State Trading Corporation of India Limited and Others v. Commercial Tax Officer, Visakhapatnam and Others (1963)

Key Point: The case clarified that corporations are not "citizens" under the Indian Constitution.

Key Issue: Whether a corporation can claim fundamental rights under Article 19 of the Indian Constitution.

What Happened: The State Trading Corporation, fully owned by the Government of India, was assessed for sales tax and claimed its fundamental rights were violated. It filed a petition under Article 32, asserting its status as a citizen.

Judgment: The Supreme Court held that corporations are not "citizens" and cannot claim fundamental rights under Article 19 of the Constitution.

Legal Concept: The case established that only natural persons can claim rights specifically granted to "citizens" under the Constitution.

Shriomani Gurudwara Prabandhak Committee, Amritsar v. Shri Som Nath Dass & Ors (2000)

Key Point: The case determined that Guru Granth Sahib is not a juristic person.

Key Issue: Whether Guru Granth Sahib can be considered a juristic person capable of owning property and being sued.

What Happened: A dispute arose regarding property ownership claimed in the name of Guru Granth Sahib. The High Court initially ruled against recognizing Guru Granth Sahib as a juristic person, leading to this appeal.

Judgment: The Supreme Court upheld the view that Guru Granth Sahib is not a juristic person and cannot own property or engage in legal proceedings.

Legal Concept: The decision reaffirmed that recognition as a juristic person requires a legal framework, which was absent in this case.

Bennett Coleman & Co. & Ors v. Union of India & Ors (1972-73)

Key Point: The Newsprint Policy of 1972-73 was found unconstitutional as it violated press freedom.

Key Issue: Whether the restrictions on newsprint imposed by the policy violated Article 19(1)(a) (freedom of speech and expression).

What Happened: The petitioners argued that the Newsprint Policy restricted their freedom of expression by limiting the number of pages and controlling newsprint usage. The government defended it as regulation to prevent monopolies.

Judgment: The Supreme Court held that the Newsprint Policy imposed unreasonable restrictions on press freedom and was unconstitutional under Article 19(1)(a).

Legal Concept: Freedom of the press includes both qualitative and quantitative aspects. Any restriction that impacts circulation or expression must meet the test of reasonableness.

Salomon v. Salomon & Co. Ltd. (1895-99)

Key Point: The case established the principle of separate legal personality of a corporation.

Key Issue: Whether the company and its shareholders are separate legal entities.

What Happened: Mr. Salomon, the majority shareholder of a company, faced claims that he was personally liable for the company’s debts after it went into liquidation.

Judgment: The House of Lords held that the company is a separate legal entity, and Mr. Salomon was not personally liable for the company’s debts.

Legal Concept: A company, once incorporated, becomes a distinct legal entity. Shareholders’ liability is limited to the unpaid value of their shares.

Lee v. Lee’s Air Farming Ltd. (1960)

Key Point: A company is a separate legal entity distinct from its members, even if one individual holds majority control.

Key Issue: Can Mr. Lee be considered an employee of his company, and is his widow entitled to compensation under the New Zealand Workmen’s Compensation Act, 1923?

What Happened: Mr. Lee, the sole director and majority shareholder of his company, died in an accident while working as a pilot. His widow claimed compensation, but the New Zealand Court of Appeal denied it, arguing Mr. Lee could not be both employer and employee.

Judgment: The Privy Council held that Mr. Lee and the company were separate legal entities. The relationship between Mr. Lee and the company was contractual, making him an employee. Therefore, his widow was entitled to compensation under the Act.

Legal Concept: This case reaffirmed the principle of separate legal personality and established that individuals can have dual roles (employer and employee) in their own company if there is a valid contractual relationship.

Dhulia-Amalner Motor Transport Ltd. v. Raychand Rupsi Dharamsi & Ors. (1951)

Key Point: A private limited company, once validly incorporated, is a separate legal entity distinct from its shareholders and prior partnerships.

Key Issue: Whether the partnership firm was dissolved and replaced by the private limited company.

What Happened: A partnership managing bus services transitioned into a private limited company. Minority partners alleged the dissolution of the partnership was invalid and sought accounting of profits.

Judgment: The Court held that the private limited company was an independent legal entity, distinct from the partnership. The minority partners could not claim profits from the company’s business, as it was no longer a partnership’s property.

Legal Concept: A company’s legal entity status protects it from claims of its shareholders or prior partnerships unless fraud or statutory violations are proven.

