{"id":351303,"date":"2025-06-23T17:00:13","date_gmt":"2025-06-23T11:30:13","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=351303"},"modified":"2025-06-23T17:01:11","modified_gmt":"2025-06-23T11:31:11","slug":"power-to-lift-the-corporate-veil-during-execution-of-arbitral-awards","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2025\/06\/23\/power-to-lift-the-corporate-veil-during-execution-of-arbitral-awards\/","title":{"rendered":"Power to Lift the Corporate Veil during Execution of Arbitral Awards"},"content":{"rendered":"
\n

A characteristic and arguably the most important feature of a company is the separate legal personality it enjoys, distinct from its promoters, directors, and shareholders. Thus, even though a company may be carrying on the exact same business as before with exactly the same people at its helm, subsequent to incorporation, a new person is created by legal fiction. Law also permits this legal person to exercise rights and incur liabilities on its own name and it is separated from its members by an invisible cloak adorned by law, a corporate veil. While corporate veil is permitted to be lifted when a statute expressly permits it, or in cases of impropriety or fraud the moot question that will be discussed herein is whether an executing court is empowered to lift the corporate veil and hold the directors of the company personally responsible for honouring an arbitral decree\/award or attach their personal assets, even in the absence of any impropriety, merely because the company is unable to pay the decreed\/awarded amount.<\/p>\n

While the principle of separate legal entity, initially propounded in the celebrated case of Salomon<\/span> v. Salomon<\/span>1<\/sup><\/a> has endured the test of time, certain statutory and judicial exceptions have been carved out to the principle to ensure that the separate legal existence of a company is not exploited to commit frauds or improper or illegal acts. Accordingly, in certain situations, this corporate veil may be lifted and the individual members may be recognised for who they are by imposing personal liability on such individuals.<\/p>\n

Doctrine of lifting the corporate veil<\/h3>\n

A corporate veil may be lifted, and the directors or members held personally responsible for numerous reasons including instances where the statute itself permits lifting the veil, fraud is intended to be prevented, taxing or beneficent statute is attempted to be evaded using corporate structure, or where associated companies are so inextricably linked that they are actually one concern.2<\/sup><\/a> For instance, the Companies Act, 2013<\/a>3<\/sup><\/a>, under Sections 344<\/sup><\/a> and 355<\/sup><\/a>, permits lifting of the corporate veil in case of misstatements in prospectus. Where a company prospectus includes any false or misleading statement, the directors, promoters and every person who authorised the issue of the prospectus shall be liable to compensate any loss or damage sustained as a consequence, in addition to criminal liability including imprisonment and\/or fine. Similarly, the Companies Act permits corporate veil to be lifted in case of failure to return application money (Section 396<\/sup><\/a>), misdescription of company name (Section 127<\/sup><\/a>), carrying on business for defrauding creditors (Section 3398<\/sup><\/a>) and so on. Apart from Companies Act, proceedings, civil as well as criminal, may be initiated against the directors for violations of the Income-tax Act9<\/sup><\/a> as well as the FEMA Act10<\/sup><\/a>.<\/p>\n

Apart from the statutorily permitted instances, courts of law have also indulged in exercises of lifting the corporate veil, primarily in cases of impropriety. In Balwant Rai Saluja<\/span> v. Air India Ltd.<\/span>11<\/sup><\/a>, the Supreme Court of India, while refusing to lift the corporate veil, referred to the six principles formulated by Munby, J. in Ben Hashem<\/span> v. Ali Shayif<\/span>12<\/sup><\/a>, which have now come to be widely accepted as the guidelines to be followed before lifting the corporate veil. The six principles are as follows:<\/p>\n

(i<\/span>) ownership and control of a company were not enough to justify piercing the corporate veil;<\/p>\n

(ii<\/span>) the Court cannot pierce the corporate veil, even in the absence of third- party interests in the company, merely because it is thought to be necessary in the interests of justice;<\/p>\n

(iii<\/span>) the corporate veil can be pierced only if there is some impropriety;<\/p>\n

(iv<\/span>) the impropriety in question must be linked to the use of the company structure to avoid or conceal liability;<\/p>\n

(v<\/span>) to justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and<\/p>\n

(vi<\/span>) the company may be a \u201cfacade” even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions.<\/p>\n

Thus, the Supreme Court has held in unambiguous terms, that unless permitted by statute, corporate veil may be lifted only in exceptional situations where the corporate structure was a mere camouflage and is used by those controlling the company in furtherance of some impropriety or to avoid liability. The Court also forewarned that the doctrine is to be used in a restrictive manner.<\/p>\n

