Contents

Corporation is a Legal Entity .............................................................................................................................. 2

1. Kandoli Tea Company Case (1886) ............................................................................................................ 3
2. Salomon v A Salomon Co. Ltd (1897) ........................................................................................................ 4
3. Macaura v Northern Assurance Co. ltd (1925)............................................................................................ 5
4. Lee v Lee’s Air Farming Co. Ltd (1960).................................................................................................... 6
5. Bennett Coleman vs Union India................................................................................................................. 6
6. Gilford motor company ltd v. Horne., ......................................................................................................... 8
7. Jones v. Lipman ........................................................................................................................................... 8
8. Delhi Development Authority v Skipper Construction Company Pvt Ltd .................................................. 9
9. R v Broadcasting Standards Commission ex parte BBC ............................................................................. 9
10. Daimler Co. Ltd., vs. Continental Tyre and Rubber Co. (1916) ........................................................... 10
11. Delhi Development Authority v Skipper Construction Co. Pvt. Ltd., AIR 1996 SC 2005, 1996 (4) SCC
622 11
12. In re Sir Dinshaw Maneckjee Petit (1927) ............................................................................................ 11
13. Bacha F. Guzdar vs. The Commissioner of Income-Tax, Bombay (1955) ........................................... 11
14. State of U.P. and Ors v Renusagar Power Co. and Others, AIR 1988 SC 1737 ................................... 12
15. F.G.Films ltd, (1953) 1 WLR 483 ......................................................................................................... 12
16. P.N.B. Finance Ltd. v. Shital Prasad Jain .............................................................................................. 13
17. Smith, Stone and Knight Ltd v Birmingham Corporation [1939] 4 All ER 116 ................................... 13
18. DHN Food Distributors Ltd. v London Borough of Tower Hamlets, (1976) 1 W.L.R. 741 ................. 14
19. Firestone Tyre and Rubber Co. v. Llewellin [(1957) 1 WLR 464] – .................................................... 14
20. Apthorpe v. Peter Schoenhofen Brewing Co. [4 TC 41], ...................................................................... 15
21. Scottish Cooperative Wholesale Society v Meyer, (1959) A.C. 324 (H.L.) ......................................... 15
22. Bank of Tokyo Ltd. v Karoon and Another, (1987) A.C. 45 ................................................................ 16
23. C.I.T. v. Meenakshi Mills Ltd. (AIR 1967 SC 819), ............................................................................. 16
24. Erlanger v New Sombrero Phosphate Co .............................................................................................. 17
25. Gluckstein v Barnes ............................................................................................................................... 19
26. Tata Engineering Locomotive Co. Ltd. v. State of Bihar and others, ................................................... 21
27. Life Insurance Corporation of India v. Escorts Ltd. & Ors. .................................................................. 21
28. Juggilal Kamlapat v. Commissioner of Income Tax, Uttar Pradesh ..................................................... 23
29. Adams v Cape industries plc ................................................................................................................. 23
30. The State Trading Corporation Of India Ltd. & Others V. The Commercial Tax Officer .................... 25
31. Daimler Co. Ltd V. Continental Tyre And Rubber Co. Ltd .................................................................. 26

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32. R. C. Cooper V. Union Of India ............................................................................................................ 27
33. Som Prakash Rekhi Vs Union Of India & Anr...................................................................................... 28
34. Workmen Employed in Associated Rubber Industry Limited, Bhavnagar v Associated Rubber
Industry Limited and Another ........................................................................................................................... 29
35. New Horizons Ltd vs Union Of India ................................................................................................... 30

Corporation is a Legal Entity

Corporation is a legal entity means that corporation, in the eye of law, is considered as a legal person
having certain rights and duties under the law. Every state has its own separate corporate law
through which the corporations are governed but certain principles in corporate law are universal and
are worldwide like corporation has the right to buy the property and sell the property owned by the
corporation. If any tort has been committed or any breach of contract has been made either by the
corporation or by the counter-party, the aggrieved party can bring a suit against that party and
enforce contract against the other party who has violated any term of the contract--if enforceable--
and if the contract cannot be enforced specifically then the aggrieved party will be compensated in
accordance with law. Certain restriction has also been imposed on the corporation by law. A
corporation is a juridical legal person and it cannot hold any public office , cannot caste there vote
in a general elections, cannot participate in the election, corporation cannot interfere in the affairs of
the government. There are certain similar points between juridical (legal) person and natural person
(Schane, 1986).
The word “person” used in a statute will always mean either the juridical person (corporation) or
natural person as long as the interpretation fits with the general design and intent of the act.
Corporation is a juridical legal person and it should be treated as separate legal person. No person
can claim to be the owner of a corporation; corporation is a legal person so no person can own
another person. As a corporation, being a separate legal person, is separate from its members and
shareholders so the shareholders of a corporation can become employees of that corporation and can
get wide range benefits from that corporation in the shape of retirement plans, tax free medical
benefits, meal, life insurance and many other benefits offered by the corporation to their employees.
(Hofstrand, 2007
Cases Establishing the Principle of Separate Legal Entity
Legal personality of a corporation or legal existence of a corporation as separate legal entity has
been accepted from very primitive days and a lot of judgments have been passed from 17 th century

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onward by different law courts recognizing the principle of separate legal entity of a corporation.
There are numerous cases on this point. The prominent legal cases establishing the principle are:
1. Kandoli Tea Company Case (1886)
Facts of the case
There were certain persons in Kandoli Tea Company who transferred their properties in the
name of the Tea Company with intent to avoid paying tax on that very property as tax was due on
that property,
Petition
Petition was moved to the court of law in which they were claiming exemption from payment
of tax on the ground that they did not have any taxable property on their name because the same has
been transferred to the Kandoli Tea Company’s name.

Judgment
The court of law after full scrutiny of the record available gave verdict that as company is a
separate legal entity and the property is transferred to the name of the company so the same property
should be treated as transferred and the petitioners are not liable to any kind of tax. (The Kondoli
Tea Co. Ld. vs Unknown , 1886)

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 2. Salomon v A Salomon Co. Ltd (1897)
The most prominent case in the history of corporation through which the corporation raises its
authority as a separate legal person is Salomon case.
Facts of the case
In 19th century Mr. Salomon was a very successful trader of leather and his business was at the peak
because he was the sole trader of leather at that time. There was no other businessman who could
compete with Mr. Salomon business. Mr. Salomon then setup a company with 20007 shares, in these
20007 shares he purchased 20001 shares while the remaining 6 shares were purchased by his family
members’ i.e. by his wife and five children one each. After setting up a company Mr. Salomon sold
his business to the company at 38,782 pounds. The company paid 20001 fully paid shares to Mr.
Salomon and 8,781 pounds in cash, so the total amount paid by the company to Mr. Salomon was
28,782 pounds (both in shape of share and cash) and 10,000 pounds were remained payable to
Salomon by the company, he secured his remaining loan through debenture. Mr. Salomon followed
all the rules and regulations required for the incorporation of a company. In his company there were
7 members but the majority of shares were held by Salomon. At the same time he was also the main
creditor to the company
Issue
At the time of winding up of the company because the company was failed, a question was raised in
the court of law to decide that whether precedence will be given to the secured loan of Mr. Salomon
over the non-secured loan of another creditor of amount 11,000 pounds? If the court gave
precedence to the secured loan over non secured loan then nothing would be left to the non-secured
creditor because the assets of the company turned out very low. Only 7,000 pounds were the assets
of the company at the time of liquidation.
Arguments
The liquidator appointed for winding up of the company argued that Salomon purposely transferred
the business to the company. The liquidator also argued that the company acted as an agent of
Salomon and therefore being the principal he is liable to pay the debts of unsecured creditor.
Decision of Court
After hearing the case and relying on the arguments of the liquidator the court decided that as the
company was the agent of Mr. Salomon hence he was held responsible to pay all the debts to the
creditors.
Court of Appeal

