Nicholas Murray

President, Columbia University (1911)

“I weigh my words when I say that in my
judgment the Limited Liability
Corporation is the greatest single
discovery of modern times ....Even steam
and electricity are far less important than
the LIMITED LIABILITY
CORPORATION, and they would be
reduced to comparative impotence without
it.”
 Quoted in William P. Hackney & Tracey G. Benson, Shareholder Liability for
Inadequate Capital, 43 U. PI-r. L. REV. 837, 841 (1982)
Dr. Dayananda Murthy C P
CORPORATE
VEIL
DOCTRINE
 Structure of Case Analysis
Application to other situations
Introductory Section
JURISDICTION?
Forum Non Convenience

Judgment & Reasoning Setting out

the Court THE FACTS

Determining The Law

the relief/Remedy &
including orders for costs The Issues

Applying
the Law to the facts
 Two Format?
1.
1. Identification Identification
2.
2. Issues (s) & Holding (s) Facts
3.
Procedural History
3. Facts 4
Issues (s) & Holding
4 Procedural History (s) (Court’s answer
5 Reasoning presented in the issue)
5
Reasoning (Dictum –
6 Evaluation
Courts reasoning)
7 Synthesis 6
Evaluation
Advantage - Force to frame the 7
legal issue before facts – Synthesis*
appreciation of facts for their legal
significance Convenient
 H5W’s? Position statement
(Expresses a
Action plan conclusion)
Who

How What
Get Familiar
with the Facts
& Issues
- In the Case
When
Where
Why Argument
Within the same body there exists more than one distinct
personality
Robert Louis Stevenson
 CORPORATE VEIL DOCTRINE - A FERTILE
GROUND FOR ACADEMIC RESEARCH?

Exception to –
General Rule of Limited Liability?
English Courts Are Loathe (dislike) to
Apply the Doctrine?
Conservative Approach - only under exceptional
circumstances is veil piercing permitted
(English Law)

Created to Prevent Injustice?

The corporate veil doctrine is generally called
UK U.S. India

Lifting of the Piercing of the Both

corporate veil corporate veil

Cracking open the corporate veil / shell

Lifting the blanket / Mask

Piercing the real facade

 A Mere
metaphysical alter An abstract
conception ego being
A myth &
a fiction
A sham /
An artificial bogus
legal thing

Black
A cloak Sheep
What
A mere ? Mere
nominee When device
?
Dr. Dayananda Murthy C P
Doctrine has always been fact specific &
open-ended

Veil piercing - Much of the action is for

lawyers to exercise some care in
» Forming the Corp. &
» Advising the client as to its conduct.
Dr. Dayananda Murthy C P
 When ?
The “Veil” of the “Corporate Fiction,” /
“Artificial Personality” of Corp. is “pierced,” &
Individual / Corporate SH exposed to personal /
corporate liability
When a court determines that the debt in
question is not really a debt of the Corp., but
ought, in fairness, to be viewed as a debt of the
individual / corporate SH / SH’s.
 Stephen B. Presser, Piercing The Corporate Veil § 1.01,
at 1-6 (1998)
Dr. Dayananda Murthy C P
 Gower & Davies on
Principles of Modern Company Law
 “When the corporate personality is being blatantly
used as a cloak for fraud / improper conduct”
 Pennington: Company Law
 “Where the protection of public interests is of
paramount importance / where the Co. has been
formed to evade obligations imposed by the law”
 S. Ottolenghi Prof. of Law in “From peeping behind
the Corporate Veil, to ignoring it completely” says
 “The Concept of ‘Piercing the Veil’ in the US is
much more developed than in the UK… “When the
notion of legal entity is used to Defeat Public
Convenience, Justify Wrong, Protect Fraud, or
Defend Crime, the law will regard the Corp. as an
‘Assn. of persons’.
 European Jurisdictions have accepted this principle
 Professor L. Maurice Wormser
“Piercing the Veil of Corporate Entity” Columbia Law Review, 496, 517 (1912)

What general rule, if any, can be laid down?

