The Delhi High Court observed that while it is not in doubt that a company has a separate legal entity, and that the corporate veil cannot be lifted in a routine manner, the same can be pierced if the corporate structure is misused to perpetrate fraud or shield the wrongdoers from the consequences of their actions.

The Delhi High Court considered a petition filed against the order of district court regarding the lifting of corperate veil.

A Bench of Justice Amit Mahajan observed, "While it is not in doubt that a company has a separate legal entity, and that the corporate veil cannot be lifted in a routine manner, the same can be pierced if the corporate structure is misused to perpetrate fraud or shield the wrongdoers from the consequences of their actions. In terms of the dictum of the Hon’ble Apex Court in Balwant Rai Saluja vs Air India Ltd (supra), the intent of piercing the veil must be such so as to remedy a wrong done by the persons in control of the company. In that regard, the deceitful conduct of the petitioners in first issuing the cheques and then shifting to UAE and not joining the proceedings, makes it imperative to pierce the corporate veil."

Advocate Siddharth Handa represented the Petitioners, while the Advocate Amrendra Nath Shukla reprsented the Respondents.

Case Brief

A cheque was issued by the company, however, the same returned unpaid due to insufficient funds. A criminal complaint was filed under Section 138, Negotibale Instrument Act. However, the company never appeared, hence, the suit was proceeded ex-parte.

It was submitted that the company was indulged in defruading people and have left India. It was submitted that at the stage of execution proceedings, corporate veil could be lifted thereby making the compny liable.

Court’s Analysis

The question before the Court was whether the Executing Court rightly lifted the corporate veil qua the company.

“It is well settled that when a decree is passed against a company, it is the company alone that is liable to fulfil the terms of the decree and pay the decretal amount, if any. In such circumstances, the directors/the persons responsible for managing the affairs of the company, in their individual capacity, cannot ipso facto be made liable for the debts or liabilities of the company. However, the said principle is not absolute and is subject to certain reservations. For this reason, in cases where the corporate structure is misused to perpetrate fraud or to commit other illegal acts, the directors too can be made personally liable. Courts, in such scenarios, are empowered to pierce the corporate veil thereby disregarding the separate legal entity accorded to the company”, the Court observed.

The Court also opined that the the judicial process ought not come to the rescue of individuals who attempt to evade the process of law.

Accordingly, the Petition was dismissed.

Cause Title: Ajay Gupta & Anr. V. Amit Sales Corporation Pvt. Ltd. & Anr (Neutral citation: 2025:DHC: 5219)

Appearance

Petitioners: Advocates Siddharth Handa and Manu Padalia

Respondents: Advocates Amrendra Nath Shukla, Saurabh Malik and Suraj Sharma for Respondent No. 1.

Click here to read/download Judgment


Delhi High CourtJustice Amit Mahajan

Pridhi Chopra

    Pridhi Chopra was earlier practicing as an Advocate in Delhi. She pursued B.A. (H) English from Gargi College, University of Delhi, and subsequently pursued a degree in Law.