CORPORATE PERSONALITY

INTRODUCTION

The word ‘person’ is derived from the Latin word “persona” which meant a mask worn by actors
playing different roles in the drama. Until the sixth century the word was used to denote the part
played by a man in life. Thereafter, it began to be used in the sense of a living being capable of
having rights and duties. Many writers have restricted the use of term personality to human being
alone, because it is only they, who can be subject matter of rights and duties and, therefore, of
legal or juristic personality. But it must be stated that the term personality has a far wider
connotation in law and includes Gods, angels, idols1 and corporations2 etc, although they are not
human beings. On the contrary, there may be living persons in olden times such as slaves, who
were not treated as persons in the eyes of law, because they were not capable of having rights and
duties and the slavery is now completely abolished in all civil societies of the world. Likewise, in
Hindu law an ascetic (Sanyasi) who has renounced the world ceases to have any proprietary rights
and his entire estate is passed on to his heirs and successors and his legal personality completely
lost.3

DEFINITION OF LEGAL/JURISTIC PERSON

Jurists have defined persons in different ways. German jurist Zitelmana considers “will” as the
essence of legal personality. To quote him, “personality is the legal capacity of will, the bodily-
ness of men for their personality is a wholly irrelevant attribute”.4

Salmond defines a person as “any being to whom the law regards as capable of rights and duties.
Any being that is so capable, is a person, whether human being or not and nothing that is not so
capable is a person even though he be a man”.5

Thus ‘persons’ in juristic terms are of two kinds, namely natural and legal. The former are human
beings capable of rights and duties while the later i.e. the legal persons are being who may be real

1
P.N. Mullick V P.K. Mullick 1925 LR 52; Ind App 245 Cited From Prof. Aggrawal Nomita‟s Jurisprudence 8th
Ed.2010 Page 169
2
Saloman V Saloman (1987) AC 22
3
Dr. Paranjape N.V. on Studies in Jurisprudence, legal theory 4rth Ed.(Reprint 2006) Page 314
4
Ibid
5
Fitzerald P.J.; Salmond on Jurisprudence 1988 (12th Ed.) page 299
(natural) or imaginary (artificial), in whom law vests rights and imposes duties and thus attributes
personality by way of fiction. A juristic person is not a human being. It may be any other subject
matter; either a thing or a mass of property or group of human beings to which they attributes
personality. In other words, juristic persons may be defined as things, mass of property or an
institution upon whom the law confers a legal status and who in the eyes of law possess rights and
duties as a natural person.6

JURISTIC PERSONS7

Juristic or legal person is one to which law attributes legal personality. Normally legal personality
is granted by law to all human beings. Legal personality, being an artificial creation of the law,
may be conferred on entities other individual human beings. The law, in creating legal persons,
always does so by personifying some real thing. Though it is not necessary for law to personify,
since the law might, if it so pleased, attribute the quality of personality to a purely imaginary being
but personification, in fact, conduces so greatly to simplicity of thought and speech that its aid is
invariably accepted. Law may, if it so provides withdraw personality from certain human beings.
Being the arbitrary creation of the law, legal persons may be of as many kinds as the law pleases.
Corporations are undoubtedly legal persons8 and the better view is that registered trade unions and
friendly societies are also legal persons, though not registered as corporations.

The conception of legal personality is not limited in its application. There are several distinct
varieties of such persons, notably-

The first class of legal persons consists of corporations, namely those which are constituted by the
personification of groups (e.g. corporation aggregate) or series of individual (e.g., for corporation
sole).

The second class is that in which corporations or objects selected for personification are not a
group or series of persons but an institution. The law may, if it pleases, regard a church, a hospital,
a university or a library as a person. That is to say it may attribute personality not to any group of
persons connected with the institution, but to the institution itself. English Law does not indeed,

6
Supra Note 206, Page 315
7
Prof. Aggrawal Nomita on Jurisprudence 8th Ed. (2010) Page 177-178
8
State Trading Corporation of India V Commercial Tax Officer, AIR 1963 SC 1811
so deal with the matter. The University of London is not the institution that goes by that name but
a personified and incorporate aggregate of human beings namely, the Chancellor, the Vice
Chancellor, Fellows and Graduates. It is to be noted, however, that notwithstanding this tradition
and practice of English Law, legal personality is not limited by any logical necessity or indeed by
any obvious requirement of expediency to the incorporated bodies of individual persons. In India,
institutions like a university,9 a temple,10 public authorities, etc. are considered to be legal persons.

The third kind of legal person is that in which the corpus is some fund or estate devoted to special
uses- a charitable fund for example, or a trust estate, or the property of a dead man or of a bankrupt.
Here, also English Law prefers the process of incorporation. If it chooses to personify at all, it
personifies not the fund or the estate, but the body of persons who administer it. Yet the alterative
viz., of personifying the fund or estate is equally possible and may be equally expedient.

PURPOSES OF INCORPORATION

The most important purpose of incorporation is to enable traders to embark upon commercial
venture with limited liability. This is possible only by the incorporation of the limited liability
company. Company11 is so formed by a number of persons becoming shareholders and registering
the company under companies Act. By becoming a shareholder, the member contributes or
promises to contribute a stated amount of money for the furtherance of common objects of the
company. His liability is limited to his share that is the contribution made by him. If the venture
of the company ends in disaster, he will not be called upon to meet the claims of the creditors of
the company from his other assets. The assets of the company (including the share capital promised
but still remaining unpaid), would alone be answerable for the claims of the company’s creditors.
In this way the shareholders are able to trade with limited liability. This is one of the most
important purposes of incorporation and it cannot perhaps be served by any other device known to
the law.

