPATION OF MEMBER DISQUALIFIED FOR HAVING THREE CHILDREN
The Gauhati High Court in the case Jugitawali Pawe v State of Assam and 15 ors observed and quashed a resolution expressing no-confidence in the petitioner – the President of a Gram Panchayat, as a result of which she as removed from office. It was stated that it is as per the citing no compliance with Assam Panchayat Act, 1994, reading with Rule 62 of the Assam Panchayat (Constitution) Rules, 1995.
It was preferred by the petitioner to the materials available on record to argue that one of the members of the Gaon Panchayat, the respondent. The respondent voted against the petitioner and had given birth to her third child the previous year. Moreover, by virtue of Section 111(2)(a) of the Assam Panchayat Act, 1994, reading with Rule 62 of the Assam Panchayat (Constitution) Rules, 1995, the petitioner stood automatically disqualified on the date of voting. Following, which her vote was taken by passing No-confidence motion.
It was prayed by the petitioner in the plea for setting aside the impugned resolution and for issuance of a direction to restore his client back in the office. Thereafter, to initiate fresh proceedings, liberty should be granted to the respondent, following the due process.
It was agreed by the Counsel representing for the respondent that the said member of the panchayat had been disqualified but retained on the ground that the disqualification would have no bearing on the petitioner’s case, as the impugned resolution was passed before the declaration of petitioner disqualification.
In the present case, It was noticed by Justice Suman Shyam the member had voted against the petitioner and without her vote. The petitioner would not have been ousted from office. Justice Shyam also found no dispute about the fact that the member had incurred disqualification under the law prior the date of adoption of the impugned resolution. Justice Shyam found it unnecessary to delve into other aspects of the matter which includes the procedural formalities for declaring the member a disqualified candidate.
It is observed that the impugned resolution was declared to be vitiated and liable to be set aside. Further, the Court restored the petitioner to the office of the President of the Bongalmara Gaon Panchayat with immediate effect and it was stated by the court that the order will not stand in the way should the authorities or any member of the Gaon Panchayat propose a fresh motion of “no-confidence” against the petitioner and the due process of law needs to be followed.
Halt DDA’s demolition action against jhuggis in Nizamuddin’s Gyaspur area, orders Delhi High Court
As per the JJ Rehabilitation and Relocation Policy 2015 and the Delhi Urban Shelter Improvement Board, the residents who can establish their residence prior to 01.01.2015 are eligible for rehabilitation under the JJ Rehabilitation and Relocation Policy 2015.
The Delhi High Court in the case Manoj Gupta & Ors. v. DDA & Ors observed and has ordered status quo on the Delhi Development Authority’s proposal to demolish jhuggi clusters in city’s Gyaspur area in Hazrat Nizamuddin. The vacation bench comprising of Justice Neena Bansal Krishna observed in the petition filled by the residents and the court granted an interim relief.
It was ordered by the court status quo till July 11, the next date of hearing.
The bench orally remarked that a ten-day delay in demolition won’t make a difference but if today it is demolished and later, we come to know that they were entitled, who’s going to… the bench will consider it on July 11, 2022 but in the Meanwhile, some protections are entitled them. Adding this, Status quo be maintained. If since 1995, they have been there, heavens won’t come down if for 10 more days they are protected.
In the plea the petitioner stated that the T-Huts settlement in the area, which was stated by the authorities to vacate. It has been in existence for almost two decades and compromise of 32 jhuggis or households.
In the plea it was alleged that the bulldozers have been parked around the camp and a DDA official has orally asked them to vacate the area and it is noted that till date no proper notice have been sent to them nor has DDA conducted any survey of the area.
Furthermore, the DDA did not provide any alternate arrangement for their rehabilitation which resulted in extreme distress among the residents.
Moreover, it was admitted by the petitioner that the land in question belongs to DDA and they may seek that status-quo to be maintained at the site. It was urged that the residents should not be physically dispose or evicted from the demolition site until the survey is conducted and rehabilitation is provided to the residents as per the DUSIB policy of 2015.
As per the JJ Rehabilitation and Relocation Policy 2015 and the Delhi Urban Shelter Improvement Board. The residents who can establish their residence prior to 01.01.2015 are eligible for rehabilitation under the JJ Rehabilitation and Relocation Policy 2015.
It is observed that in the case Ajay Maken v. Union of India, Reliance is placed on the Supreme Court decision and the High Court decision in the case Sudama Singh & Ors. v. Government of Delhi & Anr, it was held in the case that that removal of jhuggis without ensuring relocation would amount of gross violation of Fundamental Rights under Article 21 of the Constitution. Further, it was held that the agencies conducting the demolitions ought to conduct survey before undertaking any demolition.