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The appeal against the lower court decision was also turned down and the decision of the lower court
was maintained on the ground that Mr. Salomon abused the privileges of incorporation and limited
liability. The limited liability is available only to those peoples who are fair and devoted
shareholders. Mr. Salomon did not incorporate the company with clear hands. He carried on the
business of the company in the same manner as he was carrying his business when he was the sole
trader.
House of Lords
The house of lord totally rejected the decisions of both the lower court and the court of appeal and
established a corner stone principle for the modern company law. In the House of Lords it was
unanimously held that corporation is separate legal entity, separate from its members and
shareholders. All the requirements for a valid incorporation of a company were fulfilled. There were
seven members who had subscribed to the memorandum of the company. Shares were held by all the
subscribers and nothing more was mentioned about the independence. It was held by the House of
Lords that Salomon Company was validly incorporated in accordance with law and therefore the
debts of the company are its own debts and the members are not liable for the payment of the
company’s debts.
Result
Company as a legal person was lawfully created through observance of all the rules of the company
law by the shareholders It does not make any difference that the company management is run by
single person or all the shareholders and therefore preference was given to Mr. Salomon s debenture.
(Salomon v Salomon & Co Ltd, 1896)
3. Macaura v Northern Assurance Co. ltd (1925)
Macaura was the major shareholder of a timber company. Almost all the shares of the
company were held by Macaura. At the same time he was also substantial creditor of the company.
He insured the timber on his own name and not on the name of the company which owned the
timber. Later on timber were destroyed by fire and when Macaura applied to the insurance company
for the payment, the insurance company refused to pay on the ground that Macaura did not own the
timber on his name and he is not the real owner of timber thus he could not claim payment. Salomon
principle was applied to the case by the court and decided that as the timber were owned by the
company and the company failed to insure the property on its own name so the plaintiff was not
entitled to any payment. The decision in this case, by the court of law, made it very clear that the
property of the company is the sole property of that very company and no person has the right to

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interfere in the company’s property and even the shareholders have no right to use the property
without company’s consent. The company has the right over that very property and it is at the
disposal of the company either to sell or insure that very property. (Macaura v Northern Assurance
Co. ltd, 1925)

4. Lee v Lee’s Air Farming Co. Ltd (1960)

Facts of the case
Mr. Lee was the managing director of a company incorporated by him. Being the managing
director of the company he appointed himself as a pilot of the company. Lee died in a flying accident
when he was going for a business of the company. The widow of Mr. Lee claimed compensation
from the company on the ground that her husband has died in the course of company’s employment.
It was argued by the opposite party that Lee and Lee’s Air Farming ltd was the same person and
therefore no compensation could be granted to the widow of Mr. Lee.
Judgment
It was held in the judgment of the court of law that 1) Mr. Lee was separate person from the
company and he had only incorporated the company and therefore compensation was payable to the
widow of Mr. Lee 2) as a company is a separate legal entity so a member of a company can enter
into a contract with that company in which he is holding shares 3) the widow of Mr. Lee was entitled
to compensation under the workmen’s compensation act, 4) the director was not restrained from
becoming the employee of that very company (Catherine Lee v Lee's Air Farming Limited, 1960).
Simple Format
A company was formed for the purpose of manufacturing aerial top-dressing. Lee, a
qualified pilot, held all but one of the shares in the company and by the articles was appointed
governing director of the company and chief pilot. Lee was killed while piloting the company’s
aircraft and his widow claimed compensation for his death under the Workmen Compensation Act.
The company opposed the claim on the ground that Lee was not a ‘worker’ as the same person could
not be employer and the employee.
Held: There was a valid contract of service between Lee and the company and Lee, was
therefore, a worker. Mrs. Lee’s contention was upheld.
5. Bennett Coleman vs Union India
Facts:

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The appeals have been preferred by respondent 1 i.e. the company (represented by its shareholders)
and respondent 8 and 10 in their capacity as the directors of the company. challenging the judgment
and order passed on August 28. 1969 wherein the judge directed reconstitution of the board of
directors for the said company in the manner done for seven years. This order has been challenged
on certain grounds via appeal.
Issues:
Whether the appeal can be held to be maintainable?
Reasoning & Analysis: It was contended that appellants had lost right to appeal on ground that it
had submitted to Orders of Court. The order of the court specifically meant that they would make
such orders fit as it thought based on the circumstances of the case and that no party would have any
right of appeal against such order. Thus. the court dwelled into determining whether the right to
appeal is lost to the party by laying down a test for the same which stated that the correct test for
judging whether the right to appeal be lost is to ascertain what procedure the original court had
followed because of the agreement. Should because of the agreement the procedure for reaching the
decision be fundamentally different to that usually followed by courts, the right of appeal would be
lost.
The appellants challenged the reconstitution of the board of directors contending that it
contravened provisions of Section 255 (Appointment of directors and proportion of those who are to
retire by rotation) of the Companies Act of 1956. The order of the judge had immuned 2/3rd of
directors from retiring by rotation and further the board had fixed a period of seven years thus
depriving the shareholders of the company a right in the management of the affairs of the company.
The appellants contended that by appointing three directors by the Government was in violation of
Section 408 (Powers of Company Law Board on application under sections 397 or 398) of the
Companies Act of 1956 stating that the court was not entitled to frame a new article 95 contravening
Section 255 which the judge by amendment modified article 95 of the articles of association to
provide that at each general meeting. the directors elected by the shareholders would retire from
office and there is no provision made for retirement by rotation in regard to the remaining directors.
To answer the above contentions, the court distinguishes between the powers of the Government and
the powers of the court by looking at Sections 408 and 402 of the Companies Act of 1956 by stating
that while dealing with the prevention of oppression and mismanagement some limitation has been
set on the Government's powers however no limitations or restrictions have been set on the court's
powers (Section 402 of the Companies Act of 1956) that may be required by the court to act upon

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for bringing about an end to the oppression and management complained of and to prevent any
further oppression or mismanagement in the future. Under Section 397 read with Section 402 of the
Companies Act of 1956, power has been conferred on the court to make such orders as it thinks fit.
This the court would judicially exercise with the objective of preventing the affairs of the company
from being conducted in a way that may be prejudicial to public interest. Sections 397 and 398
(Application to Company Law Board for relief in cases of oppression & mismanagement
respectively) of the Companies Act of 1956 are intended to avoid the winding up of the company
and to keep it going while at the same time providing relief to the minority shareholders of the
company from acts of oppression and mismanagement and this the court can only do so by
interfering with the normal corporate management of the company.

Held:
While acting under Section 398 and Section 402 of the Companies Act of 1956. the court has ample
jurisdiction and very wide powers to pass such orders and give directions as it thinks fit to achieve
the object and the same will not be violative of Section 255.
6. Gilford motor company ltd v. Horne.,
Principle Where a Company has been Formed by Certain Persons to Avoid their Own Valid
Contractual Obligations

Mr. Horne was an ex-employee of The Gilford motor company and his employment contract
provided that he could not solicit the customers of the company. In order to defeat this he
incorporated a limited company in his wife's name and solicited the customers of the company. The
company brought an action against him. The Court of appeal was of the view that "the company was
formed as a device, a stratagem, in order to mask the effective carrying on of business of Mr. Horne"
in this case it was clear that the main purpose of incorporating the new company was to perpetrate
fraud. Thus the court of appeal regarded it as a mere sham to cloak his wrongdoings.