Application of the doctrine in execution proceedings<\/h2>\n

A court exercising the jurisdiction to execute decrees or awards, has been endowed with wide powers for effective execution of the decree. In fact, Section 51<\/a>13<\/sup><\/a> of the Civil Procedure Code, 1908<\/a>14<\/sup><\/a> permits an executing court to order execution of decree \u201cin such manner as the nature of relief granted may require,\u201d subject of course to limitations laid down by law. The pertinent question arising in this context is whether Section 51 CPC permits an executing court to lift the corporate veil without following the six principles adopted by the Supreme Court in Balwant Rai<\/span>15<\/sup><\/a> decision. Can the executing court lift the corporate veil and hold the directors of the company personally responsible for honouring the decree\/award or attach their personal assets, even in the absence of any impropriety, merely because the company is unable to pay the decreed\/awarded amount?<\/p>\n

While it a settled position of law that corporate veil may be lifted during execution proceedings16<\/sup><\/a>, the Delhi High Court in V.K. Uppal<\/span> v. Akshay International (P) Ltd.<\/span>17<\/sup><\/a>, while hearing an application for execution of an arbitral award, clarified that corporate veil is not to be lifted by the executing court where no case of \u201cfraud, or impropriety\u201d can be established. The Court was hearing an application to attach the assets of the directors of the company for the purpose of execution of the arbitral award, based on a mere allegation that the assets of the company were transferred to defeat the claims of the decree-holder. While denying the application, the Court specifically noted that the decree-holder was not able to disclose what the mentioned assets were or when the assets were transferred.<\/p>\n

The Bombay High Court, in a subsequent judgment, in Bhatia Industries and Infrastructure Ltd.<\/span> v. Asian Natural Resources (India) Ltd.<\/span>18<\/sup><\/a>, while considering whether corporate veil may be lifted during execution of an international arbitral award that was decreed against an Indian company, held in the affirmative. The Bombay High Court accordingly lifted the corporate veil of the judgment-debtor, Bhatia International Limited (BIL) and attached coal imported by a related company, Bhatia Industries & Infrastructure Limited (BIIL), after concluding that both BIL and BIIL was a single economic entity and that the imported coal actually belonged to BIL but was imported in the name of BIIL to defeat the execution of the award. Thus, even though no specific impropriety was proven, the Court proceeded by applying the \u201cgroup of companies\u201d doctrine, which states that arbitration agreement may be made applicable to even non-signatory companies of the same group who are inextricably linked. This principle, however, cannot be strictly equated with the doctrine of \u201clifting the corporate veil\u201d, where the assets of a third party are attached and not that of a single economic entity.<\/p>\n

This brings us to another interesting question. Is it the responsibility of the directors\/members to prove the absence of any impropriety or is the onus on the execution applicant to prove that there was impropriety that justifies lifting the corporate veil? The Bombay High Court answered this question in Mitsui OSK Lines Ltd.<\/span> v. Orient Ship Agency (P) Ltd.<\/span>19<\/sup><\/a>, while also limiting the application of the doctrine of lifting the corporate veil.<\/p>\n

In Mitsui OSK Lines<\/span>20<\/sup><\/a>, the Court, while considering whether corporate veil may be lifted during execution proceedings to attach the assets of directors or third parties, held that the same may be resorted to only in such instances as permitted under a specific statute or during the situations contemplated in Balwant Rai<\/span>21<\/sup><\/a>. The Court was hearing an application seeking to execute a foreign arbitral award against the directors of the corporate debtor company. The Bombay High Court distinguished its earlier decision in Bhatia Industries<\/span>22<\/sup><\/a>, on the reasoning that the goods of BIIL, an associate company, were attached only after concluding that the goods actually belonged to BIL, the corporate debtor. Whereas in Mitsui OSK Lines<\/span>23<\/sup><\/a>, the award-holder proceeded against the personal assets of third parties who are neither parties to the foreign arbitration agreement nor parties to the foreign award. As to the onus of proving impropriety, the High Court held that it is upon the judgment creditor to satisfy the Court that situations warranting the lifting of corporate veil is present in each case.<\/p>\n

