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Corporate establishments were accorded an autonomous legal status to help achieve the underlying goals of justice. With the passage of time, in order to circumvent the responsibility, Benami transactions, frauds and money transfers into the company’s account became extremely prevalent. The need to address such malpractices among shareholders and safeguard the hard-earned money of the investors arose as a result of  these fraudulent shareholder transfers, giving rise to the notion of reverse piercing of corporate veil. The idea refers to a situation in which a creditor of a corporation endeavours to hold the corporation liable for the shareholders’ debts.  In India, the idea of reverse piercing is not openly accepted or practiced, as no cases have been filed in which a court has actually inflicted the personal culpability of a shareholder on the company by reverse piercing. This article tries to exemplify how this doctrine has emerged and how it can be incorporated into the Indian insolvency regime while outlining the challenges corresponding with its application in the insolvency resolution process. This article also demonstrates its contemporary relevance in the backdrop of economic advancements that India is seeking to achieve. To sum it up, reverse piercing under the Indian insolvency laws mandates thorough consideration and should not be repudiated outright.


Insolvency, corporate veil, reverse piercing of corporate veil, criminal liability


A company is regarded as an entity different from its members as an artificial person, thus relishing and being responsible for all the rights and duties arising under law. Therefore, the company is neither an agent nor a trustee of its members and accordingly they are not accountable for the actions of each other, in any form or shape, besides those as provided by the law governing the corporation. This means that the company after incorporation is not answerable for any action or omission of the members or shareholders and vice versa. In the legal sense, this security or shell between the company and its members/shareholders is understood as the ‘corporate veil’. This idea is not new to corporate governance. In 1897, the case of Salomon v. Salomon & Co. Ltd.[1] the House of Lords unanimously propounded that a validly formed company is separate from its shareholders[2].


The doctrinal or the non-empirical method of research has been used in this research paper to analyse how reverse piercing of the corporate veil supports the present insolvency. Both primary and secondary sources have been used. Some of the primary sources employed in this research paper are cases and statutes, whereas the secondary sources used include online websites and journals.



In exceptional situations, piercing of corporate veil is done in cases where the company is used by the owners to protect their mala fide intent and actions[3]. The veil of separation between the company and shareholders often assists in committing fraud or illegal acts. Sometimes, the corporation is seen as an Alter-ego of an individual. The concept of Alter-Ego, in simple words, is that when an individual commands and acts as directing the mind of a corporation then the directing mind will be blamed if there is a hidden profit involved. A corporation can also be deemed as an accused person[4]. Since the corporation is an artificial person, it cannot be treated like any other independent natural person. It is numb and powerless without its members. For example, the company cannot be said to have mens rea or motive to commit a tort for appending liability. The Court must determine the intention of the persons involved in such enactments[5]. This listing is accomplished by using statutory provisions or judicial interpretations. There are no specific hard and fast rules or conditions where this veil is pierced, but it all depends and varies from case to case[6].

For piercing the corporate veil, it is a prerequisite for the parent corporation to dominate the subsidiary to such an extent that the latter is an agent for or a major part of the former, and the parent corporation used that power to commit fraud or some other evildoing. It is also necessary for the dominant party to exercise complete control over the corporation, with respect to the transactions, and such dominion must be used to commit fraud or wrong against the creditor which lead to injury to the creditor[7]. Supreme Court had put it best in the case of Life Insurance Corporation of India v. Escorts Ltd, “it is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of public interest, the effect on parties who may be affected, etc.[8]

Asunder from the judicial action to lift the corporate veil in appropriate cases, there are some statutory provisions under the Companies Act, 2013 that allow the lifting of the corporate veil. These provisions include:

1) Section 45 of the Act: when the statutory minimum number of the company members (seven members in public and two in case of private companies, respectively) goes below the stated requirement.

2) Section 147 (4) of the Act: In cases where an officer of the Company has improperly used its name in any negotiable instrument, then such an officer can be made personally liable.

3) Section 542 of the Act: It deals with cases of fraudulent conduct of business that may be identified during the liquidation proceedings. Any such person of the Company can be made personally liable for the same without any limit.

There are several other provisions under Company law that makes the lifting of the corporate veil acceptable in the given possibilities such as under Sections 34 and 35 of the Act, for misstatement in the prospectus. The statute itself has the provisions for piercing the corporate veil only and no such mechanism has been provided for reverse piercing under it[9].


