Corporate Veil Can Be Pierced If Misused to Perpetrate Fraud or Shield Wrongdoers: Delhi High Court
The Delhi Excessive Courtroom noticed that whereas it’s not unsure that an organization has a separate authorized entity, and that the company veil can’t be lifted in a routine method, the identical may be pierced if the company construction is misused to perpetrate fraud or protect the wrongdoers from the results of their actions.
The Delhi Excessive Courtroom thought of a petition filed in opposition to the order of district courtroom relating to the lifting of corperate veil.
A Bench of Justice Amit Mahajan noticed, “Whereas it’s not unsure that an organization has a separate authorized entity, and that the company veil can’t be lifted in a routine method, the identical may be pierced if the company construction is misused to perpetrate fraud or protect the wrongdoers from the results of their actions. By way of the dictum of the Hon’ble Apex Courtroom in Balwant Rai Saluja vs Air India Ltd (supra), the intent of piercing the veil should be such in order to treatment a improper achieved by the individuals in management of the corporate. In that regard, the deceitful conduct of the petitioners in first issuing the cheques after which shifting to UAE and not becoming a member of the proceedings, makes it crucial to pierce the company veil.“
Advocate Siddharth Handa represented the Petitioners, whereas the Advocate Amrendra Nath Shukla reprsented the Respondents.
Case Transient
A cheque was issued by the corporate, nevertheless, the identical returned unpaid resulting from inadequate funds. A felony criticism was filed beneath Part 138, Negotibale Instrument Act. Nevertheless, the corporate by no means appeared, therefore, the go well with was proceeded ex-parte.
It was submitted that the corporate was indulged in defruading folks and have left India. It was submitted that at the stage of execution proceedings, company veil may very well be lifted thereby making the compny liable.
Courtroom’s Evaluation
The query earlier than the Courtroom was whether or not the Executing Courtroom rightly lifted the company veil qua the corporate.
“It’s effectively settled that when a decree is handed in opposition to a firm, it’s the firm alone that’s liable to fulfil the phrases of the decree and pay the decretal quantity, if any. In such circumstances, the administrators/the individuals liable for managing the affairs of the firm, of their particular person capability, can not ipso facto be made liable for the money owed or liabilities of the corporate. Nevertheless, the stated precept shouldn’t be absolute and is topic to sure reservations. Because of this, in instances the place the company construction is misused to perpetrate fraud or to commit different unlawful acts, the administrators too may be made personally liable. Courts, in such situations, are empowered to pierce the company veil thereby disregarding the separate authorized entity accorded to the corporate”, the Courtroom noticed.
The Courtroom additionally opined that the the judicial course of ought not come to the rescue of people who try to evade the method of legislation.
Accordingly, the Petition was dismissed.
Trigger Title: Ajay Gupta & Anr. V. Amit Gross sales Company Pvt. Ltd. & Anr (Impartial quotation: 2025:DHC: 5219)
Look
Petitioners: Advocates Siddharth Handa and Manu Padalia
Respondents: Advocates Amrendra Nath Shukla, Saurabh Malik and Suraj Sharma for Respondent No. 1.
