Skip to content

CA Foundation · Business Laws · The Companies Act, 2013

Kapoor Steels Pvt Ltd was incorporated by Mr Kapoor mainly to evade a legal obligation of non-competition he owed to a former employer, and it carries on the very business he had promised not to compete in. The former employer seeks an injunction against both. Under the doctrine of lifting the corporate veil, what is the likely outcome?

The court may lift the corporate veil and treat the company and Mr Kapoor as one, restraining both. A company formed as a sham to evade a legal obligation cannot use separate personality as a shield, as in Gilford Motor Co v Horne.

  1. AThe court may disregard the company's separate personality and treat the company and Mr Kapoor as one, restraining bothCorrect
  2. BThe court must respect the separate personality, so only Mr Kapoor is restrained
  3. CThe company is automatically dissolved by the Registrar
  4. DThe company is liable but Mr Kapoor is protected by limited liability

Explanation

Courts lift the corporate veil where a company is used as a sham or cloak to evade legal obligations (Gilford Motor Co v Horne). The company is treated as the alter ego of the individual, so both can be restrained. Respecting the separate entity here would let the fraud succeed, and dissolution is not automatic.

Did you get it right without looking?

One question tells you little. A timed set on The Companies Act, 2013 shows your real accuracy, how long you take and where you lose marks.

Practise The Companies Act, 2013Free diagnostic mock

More The Companies Act, 2013 questions