It is submitted that these observations would apply across the board, in the entire NCT of Delhi.
Advocates Vrinda Bhandari, Shiyaz Razaq, Kaoliangpou Kamei, Jepi Y Chisho and Paul Kumar Kalai, represented the petitioner.
TELANGANA HIGH COURT: PLACE OF RESIDENCE OF THE ARBITRATOR WOULD NOT BE THE SEAT OF ARBITRATION
The High Court of Telangana in the case M/s S. Square Infra v. Garneni Chalapathi Rao observed and held that the place of residence of the arbitrator would not determine the seat of arbitration.
The Single bench comprising of Justice P. Sree Sudha observed and held that merely because an arbitrator residing in Hyderabad has been appointed, it does not mean that only the Courts at Hyderabad would have the jurisdiction to decide all the matters arising out of arbitration agreement.
Facts of the Case:
In the present case, after the dispute arouse between the parties, the respondent sent a letter to the petitioner for nomination an arbitrator who is residing in Hyderabad. To its said notice, petitioner replied and declined the appointment of the arbitrator for the reason that there was no dispute which required the appointment of an arbitrator.
A suit was filled by the respondent before the VII Additional District Judge Sangareddy, seeking for relief of permanent injunction. An application was filled by the petitioner under Section 8 of the Arbitration & Conciliation Act and the parties referred to the arbitration.
An application was filled by the respondent under section 9 of the Arbitration & Conciliation Act before the Principal District Judge, Sangareddy, Subsequently, an application was filled by the petitioner for transferring the application from the Court at Sangareddy to Court at Hyderabad.
Contentions made by Parties:
On the following grounds, the petitioner sought the transfer of application.
An arbitrator residing in Hyderabad was nominated to respondent. However, only the courts in Hyderabad would have the jurisdiction to decide all the matters arising out of the arbitration.
It was stated that the nomination of an arbitrator residing in Hyderabad amounted to designating Hyderabad as the Seat of Arbitration.
On the following grounds, the respondent countered the submissions of the petitioner:
An application was filled by the petitioner under Section 8 of the A&C Act before the Court at Sangareddy. However, in terms of Section 42 of the A&C Act, only the court at Sangareddy would have the jurisdiction to decide all the matters arising out of arbitration.
The Court held that the seat of arbitration would not be decide by the place of residence of the arbitrator.
The argument of the petitioner was rejected by the court that since the respondent had initially nominated an arbitrator residing in Hyderabad, the Hyderabad Court would have the jurisdiction.
The court stated that merely because a party has nominated an arbitrator who resides in Hyderabad, the same would not designate Hyderabad as the Seat of arbitration in absence of any designation of the seat under the arbitration agreement.
It was further stated by the court that the application filled by the petitioner filled under Section 8 application before the Court at Sangareddy consequent to which the parties were referred to arbitration. Therefore, the Court would have the jurisdiction, in terms of Section 42 of the A&C Act.
The Transfer petition was dismissed by the Court.
DELHI HIGH COURT REMANDS IN THE MATTER BACK TO ASSESSING OFFICER AFTER SETTING ASIDE: JUST 3 DAYS’ TIME GRANTED TO RESPOND TO THE INCOME TAX NOTICE
The Delhi High Court in the case Shubham Thakral Vs ITO, the Delhi bench comprising of Justice Manmohan and Justice Manmeet Pritam Singh Arora observed and remanded the matter back to the assessing officer as just 3 days’ time was granted to respond to the income tax notice.
In the present case, the petitioner/assessee assailed the notice under Section 148A (b) of the Income Tax Act, 1961 and the order passed under Section 148A (d) for the Assessment Year 2018–19.
It was contended by the assessee that only three days’ time was granted to the assessee to respond, as against the mandatory statutory period of at least seven days. However, despite of the fact that the annexure attached to the notice gave the petitioner eight days to respond, the e-filing submission portal was closed earlier, in violation of Section 148A (b) of the Income Tax Act.
Furthermore, the petitioner relied on the decision of Delhi High Court, in the case of Shri Sai Co-operative Thrift and Credit Society Ltd versus ITO, the Delhi High Court in the case held that under Section 148A (b), a minimum time of seven days has to be granted to the assessee to file its reply to the show cause notice.
