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B.A. LL.B. (Five Years) Sem 6 Company Law 2022 Apr Question Paper with Solutions - KSLU

KSLU Solved Question Papers

Company Law

Previous Year Question Paper with Solution

B.A. LL.B. (Five Years) · Sem 6

2022 Apr Examination

munotes.in

Mumbai

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.

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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2022 Apr examination.

The Paper as Set

The questions in this volume are the questions asked at the 2022 Apr 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 80 · 20 questions answered

Instructions printed on the paper

N.B. (1) Answer all five Units. (2) One essay type question and short note/problems is compulsory from each Unit. (3) Figures to the right indicate marks. (4) Answers should be written either in English or Kannada completely.

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.

Read the original question paper

Q1

Unit I

(a)What is corporate veil ? Under what circumstances the court can lift the corporate veil ?[10]

Answer

For full marks, cover: what the corporate veil is and where it comes from (section 9, Salomon); what lifting it means; the statutory grounds (sections 3A, 7(7), 34 and 35, 339 and the "officer in default"); the judicial grounds (fraud or evasion of an existing obligation, tax evasion, enemy character, a sham company); decided cases with facts: Skipper Construction, Dinshaw Maneckjee Petit, Gilford Motor, Jones v. Lipman, Daimler; the limit in Balwant Rai Saluja and Vodafone.

The corporate veil

On registration, a company becomes a body corporate distinct from its members (section 9 of the Companies Act 2013). The law treats the company as a separate person. The members stand behind it as though behind a curtain. This curtain is called the corporate veil. The leading case is Salomon v. A. Salomon and Co. Ltd., [1897] AC 22. There the House of Lords held a "one-man" company to be a person distinct from Salomon, whatever his motives.

Lifting (or piercing) the veil means that the court disregards the separate personality for a particular purpose. It then looks at the persons who actually control the company. It may make them personally liable, or treat the company's acts as theirs. The veil is lifted only in exceptional cases. Separate personality remains the rule.

Lifting under the statute

The Act itself lifts the veil in several places:

Members below the minimum (section 3A). Members may fall below seven in a public company or below two in a private company. If business continues for more than six months, every member who knows of it is severally liable for the debts contracted after those six months.
Incorporation by fraud (section 7(7)). A company may have been incorporated on false information or by fraud. The Tribunal may then regulate its management or direct that the liability of members shall be unlimited. It may also remove the company's name or wind it up. Section 7(6) also makes the promoters and first directors liable under section 447.
Misstatement in a prospectus (sections 34 and 35). Directors, promoters and experts who authorised an untrue statement are criminally and civilly liable to those who subscribed on its faith.

Fraudulent conduct of business (section 339). In a winding up it may appear that the business was carried on to defraud creditors. The Tribunal may then declare the directors and others knowingly party to it personally responsible, without any limitation of liability, for the company's debts.
Officers in default. Many sections punish the "officer who is in default" (section 2(60)) along with the company.

Lifting by the courts

The courts lift the veil where the company is used as a cloak. The main heads are:

Fraud or improper conduct. Delhi Development Authority v. Skipper Construction Company (P) Ltd., (1996) 4 SCC 622. Skipper Construction, controlled by Tejwant Singh and his family, sold the same commercial space to several buyers and defied court orders. The Supreme Court held the contemnors guilty. Where the corporate form is used to commit fraud or defeat court orders, the court may disregard it. It may reach the individuals and the family assets built with the company's money.

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 income came back to him as pretended loans that were never repaid. The companies did no other business. The Bombay High Court held that the companies were formed only to avoid super-tax. Each was nothing more than the assessee himself, so their income was taxed as his.
Evasion of an existing obligation (a sham company). Gilford Motor Co. Ltd. v. Horne, [1933] Ch 935. Horne, a former managing director, was bound by a covenant not to solicit the company's customers. He formed a company with his wife and a friend as members and competed through it. The Court of Appeal held the company "a device, a stratagem" to mask his business. It granted an injunction against Horne and the company. Jones v. Lipman, [1962] 1 WLR 832, is similar. Lipman agreed to sell a house, then conveyed it to his own company to defeat the sale. Specific performance was ordered against both, the company being "a mask".

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 war it sued for a trade debt. The House of Lords held that a company may take an enemy character if the persons in real control of it are enemies. The action could not proceed.
Protecting public policy and statute. The court will also look behind the company where a statute's purpose would otherwise be defeated.

The limit: the veil is lifted sparingly

Balwant Rai Saluja v. Air India Ltd., (2014) 9 SCC 407, states the limit. 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. The Court adopted the approach of Prest v. Petrodel Resources Ltd., [2013] UKSC 34.

Vodafone International Holdings B.V. v. Union of India, (2012) 6 SCC 613, makes the same point for groups of companies. A structure genuinely in place is looked at, not looked through, unless it is a colourable device. So lifting the veil is an exception, not a second rule.

Summary of the grounds

Ground	Authority
Members below the minimum	Section 3A
Fraudulent incorporation	Section 7(6), 7(7)
Fraudulent conduct of business	Section 339
Fraud or defiance of court orders	Skipper Construction
Tax evasion	Dinshaw Maneckjee Petit
Sham company to evade a duty	Gilford Motor, Jones v. Lipman
Enemy character	Daimler

Conclusion. The corporate veil is the separate personality that section 9 and Salomon give a company. The court lifts it only where the company is used to commit fraud, evade tax, escape an existing obligation or hide enemy control. The Act lifts it in sections 3A, 7(7), 34, 35 and 339. Since Balwant Rai Saluja, mere ownership and control are not enough; there must be misuse of the corporate form. So the veil is lifted as an exception to protect justice, and separate personality remains the rule.

B.A. LL.B. (Five Years) Sem 6 Company Law 2022 Apr Question Paper with Solutions

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