‘Reverse’ piercing of the corporate veil directs to the concept where a creditor of the shareholder of a corporation endeavours to make the corporation responsible for the debts of the shareholders. In contrast to this, in classic/traditional piercing, a creditor of the corporation attempts to have the shareholder personally liable for the debts of the corporation.  Reverse piercing serves as an equitable remedy for implementing a civil judgment. Accordingly, under this notion, a creditor can sue a corporation that obtained the owner’s personal assets to assist the owner to evade personal liability[10]. Reverse piercing of corporate veil is simply an antithesis to the traditional piercing of corporate veil[11]. One of the foremost usages of this theory can be seen in the case of W.G. Platts Inc. v Platts[12]. This case relates to a marital property dispute and here, the court permitted the plaintiff to set liability on her husband’s corporation for fulfilling her debts under a divorce decree. This was done because the corporation was basically an alter ego of the husband[13]. An organization is said to be the alter ego of a shareholder if he or she holds a strong power, authority and dominance over the corporation. The claim for alter ego is maintained by application of the test of “control” and extent of ownership.  As established in the case of Trossman v. Philipsborn[14] substantial ownership is a requirement, not complete ownership.

Reverse piercing is of two types: inside piercing and outside piercing. This primarily depends upon the position of the parties aiming to pierce the veil. Inside piercing is done by the corporation owners or insiders to obtain a benefit or meet the liability of the corporation. It exists for the benefit of the corporation. On the other hand, in an outside reverse piercing claim, the plaintiff, an “outside” third party, seeks to pierce the corporate veil to set liability on the corporation to satisfy the debt of an individual shareholder[15]. The “outsider” is pleading a claim against the corporation, not for harm procured by the corporation itself, but rather for the acts of an individual shareholder. This doctrine is used to impose liability on a subsidiary corporation for the debts of a parent corporation[16], or to hold one controlled corporation liable for the debts of a related corporation. The concept of reverse piercing first emerged in the landmark case of Kingston Dry Dock Co. v. Lake Champlain Transportation Co.[17], which was decided by Judge Hand.

Reverse piercing of the corporate veil was permissible for the first time in 1992, by the New York Court. This doctrine is important in a situation such as: if the creditor of the shareholder is not permitted to reverse pierce then his claim would lie on the personal ability of the person to pay back, which in turn also relies on the amount received by him from the company.  Another noteworthy case that deals with this doctrine is the case of C.F. Trust Inc. v. First Flight Ltd. Partnership[18]. In this case, two judgment creditors sought to collect their debts on judgments from the corporate entity, asserting it to be the alter ego of the individual debtor. The Court allowed the reverse piercing by commenting that the Virginian law allows the same as it treats the dominant owner, the same as the corporation itself under the “alter-ego” doctrine. Thus, the creditors could acquire the assets of the company by reverse piercing.

The following elements should be considered before applying the reverse piercing doctrine:

  1. The degree of identity between the shareholder/member/corporate officer and the corporation by taking into account the ‘alter ego’, or ‘agency’ or ‘instrumentality’ principles.
  2. Public policy by regarding any fraudulent or illegal intent or conduct, and whether such a piercing would harm other innocent parties by using the cost-benefit analysis;
  3. Whether any different remedy can be sought to rectify the situation or not. If not, then this equitable doctrine must be invoked to promote justice.

In the case of Balwant Rai Saluja[19] The Court discussed this rule in-depth and expressed that it should apply to situations where “it is evident that the company was a mere camouflage or sham deliberately created by the persons exercising control over the said company to avoid liability.”


The Insolvency and Bankruptcy Code (hereinafter ‘Code’) was introduced at a period when the non-performing asset predicament was at an unbelievable peak. Solving this crisis was the priority of a desperate government attempting to salvage the banking sector as well as the debt market[20]. This Code was a game-changer for the Indian economy and has been triumphant in enhancing the recovery rates via its time-bound and creditor-in-control approach. It is still at a nascent stage and the amendment introduced in the year 2020 led to the insertion of Section 32A, which accelerated the corporate insolvency resolution process. The Section modifies the established principles of corporate law that may have consequences that cannot be exhaustively imagined today. The Bankruptcy Law Reforms Committee (BLRC) revamped the insolvency and bankruptcy regime in India. It reaffirms the comprehensive command of equity owners over corporate affairs, as long as no debt remains outstanding, but it envisages the transfer of command to creditors if there is a default. Such a transformation in control has been recognized as a cornerstone of the insolvency process. The Code has especially brought about a positive transition in Indian insolvency laws and this shift has been generously acknowledged. The creditor-in-control approach has been a noteworthy benefactor to this headway and the stakeholders have promptly adopted this alteration.