Delhi High Court judgment \u2014 An expansion of the doctrine<\/h3>\n

The Delhi High Court, in a recent decision, has however enlarged the application of the doctrine and has permitted lifting of corporate veil even in situations other than those laid down by the Supreme Court. In Delhi Airport Metro Express (P) Ltd.<\/span> v. DMRC Ltd.<\/span>24<\/sup><\/a>, the Delhi High Court was concerned with a petition to execute an arbitral award directing Delhi Metro Rail Corporation Ltd. (DMRC) to pay Rs 2782.33 crores to Delhi Airport Metro Express Private Limited (DAMPEL). Placing reliance on the Supreme Court’s observation in State of U.P.<\/span> v. Renusagar Power Co.<\/span>25<\/sup><\/a>, that \u201cthe horizon of doctrine of lifting corporate veil is expanding\u201d and on the conclusion that in both Arcelormittal India (P) Ltd.<\/span> v. Satish Kumar Gupta<\/span>26<\/sup><\/a>, and in State of Rajasthan<\/span> v. Gotan Lime Stone Khanji Udyog (P) Ltd.<\/span>27<\/sup><\/a>, corporate veil was lifted on grounds of public interest or policy, the Delhi High Court decided to lift the corporate veil of DMRC and hold its two shareholders i.e. the Union Government and the Delhi Government, liable to discharge the amount awarded by the Arbitral Tribunal. The Court held that where public policy demands, the corporate veil may be lifted especially since the shareholders were sovereign government who should not, in the Court’s opinion be allowed to shirk away from their responsibility.<\/p>\n

It is however trite to mention that, while the Delhi High Court’s attempt to expand the century old principle of lifting the corporate veil is well-meant, permitting the application of this doctrine on grounds that are too broad and general such as \u201cpublic interest\u201d and \u201cpolicy\u201d would effectively negate the very principle of \u201cseparate legal personality\u201d of companies. Unless the contours of these two grounds are specifically defined and limited and the application of the doctrine on these grounds bridled, the exception would become the rule and company law itself would stand to suffer.<\/p>\n

Furthermore, the Court’s interpretation of the judgments in Renusagar<\/span>28<\/sup><\/a>, Arcelormittal<\/span>29<\/sup><\/a>, and Gotan Lime Stone<\/span>30<\/sup><\/a> must also be put to the test. Reliance was placed on the observation in Renusagar<\/span>31<\/sup><\/a> judgment that \u201cthe concept of lifting the corporate veil is expanding\u201d without appreciating the facts of the case. In Renusagar<\/span>, the courts were concerned with Hindalco creating another corporate personality with the intention of avoiding higher rates of electricity duty under the relevant Act. This was in essence a case where a corporate structure was used for evading a statutory liability. The companies were moreover too inextricably linked and were considered as a single entity. Similarly, in Arcelormittal<\/span>32<\/sup><\/a> the corporate veil was lifted when an ineligible corporate applicant sought to use the corporate structure for avoiding the eligibility criteria specified under Section 29-A<\/a>(c<\/span>)33<\/sup><\/a> of the Insolvency and Bankruptcy Code, 2016<\/a>, which action can only be seen as an improper conduct. Furthermore, the action of lifting the veil performed by the Court was also permitted by Regulation 2(1)(q<\/span>) of the SEBI 2011 Takeover Regulations34<\/sup><\/a>. Finally, in Gotan Lime Stone<\/span>35<\/sup><\/a> judgment as well, the corporate veil was lifted only after concluding that the corporate structure was being used to sell mining rights to a third party without disclosing the same and obtaining permission from the competent authority as required under the Mines and Minerals (Development and Regulation) Act, 1957<\/a>36<\/sup><\/a>. Thus, in all the above cases that were relied on by the Delhi High Court, company was formed for some improper conduct or to avoid statutory liabilities. Blindly extending the same to ordinary cases of execution proceedings could very well obliterate the very idea of a company being an independent legal personality.<\/p>\n

Conclusion<\/h3>\n

The general principle for lifting corporate veil during execution proceedings requires proof of some improper conduct with intention to defeat the execution, especially in cases where the personal assets of the directors or shareholders of a company are sought to be attached to meet the company’s dues. However, the Delhi High Court has opened the floodgates by lifting the corporate veil on grounds of \u201cpublic interest\u201d and \u201cpolicy\u201d, especially since the terms have not been objectively defined. An unregulated use of these grounds to lift the corporate veil would lead to undesirable results akin for example to attaching the personal assets of the relatives of an insolvent individual merely citing \u201cpublic interest\u201d. Therefore, if concepts such as \u201cpublic interest\u201d are not restricted by specifically defining them and their limits, it is ultimately bound to hurt public interest itself.<\/p>\n<\/div>\n