7. Jones v. Lipman
A contracted with B to sell his land and thereafter A changed his mind in order to avoid an order of
specific performance he transferred his property to a company. russel judge specifically referred to
the judgments in Gilford v. Horne and held that the company here was " a mask which (Mr. Lipman)
holds before his face in an attempt to avoid recognition by the eye of equity" he awarded specific
performance both against Mr.Lipman and the company.

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 8. Delhi Development Authority v Skipper Construction Company Pvt Ltd
In this case the company failed to pay the full purchase price of a plot to the Delhi Development
Authority. In addition, construction was started and space sold to various persons. The two sons of
the director who had businesses in their own names claimed that they had separated from their
father's business and the companies which they were running had nothing to do with his properties.
However, they could not produce satisfactory proof in support of their claim. It was held that the
transfer of the shareholding between the father and sons must be treated as a sham. The fact that the
director and members of his family had created several corporate bodies did not prevent the court
from treating all of them as one entity belonging to and controlled by the director and his family.

9. R v Broadcasting Standards Commission ex parte BBC

The expression "privacy" in the Broadcasting Act 1996 was not restricted to human individuals.
A body corporate could make a complaint to the Broadcasting Standards Commission for
infringement of its privacy under s.110 and s.111 of the Act. Secret filming in a place to which the
public have access could amount to an infringement of privacy.

The BBC had secretly filmed transactions in Dixons' stores as part of an investigation into the
selling of second hand goods as new. The filming did not reveal evidence of malpractice, and
therefore was not used in the "Watchdog" programme. Dixons complained to BSC claiming that the
filming was an unwarranted infringement of its privacy. BSC upheld the complaint, and the BBC
applied for judicial review of its decision. The judge considered that the European Convention on
Human Rights 1950 Art.8 could not be construed so as to protect companies, since Parliament had
not intended a wider definition of privacy under the Broadcasting Act 1996. The decision was
quashed, and BSC appealed, the issues to be determined were (1) whether a company could bring a
complaint for infringement of its privacy under the Broadcasting Act 1996 s.110 and s.111 , and (2)
whether the secret filming in a place which the public had free access, could amount an
infringement, even where there was no private element to the events filmed.

Held, allowing the appeal, that since a company could make a "fairness complaint" under
s.111(1), it was equally applicable to a complaint of unfair treatment, and therefore also applied to a
company bringing a complaint of unwarranted infringement of its privacy under s.110(1). BSC's aim
was to maintain standards of proper conduct, this would not be achieved if protection was not given
to companies. It was Parliament's intention that the 1996 Act extend to the unwarranted interference
with the privacy of a company. The secret filming in a place to which the public had free access,

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could amount to an infringement, even where there was no private element to the events filmed.
Art.8 related to the right to respect for private life and was incompatible with the protection afforded
under the 1996 Act. BSC had the jurisdiction to determine Dixons' complaint, and its approach was
that the secret filming required some form of justification. BBC had not met such standards, as it had
failed to consider whether there was any justification for the filming. The secret filming was
considered objectionable as it was not open to those who were being filmed from taking any action
to prevent it and the complaint was upheld.

10. Daimler Co. Ltd., vs. Continental Tyre and Rubber Co. (1916)
Simple Format

C company was floated in London for marketing tyres manufactured in Germany. The majority
of the C’s shares were held by German nationals residing in Germany. During World War I, C
company filed a suit against D company for the recovery of trade debt. The D company
contented that C company was an alien enemy company (Germany being at war with England at
that time) and that the payment of the debt would be trading with the enemy. The court agreed
with the contention of the defendants.

Daimler Company Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd. In this case, the
Respondent company was incorporated in London, United Kingdom for the sale of tyres which were
manufactured in Germany by a German company. All shares except one of the Respondent company
were held by German residents and all the shareholders were German as well. A suit was filed to
recover a trade debt when Germany and England were at war (First World War) in 1914.
The Court of Appeal upheld the separate legal entity of a company and held that it is a legal body
clothed with the form prescribed by the Legislature and not a mere mask or cloak to conceal the
identity of persons forming it. The character of the company would not change due to the outbreak
of war.
The House of Lords reversed the above decision and held that the analogy is to be found in the
“control” of the company and it is not a necessary implication of a separate legal entity status to say
that owing to the corporate veil, the character of the persons constituting the corporation would be
irrelevant. It was further held that, since the acts of the company are through its directors, managers,
secretary and the like, their character becomes important to determine that of the company’s.

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 11. Delhi Development Authority v Skipper Construction Co. Pvt. Ltd., AIR 1996 SC 2005,
1996 (4) SCC 622
Principle : Where a Company has been Formed for Some Fraudulent Purpose or Is A ‘Sham

The Skipper Construction Company failed to pay the full purchase price of a plot to DDA.
Instead, construction was started and space sold to various persons. The two sons of the directors
who had business in their own names claimed that they had separated from the father and the
companies they were running had nothing to do with the properties of their parents. But no
satisfactory proof in support of their claim could be produced.

Held: that the transfer of shareholding between the father and the sons must also be treated as a
sham. The fact that the director and members of his family had created several corporate bodies, did
not prevent to the court from treating all of them as one entity belonging to and controlled by the
director and his family.
12. In re Sir Dinshaw Maneckjee Petit (1927)
D was a rich man having dividend and interest income. He wanted to avoid income-tax. For this
purpose, he formed four private companies, in all of which he was the majority share holder. The
companies made investments and whenever interest and dividend income were received by the
companies, D applied to the companies for loans, which were immediately granted and he never
repaid. In a legal proceeding the corporate veil of all the companies were lifted and the income of the
companies treated as if they were of ‘D’.
13. Bacha F. Guzdar vs. The Commissioner of Income-Tax, Bombay (1955)
The plaintiff (Mrs Guzdar) received certain amounts as dividend in respect of shares held by her
in a tea company. Under the Indian Income-tax Act, agricultural income is exempted from payment
of income-tax. As income of a tea company is partly agricultural, only 40 per cent of the company’s
income is treated as income from manufacture and sale, and therefore, liable to tax. The plaintiff
claimed that the dividend income in her hands should be treated as agricultural income up to 60 per
cent, as in the case tea company, on the ground that dividends received by shareholders represented
the income of the company.
Held: Though the income in the hands of the company was partly agricultural yet the same
income when received by Mrs. Guzdar as dividend could not be regarded as agricultural income. It
can be referred from Mrs. Guzdar’s case that a shareholder of a company is not a part-owner or co-
owner of the company or its property. He is only given certain rights by law, for example, to attend

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and vote at the meetings of the shareholders, to receive dividend. Thus the property of the company
belongs to the company and not to its shareholders.
14. State of U.P. and Ors v Renusagar Power Co. and Others, AIR 1988 SC 1737
Facts:
Renusagar was a 10096 subsidiary of Hindalco. wholly owned and controlled by Hindalco. The
agreement between Renusagar and Hindalco indicated this was not a normal sale-purchase
agreement between two independent persons at arm's length. The price of electricity was determined
according to the cash needs of Renusagar. It was thus contended that Renusagar must be treated as
alter ego of Hindalco. i.e.. own source of generation. ‘own source of generation' is an expression
connected with the question of lifting or piercing the corporate veil.
Appellant's Contention:
The appellants contended that in this case there was no ground for lifting the corporate veil,
urging that there was no warrant either in law or in fact to lift the corporate veil and treat
Renusagar’s plant as Hindalco’s own source of generation. Appellants also contended that HC order
was in violation of principles of natural justice.
Held:
The person generating and consuming energy were the same and the corporate veil should be
lifted. Hindalco and Renusagar were inextricably linked up together. Renusagar had in reality no
separate and independent existence apart from and independent of Hindalco. Must be treated as one
concern and the consumption of energy by Hindalco must be regarded as consumption by Hindalco
from own source of generation. The Government did not act in violation either of the principles of
natural justice or arbitrarily or in violation of the previous directions of the High Court. Appeal
dismissed.
15. F.G.Films ltd, (1953) 1 WLR 483
Concept Where an organization is going about as agent for its investor, the investors will be
obligated for the acts of the organization. It is an issue of facts for each situation whether the
organization is going about as an agent for its investors. There might be an Express consent to this
impact or an agreement might be suggested from the conditions of every specific case.