The Code fails to expressly recognise the doctrine of the reverse piercing of corporate veil, yet, it is not entirely excluded from its ambit[21]. The Supreme Court gave a landmark decision in the case of Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta[22] and it acknowledged that section 29A imports the notion of corporate veil piercing as it permits to determine who is in command of the entity (at the time of submitting the resolution plan). Likewise, in cases concerning group insolvency, the principle of the corporate legal entity is noticed to carry pertinence. Even though group insolvency is not statutorily identified under the Code, still Indian courts admitted its application and have in the past jettisoned the distinct legal entity of the entities involved in the group. For instance, in the case of Videocon’s insolvency[23], the court repudiated the distinct legal entity of the holding companies to allow the consolidation of their assets with the parent company. Therefore under the Indian insolvency jurisprudence, corporate veil piercing has been a regular practice. Reverse piercing of the veil will let the courts and resolution professionals look beyond the corporate debtor to incorporate a bigger pool of assets, which may be otherwise avoided due to the separation of the legal entities. Section 18[24] The Code is capped to only those assets where the corporate debtor possesses ownership rights, whereas the application of the doctrine will result in the incorporation of assets owned in the name of the personal guarantor, within the resolution process. While executing this doctrine in insolvency cases, several problems arise such as the proportional division of assets or the preference of claims. Whether creditors having reverse piercing claims should be given preference over the other rank holders as under Section 53[25], or treated on an equivalent footing with the highest-ranking creditors. This provision applies only to ‘individuals,’ not to ‘persons’, hence dismissing corporate debtors from its spectrum. Thus, reverse piercing is only effective in cases of individual insolvency.

In a bankruptcy setting, an unpaid creditor may sue a company and the court may choose to pierce the corporate veil and maintain the owners or shareholders personally liable for different business debts. Mostly, courts appreciate the corporate structure of limited liability unless there are reasonable grounds to pierce the veil in the interest of justice and equity.  Many times a debtor may be unable to pay debts directly out of its personal assets and in such a situation, the creditor may seek to assert alter ego claims to obtain a new source of funds to satisfy its debts. In case a debtor is solvent, there would be no requirement for piercing the corporate veil[26].

Corporate Criminal Liability: Corporate Criminal Liability holds the corporation responsible for the acts of its owners. It is emerging in India in the backdrop of the growing impact of corporations on the economy and society at large. This offers more power to corporate bodies to be deviant in conduct and at the same time is less amenable to punishment and disgrace. “Respondeat Superior” is seen as the guiding tenet towards corporate criminal liability[27], and India’s Supreme Court has maintained that the Company may be held liable for the acts of agents/employees which may be classified as offenses that involve mens rea as a crucial element.[1] [2] 

In the landmark judgement of Standard Chartered Bank v. Directorate of Enforcement[28]The Supreme Court held that a corporation may be prosecuted and penalized for an offense with fines, irrespective of the compulsory punishment mandated under respective statutes on behalf of its owners. The Supreme Court further clarified this position in the case of Aneeta Handa & Ors v. God-father Travels[29], which deals with section 141 of the Negotiable Instruments Act, 1881. This section states that where a person or a group of persons directing the business of a company do so with a criminal intention, the same shall be attributed to the corporate body and not vice-versa. A corporation can be prosecuted by the principle of attribution which says that the criminal intent of the alter ego of the owner or individual can be attributed to the company to draw criminal liability on the corporate body[30]. In the case of State Bank Of India And Ors vs Kingfisher Airlines Ltd. And Ors[31], it was suggested to unite all of the group companies on one platform and use Vijay Mallya as the common denominator to set responsibility to repay the dues to the Industrial Development Bank of India. Though the court did not explicitly use the term ‘reverse piercing’ in these cases, still the circumstances exhibit that this doctrine was used[32].


In the current commercial environment, where investors and corporation owners are motivated and inspired to do business, it is neither desirable nor reasonable to permit such a rigid commitment to maintain a separate legal identity of the corporation and neglect the need of using the reverse piercing doctrine. Therefore, it is asserted that reverse piercing leads to the balancing of important interests, much required to secure justice, trust and stability in the system.  Rather than directly overruling the doctrine, it is imperative to analyse and further develop the doctrine to ensure that justice is done to all the involved parties.


The basis of corporate governance rests on the principle that a company is a separate legal entity, separate from its members and its shareholders delivering them financial protection. Gradually, Courts realized that this ensured limited liability of individuals is often manipulated to attain their selfish objectives[33]. The essential ascent of an equitable doctrine of “piercing of corporate veil” to attach liabilities on guilty individuals, who act under the protection of the corporate form, was hence welcomed. The theory is tightly regulated and is widely acknowledged since maintenance of separate existence is still a rule, which must not be broken ordinarily. This orthodoxy has been fortified by legal authors, practitioners, jurists and legal curriculum. Such a constricted view has formed a disparaged usage that lacks direction and seldom conforms to logical application in certain cases. The concept of piercing of the corporate veil is one such metaphor that has faced disparity in its application and conception. Although at a nascent stage, this principle has regardless seeped into the Indian jurisprudence[34]. But the encumbrance that no corporate criminal liability can be set on a company unless there is a statutory provision demanding the same, continues to this day.  Courts must be willing to give up undue reluctance to offer the parties a viable alternative in the form of “reverse piercing of the corporate veil”. The Courts must permit the concept of reverse piercing of corporate veil in occurrences that allow so. Parochial allegiance to the separate legal entity doctrine does not necessarily address the concerns of complex economic realities which are ample today. Hence, the reverse piercing through the ‘hybrid approach’ can assist in moulding the Indian corporate law, which is still in the budding stage, to cater justice, equality and stability to the contemporary needs of the hour.

