Lifting the Corporate Veil

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The Pursuit of Enforcement – Can the Corporate Cloaks be Unravelled

Introduction

It is trite that a company is a separate legal entity, and is distinct from its members.[1] As Lord Sumption observed in Prest v Petrodel Resources Ltd.[2], “The separate personality and property of a company is sometimes described as a fiction, and in a sense it is. But the fiction is the whole foundation of English company and insolvency law.” Equally sacrosanct is the principle that arbitration proceeds on the basis of an agreement between parties. After all, “like consummated romance, arbitration rests on consent”.[3] However, practical considerations have led to the marginal dilution of these otherwise fundamental principles.

There are instances where a company and its members are not treated as separate legal entities (i.e. where the corporate ‘veil’ is pierced). Similarly, there are cases where arbitral proceedings enjoin non-signatories.[4] A unique amalgam of these exceptions is found in cases where an arbitral award is sought to be executed against an entity that was never a party to the arbitral proceedings. For example, in Cheran Properties Limited v. Kasturi and Sons Limited and Ors.[5] (“Cheran Properties”), applying the ‘group of companies’ doctrine expounded in Chloro Controls,[6] and analysing Section 35 of the Arbitration and Conciliation Act, 1996 (“Act”) to ascertain who “persons claiming under them” would be for the purpose of binding such persons to the arbitral award, the Supreme Court permitted enforcement of an arbitral award against a third party/non-signatory. In this post, however, our focus is on whether Indian courts have pierced the corporate veil to execute an arbitral award against a third party to the arbitral proceedings when such third party’s unique relationship with the award debtor has been exploited to fraudulently circumvent or frustrate execution of the arbitral award.
Continue Reading The Pursuit of Enforcement – Can the Corporate Cloaks be Unravelled?

Image credit: Scroll.in, September 26, 2017

This is the fourth blog piece in our series entitled “Those Were the Days”, which is published monthly. We hope you enjoy reading this as much as we have enjoyed putting this together.

The world is becoming corporatised, and the time of the business owner living over his little shop are well-nigh over. The world is also becoming smaller and, as it does, a business’s reach spreads across multiple jurisdictions and through multiple subsidiary or group companies.

In this age of corporatisation, most jurisdictions recognise the concept of a company as a separate juristic person, with an identity distinct and independent of its shareholders, members or directors. This corporate existence separates a company’s identity from that of its promoters or shareholders. It enables the company to contract in its own name, with its shareholders and third parties, to acquire and hold property in its own name, and to sue and be sued in its own name. A company has perpetual succession; its life is not co-dependent with that of its shareholders and it remains in existence irrespective of any change in its members, until it is dissolved by liquidation. The shareholders of a company are not identified with the company and cannot be held personally liable for acts undertaken by, or liabilities of, the company.

This independence or distinction is not a new concept. In the late 19th Century, the judgment in the classic case of Salomon v. Salomon[1] was passed, ruling that a company is a separate legal entity distinct from its members and so insulating Mr. Salomon, the founder of A. Salomon and Company, Ltd., from personal liability to the creditors of the company he founded.Continue Reading LIC v. Escorts and Beyond – Lifting the Corporate Veil