Facts An American organization financed the creation of a film in India in the name of a British
organization. The leader of the American organization held 90% of the capital of the British
organization. The Board of exchange of Great Britain declined to register the film as a British film

12
 Held, the decision was substantial in perspective of the way that British organization acted only
as the nominee of the American Company.
16. P.N.B. Finance Ltd. v. Shital Prasad Jain
In this case the Delhi High Court granted to the plaintiff company an order of interim injunction
restraining defendant companies from alienating the properties of their ownership on the ground that
the defendant companies were merely nominees of the defendant who had fraudulently used the
money borrowed from the plaintiff company and bought properties in the name of defendant
companies. The court did not in this case grant protection under the doctrine of corporate veil.

17. Smith, Stone and Knight Ltd v Birmingham Corporation [1939] 4 All ER 116
Facts: The defendant compulsorily acquired the premises on which, at first glance, the plaintiff's
subsidiary conducted business. The parent company plaintiff sought compensation for the
disturbance. The defendant said the proper claimant was the subsidiary, a separate legal entity from
its parent company.
Held: Atkinson I believed that certain factors dictated that the subsidiary was merely an agent of
the parent company. The holding company had purchased but failed to transfer to itself, the goodwill
of the business. The subsidiary paid no rent for its use and occupation of the parent company’s land.
the books revealed that the business was carried on by the parent company. The subsidiary had no
books of account. Profits from the business were treated as being that of the parent company. The
parent company appointed the subsidiary’s manager and governed and controlled the subsidiary’
business ventures. As the subsidiary was operating the business; on behalf of the parent company,
the parent company was entitled to compensation.
Which represented the first attempt by an English court to lay down comprehensive criteria for
veil piercing. Judge Atkinson observed that whether a subsidiary can be said to be carrying on a
business on behalf of its parent, which would justify veil piercing, depends on the facts of each case.
Judge Atkinson proceeded to identify six guiding questions for each case: (1) Who was really
carrying on the business?; (2) Were the profits treated as the profits of the parent company?; (3) Was
the parent company the head and the brain of the trading venture?; (4) Did the parent company

13
decide what should be done and how much investment to make in the business?; (5) Did the parent
company make a profit based on its skill and direction?; and (6) Was the parent company in effectual
and constant control? These guiding questions are indistinguishable from those applied by U.S
courts.

18. DHN Food Distributors Ltd. v London Borough of Tower Hamlets, (1976) 1 W.L.R. 741
the Court of Appeal had to consider a case involving the expropriation of property. A company,
DHN Food Products, was formed to carry on the business of importing and distributing groceries.
The premises the company traded from were in fact owned by Bronze, a wholly owned subsidiary of
DHN. Bronze and DHN had the same directors. The London Borough of Tower Hamlets acquired
the property to build houses on the site. Compensation was payable under the relevant legislation for
loss of title. Compensation was also payable for disturbance of the business. However, compensation
for disturbance of the business was only payable if the business disturbed belonged to the title
holder. The Operator of the business here was the holding company, the title holder was the
subsidiary company. The Court of Appeal treated the companies as one entity. Lord Denning MR
said:
We all know that, in many respects, a group of companies are treated together for the
purpose of general accounts, balance sheets, profit and loss account. They are treated as one
concern This is especially the case when a parent company owns all the share of the subsidiaries, so
much so that it can control every movement of the subsidiaries.
19. Firestone Tyre and Rubber Co. v. Llewellin [(1957) 1 WLR 464] –
A US company, Akron, the parent of the appellant, had established the appellant company,
Brentford, as a subsidiary in the UK. Brentford manufactured tyres for sale to distributors in
Europe. Distribution contracts entered into by Akron with distributors and with Brentford were
used to support a claim that, for tax purposes. Brentford did not carry on business as a separate
emit),r in the UK. The House of Lords rejected this argument based on the facts of the case.
holding that the appellant was carrying on the business in the UK as an agent of the US parent
company and was therefore subject to taxation under UK law.

held that an English company which manufactured tyres in this country. and used them to
fulfil orders for its American holding company, did so as the agent of the latter. But nothing in
this decision was made to turn on the fact that the holding company had control of the English
company
14
 Simple Format
An American company had an arrangement with its distributors on the Continent of Europe
whereby they obtained supplies from the English manufacturers, its wholly owned subsidiary. The
English company credited the American with the price received after deducting the costs plus 5 per
cent. It was conceded that the subsidiary was a separate legal entity and not a mere emanation of
the American parent, and that it was selling its own goods as principal and not its parent’s goods as
agent. Nevertheless, these sales were a means whereby the American company carried on its
European business, and it was held that the substance of the arrangement was that the American
company traded in England through the agency of its subsidiary.
20. Apthorpe v. Peter Schoenhofen Brewing Co. [4 TC 41],

the Income Tax Commissioners had found as a fact that all the property of the New York
company, except its land, had been transferred to an English company, and that the New York
company had only been kept in being to hold the land, since aliens were not allowed to do so under
New York law. All but three of the New York company’s shares were held by the English company,
and as the Commissioners also found, if the business was technically that of the New York company,
the latter was merely the agent of the English company.

21. Scottish Cooperative Wholesale Society v Meyer, (1959) A.C. 324 (H.L.)

the Cooperative Society had formed a subsidiary company. The Society held the majority of
the shares in the company. The company’s board of directors comprised the two other shareholders
(Meyer and Lucas) and three nominees of the Society. The business of the company was dependent
on goods supplied by the Society, which later on decided that the company’s business should be
brought to an end. It did this by raising the price of its goods, and by diverting business to one of its
own departments. The three nominee directors knew of this and acquiesced in the plan. Meyer and
Lucas made an application under the oppression provision in the Companies Act 1948 (UK). One of
the arguments put in reply was that the activities of the nominee directors did not constitute conduct
in affairs of the company, but in those of the Society. The House of Lords disagreed. Viscount
Simmonds held that the affairs of the Society and the company were so intertwined that actions in
the affairs of one were also those of the other.

