The High Court of Bombay has delivered a significant ruling on the issue of “lifting the corporate veil”.
The Bombay High Court has distinguished NYK Line and NYK Theseus Corporation on the observation that the fact of Commonality or Common Ownership without the Element of Deceit or attempt at Fraud is not sufficient for “Lifting the Corporate Veil” &Establishing an “Alter Ego”.
The “doctrine of lifting the corporate veil” allows a court to disregard a company’s separate legal identity and hold its members or shareholders personally liable for the company’s actions.
The term “alter ego” refers to a situation where two entities are so closely interconnected that they can be considered as one and the same.
The plaintiff, Aurobindo Pharma Limited has accused NYK Line, through its subsidiary, of being the de facto owner of the vessel NYK Theseus, despite its registration being in the name of NYK Theseus Corporation SA, a shipping company incorporated under the laws of Panama.
The plaintiff, represented by Mr. Prathamesh Kamat contended that the defendant, NYK Line is liable for the vessel’s obligations and responsibilities through legal proceedings, owing to lifting the corporate veil and thus being the true owner, even though the vessel was registered under the Laws of Panama.
The defendant filed an Interim Application to dismiss the suit filed by the plaintiff.
The Bombay High Court observed that the plaintiff failed to provide sufficient grounds to pierce the corporate veil or establish NYK Line as the alter ego of NYK Theseus Corporation. The bench favoured NYK Line, dismissing Aurobindo Pharma’s claims to lift the corporate veil.
The bench emphasized the importance of maintaining a company’s separate legal identity unless exceptional circumstances exist.
The bench stressed that the mere fact that a subsidiary manages and controls a vessel does not automatically prove the parent company’s ownership. The burden of proof lies with the party seeking to disregard the corporate veil, necessitating clear evidence of fraud or dishonest conduct.
The Single Bench of Justice N. J. Jamadar clarified that the establishment of multiple companies with common shareholding, directed by the same family and holding different assets, is not inherently problematic. The mere existence of commonality or common ownership, directorship, or interlocking shareholding is not sufficient prima facie evidence to conclude that one company is the alter ego of another. To establish alter ego status, there must be an element of deceit, an attempt at fraud, or a colourable transaction, the bench held.
As a result, the Interim Application stands partly allowed.
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