KSLU Solved Question Papers
Company Law
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 6
2019 Jan Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 6 Company Law 2019 Jan Question Paper with Solutions
First published on munotes.in on 21 October 2026.
Published by munotes.in, Mumbai.
Model answers written and edited by the munotes.in editorial desk.
Passages from this volume may be quoted, in print, online or by an AI system, with credit: name munotes.in and link to this volume's page. The volume may not be reproduced as a whole. Full terms at munotes.in/content-license.
munotes.in is an independent study resource for students of Karnataka State Law University. It is not affiliated with Karnataka State Law University, and is not endorsed by it.
The University does not publish an official answer key for this paper. The answers in this volume are model answers, written to show how a full-mark answer is built. They are a study aid, not an authority on what an examiner marked.
The question paper reproduced here is the paper as set by Karnataka State Law University at the 2019 Jan examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2019 Jan examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2019 Jan examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 13 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1Explain the circumstances in which the Corporate Veil of the company will be lifted by the court.[16]
Answer
For full marks, cover: the corporate veil and its source (section 9 of the Companies Act 2013, Salomon); what lifting it means, and the two routes; Part A, lifting by statute: sections 3A, 7(5) to (7), 34 and 35, 251, 339, 464(3) and the "officer who is in default"; Part B, lifting by the courts, each head with a case: fraud and defiance of court orders (Skipper Construction), tax evasion (Dinshaw Maneckjee Petit), evasion of an existing obligation by a sham company (Gilford Motor, Jones v. Lipman, Prest), enemy character (Daimler); Part C, where the courts refuse: citizenship (Tata Engineering, State Trading Corporation), group companies (Vodafone), mere ownership and control (Balwant Rai Saluja), criminal liability of officers (Sunil Bharti Mittal); a table.
The corporate veil
On registration, a company becomes a body corporate with perpetual succession, distinct from its members (section 9 of the Companies Act 2013). It owns its property, makes its contracts and sues in its own name. The members stand behind it, as though behind a curtain. That curtain is the corporate veil.
The leading case is Salomon v. A. Salomon and Co. Ltd., [1897] AC 22. Salomon sold his boot business to a company in which he held almost all the shares, taking secured debentures as part of the price. When the company failed, the unsecured creditors said it was only Salomon in another form. The House of Lords held that the company was a person distinct from Salomon, whatever his motives. His debentures stood.
What lifting the veil means
Lifting or piercing the veil means that the court, or the statute, disregards the company's separate personality for a particular purpose. It then looks at the persons who really control the company. It may hold them personally liable, or treat the company's acts and property as theirs.
The veil is lifted in two ways:
- by statute, where the Act itself takes away limited liability or reaches the persons behind the company; and
- by the courts, where the corporate form is misused.
In both, lifting is an exception. Separate personality remains the rule.
Part A: lifting by statute
1. Members below the legal minimum (section 3A). A public company may fall below seven members, or a private company below two. If it carries on business for more than six months while so reduced, each member who knows of it becomes severally liable. He answers for the whole debts contracted after those six months. The company still exists, but those members lose their limited liability.
2. Incorporation by false information (section 7(5) to (7)). A person who files false particulars for registration is liable under section 447 (section 7(5)). If the company was got incorporated by fraud, its promoters, first directors and declarants are each liable under section 447 (section 7(6)). Under section 7(7), the Tribunal may then make the members' liability unlimited. It may also regulate the company's management, remove its name or order its winding up.
3. Misstatements in a prospectus (sections 34 and 35). Every person who authorised a prospectus with an untrue or misleading statement is liable under section 447 (section 34). Directors, promoters and experts must compensate subscribers who lost money on its faith (section 35(1)). Where the prospectus was issued with intent to defraud, they are personally liable without any limitation of liability (section 35(3)).
4. Fraudulent application for striking off (section 251). A company may apply to have its name struck off in order to evade its liabilities or deceive its creditors. The persons in charge of its management are then jointly and severally liable to those who suffered loss. They are also punishable for fraud.
5. Fraudulent conduct of business (section 339). In a winding up, it may appear that the business was carried on to defraud creditors or for a fraudulent purpose. The Tribunal may declare the directors, officers and anyone knowingly a party personally responsible, without any limitation of liability, for the company's debts. The application may be made by the liquidator, a creditor or a contributory.
6. Associations above the permitted number (section 464(3)). A partnership or association of more than the prescribed number, carrying on business for gain without registering as a company, is unlawful. Every member is fined and is personally liable for all its liabilities.
7. The officer who is in default (section 2(60)). Many sections punish the "officer who is in default" along with the company. This reaches the individuals responsible for the company's breach.
Part B: lifting by the courts
The courts lift the veil where the company is used as a cloak for wrongdoing. The main heads are these.
1. Fraud and defiance of court orders. Delhi Development Authority v. Skipper Construction Company (P) Ltd., (1996) 4 SCC 622. A company controlled by one family sold the same commercial space to several buyers. It also defied the court's orders. The Supreme Court disregarded the corporate form. It reached the individuals behind the company, and the family assets built with the company's money.