Cotton Corporation of India Ltd. v. G.C. Odusumath

Key Point: The corporate veil can only be lifted if explicitly permitted by law or under compelling circumstances.

Key Issue: When can courts disregard a company’s separate legal personality?

Judgment: The Court held that lifting the corporate veil is permissible only under statutory provisions (e.g., fraud, misrepresentation, or statutory violations) or exceptional situations.

Legal Concept: Incorporation does not shield individuals behind a company from liability in cases of fraud, misrepresentation, or statutory non-compliance.

State of UP and Ors. vs Renusagar Power Co. and Ors.

Key Point: The corporate veil can be lifted to treat a subsidiary and parent company as one entity if their operations are inseparably linked.

Key Issue: Was Renusagar Power Company considered Hindalco’s "own source of power" under the UP Electrical (Duty) Act, 1952, and could the corporate veil be pierced to exempt them from duty?

What Happened: Renusagar, a subsidiary of Hindalco, exclusively supplied power to Hindalco. The State imposed electricity duty, which Renusagar contested, claiming exemption under the Act. The High Court ruled in their favor, prompting the State to appeal to the Supreme Court.

Judgment: The Supreme Court upheld the High Court's decision, holding that Renusagar and Hindalco were essentially one unit. The corporate veil was lifted, and electricity supplied by Renusagar was treated as Hindalco’s "own source of power," qualifying for exemption from duty.

Legal Concept: This case reinforced that courts can pierce the corporate veil to uncover the true relationship between entities when their operations are closely tied.

Daimler Company Ltd. v. Continental Tyre and Rubber Co. (1916)

Key Point: A company can acquire enemy character during wartime if its controllers are from a hostile nation.

Key Issue: Should Continental Tyre be treated as an enemy company during WWI due to its German shareholders and directors?

What Happened: Continental Tyre, a UK-incorporated company, had German shareholders and directors. Daimler argued that paying Continental would amount to trading with the enemy.

Judgment: The House of Lords held that the company had enemy character since it was controlled by German nationals. The claim for payment was dismissed.

Legal Concept: The corporate veil can be lifted during wartime to determine the true nature of a company's controllers and their allegiance.

Jones v. Lipman (1962)

Key Point: A company cannot be used as a facade to avoid specific performance obligations.

Key Issue: Could Lipman avoid specific performance of a property sale by transferring it to a company?

What Happened: Lipman transferred land to a company he controlled to avoid a sale agreement.

Judgment: The court held the company was a sham and ordered specific performance.

Legal Concept: Courts can disregard a company’s separate identity if used to evade legal responsibilities.

Merchandise Transport Ltd. v. British Transport Commission (1982)

Key Point: A subsidiary created to act as an agent does not warrant separate legal recognition.

Key Issue: Was the formation of a subsidiary to apply for a license valid?

What Happened: Merchandise Transport formed a subsidiary to circumvent license restrictions. The authority rejected the application.

Judgment: The court held the subsidiary was acting as an agent and rejected its application.

Legal Concept: The corporate veil can be lifted if a subsidiary is created solely to bypass regulations.

Weeks v. Propert (1873)

Key Point: Directors are personally liable for false warranties related to a company's borrowing powers.

Key Issue: Were the directors personally liable for misrepresenting the company’s borrowing capacity?

What Happened: A railway company invited loans through advertisements even though it had exhausted its borrowing powers. A loan was accepted, and a debenture issued. The plaintiff later sued the directors when the loan was declared ultra vires.

Judgment: The court held the directors personally liable as they falsely warranted the company’s borrowing capacity.

Legal Concept: Directors can be held liable for misrepresenting factual matters, such as whether the company has exceeded its borrowing powers.

Workmen v. Associated Rubber Industries Ltd. (1985)

Key Point: The court lifted the corporate veil to ensure workers received their rightful bonus.

Key Issue: Was the transfer of shares to a subsidiary intended to avoid bonus payments to workmen?

What Happened: Associated Rubber Industries transferred shares to its wholly-owned subsidiary, which had no independent business. This reduced the parent company’s profits, lowering the bonus payable to workmen.

Judgment: The Supreme Court held that the workmen were entitled to a 16% bonus for 1969, as the arrangement aimed to manipulate profits and reduce bonus payouts.

Legal Concept: The corporate veil can be lifted when a structure is used to evade worker entitlements or obligations.

Delhi Development Authority v. Skipper Construction Co. Pvt. Ltd. (1996)

Key Point: The Supreme Court lifted the corporate veil and held the directors of Skipper Construction personally liable for defrauding investors.

