Principle Of Lifting Corporate Veil Can Be Applied In Cases Where Companies Used For Fraudulent Activities: Bombay High Court

The Bombay High Court observed that the principle of lifting the corporate veil can be applied in cases where companies are used as instruments for fraudulent activities.

The Bench of Justice Amit Borkar observed, “Such conduct, prima facie, shows that accused Nos.1 and 2 were not only importers but also the persons who designed and controlled the entire scheme…The principle of lifting the corporate veil can be applied in such cases where companies are used as instruments for fraudulent activities. The inter se relationship of the accused, their common interest in the business, and the linking of financial transactions through one email ID all indicate that accused Nos.1 and 2 acted hand in glove and shared equal responsibility in the alleged offence.”

Senior Advocate P.A. Pol represented the Applicants, while Advocate Mahalakshmi Ganapathy represented the Respondent.

Court Brief

An Anticipatory Bail Application has been filed by the Applicants, who were accused of offence punishable under Sections 287, 125, 3(5) of the Bharatiya Nyaya Sanhita, 2023; Sections 3 and 7 of the Essential Commodities Act; Sections 3, 4, 6, 23(a) of the Petroleum Act; and Section 4 of the Inflammable Substances Act.

Court’s Observation

The High Court noted that it was alleged that three different companies were linked to one common email ID of the Accused and the natural inference was that one person has access to and control over the financial dealings of all these companies.

“The linking of a personal email ID with bank accounts goes beyond such professional functions. It shows that the notifications of debit and credit entries in all three accounts were being received by the same person. This enabled him to monitor and direct the course of transactions across all companies”, the Court observed.

The Court opined that when the surrounding circumstances were viewed together, the only reasonable inference was that the applicants and co-accused orchestrated these layered transactions with a common object to divert imported petroleum products in a manner so as to conceal their true nature and to deal with adulterated fuel under the guise of process oil.

Pertinently, the Court underscored that the finding that oil was adulterated, constituted prima facie material pointing towards commission of the offence alleged. “The submission of the applicants that the report is defective as it does not conduct all 21 tests under IS 1460:2017 or that it is not from an NABL-accredited laboratory, is a defence which may be raised at the time of trial”, the Court added.

Further, the High Court observed that the the Applicants attempted to give colour of legitimacy to the transactions by routing the imported goods through different entities. However, these entities were found linked by a common thread, indicating that the transactions were not independent but were layered only to create an impression of genuineness.

The Court said, “Such conduct, prima facie, shows that accused Nos.1 and 2 were not only importers but also the persons who designed and controlled the entire scheme. They used accused No.3 as a mere name-lender or front to distance themselves from direct accountability. The principle of lifting the corporate veil can be applied in such cases where companies are used as instruments for fraudulent activities. The inter se relationship of the accused, their common interest in the business, and the linking of financial transactions through one email ID all indicate that accused Nos.1 and 2 acted hand in glove and shared equal responsibility in the alleged offence.”

Given the nature of economic offences and the possibility of custodial interrogation, the Court refused to grant anticipatory bail to the Applicants.

Cause Title: Hetan Ram Gangwani V. The State of Maharashtra (Neutral Citation : 2025:BHC-AS:41371)

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