No objections were raised by the department/respondent to the matter being returned to the Assessing Officer for a fresh decision in accordance with the law. Accordingly, the court set aside the order passed under Section 148A (d) for the Assessment Year 2018-19. The Assessing officer was directed by the court to pass a fresh reasoned order in accordance with the law after considering the reply of the petitioner, which was directed to be filed within a week.
ALLAHABAD HIGH COURT: ADVOCATES SHOULDN’T ADVISE CLIENTS TO REAGITATE MATTERS IF THERE IS NO ERROR APPARENT ON FACE OF RECORD
The Allahabad High Court in the case Malhan and 17 Others Vs. State Of U.P. And Another observed and stated that an advocate should be given such a piece of advice when there is no error apparent on the face of the record nor was there any reason why the matter be re-agitated it was finally decided.
The bench comprising of Justice Dr. Kaushal Jayendra Thaker and Justice Vivek Varma observed while dealing with the civil review application wherein the bench observed the concerned advised his client to make a chance by filling the instant review application after a period of six year.
In the present case, a civil review petition was filled along with the application under section 5 of the Limitation Act, 1963., the application was filled for seeking condonation of delay in filling the application, the application was filled with a delay of six years i.e., 1900 days.
It was stated by the applicant that the review application could not be filled due to the blockage of public transportation on account of the COVID-19 guidelines.
Moreover, the court observed that the appeals were disposed of by the Apex Court in the year 2016 and only in 2020-2021, the pandemic struck India and furthermore, it cannot be said that due to the COVID guidelines the public transportation was blocked and however, the applicant could not come to Allahabad Court to file review.
Further, it was stated that the court asked the counsel for the review applicants to explain the delay in filling the review application, to which the council gave a strange reply that the counsel had advised the clients that they must take a chance by filling this review application after a period of six years.
Following this, the Court observed:
The court noted that an advocate should not give such an advice when there is no error apparent on the face of record nor was there any other reason that when the matter was finally decided, why the matter be re-agitated.
It was stated that the court has no reason to condone the delay of six years as the same was not explained as to why this review application is filed after such an inordinate delay.
The Court opined that the lapse in approaching the court within the time is understandable but a total inaction for long period of delay without any explanation whatsoever and that too in absence of showing any sincere attempt on the part of suiter, this would add to his negligence and the relevant factor going against him.
The court observed that careless and reckless is shown by the review applicant in approaching the court and due to the condemnation of delay in the application with a token cost of Rs.10,000/, the court dismissed the application.
SUPREME COURT CRITICISES HIGH COURT: POSTING ANTICIPATORY BAIL PLEA AFTER TWO MONTHS CAN’T BE APPRECIATED
The Supreme Court in the case Sanjay versus The State (NCT of Delhi) & ANR observed and stated that in the case where personal liberty is involved, the court is expected to pass orders at the earliest while taking into account the merits of the matter in one way or other. Further, the top court observed that posting of an application for anticipatory bail after a couple of months cannot be appreciated by the court.
The bench comprising of Justice C. T. Ravikumar and the Justice Sudhanshu Dhulia was hearing a June 2 SLP against the Delhi High Court in a petition filed under section 420, 467, 468, 471, 120-B, 34 of the Indian Penal Code, 1860 for seeking anticipatory bail in a 2022 FIR, a notice is issued. It was stated that the learned APP for the state is present and accepts the notice and seeks time to file status report. The High Court in the impugned order stated that Let the status report be filed by the state prior to the next date with an advance copy to the learned counsel for the petitioner. The matter is to be list on 31.08.2022.
It was noted by the bench comprising of Justice Ravikumar and the Justice Dhulia that in the captioned Special Leave Petition, the grievance of the petitioner is that the application for anticipatory bail moved by the petitioner, being Crl. M.A. No. 11480 of 2022 in Bail Application No. 1751 of 2022 without granting any interim protection, was posted to 31.08.2022. on 24.05.2022, the bail application was moved on.
However, the bench asserted that the bench is of the considered view that in a matter involving personal liberty, the Court is expected to to pass orders at the earliest while taking into account the merits of the matter in one way or other.
It was declared by the bench that at any rate posting an application for anticipatory bail after a couple of months cannot be appreciated by the court.
Further, the bench requested to the High Court to dispose off the application for anticipatory bail on its own merits and in accordance with law expeditiously, preferably within a period of three weeks after reopening of the Court. Adding to it, the bench stated that if the main application could not be disposed off, for any reason, within the stipulated time, relief sought for in the interlocutory and on and on its own merits, the application shall be considered.
While disposing of the SLP, the bench directed in its order that we grant interim protection from arrest to the petitioner herein, Till such time.
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