15
 22. Bank of Tokyo Ltd. v Karoon and Another, (1987) A.C. 45

23. .C.I.T. v. Meenakshi Mills Ltd. (AIR 1967 SC 819),

Facts :The assessee-companies carried on business in Madurai and each had a branch at Pudukottai,
a former native State. They hold a majority share in a Bank which, too, had its head office at
Madurai and branch at Pudukottai. T, who was a shareholder of the Bank, was the moving figure in
the assessee-companies. The assessees borrowed money from the Madurai head office of the Bank
on the security of fixed deposits made by the assessees' branches with the Pudukottai branch of the
Bank. The loans were far in excess of the available profits at Pudukottai. TheIncome-tax Officer
held that the borrowings in British India on the security of the fixed deposits made at Pudukottai
amount to constructive remittance of the profits by the branches of the assessee-companies to their
Head Office in India within the meaning of s. 4 of the Income-tax Act, and this view the Appellate
Assistant Commissioner upheld. The assesses appealed to the Tribunal which took note that the
branch whether of the assessee of the Bank constituted only one unit, and the establishment
of the branch of the Bank at Pudukottai was intended to help the financial operations of T in the
concerns in which he was interested., and the Pudukottai branch of the Bank had

16
transmitted funds deposited by the assessees for enabling the Madurai branch to advance loans
at interest to the assessees and the transmission of the funds was made with the knowledge
of assessees. The Tribunal held that the assessees were rightly assessed. In reference the
High Court answered the question in favour of the assessees holding it was not established
that there was any arrangement between the assessees and the Bank whether at
Pudukottai or at Madurai for transference of moneys from Pudukottai branch to Madurai and the
facts on record did not establish that there was any transfer of funds between Pudukottai and
Madurai for the purpose of advancing moneys to the assessees, and the
transactions represented ordinary banking transactions and there was nothing to show that the
amounts placed in fixed deposits in the branch were intended to and were in fact transferred to
head office for the purpose of lending them out to the depositor himself. In appeals by the
Commissioner, this Court,
HELD: The appeals must be allowed The High Court erred in law in interfering with the findings of
the Appellate Tribunal. In a reference, the High Court must accept the findings of fact reached by
the Appellate Tribunal and it is for the party who applied for a reference to challenge those findings
of fact first by an application under s. 66(1). If the party failed to file an application, under s. 66(1)
expressly raising the question about the validity of the findings of fact, he is not entitled to urge
before the High Court that the findings are vitiated for any reason.
The court held that the income-tax authorities were entitled to pierce the veil of corporate
entity and to look at the reality of the transaction to examine whether the corporate entity was being
used for tax evasion. In this case, a separate corporate entity was brought into existence outside the
taxable territory with the ulterior motive of evading the tax obligation by the assessee mills.
The Supreme Court observed: "It is true that from the juristic point of view, the company is a
legal personality entirely distinct from its members and the company is capable of enjoying rights
and being subjected to duties which are not the same as those enjoyed or borne by its members.
But in certain exceptional cases the Court is entitled to lift the veil of corporate entity and to pay
regard to the economic realities behind the legal facade. For example, the Court has power to
disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation.
24. Erlanger v New Sombrero Phosphate Co

17
18
Facts of the case
 Mr E set up a syndicate, which bought an island for £55,000. This island was said to have
phosphate mines, and Mr E set up a company to take over the island and its mines from the
syndicate.
 5 people were named as directors and subscribers (had first shares): 2 abroad, 2 entirely
under Mr E’s control, the fifth member (Mr D) was uninformed.
 The syndicate sells the island to the company for £110,000; the transaction was accepted by
the 3 directors who weren’t abroad, on behalf of the company, without any enquiries.
 A prospectus for shares in the company was issued which was very favourable regarding the
scheme (but the true circumstance was not disclosed i.e. Mr E’s secret profit).
 Members of the public by shares in the company, which subsequently struggles, and the
shareholders discover the true circumstances.
 The shareholders remove the old directors and replace them. The new directors apply to the
court to have the original sale rescinded.

Held: The court ordered the rescission and said that the promoters should have appointed
independent directors and should have made a full disclosure of the circumstances.

25. Gluckstein v Barnes

This will illustrate the point of promoters recovery the secret profit. In this case the Defendants
bought debentures cheaply in a Company at a time when the Company was faring very badly. Later
they bought over the Company for 140,000pounds. The debentures were redeemed at full value and
they made a good profit. Here they made a profit of 20,000 pounds. Later still, they formed another
company and sold the Company to a new Company at a profit of 40,000 pounds. This profit was
disclosed in the prospectus but not the amount of profit they made on the redemption of the
debentures (20,000 pounds).The Court held that there were in breach of their duties as promoters
and the Company was entitled to recover the profit from them. The Company can recover the secret
profit even though they chose not to rescind the contract. The liability of the promoters is "joint or
several". A Promoter who is found liable may recover contributions from the other promoters.

Simple -1

Facts of the case

19
 Promoters of a company had acquired a property intending its resale through the sale of shares
in the company. In doing so the original directors made a substantial profit which they did not
disclose (though it was discoverable). The company became insolvent and investors sought
repayment of the hidden profit.

Held: The action succeeded. As promoters they were under a duty to make explicit declarations
of the profits already made.

Simple-2

Scenario:

 Mr G and 3 others formed a syndicate and bought a property for £120,000, but claimed
they were paying £140,000. § They also promote a company of which they become the
directors and buy the property (for the company) for £180,000.
 In order to fund the purchase, the company invited members of the public to buy shares,
for which a prospectus was issued. However, a £40,000 profit was disclosed, whereas the
promoters had actually made an additional £20,000 secret profit. This was not disclosed
to the prospective shareholders, but was instead written in with a vague reference to
‘interim investments’.
 4 years later the company went into liquidation and the extra £20,000 was discovered.
The liquidator brought an action to recover part of this amount from Mr G.
Held: The rescission was no longer possible, however, the promoters had to account to the
company for the £20,000 secret profit.

Duties of Promoters

A promoter is not an agent for the company which he is forming, because a company cannot
have an agent before it comes into existence. Furthermore, he is not a trustee for the company
because there is no company yet in existence. The promoter stands in fiduciary relation to a
company and to those persons becomes shareholder later, the promoter is accountable to the
company like an agent and trustee. On the position of promoters, the Court of Appeal in Fairview
School’s Bhd v Indrania/p Rajaratnam & Ors (No 2)(1998)1 MLJ 110, observed as follows that
promoter cannot make any secret profit. He must disclose everything to the company. Promoter is
personally liable for all contract made by him with third party on behalf of company. Before

20
incorporation a company has no legal existence and so cannot make a contract. A promoter,
therefore, has no legal right to claim remuneration for his services. If the promoter enters into a
contract with the company about his remuneration, after the incorporation of company, then
directors are liable to pay remuneration. The remuneration may be paid in any of these ways. If a
commission on business or property taken over by the company through him. A company may give
him a lump sum amount in cash. Some shares can be allotted to him. He may take a commission at a
fixed rate on shares sold. He may take an option to subscribe for certain non-issued shares of
company at par within a fixed period.

26. Tata Engineering Locomotive Co. Ltd. v. State of Bihar and others,
"The corporation in law is equal to natural person and has a legal entity of its own. The entity of
corporation is entirely separate from that of its shareholders; it bears its own names and has seal of
its own; its assets are separate and distinct from those of its members, the liability of the members of
the shareholders is limited to the capital invested by them, similarly, the creditors of the members
have no right to the assets of the corporation."

27. Life Insurance Corporation of India v. Escorts Ltd. & Ors.

This case dealt with a non-resident portfolio investment scheme, which existed under the erstwhile
Foreign Exchange Regulation Act, 1973 (FERA). The scheme allowed non-resident companies,
which were owned by or in which the beneficial interest vested in non-resident individuals of Indian
nationality / origin was at least 60%, to invest in the shares of Indian companies. Investment was
allowed to the extent of 1% of the paid-up equity capital of such Indian companies, and could not
exceed a ceiling of 5%. Under the scheme, 13 companies, all owned by Caparo Group Limited,
invested in Escorts Limited – an Indian company. Importantly, 60% of the shares of Caparo Group
Limited were held by a trust, whose beneficiaries were Swraj Paul and members of his family (all
non-resident individuals of Indian origin).