“When the conception of corporate entity is employed to

Evade an
Defraud Circumvent a
existing
Creditors Statute / Law
obligation

Achieve / Protect
Perpetuate knavery /
Monopoly Crime

 Courts will draw aside the web (i.e., veil) of entity,

 Will regard the corporate entity as an Assn. of live, up-
and-doing, men & women SH’s, & will do justice
between real persons.
 Delhi Development Authority v Punjab National Bank
1981 DLR 4 (Del)
 The courts ‘lift the mask of personality… To look to the
realities that lie behind….
 This may be done in order to take account of conduct,
particularly the performance & non - performance of
duties, which can only be of individuals…
 Courts look at the flesh & look actors behind the
corporate façade (G. Williams Text Book of Criminal Law Ch.
44: Smith and Hogan, Criminal Law (4th ed.) p. 148)
 Para (31) A corporate body cannot be a public servant
within the meaning of Sec. 21, IPC.
 A Corp. is an abstraction. It is a legal figment. It is
incapable itself of doing any physical act - It acts through
human agents. The agent can be a public servant.
 Viscount Haldane L. C. in Lennard’s Carrying Co. Ltd. v. Asiatic
Petroleum Co. Ltd.. (1951) A.C. 705 (6) Referred in DDA v Punjab
National Bank, 1981 DLR 4 (Del)
 “A Corp. is an abstraction. It has no mind of its own any more
than it has a body of its own;
 Its active & directing will must consequently be sought in the
person of somebody who for some purposes, may be called an
agent
 But who is really the directing mind & will of the Corp., the very
ego & centre of the personality of the Corp.
 That person may be
 Under the direction of SH’s in GM;
 BOD’s itself, or &
 Person has authority to coordinate with BODs given under
AOA & is appointed by GM & can only be removed by GM of
the Co.”
 Denning L.J., H.L. Bolton (Engineering) Co. Ltd. v T. J.
Graham & Sons Ltd. (1957) 1 QB 159, 172(7) referred in
DDA v Punjab National Bank, 1981 DLR 4 (Del)
 “A Co. may in many ways be likened to a human body.
 It has a brain & nerve centre which controls what it
does.
 It also has hands which hold the tool & act in
accordance with directions from the centre.
 Some of the people in the Co. are mere servants &
agents who are nothing more than hands to do the work
& cannot be said to represent the mind / will.
 Others are directors & managers who represent the
directing mind & will of the Co., & control what it does.
 The state of mind of these managers is the state of mind
of the Co. & is treated by the law as such.”
 Company has a Colour / Religion ?
 Perfectly ordinary events sometimes come together to produce
extraordinary legal questions?
 GS - Laundry Machinery Co.
 Howard Wheeler - Wheeler Laundry Machinery Corp. - HW -
“Never to convey the property to any persons of Mongolian
race.”
 OC Laundry Machinery Co. - members consisted of the
Chinamen?
 Transfer Valid ?
 Black Blood - Black Churches - Black Cemeteries - Black Books
(Even Bibles)
 People’s Pleasure Park Co. v Rohleder. 1909. [63 S. E. 981.]
 Joseph B. Johnson, a former slave, acquired land encumbered
with covenants restricting transfer to “Colored Persons.”
 Corp. was a person only in law, & “in law, there can be no such
thing as a coloured Corp.”
 What is the Colour of a Legal Person?
Common Law - Colorless, Invisible, Intangible
persons.
Corp.’s can & do possess racial identities ?
Corp. can acquire “an imputed racial identity’?
Bains LLC v Arco Prod. Co., 405 F.3d 764, 770
(9th Cir. 2005)
Discrimination against ‘Flying B’ on account of
race, in violation of 42 U.S.C. § 1981.
When a Corp. has acquired an “imputed” racial
identity, it can be the direct target of
discrimination & has standing to pursue a claim
under § 1981
 Reasoning
 Davis’s harassment & intentional delays of those he
called “ragheads” - & that Lawrence choose to back up
Davis. That suffices for corporate liability.
 If a Co. official with sufficient authority to subject the
Co. to vicarious liability backs-up a racist employee’s
racially-motivated conduct instead of protecting the
victim from the employee, then the Co. is liable, even if
the supervisor’s motivation is non-racial, such as
loyalty to his subordinate / a desire to avoid conflict
within the Co.
 A written anti-discrimination policy does not insulate a
Co. from liability if it does not enforce the anti-
discrimination policy &, by its actions, supports
discrimination.
Referred - Thinket Ink Info. Res., Inc. v Sun
Microsystems, Inc., 368 F.3d 1053, 1059 (9th Cir.
2004)
Sun Microsystems – Refusal to contract with
Thinket -
As it was an African-American business
Deliberately refusing solely on its status is
violation of the rights
 Incorporating Race
 Muddy Creek Oil and Gas, Inc. - Corp. was “enrolled
member” of Indian tribe
 Pourier v. S.D. Dep’t of Revenue, 2003 SD 21, 21, 6
N.W.2d 395, 404 - Affd in part, rev’d in part on other grounds, 2004
SD 3, 674 N.W.2d 314, cert. denied, 541 U.S. 1064 (2005).
 Richard R.W. Brooks, Incorporating Race, Yale Law
School, Legal Scholarship Repository, Columbia Law
Review, [Vol. 106:2023] 2006
 Estimated 8.8% of all black-owned enterprises are
incorporated in the US.
 Baan, IT Company (Netherlands) - “Enterprise could not be
both commercial & religious”**
 See also - Paramount Communications, Inc. v Time Inc. (In re
Time Inc. Shareholder Litigation) 571 A.2d 1140 (Del. 1990).***
 Economics of Corporate Racial Identity?
 Some Corp’s explicitly seek to adopt & emphasize the racial (or
other) identity of their owners, agents / customers.
 Corp’s, adoption of a racial identity may further their
corporate goals of profit maximization, market share
dominance, employee & customer loyalty / some other
objective.
 Others would find it optimal to clothe their
transactions with a deliberate measure of racial
ambiguity / anonymity.
 Internet & Racial Corporate Identity
 “Cool anonymity proves an advantage to [some] minority
business owners, allowing them to bypass real-life tensions by
masking their racial identity,” other web-based minority
business operations are “explicitly race-based.”
 Incorporating Race
There are no legal, & currently few
practical, reasons why corporate persons
cannot be associated with racial identities.