2. Evasion of tax. In re Dinshaw Maneckjee Petit, (1927) 29 Bom LR 447. Sir Dinshaw Petit formed four companies and transferred his investments to them. The dividend and interest income was paid to the companies, and came back to him as pretended loans that were never repaid. The companies did no other business. The Bombay High Court held that they were formed purely to avoid super-tax. Each was nothing more than the assessee himself, so their income was taxed as his.
3. Evasion of an existing obligation: the sham company. Gilford Motor Co. Ltd. v. Horne, [1933] Ch 935. Horne, a former managing director, had covenanted not to solicit his old company's customers. He formed a company with his wife and a friend as members, and competed through it. The Court of Appeal called the company "a device, a stratagem" to mask his business. It granted an injunction against both Horne and the company.
Jones v. Lipman, [1962] 1 WLR 832, is similar. Lipman agreed to sell a house. To escape the sale, he conveyed it to a company he controlled. The court ordered specific performance against both Lipman and the company, calling the company "a mask".
Prest v. Petrodel Resources Ltd., [2013] UKSC 34, states the modern test. The veil may be pierced where a person under an existing legal obligation deliberately evades it through a company. Even then, it is pierced only so far as necessary to take away the advantage of the evasion.
4. Enemy character. Daimler Co. Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd., [1916] 2 AC 307. A company registered in England had German shareholders and directors. During the First World War it sued for a trade debt. The House of Lords held that a company may take on an enemy character if those in real control of it are enemies. The action could not proceed.
5. Protecting a statute or public policy. The courts may also look behind the company where its separate personality would otherwise defeat the purpose of a statute. This is applied with care, case by case.
Part C: where the courts refuse to lift the veil
1. To give a company its members' citizenship. Tata Engineering and Locomotive Co. Ltd. v. State of Bihar, AIR 1965 SC 40. Companies, joined by shareholders, claimed fundamental rights under Article 19. The Supreme Court held that a company is not a citizen. It refused to lift the veil to lend the company its shareholders' citizenship. State Trading Corporation of India Ltd. v. Commercial Tax Officer, AIR 1963 SC 1811, had already held that a corporation is not a citizen under Article 19.
2. To look through a genuine group structure. Vodafone International Holdings B.V. v. Union of India, (2012) 6 SCC 613. Vodafone bought a single share of a foreign company and so gained control of Indian operations. The Supreme Court held that a genuine holding structure is looked at, not looked through. The veil is lifted only if the structure is a sham or a colourable device.
3. Merely because one company owns and controls another. Balwant Rai Saluja v. Air India Ltd., (2014) 9 SCC 407. Canteen workers employed through a wholly owned subsidiary of Air India claimed to be Air India's employees. The Supreme Court refused to pierce the veil. Ownership and control alone are not enough. There must be impropriety, the company being used as a device or facade to avoid or conceal a liability.
4. To make officers criminally liable for the company's acts. Sunil Bharti Mittal v. Central Bureau of Investigation, (2015) 4 SCC 609. A chairman was summoned as an accused because he was the company's "alter ego". The Supreme Court set this aside. An officer may be made an accused only on evidence of his own role, or where a statute expressly imposes vicarious liability.
The grounds at a glance
| Ground | Authority |
|---|---|
| Members below the minimum | Section 3A |
| Fraudulent incorporation | Section 7(5) to (7) |
| Prospectus fraud | Sections 34, 35(3) |
| Fraudulent striking off | Section 251 |
| Fraudulent conduct of business | Section 339 |
| Fraud, defiance of court orders | Skipper Construction |
| Tax evasion | Dinshaw Maneckjee Petit |
| Sham company to evade a duty | Gilford Motor, Jones v. Lipman, Prest |
| Enemy character | Daimler |
| Not for citizenship | Tata Engineering |
| Not for mere control | Balwant Rai Saluja, Vodafone |
Conclusion. A court will lift the corporate veil only where the company is misused. Fraud, defiance of court orders, tax evasion and escape from an existing obligation are the usual cases. It will also do so where enemies control the company in wartime. Skipper Construction, Dinshaw Maneckjee Petit, Gilford Motor, Jones v. Lipman and Daimler illustrate these heads. The Act lifts the veil in sections 3A, 7(7), 35(3), 251, 339 and 464(3). Ownership and control alone are never enough, as Balwant Rai Saluja and Vodafone hold. Separate personality under section 9 and Salomon remains the rule.
The rest of the answers
The first answer is free. The rest come with the KSLU B.A. LL.B. Semester 6 solved papers.
You have read the question paper and its first answer in full. Buy the solved papers once and you can read every answer of every solved paper in this semester.
Solved papers: ₹499 Already bought it? Sign in
The question paper itself stays free.
Found an error in this volume? Report it and we will check it against the paper.