The investment by the 13 Caparo Group companies was challenged on the ground that it was an
attempt at circumventing the prescribed ceiling of investment of 1% under the Scheme, and that,
“One had only to pierce the corporate veil to discover Mr. Swraj Paul lurking behind.”

21
The Supreme Court firstly noted the judgment in Salomon, and that it was firmly established that a
company once incorporated, has an independent and legal personality distinct from the individuals
who are its members. It also noted that only in certain exceptional circumstances may the corporate
veil be lifted, the corporate personality ignored and the individual members recognised for who they
are.

Eventually, however, the Supreme Court ruled that in the facts of this case, and only for the purposes
of ascertaining the ownership in the investment, lifting of the veil would be necessary to a limited
extent, i.e. to ascertain the nationality or origin of the shareholders. It was not necessary to
ascertain the individual identity of each of them. Merely because more than 60% of the shares of the
foreign investor companies were held by a trust of which Mr. Swraj Paul and the members of his
family were beneficiaries, could not deny the companies the facility of the scheme on the basis that
the permission granted was illegal. As such, the Court ignored that the identity of the shareholders
may be common, thus recognising that each company was an independent juristic entity, looking
only at nationality for compliance with the requirements of the scheme.

The Supreme Court also took the opportunity to set out the basic conditions and principles to be
applied and the various circumstances under which the corporate veil of a company could be
pierced, i.e. to cast responsibility or liability for an act carried out by the company. Such acts would
include fraud or improper conduct, the evasion of a taxing or a beneficent statute or where
associated companies are inextricably connected as to be, in reality, part of one concern and should
therefore, be treated as such.
The Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. noted that although a
company is a separate legal entity distinct from that of its members, the corporate veil may be
lifted and the corporate personality may be ignored. The individual persons are to be recognized
for who they are in exceptional circumstances. It may be lifted where the statute itself
contemplates it or in other circumstances such as evasion of tax, fraud, improper conduct and the
like. The Apex Court also opined that it is not desirable to enumerate class or classes of
companies where lifting of the veil is permissible as it must depend on several factors such as the
statute, the object sought to be achieved, conduct, an involvement of public interest, the effect on
parties etc.

22
 28. Juggilal Kamlapat v. Commissioner of Income Tax, Uttar Pradesh
the Hon’ble Supreme Court had taken the view that the doctrine of lifting the corporate veil ought to
be applied only in exceptional circumstances and not as a routine matter. However, if the intention of
the Assessee is to avoid tax through a collusive device, and the real purpose was something else than
what appeared on the face, then the Court may lift the veil of corporate entity to pay due regard to
the economic realities behind the legal facade.

29. Adams v Cape industries plc

Facts

Cape Industries plc was a UK company, head of a group. Its subsidiaries mined asbestos in South
Africa. They shipped it to Texas, where a marketing subsidiary, NAAC, supplied the asbestos to
another company in Texas. The employees of that Texas company, NAAC, became ill, with
asbestosis. They sued Cape and its subsidiaries in a Texas court. Cape was joined and argued there
was no jurisdiction to hear the case. Judgment was still entered against Cape for breach of a duty of
care in negligence to the employees.

The tort victims tried to enforce the judgment in the UK courts. The requirement, under conflict of
laws rules, was either that Cape had consented to be subject to Texas jurisdiction (which was clearly
not the case) or that it was present in the US. The question was whether, through the Texas
subsidiary, NAAC, Cape Industries plc was ‘present’. For that purpose, the claimants had to show in
the UK courts that the veil of incorporation could be lifted and the two companies be treated as one.

Scott J held that the parent, Cape Industries plc, could not be held to be present in the United States.
The employees appealed.

The Court of Appeal unanimously rejected three allegations: that Cape should be part of a
single economic unit, that the subsidiaries were a façade and that any agency relationship existed.
All these were rejected "on the facts". Slade LJ (for Mustill LJ and Ralph Gibson LJ) began by
noting that to ‘the layman at least the distinction between the case where a company itself trades in a
foreign country and the case where it trades in a foreign country through a subsidiary, whose
activities it has full power to control, may seem a slender one….’ He approved Sir Godfray’s
argument ‘save in cases which turn on the wording of particular statutes or contracts, the court is not
free to disregard the principle of Salomon… merely because it considers that justice so requires.’ On

23
the test of the ‘mere façade’, it was emphasised that the motive was relevant whenever such a sham
or cloak is alleged, as in Jones v Lipman.
A company must be set up to avoid existing obligations, not future and hypothetical
obligations not yet arisen. The court held that one of Cape's subsidiaries (a special purpose vehicle
incorporated in Liechtenstein) was in fact a façade, but on the facts, it was not a material subsidiary
such as to attribute liability to Cape. Cases like Holdsworth, Scottish Coopand DHN were
distinguishable on the basis of particular words on the relevant statutory provisions. It noted that
DHN was doubted in Woolfson.
“ Mr. Morison submitted that the court will lift the corporate veil where a defendant by the
device of a corporate structure attempts to evade (i) limitations imposed on his conduct by law; (ii)
such rights of relief against him as third parties already possess; and (iii) such rights of relief as third
parties may in the future acquire. Assuming that the first and second of these three conditions will
suffice in law to justify such a course, neither of them apply in the present case. It is not suggested
that the arrangements involved any actual or potential illegality or were intended to deprive anyone
of their existing rights. Whether or not such a course deserves moral approval, there was nothing
illegal as such in Cape arranging its affairs (whether by the use of subsidiaries or otherwise) so as to
attract the minimum publicity to its involvement in the sale of Cape asbestos in the United States of
America. As to condition (iii), we do not accept as a matter of law that the court is entitled to lift the
corporate veil as against a defendant company which is the member of a corporate group merely
because the corporate structure has been used so as to ensure that the legal liability (if any) in respect
of particular future activities of the group (and correspondingly the risk of enforcement of that
liability) will fall on another member of the group rather than the defendant company. Whether or
not this is desirable, the right to use a corporate structure in this manner is inherent in our corporate
law. Mr. Morison urged on us that the purpose of the operation was in substance that Cape would
have the practical benefit of the group's asbestos trade in the United States of America without the
risks of tortious liability. This may be so. However, in our judgment, Cape was in law entitled to
organise the group's affairs in that manner and (save in the case of A.M.C. to which special
considerations apply) to expect that the court would apply the principle of Salomon v A Salomon &
Co Ltd [1897] AC 22 in the ordinary way.
”
The court separately had to consider whether Cape had established a presence within the United
States, such that the English court should recognise the jurisdiction of the United States over Cape,

24
and enforce a US judgment against it (one of the criticisms made of the decision by US lawyers is
that the Court of Appeal fundamentally misunderstood the nature of the federal system in the US,
but that misunderstanding does not affect the general principles laid down by the court). The Court
of Appeal held that for a company to have a presence in the foreign jurisdiction, both of the
following must be established:
1. the company has its own fixed place of business (e.g. a branch office) in the jurisdiction from
which it has carried on its own business for more than a minimal time.
2. the company's business is transacted from that fixed place of business.
On the facts, the Court of Appeal held that Cape had no fixed place of business in the US such that
recognition should not be given to the US judgment awarded against it.
Significance
After the decision (which has been followed), English law has suggested a court cannot lift the
corporate veil except when construing a statute, contract or other document; if a company is a "mere
façade" concealing the true facts or when a subsidiary company was acting as an authorised agent of
its parent, and apparently not so just because "justice requires" or to treat a group of companies as a
single economic unit.