The state’s participation in this practice

should be restrained, but cannot (nor ought
to) be eliminated.

Legal persons adopt & are ascribed

identities for the same reasons as natural
persons:
 ECHR
 Co. entitled to a private life?
 Art. 8 - Private & family life, his home & his correspondence
 Article 12 - The right to marry & found a family
 Article 2 - The right to life
 Article 3 - To be protected from inhuman treatment
 Nuisance & disturbance can only be experienced by natural
persons
 Asselbourg & Greenpeace Luxembourg v Luxembourg (June 26,
1999)
 Authorised Govt. Inspectors - To conduct workplace safety
inspections without warrants
 Violated the Corp’s privacy rights?
 Marshall v Barlow's, Inc., 436 U.S. 307 (1978)
 Do companies have feelings too?
 Firma EDV v Germany
 “Christusbetrieb” (“Co. of Christ”) tied to a religious
community called “Universelles Leben” (“Universal Life”)
 R v Broadcasting Standards Commission ex parte BBC
(2000) 3 WLR 1327 (Article - 8 ECHR)
Co has a right to Privacy?
 DSG Retail Ltd. (“Dixons”) - Electrical goods store
 BBC secretly filmed 12 sale transactions
 Whether Dixons sold secondhand goods as new?
 Purchaser on each occasion being a BBC journalist
 Programme (“Watchdog”) was subsequently broadcast
 Filming did not reveal evidence of malpractice
 Secretly filming - An unwarranted infringement of its
privacy?
 A Co. can have private activities?
 SS 110 & 111, Broadcasting Act, 1996
 Whether the secret filming in a place which the public had free
access, could amount an infringement, even where there was no
private element to the events filmed.
Sec. 111(1) A fairness complaint may be made by
an individual / a body of persons, whether
incorporated /shall not be entertained by the
BSC unless made by the person affected / by a
person authorised by him to make the complaint
for him. not, but, subject to Ss (2),
 Activity should have a quality of ‘Seclusion’ - Before
any claim to privacy could be made?
Attempted to listen clandestinely to the activities
of a board meeting?
Secret filming of the board meeting?
Clandestine copying of business documents?
 R v Broadcasting Standards Commission ex parte BBC
(2000) 3 WLR 1327 - Co has a right to Privacy ?
 Art. 8 ECHR - Private & family life, his home & his correspondence.
 1. Everyone has the right to respect for his private & family life,
his home & his correspondence.
 2. There shall be no interference by a public authority with the
exercise of this right
 Except such as is in accordance with the law & is necessary in a
democratic society in the
 Interests of national security
 Public safety
 Economic wellbeing of the country,
 For the prevention of disorder / Crime
 For the protection of health / morals, /
 For the protection of the rights & freedoms of others
 A Co. could clearly have private activities which needed
protection from unwarranted intrusion.
 R v BBC… Cont…
 Secret filming in a public place is not an infringement
of privacy?
 A shop is not a public place ?
 Not a place to which the public have a right of access.?
 It is private property to which members of the public
are invited by way of an implied licence which is not
unlimited.
 If a reporter tries to film openly in a shop the occupier
of the premises can ask him to leave;
 If he films secretly - The occupier is denied that
possibility.
 TV3 Network Services Ltd v Broadcasting Standards Authority
[1995] 2 NZLR 720
 Dhulia Amalner Motor Transport Ltd. v Raychand Rupsi Dharamsi
(1952) 22 Comp Cas 306 (Bom): AIR 1952 Bom 337

