Redefining Corporate Liability: An Analysis Of Reverse Piercing Of The Corporate Veil In Indian Law
- IJLLR Journal
- Jul 10
- 1 min read
Ishita Bhatia, Jindal Global Law School
INTRODUCTION
Picture this: a business owner with personal debts starts moving his assets into his company to shield them from creditors. Even though, the company seems stable, separate from his finances yet his personal wealth is now tucked safely inside the corporate structure, out of the creditor’s reach. Is this justified? Should the creditors be allowed to claim these assets to settle his debts? This question forms the basis of the doctrine of reverse piercing of corporate veil.
This paper delves into this doctrine of reverse piercing of corporate veil, judicial perspectives in India, comparison with other jurisdictions, challenges and the potential way forward.
CORPORATE VIEL AND ITS LIFTING
Unlike in a partnership, a company is a separate legal entity from the people who constitute it. It can enjoy rights and bear duties distinct from its members. In law, it’s not seen as their agent or trustee, and members aren't personally liable for the company’s actions beyond what the law provides. This legal separation is called the corporate veil.
Interestingly, the first case on this subject was Kandoli Tea Co. Ltd case, in 1886, even before the landmark Saloman case came into the picture. In this case, the observed that a company is a separate person and a body entirely separate from all its shareholders. Then in 1897, came one of the most celebrated judgements of Saloman v. Saloman, wherein the court ruled that the main shareholder wasn’t liable for the company’s debts, affirming that incorporation creates a separate legal identity.