30.THE STATE TRADING CORPORATION OF INDIA LTD. & OTHERS

V. THE COMMERCIAL TAX OFFICER

Facts: The Sales-tax Authorities of the States of Andhra Pradesh and Bihar sought to assess the
Corporation to sales tax under their respective Sales Tax Acts and issued notices of demand. The
Corporation claiming to be an Indian citizen filed petitions under Art. 32 of the Constitution for
quashing the said proceedings on the ground that they infringed its fundamental rights under Art
19(1)(f) and (g) of the Constitution.

Issues:

1. Whether the State Trading Corporation, a company registered under the Indian Companies
Act, 1956, is a citizen within the meaning of Art. 19 of the Constitution and can ask for the
enforcement of fundamental rights granted to citizens under the said article; and
2. whether the State Trading Corporation is, notwithstanding the formality of incorporation
under the Indian Companies Act, 1956, in substance, a department -,-id organ of the
Government of India with the entirety of its capital contributed by Government; and can it

25
 claim to enforce fundamental rights under Part III of the Constitution against the State as
defined in Art. 12 thereof.

Held:

The answer to the first question must be in the negative. There can be no citizens of India not
mentioned in Part II of the Constitution or by the Citizenship Act, 1955. These provisions are wholly
exhaustive and contemplate only natural persons. Part II of the Constitution relating to 'citizenship' is
clearly inapplicable to juristic persons and the provisions of the Citizenship Act, 1955, enacted by
Parliament under Art. 11 of the Constitution, show that such persons are outside the purview of the
Act. It cannot therefore, be said that either Part II of the Constitution or the Citizenship Act, 1955,
confers the right of citizenship or recognises as citizen any person other than a natural person. They
do not contemplate a corporation as a citizen.

Summary

Constitution of India, 1950, arts. 19 and 32 - (A) Whether State Trading Corporation, a company
regd. under the Indian Companies Act, 1956, is a citizen u/art. 19 of the Constitution and
enforcement of fundamental rights granted to citizens? - Held, majority view, not citizen u/art. 19 -
Minority view, citizen u/art. 19 - (B) Whether the State Trading Corporation is, a department and
organ of the GOI with the entirety of its capital contributed by Govt. and can it claim to enforce
fundamental rights under Part III of the Constitution against the State u/art. 12? - Held, majority
view, refer to bench for hearing on merit - minority view, department and organ of union are not
state and state trading corp. is department or organ of GOI if a citizen competent to enforce
fundamental rights u/part III of constitution against State as defined u/art. 12 of Constitution -
Special bench for hearing on merit.

31.DAIMLER CO. LTD V. CONTINENTAL TYRE AND RUBBER CO.

LTD

Facts

All except one of Continental Tyre and Rubber Co Ltd’s shares were held by German residents and
all directors were German residents. The secretary was English. Continental Tyre and Rubber Co Ltd
supplied tyres to Daimler, but Daimler was concerned that making payment might contravene a
common law offence of trading with the enemy as well as a proclamation issued under s 1(2)
Trading with the Enemy Act 1914. Daimler brought the action to determine if payment could be
made, given that it was the First World War.

Summary

In Daimler Co. Ltd V. Continental Tyre And Rubber Co. Ltd, A company was incorporated in
England for the purpose of selling in England, tyres made in Germany by a German company which

26
held the bulk of shares in the English company. The holders of the remaining shares, except one, and
all the directors were Germans, residing in Germany. During the First World War, the English
company commenced action for recovery of a trade debt. Held, the company was an alien company
and the payment of debt to it would amount to trading with the enemy, and therefore, the company
was not allowed to proceed with the action.

32.R. C. COOPER V. UNION OF INDIA

Facts:

• The government decided to nationalize 14 major commercial banks on 19th July, 1969. All
commercial banks with a deposit base over Rs.50 crores were nationalized • Petitioners-
shareholders, depositors and a director. Shareholders had to give up their shares at low values due to
nationalization of banks.

Arguments:

• Petitioner- 14, 19 and 31. • The act lacked legislative competence • The act interfered with
guarantee of freedom of trade and commerce • The act (and thus the acquisitions) was not made in
public interest • Petitioner's value of investment reduced. right to receive dividends ceased; suffered
financial loss. 'deprived of the right as a shareholder to carry on business through the agency of the
company'

• UOI- petition not maintainable because no fundamental right of the petitioner was directly
impaired as he was not the owner of the property of the undertaking taken over.

Test:

• Whether shareholder's rights impaired?-Not formal but qualitative test- if the State action impairs
the right of the shareholders as well as of the company, the court will not, concentrating merely upon
technical operation of the action, deny to itself jurisdiction to grant relief. • Under the Constitution
the extent of protection against impairment of a fundamental right is determined not by the object of
the legislature nor by the form of the action, but by its direct operation upon the individual's tights.

Holding

• A company registered under the Indian Companies Act is a legal person, separate and distinct from
its individual members. Hence a shareholder, a depositor or a director is not entitled to move a

27
petition for infringement of the rights of the company unless by the action impugned his rights are
also infringed. • Challenging infringement of his own rights and not of the banks. • Rights under
article 19- an individual right of a shareholder as a citizen because his/her rights are equally and
necessarily affected when the rights of the company are affected. • The Act was held to be valid.
However there were a few disproportionalities with regards to the fair sum of compensation, it was
not considered to be a valid ground for repealing the act. The court orders the government to grant
'just equivalent' or 'fair indemnification' to the aggrieved parties. The nationalization was allowed.

The facts of the case are straightforward. In 1908, a man named Charles Bowman died. His will
bequeathed a portion of his estate to the Secular Society Limited, an association incorporated under
the Companies Acts with the stated object to "promote, in such ways as may from time to time be
determined, the principle that human conduct should be based upon natural knowledge, and not upon
super-natural belief, and that human welfare in this world is the proper end of all thought and
action." Bowman's next of kin disputed the validity of the gift to the Society, arguing that the objects
of the Society were unlawful insofar as they constituted a blasphemous libel and therefore the gift
was contrary to public policy and invalid.

33. SOM PRAKASH REKHI VS UNION OF INDIA & ANR

Under a voluntary retirement scheme in force in the company the petitioner, a clerk in Burmah Shell
Oil Storage Ltd., retired voluntarily after qualifying for pension. The pension payable to him was
regulated by the terms of a trust deed of 1950 under which a pension fund was set up and regulations
were made for its administration. The petitioner was also covered by a scheme under the Employees
Provident Fund and Miscellaneous Provisions Act, 1952 and to gratuity under the Payment of
Gratuity Act, 1972. The annual pension to which he was entitled under the trust deed, without
making the authorised deductions as provided under regulation 16 of the trust deed, worked out to a
sum of Rs. 165.99 per mensem. He was also paid supplementary retirement benefit of Rs. 86/- per
month for a period of 13 months after his retirement which was stopped thereafter. The employer
informed the petitioner that from out of his pension of Rs. 165.99 two deductions were made, one of
which was on account of employees provident fund payment made to the pensioner and the other on
account of payment of gratuity with the result the pension payable to him was shown as Rs. 40.05.
The company also cut off the monthly payment of Rs. 86/- which was paid as supplementary
retirement benefit on the score that it was ex gratia, discretionary and liable to be stopped at any time
by the employer. In the meantime the company was statutorily taken over by force of the Burmah
Shell (Acquisition of Undertakings in India) Act, 1976. Thereafter the Central Government took
steps to vest the undertaking in the second respondent, the Bharat Petroleum, which then became the
statutory successor of the petitioner's employer. His pensionary rights such as he had, therefore,
became claimable from the second respondent.