\n

Advocate, Joseph & Kuriyan Advocates. Author can be reached at: johnj.vithayathil@gmail.com<\/a>.<\/span><\/strong><\/p>\n

1.<\/a> Salomon<\/span> v. Salomon<\/span>, 1897 AC 22 : 1896 UKHL 1.<\/a><\/p>\n

2.<\/a> LIC<\/span> v. Escorts Ltd.<\/span>, (1986) 1 SCC 264.<\/a><\/p>\n

3.<\/a> Companies Act, 2013.<\/a><\/p>\n

4.<\/a> Companies Act, 2013, S. 34.<\/a><\/p>\n

5.<\/a> Companies Act, 2013, S. 35.<\/a><\/p>\n

6.<\/a> Companies Act, 2013, S. 39.<\/a><\/p>\n

7.<\/a> Companies Act, 2013, S. 12.<\/a><\/p>\n

8.<\/a> Companies Act, 2013, S. 339.<\/a><\/p>\n

9.<\/a> Income-tax Act, 1961.<\/a><\/p>\n

10.<\/a> Foreign Exchange Management Act, 1999.<\/a><\/p>\n

11.<\/a> (2014) 9 SCC 407.<\/a><\/p>\n

12.<\/a> 2008 EWHC 2380 (Fam).<\/p>\n

13.<\/a> Civil Procedure Code, 1908, S. 51.<\/a><\/p>\n

14.<\/a> Civil Procedure Code, 1908.<\/a><\/p>\n

15.<\/a> (2014) 9 SCC 407.<\/a><\/p>\n

16.<\/a> Formosa Plastic Corpn. Ltd.<\/span> v. Ashok Chauhan<\/span>, 1998 SCC OnLine Del 743.<\/a><\/p>\n

17.<\/a> 2010 SCC OnLine Del 538.<\/a><\/p>\n

18.<\/a> (2017) 201 Comp Cas 46 : 2016 SCC OnLine Bom 10695.<\/a><\/p>\n

19.<\/a> 2020 SCC OnLine Bom 217.<\/a><\/p>\n

20.<\/a> 2020 SCC OnLine Bom 217.<\/a><\/p>\n

21.<\/a> (2014) 9 SCC 407.<\/a><\/p>\n

22.<\/a> (2017) 201 Comp Cas 46 : 2016 SCC OnLine Bom 10695.<\/p>\n

23.<\/a> 2020 SCC OnLine Bom 217.<\/a><\/p>\n

24.<\/a> 2022 SCC OnLine Del 727.<\/a><\/p>\n

25.<\/a> (1988) 4 SCC 59.<\/a><\/p>\n

26.<\/a> (2019) 2 SCC 1.<\/a><\/p>\n

27.<\/a> (2016) 4 SCC 469.<\/a><\/p>\n

28.<\/a> (1988) 4 SCC 59.<\/a><\/p>\n

29.<\/a> (2019) 2 SCC 1.<\/a><\/p>\n

30.<\/a> (2016) 4 SCC 469.<\/a><\/p>\n

31.<\/a> (1988) 4 SCC 59.<\/a><\/p>\n

32.<\/a> (2019) 2 SCC 1.<\/a><\/p>\n

33.<\/a> Insolvency and Bankruptcy Code, 2016, S. 29-A(c).<\/a><\/p>\n

34.<\/a> SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.<\/a><\/p>\n

35.<\/a> (2016) 4 SCC 469.<\/a><\/p>\n

36.<\/a> Mines and Minerals (Development and Regulation) Act, 1957.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

by John Vithayathil*<\/p>\n","protected":false},"author":67011,"featured_media":351306,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[42503,1191],"tags":[27634,55008,83984,33633,83986,83983,83985,43515,83987,34169],"class_list":["post-351303","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-legal-analysis","category-op-ed","tag-companies-act","tag-corporate-veil","tag-execution-of-arbitral-awards","tag-fema-act","tag-misdescription-of-company-name","tag-power-to-lift","tag-return-application-money","tag-section-12","tag-section-39","tag-supreme-court-of-india"],"yoast_head":"\nPower to Lift the Corporate Veil during Execution of Arbitral Awards | SCC Times<\/title>\n<meta name=\"description\" content=\"A characteristic and arguably the most important feature of a company is the separate legal personality it 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