“A company has a separate existence from its members. interpretation of this statement
Give and state the circumstances in which the veil of amalgamation of the company can be removed. [“A company has a separate legal existence from its members.” Discuss this statement and state the circumstances under which the corporate veil of a company may be lifted.] or
Do it “The company is a legal personality, completely separate from its members.” Explain this statement as [“Company is a legal entity distinct from its members.” Explain thiss statement]
corporate cover principle
(Principle of Corporate Veil) A company is an artificial person created by law, whose creation and dissolution is done by law. The rights and responsibilities that a human gets to do business and the amount of responsibilities that are on the human being, the same rights and responsibilities are also of the company. The only difference is that the company exists only in the eyes of the law and does not need to eat, drink, sleep like a natural man. In other words the birth and death of man happens naturally, whereas the creation and dissolution of a company is according to the law made by man. Therefore, the birth and death of the company is controlled by the law and not by God. Like natural human beings, a company can enter into contracts with others, sue others and sue other companies. Like a natural man, he can buy and sell property, but like a physical person, he cannot beat, kill, marry etc. Also, this artificial person does not need food and drink etc. to survive. Despite all this, he is not a fake person but a real person. Thus, according to this principle, the company is called artificial, intangible, invisible and fictitious person by law. The main reason for this is that it has the right to buy and sell any property, contract, submit suit and sign forms like natural persons. Also, being a person created by law, the existence of the company is completely separate from its members. Hidayatullah Khan, former Chief Justice of the Supreme Court of India and former Vice President of India, has written that “an amalgamated company has a separate entity and the law considers it to be separate from its members. Such a separate entity arises as soon as the amalgamation takes place. Others In words, the existence of a company is different from the people or members who set up the company or buy its shares. Not only this, the company and the directors of the company also have a separate existence. If almost all the shares of a company are Even if it is owned by the same person, the company and such person will continue to exist separately.Not only this, if a group of persons forms more than one company and all the companies are managed, operated and owned by the same group. Even then, the existence of all the companies and those members will remain separate. In simple words, the existence of the company is different from its members. Therefore, if any claim is made by the company or any claim is made on the company, then it is called the members of the company. by or member of the company Claims made on them will not be considered. This is called the cover of amalgamation.
The separate scientific existence of the company from its members has been clarified in the dispute of Salomon Vs Salomon and Company, 1897 AD. In this dispute a person named Salomon used to trade leather shoes. He founded Salomon & Company Limited, in which he himself had his daughter and his four sons as members. Salomon then sold his business to the company for £30,000. Instead of paying in cash, the company gave him 20,000 fully paid-up shares of £1 per share and debentures of £10,000. Thus Salomon had 20,000 shares of 1 pound per share. The other 6 members each had 1 pound share, in the end the company was dissolved. At this time it had assets of £6,000 and liabilities of £10,000 in debentures of Salomon who were secured creditors and £7,000 for unsecured creditors. Its assets were sufficient to pay the secured creditors, but nothing was left to pay the unsecured creditors. The unsecured creditors contended that there was no difference between the company and Salomon and that he could not take any debt from himself, so he should get the first payment. The House of Lords ruled that the company was created by legislation. The company’s assets belong to the company, not to Salomon, according to Salomon, the company is considered separate from the members, its existence is separate. So Salomon can take the amount of his debentures earlier, as they are secured. Here the judges did not consider it appropriate to go behind the scenes. Thus the case of Salomon proved that there is a veil between the personality of the company and its members and that it is legitimate and the courts will not try to know the economic truth by removing that veil, it is called ‘the cover of the company’. is called. Apart from this dispute, it has also been decided in many other disputes that the existence of the members of the company is separate from the company.
The following are the circumstances in which the court does not recognize the separate existence of the company (1) According to section 45 of the Companies Act, if the number is less than the minimum number, there are less than 7 members in a public company and less than 2 members in a private company. If the business of the company is carried on for more than 6 months, then the members who are aware of this fact do not get the benefit of separate statutory existence of the company and are personally liable for all debts during this period.
(2) Signing the bills of exchange without specifying the name of the company If any officer of the company signs any bill of exchange or promissory note without specifying the name of the company, he shall be liable to the holder himself. (3) In case of fraudulent business, if it is proved at the time of winding up of the company that
If the business of the company is carried on with the intention of defrauding the creditors and other persons, the willful act shall be guilty and shall not be treated as separate from the company. (4) In case of mis-statement in the prospectus, if the company’s prospectus contains a false statement and any person has purchased the shares on the basis of such mis-statement, such person shall, in the event of a loss, be liable to the directors, promoters or other guilty persons of the company. personally liable, who is responsible for the issuance of such return. Thus, in this case the amalgamation
By lifting the veil, the officials guilty of that can be held personally liable. (5) If the control of the company is in the possession of foreign enemies, a company whose managers are residents of the enemy country or they are acting at the behest of the enemy country even though they are Indian citizens, then the court does not accept the separate existence of such company. Because the company is an artificial person. In this the mind and soul are not like the real person. From this point of view it can be neither friend nor foe, but it can be the behavior of the enemy.
(6) On failure to return deposits received for fraudulent purposes, a company is sometimes unable to refund the amount of deposits received by it from the public or the amount of interest payable thereon. In such a case it is also proved that the deposit of the money was received by the company for any fraudulent purposes or for the purpose of defrauding the depositors. In that case, every officer of that company who is responsible for receiving those deposits shall be personally responsible for returning the deposited money and interest. They shall be unlimited and personally liable for all damages incurred by the depositors.
(7) In the case of a subsidiary and a subsidiary company, the fact is clear that the holding company and its subsidiaries each have their own separate legal entity. But each holding company has to prepare a consolidated financial statement of itself and all its subsidiaries. In addition, each holding company shall also submit this consolidated financial statement along with its own separate financial statements at its annual general meeting.
has to be presented. (8) If the company form is being used for illegal or improper purposes, the court can expose the company even if the company form is being used for any illegal or improper purpose.
(9) To determine the true character of the company Sometimes in dispute relating to a company such occasions arise when the true nature of the company has to be determined or determined. For example, whether the boards of directors of any companies are intertwined or not; Whether a company belongs to any group or particular management; There can be many questions like whether a company is an enemy company or not. In order to get information in relation to many questions like these, the court has to lift the statutory veil of the company and find out its genuineness.
(10) In order to protect the government income, sometimes some people also form the company to avoid government taxes. In such a situation, the Income Tax Officer and the Courts have the right to expose the company and hold its members behind the scenes responsible for this punishable offence.