28
A preliminary objection was raised on behalf of the corporation that no writ would lie against the
second respondent since it is neither a government department nor a statutory corporation but just a
company.

ISSUE:

What is the criteria for determining Bharat Petroleum Corporation Limited as 'State' within art. 12 of
constiution

HELD: [READ HEADNOTE AT INDIAKANOON]

The petitioner is entitled to the payment of full pension. The Bharat Petroleum is State within the
meaning of Article 12 of the Constitution and a writ will lie against it under Article 32.

The settled position in law is that any authority under the control of Government of India comes
within the definition of State. On the appointed day the right title and interest in Burmah Shell did
vest in the Central Government and by virtue of section 3 the Central Government was the transferee
of the undertaking. While the formal ownership was cast in the corporate mould, the reality reaches
down to State control. The core fact is that the Central Government, through section 7 chose to make
over its own property to its own offspring. Therefore, the Burmah Shell though a government
company is but the alter ego of the Central Government and must, therefore, be treated as
definitionally caught in the net of State since a juristic veil worn for certain legal purposes cannot
obliterate the true character of the entity for purposes of constitutional law. [121A; G; 124 D-E]

8 Tests laid down by this Court

34.Workmen Employed in Associated Rubber Industry Limited, Bhavnagar v

Associated Rubber Industry Limited and Another

FACTS

The Associated Rubber Industry Ltd. had purchased, some years back, shares of INARCO Ltd. by
investing a sum of Rs. 4,50,000/-. They were getting annual dividends in respect of these shares and
the amount so received was shown in the Profit and Loss Account of the company year after year. It
was taken into account for the purpose of calculating the bonus payable to the workmen of the
company. Some time in the course of the year 1968, the company transferred the shares of INARCO
Ltd. held by it to Aril Bhavnagar Ltd. (subsequently changed to the Aril Holdings Ltd.), a subsidiary
company wholly owned by The Associated Rubber Industry Ltd. Aril Holdings Ltd. "had no other
capital except the shares of INARCO Ltd. transferred to it by the Associated Rubber Industry Ltd. It
had no other business or source of income whatsoever except receiving the dividend on the shares of
INARCO Ltd. The dividend income from the shares of INARCO Ltd. was not transferred to The
Associated Rubber Industry Ltd. and therefore, it did not find place in profit and Loss Account of the
company with the result that the available surplus for the purposes of payment of bonus to the

29
workmen of the company became reduced. The net result of the exercise was that bonus at the rate
of 4% only was paid to the workers for the year 1969 instead of at the rate of 16% to which they
would have otherwise been entitled. We may mention here that Aril Holdings Ltd. was itself wound
up in the year 1971 and amalgamated with The Associated Rubber Industry Ltd.

ISSUE

The workmen of the Associated Rubber Industry Ltd., Bhavnagar raised an industrial dispute
claiming that they were entitled to be paid bonus at the rate of 16% for the year 1969. According to
them, the transfer of the shares of INARCO Ltd. to Aril Holdings Ltd. was no more than a device to
avoid payment of higher bonus to the workmen.

HELD

A new company is created wholly owned by the principal company, with no assets of its own except
those transferred to it by the principal company, with no business or income of its own except
receiving dividends from shares transferred to it by the principal company and serving no purpose
whatsoever except to reduce the gross profits of the principal company. There cannot be direct
evidence that the second company was formed as a device to reduce the gross profits of the Principal
company for whatever purpose. An obvious purpose that is served and which stares one in the face is
to reduce the amount to be paid by way of bonus to workmen.

35.New Horizons Ltd vs Union Of India

In the past the telephone directory used to be printed by the Department at its own cost for the
purpose of supplying the same to the telephone subscribers. It was an item of expenditure. Today,
the telephone directory has become a source of revenue for the State. This has become possible by
making it a medium for advertising by industrial and commercial concerns. A section in distinct
"yellow pages" devoted exclusively to advertisements is contained in the directory.

By an advertisement published in various newspapers the Department of Telecommunications,

Telecom District, Hyderabad invited sealed tenders from competent agencies for printing, binding
and supply of specified number of telephone directories in English for three annual issues
commencing from 1993. The tenderer was required to supply, free of cost, the telephone directories
to General Manager, Hyderabad Telecommunications at the specified distribution points. The
tenderer was also required to specify the royalty amount for each issue offered by him. It was
mentioned that the successful tenderer will be permitted to procure on his own classified
advertisements and cover page advertisements.

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Five persons, including appellant 1, M/s New Horizons Ltd. and M/s M&N Publications Limited
(Respondent 4 herein) submitted their tenders. The offers were considered by the Tender Evaluation
Committee. The offer of Respondent 4 was accepted. The Assistant General Manager (OP),
Department of Telecommunications, Telecom District, Hyderabad informed NHL that its offer could
not be considered. The said letter did not indicate the reason for non-consideration of the offer of the
NHL. It was stated that the offer of NHL was not considered because the appellants did not submit
any evidence to show that they have in their name undertaken compiling, printing and supply of
telephone directories for large telephone systems with the capacity of more than 50,000 lines.

ISSUE

Whether New Horizons Ltd. has experience as contemplated by advertisement for inviting tenders?

HELD

Held, experience of constituents of New Horizons Ltd.(NHL), i.e., Indian group of companies (TPI,
LMI and WML) and Singapore based company, (IIPL) has to be taken into consideration - Said
experience has been ignored by tender evaluation committee on an erroneous view that said
experience was not in name of NHL and that NHL did not fulfill conditions. The court said that it
was permissible to see through the corporate veil to find out from the shareholders or from the
people controlling the company something about the nature of the company. The company was
composed of two joint ventures who, among other things, contributed their personal expertise. –
experience of the company means experience of its constituencies.

36. Thinket Information Resources, Inc. v. Sun Microsystems, Inc

In this case, Thinket alleged that Sun refused to contract with it because the company was owned by
African-Americans.

Petitioner Sun Microsystems, Inc. (SMS), is a Delaware corporation with its principal office in
Mountain View, California, at the time the petition was filed. SMS and its Consolidated Subsidiaries
(petitioners) timely filed consolidated U.S. corporate income tax returns for the taxable year ended
June 30, 1987, with the Internal Revenue Service Center, Fresno, California. For all relevant years,
petitioners kept their books and records and filed their consolidated Federal income tax returns using
the accrual method of accounting based on a taxable year ending June 30.

In June 1992, Thinket began providing Sun Microsystems, Inc. (“Sun”) with systems support
services at Sun's facility in Fremont, California, contracting through individual purchase orders. In
an attempt to substantially increase its business with Sun, Thinket commenced a concerted effort in
1993 to become a supplier to Sun under a Master Service Agreement (“MSA”), which is a contract
Sun offers to its preferred vendors.

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The relationship soured, and Thnket filed this action against Sun under various legal theories
alleging that Sun had deliberately refused to contract with Thinket based solely on its status as an
African-American owned business.

HELD

In circumstances such as this, a corporation has acquired an imputed racial identity sufficient to take
it out of the general observation about corporations made by Justice Powell in Arlington Heights.
We hold that if a corporation either suffers discrimination harm cognizable under § 1981, or has
acquired an imputed racial identity, it is sufficiently within the statutory zone of interest to have
prudential standing to bring an action under § 1981.

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