News By/Courtesy: Nirbha Dhawan | 08 Oct 2020 22:34pm IST

HIGHLIGHTS

  • The doctrine of lifting the veil
  • View of courts
  • Fictious veil

Most of our words are derived from the Latin language, so does the term 'Company'. Company if broken up is formed using two words 'com' and 'panis' which means 'together' and 'bread' respectively. Hence it means 'a group of people eating together'. When a business or a company is started it holds the same purpose. The number of people joining hands, together, to earn a living and to have profit for themselves.

When a company is formed it is given the status of a separate legal entity. Legal entity means that when a company or a corporation will be formed, the shareholders or the partners will sit behind the shield of the company and all the rights and responsibilities will be held by the company. The company is then provided with various rights and duties, be it to enter into a contract or to pay debts, or if one has to sue or to be sued. All of it is done under the name of the company. The company is regarded as an Artificial human being.


But while providing the status of a separate legal entity to a company much wrong can be done along with it. Providing a company with such a status relieves its partners or the shareholders from the liability of being sued. Thus to prevent such a despicable situation there was introduced the doctrine of 'LIFTING THE VIEL'.
The object of forming a corporation is to earn a profit. The goals are well defined in the Memorandum of the company. A company is a separate legal entity, provides for limited liability to its shareholders whereupon most of the liability is put on the company itself. But rationally speaking, the company doesn't work on its own beside it is just an artificial human entity. There are real human beings who work for the functioning of the company. And when real humans are working, it won't be valid for us to say that nothing will go out of order.


There is a fictitious veil that persists between the company and its shareholders. Any partner of the company could commit some wrong in their capacity, hiding behind the veil. There, the courts cannot hold the company liable or the remaining shareholders for something illicit committed by a single shareholder. It was then that the doctrine of lifting the veil' emerged. Courts hold the responsibility to serve everyone with justice, and thus to ensure the same, courts have to pierce the veil to get hold of all the fraud or illegal activities being done behind the fiction veil.


Committing fraud in the company is not an offense of a new character. Now and then we see directors, employees, managers, committing fraud, and betraying their company. The company is decided by one and the fruit of the same has to be bear by everybody. Thus to prevent such an erroneous thing to happen to anybody, Court looks for the real culprit and tends to punish the same.


Not just the fraud, preventing oneself from the liability of the state is also what people often do. When a company is formed the tax is paid under the name of the company and not individually. To secure the revenue and from averting itself from paying heavy taxes, people use their company's name. Courts are responsible to ensure justice to everyone, so if it is for the people then to the state as well.


Also, every Corporation works within the prescribed limit, and one cannot go beyond the same. So to find out, who is surpassing the boundaries Court has to step in and look for behind the curtain.


Once, when the Courts are encountered with the real culprit, Court can and will take the requisite measures which could include holding the wrongdoer liable for his acts, or termination of its partnership in the company or whatever suits the best for all.

 

This article does not intend to hurt the sentiments of any individual, community, sect, or religion, etcetera. This article is based purely on the author’s personal opinion and views in the exercise of the Fundamental Rights guaranteed under Article 19(1)(A) and other related laws being enforced in India for the time 

Section Editor: Pushpit Singh | 10 Oct 2020 16:39pm IST


Tags : fictions veil, company, frauds, liability

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