Key Issue: Could the corporate veil of Skipper Construction be lifted to hold its directors liable for fraudulent activities and contempt of court?

What Happened: Skipper Construction defaulted on payments to the Delhi Development Authority (DDA) but continued selling spaces in a proposed building, defrauding investors and violating court orders. The Supreme Court initiated contempt proceedings against the company's directors, who were found guilty.

Judgment: The Supreme Court held the directors, including Tejwant Singh and his wife, personally liable. It lifted the corporate veil, treated the directors and the company as one entity, and sentenced them to imprisonment and fines under Articles 129 and 142 of the Constitution.

Legal Concepts: The Court exercised its powers under Article 142 to ensure complete justice and under Article 129 to punish for contempt. The corporate veil was pierced to prevent misuse of corporate identity for fraud.

Mrs. Prem Lata Bhatia v. Union of India (2006)

Key Point: The corporate veil was not lifted as the shop was managed by the petitioner and her husband’s company without violating tenancy terms.

Key Issue: Was the petitioner in breach of the tenancy agreement by allowing her company to operate from the premises?

What Happened: The petitioner managed a shop through her company, where she and her husband held almost all shares. The authorities alleged a breach of tenancy terms but failed to prove any subletting or transfer of possession.

Judgment: The High Court held that the corporate veil should not be pierced, as the company was essentially the petitioner’s own entity. The eviction orders were quashed, and the petitioner was allowed to retain the premises.

Legal Concepts: The Court recognized the separate legal identity of a company but acknowledged that in this case, piercing the veil was unnecessary as there was no violation of tenancy terms.

Pratap Singh v. The Bank of America (1976)

Key Point: The Bombay High Court had jurisdiction to entertain the suit despite no cause of action arising within its territory.

Key Issue: Did the Bombay High Court have jurisdiction over the suit filed by the plaintiff?

What Happened: The plaintiff sued the Bank of America, challenging jurisdiction as no part of the cause of action occurred in Bombay. The plaintiff argued for jurisdiction based on the defendant’s operations in Bombay.

Judgment: The High Court held it had jurisdiction, as the defendant carried on business in Bombay. The case was allowed to proceed further.

Legal Concepts: Jurisdiction was determined based on the defendant's presence and business activities in the area, not just the location of the cause of action.

Babulall Choukhani v. Caltex (India) Ltd. (1965)

Key Point: The plaintiff was entitled to compensation for breach of a lease agreement.

Key Issue: Was the plaintiff entitled to damages for the defendant’s failure to execute the lease agreement?

What Happened: Caltex entered an agreement for a lease but failed to obtain approvals in time, breaching the agreement. The plaintiff sued for retention fees due during the delay.

Judgment: The High Court held the plaintiff entitled to retention fees for six months (August 1963 to January 1964) and awarded Rs. 15,000 as damages.

Legal Concepts: A valid agreement for a lease binds the parties to their commitments, and damages can be awarded for breaches even if approvals are delayed.

Macaura v. Northern Assurance Co. Ltd. (1925)

Key Point: A shareholder does not have an insurable interest in the property owned by the company, even if they own all the shares.

Key Issue: Did Mr. Macaura have an insurable interest in the timber owned by his company, which was destroyed by fire?

What Happened: Mr. Macaura transferred his timber estate to his company, Irish Canadian Sawmills Ltd, and later insured the timber under his name. After a fire destroyed the timber, the insurer denied his claim, arguing that he had no legal or equitable interest in the property since it belonged to the company.

Judgment: The House of Lords held that Mr. Macaura had no insurable interest in the timber as it was owned by the company, a separate legal entity. Shareholding alone does not create a direct insurable interest in a company's assets.

Legal Concepts: This case established that insurable interest must arise from a legal or equitable relationship with the insured property. It reinforced the distinction between personal assets and corporate assets, emphasizing the separate legal identity of a corporation.

In Re: Mackinnon Mackenzie & Co. (1966)

Key Point: The company’s registered office was moved from Calcutta to Bombay for better business efficiency.

Key Issue: Was the office transfer in the company’s best interest and compliant with the law?

What Happened: Shareholders resolved to shift the office to Bombay. The State opposed, citing potential revenue loss and local disadvantages.

Judgment: The court approved the transfer, stating shareholder decisions are paramount, and speculative claims of revenue loss don’t outweigh company interests.

Legal Concept: Companies can shift offices if shareholder and creditor interests are secured and statutory compliance is ensured.