Partners of a firm - Business of plying buses

Formed a Pvt. Ltd. Co. &
Sold to it their own buses
Other partners had legal right to sue for
accounts of the business?
Co. was altogether a third person & had an
entity of its own with a perpetual succession.
 Writ for 5605l. 16s
Capital of 25,000l Due from DCL
Except 1 Share - SH’s
German
Payment for goods
supplied to them by
Directors were the respondents
Germans

Selling tyres made in

Germany in England
Action was
commenced for
payment of a trade
debt
 453 Punishment for improper use of “Limited” or “Private Limited”
 That Person/Each of those persons shall
 unless duly incorporated with limited liability, or
 unless duly incorporated as a private company with limited liability,
 Punishable with fine which shall not be less than Rs. 500 but may extend to
Rs. 2000 for every day for which that name or title has been used.
• Apthorpe v. Peter Schoenhofen Brewing(1899) 15 T.L.R. 245 (A.C.)
Salomon v Salomon (1897) A.C. 22 (H.L.)
Woolfson v Strathclyde Regional Council (1978)
S.C.(H.L.) 90
Gilford Motor Co. v Horne, [1933] Ch. 935
(A.C.) at 956 (Eng.) (Piercing the veil for
attempting to evade a legal obligation);
In re Darby, Brougham, [1911] 1 KB. 95 (Eng.)
(Piercing the veil because of
misrepresentation).
• If all of them are citizens of India the company does not
become a citizen of India any more than if all are married
the company would be a married person. personality of the
members has little to do with the persona of the incorporated
company. The persona that comes into being is not the
aggregate of the personae either in law or in metaphor. The
corporation really has no physical existence; it is a mere
“abstraction of law”
• State Trading Corporation of India Ltd. v CTO (1963) 33 Comp Cas
1057 (SC), per Hidayatullah J.
• Each company registered under the Act is a separate and distinct
legal entity and the mere fact that two companies have common
shareholders or common directors does not make them a single entity
• Indowind Energy Ltd v Wescare (I) Ltd 2010 AIR SCW 2884: AIR 2010
SC 1793
Macaura . v Northern Assurance Co., (1925) A.C. 619 (H.L.)

• Upholding the separate legal personality of

Macaura’s co. despite his complete control and
ownership, resulting in his inability to collect on
his insurance policy;
• Gramophone & Typewriter, Ltd. v. Stanley, (1908)
2 K.B. 89 (A.C.) at 96 (Eng.) - Upholding
separate personality of a wholly owned
subsidiary, & holding that complete share
ownership does not automatically turn a
subsidiary into a parent Co’s agent.
• Beckett Investment Management Group v. Hall
(2007) EWCA (Civ.) 613, (2007) I.C.R. 1539
(A.C.) 1545 (Maurice Kay L.J.) (Eng.).
• Stone & Rolls Ltd. v Moore Stephens (2009)
UIKHL 39, (2009) 1 A.C. 1391