By Ishita Chandra, Second year B.A. LL.B. (Hons) student at Dr. B. R. Ambedkar National Law University, Sonepat, Haryana.

[1] Salomon v. Salomon & Co. Ltd., (1895-99) All ER 33 (HL)

[2] Rooha Khurshid, Reverse Piercing of Corporate Veil: An unemployed phenomenon in India, The Corporate Law Reporter,

[3] Woolfson v Strathclyde Regional Council [1978] SC 90 (HL) at 96. See also Adams v Cape Industries plc [1990] 1 Ch 433 (CA) at 539; and Official Assignee v 15 Insoll Avenue Ltd [2001] 2 NZLR 492 (HC) at [22]

[4] Monalisa Chandra, The emerging theory of reverse piercing of corporate veil: its implications and impact, International Journal of Law, Policy and Social Review,     

[5] Rooha Khurshid, Reverse Piercing of Corporate Veil: An unemployed phenomenon in India, The Corporate Law Reporter,

[6] Madhuli Kango, The concept of corporate veil and reverse piercing of corporate veil, iPleaders Blog,

[7] Jay Winston, Arthur Winston, Reverse piercing of the corporate veil, Winston and Winston,

[8] Madhuli Kango, The concept of corporate veil and reverse piercing of corporate veil, iPleaders Blog,

[9] Rooha Khurshid, Reverse Piercing of Corporate Veil: An unemployed phenomenon in India, The Corporate Law Reporter,

[10] Debakshi Chakraborty, Doctrine of Reverse Piercing and the jurisprudence of Indian Courts, India Corp Law,  

[11] Rooha Khurshid, Reverse Piercing of Corporate Veil: An unemployed phenomenon in India, The Corporate Law Reporter,

[12] W.G. Platts Inc. v Platts, 73 Wn.2d 434 (1968).

[13] Madhuli Kango, The concept of corporate veil and reverse piercing of corporate veil, iPleaders Blog,

[14] Trossman v. Philipsborn, 373 Ill.App.3d 1020 (Ill.App.Ct. 2007)

[15] Nichola B. Allen, Reverse piercing of the corporate veil: A straightforward path to justice, St. John’s Law Review, 

[16] FMC Fin. Corp. v. Murphree, 632 F.2d 413, 421 (5th Cir. 1980).

[17] 31 F.2d 265 (2d Cir. 1929) While Judge Hand described the facts of a typical outside reverse pierce case, he did not use the term “reverse pierce.” See id. The first mention of the term “reverse pierce” came forty-five years later in a Georgia case. See Kingston Dev. Co. v. Kenerly, 208 S.E.2d 118, 122 (Ga. Ct. App. 1974).

[18] 2000 W.L. 1262448 (E.D. Va 2000)

[19] Balwant Rai Saluja V. Air India Ltd. & Ors. (2014) 9 SCC 407

[20] Arnav Maru, Section 32A of the IBC: Shredding the independent corporate personality, NLIU Law Review,  

[21] Rashi Sharma, Vijpreet Pal, The curious case of reverse corporate  veil piercing and the IBC, RMNLU Law Review,

[22] Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta, 2018,

[23] State Bank of India V. Videocon Industries Ltd, 2018,

[24] Insolvency and Bankruptcy Code, 2016, ss 18, No. 31, Acts of Parliament (India),

[25] Insolvency and Bankruptcy Code, 2016, ss 53, No. 31, Acts of Parliament (India),

[26] Lauren Gross, The relationship between declaring bankruptcy and piercing the corporate veil, American Bankruptcy Institute, 

[27] Iridium India Telecom Ltd. V. Motorola Inc., (2011) 1 SCC 74

[28] Standard Chartered Bank Vs Directorate Of Enforcement, 2006

[29] Aneeta Hada vs M/S Godfather Travels & Tours, 2012

[30] Jayesh Karnawat, The Unconventional Reverse Piercing of Corporate Veil: Application and Implications,  The CBCL Blog,

[31] State Bank Of India And Ors vs Kingfisher Airlines Ltd. And Ors, 2017,

[32] Rashi Sharma, Vijpreet Pal, The curious case of reverse corporate  veil piercing and the IBC, RMNLU Law Review,

[33] Rooha Khurshid, Reverse Piercing of Corporate Veil: An unemployed phenomenon in India, The Corporate Law Reporter,

[34] Debakshi Chakraborty, Doctrine of Reverse Piercing and the jurisprudence of Indian Courts, India Corp Law,