Bell Houses, Ltd. v. City Wall Properties, Ltd. (1966)

Key Point: City Wall Properties breached a contract by failing to secure planning permission.

Key Issue: Liability for breach and measure of damages.

What Happened: City Wall Properties promised to use "best efforts" to obtain planning permission but failed, causing losses to Bell Houses.

Judgment: The court held City Wall Properties liable and awarded damages based on the "expectation measure" to compensate Bell Houses for their losses.

Dr. A. Lakshmanaswami Mudaliar v. LIC, AIR 1963 SC 1185

Key Point: The resolution to donate funds was held ultra vires the company's Memorandum of Association (MoA).

Key Issues:

• Was the donation an ultra vires act?
• Is the appellant personally liable to refund the amount?

What Happened: United Life Insurance Co. authorized by its MoA to conduct life insurance business, donated ₹2 lakhs to a Memorial Trust. LIC later took over the company and demanded a refund, claiming the donation was beyond the company's objectives. The Tribunal ordered the directors to pay ₹2 lakhs with interest. Dissatisfied, the appellants appealed.

Judgment:

• The donation was an ultra vires act as it went beyond the company's MoA objectives.
• Such acts cannot be ratified, even with shareholder approval.
• Directors involved in ultra vires actions are personally liable to refund the company.
• LIC was justified in demanding the refund under Section 15 of the Life Insurance Corporation Act, 1956.

Conclusion: The appeal was dismissed. The resolution was deemed void, and the directors were held personally liable to refund the ₹2 lakhs with interest.

Royal British Bank v. Turquand (1856)

Key Point: Established the doctrine of indoor management, protecting third parties dealing in good faith from internal company irregularities.

What Happened: A company issued bonds to Royal British Bank without completing internal approval procedures. The company defaulted and argued the transaction was unauthorized due to missing board resolutions.

Judgment: The court upheld the bank's claim, ruling third parties can assume internal procedures are followed unless irregularities are evident. The bond was deemed valid, and the company was held liable.

Legal Principle:

• Third parties dealing in good faith are not responsible for checking internal compliance.
• Exceptions: Doctrine of disclosure applies if irregularities are obvious.

Conclusion: The case cemented the doctrine of indoor management, ensuring trust and ease in corporate transactions.

Freeman & Lockyer v. Buckhurst Park Properties (1964)

Key Point: Established the doctrine of apparent authority, holding companies liable for acts of individuals they represent as authorized, even without actual authority.

Facts: Freeman & Lockyer, an architectural firm, was hired by Mr. Kapoor, who acted as managing director without formal authority. The company refused to pay, arguing Kapoor lacked actual authority.

Judgment:

• Kapoor appeared to have authority.
• The firm relied on this representation.
• The company benefited and had the capacity to act.

Legal Principle: Apparent authority binds companies when third parties rely on representations made by agents acting in their role.

Regal (Hastings) Ltd. v. Gulliver (1942)

Key Point: Directors must not profit from corporate opportunities due to their fiduciary duty to the company.

Facts: Directors invested personally in a subsidiary to secure leases for company expansion and later sold the business for profit. Shareholders claimed this profit breached fiduciary duty.

Judgment: The court held that directors breached their fiduciary duty and must account for the profits, regardless of good faith or the company’s inability to act on the opportunity.

Significance: Directors cannot use their position for personal gain and must prioritize the company’s interests.

Percival v. Wright (1902) 2 Ch. 421

Key Point: Directors owe fiduciary duties to the company, not to individual shareholders.

Facts: Shareholders sold shares to directors without knowledge of ongoing negotiations for a company sale at a higher price. Shareholders argued that directors, as fiduciaries, should have disclosed the negotiations.

Issue: Do directors have a fiduciary duty to disclose company negotiations to individual shareholders?

Judgment: The court held that directors are fiduciaries for the company, not individual shareholders. They are not obligated to disclose ongoing negotiations unless unfair dealings or active solicitation occur.

Significance: Directors can negotiate share purchases without disclosing sensitive company information, as their duty is to the company as a whole, not to individual shareholders.

Industrial Development Consultants Ltd v. Cooley [1972] 2 All ER 162

Key Point: Directors must not exploit corporate opportunities for personal gain.

Facts: A managing director learned a potential client was unwilling to work with his company but would contract with him personally. He resigned, feigning ill health, and accepted the contract.

Judgment: The director breached his fiduciary duty. He was ordered to return all profits earned from the contract, even though the company would not have secured it.

Significance: Directors cannot personally benefit from opportunities arising in their official capacity. Breach leads to disgorgement of profits.