9
Bansidhar V University of Rajasthan AIR 1963 Raj 172
10
Baba Kishore Dev V State of Orissa AIR 1964 SC 1501
11
Defined under Section 3 of the Act
There are other purposes also served by incorporation but those can be served by other means as
well. The fiction of corporate personality is introduced for the purpose of bestowing the character
and features of individuality on a collective and changing body of men. Incorporation assimilates
the complex form of collective ownership to the simpler form of ownership. In case there are
number of persons who are owners of the same property, difficulty arises as to its distribution as
well as to its management. To avoid this, law creates fictitious legal person viz., the corporation
or company etc. to which it attributes the rights and duties that would ordinarily attach to the
beneficiaries. This fictitious person is endowed by law with the capacity of dealing with the
property as the representative of the co-owners and of figuring in legal proceedings on behalf of
its members.

This purpose of incorporation may be served also by means of trusteeship. The trustees can
represent the body of co-owners for the purpose of suing and being sued. However, it must be
observed that incorporation secures the object in view much better than trusteeship. Thus, a
corporation becomes a continuous entity endowed with a capacity for perpetual existence. It is
provided that a company has a perpetual succession and a common seal. Trustees, on the other
hand, being mortal may have to be changed from time to time. The element of permanence is
absent in trusteeship. Incorporation, thus, secures not only the element of unity but that of
permanence as well. Incorporation can, therefore, be regarded as an indispensable legal concept of
abiding value.12

KIND OF CORPORATIONS

Corporations are of two kinds:

I. Corporation aggregate
II. Corporation sole

CORPORATION AGGREGATE

A Corporation aggregate is a group of co-existing persons, a combination of persons who are

united together with a view to promote their common interest which is generally the business or

12
Supra Note 210 Page 179
commercial interest. It has been defined as a collection of individuals united into one body under
a special denomination, having perpetual succession under an artificial form vested by the policy
of the law with the capacity of acting in several respects as an individual, particularly of taking
and granting property, of contracting obligations and of suing and being sued, of enjoying
privileges and immunities, in common and of exercising a variety of political rights, more or less
extensive, according to the design of its institution or the powers conferred upon it, either at the
time of its creation or at any subsequent period of its existence.13

Under Indian Law, corporation aggregate are all those bodies or associations which are
incorporated under a statute of Parliament or State legislature. In this category come all trading
and non-trading associations which are incorporated under the relevant laws like the state trading
corporation, Municipal Corporation, Roadways Corporations, the public companies, State bank of
India, Reserve bank of India, The life insurance corporation, the Universities, Panchayats, Trade
Unions, Co-operatives Societies. In fact these are some examples of corporate aggregate.

In Board of Trustees V State of Delhi14, the Supreme Court discussed in detail the characteristics
of corporate aggregate. In this case the court was examining the question, namely, whether the
Board of Trustees, Ayurvedic and Unani Tibia College is a corporation aggregate or not. The court
held the Board is not a corporation. Their Lordships observed that the most important point to be
noticed in this connection is that in the various provisions of the Societies registration Act, 1860,
there are no sufficient words to indicate an intention to incorporate. On the contrary the provisions
show that there was an absence of such intention. Hence the Board is not a corporation aggregate
because the essential characteristic of a corporation aggregate, namely, that of an intention to
incorporate the society is absent. The court observed in this case that a corporation aggregate has
one main capacity, namely, its corporate capacity. The corporate aggregate may be a trading
corporation or a non-trading corporation. The usual examples of a trading corporation are:-

1. Chartered companies

2. Companies incorporated by special Acts of Parliaments

3. Companies registered under companies Act etc.

13
Halsbury‟s Laws of England, (3rd Ed.) Vol. 9 P.4 cited from Supra Note 210 page 180
14
AIR 1962 SC 458
However non-trading corporations are illustrated by:-

1. Municipal corporation

2. District Boards

3. Benevolent institutions

4. Universities etc.

The court further observed that an essential element in the legal conception of a corporation is that
its identity is continuous, that is, that the original member or members of which it is composed are
something wholly different from the incorporation itself; for a corporation is a legal person just as
much as an individual. In fact the essential of a corporation consist in the following:

1. Lawful authority of incorporation

2. The person to be incorporated

3. A name by which the persons are incorporated

4. A place and

5. Words sufficient in law to show incorporation. No particular words are necessary for the creation
of a particular corporation; any expression showing an intention in corporation will be sufficient.15

CHARACTERISTICS OF CORPORATE AGGREGATE

The essential characteristic of a corporation aggregate is that it possesses a personality distinct

from that of its members. This doctrine was first approved by the House of Lords in Soloman V
Soloman & Co. Ltd.16 the facts of the case are as follows- One Mr. Soloman was the owner of a
business which he turned in to a limited liability company. The other members of the company
were his wife and children. The total number of issued shares were 20,007 of which Soloman took
20,001 shares and his family members took the remaining six. Soloman also took mortgage
debenture to the amount of pound 1000 in part payment for the business. Later on the company
became insolvent. The trial judge and the court of appeal held that the creditors had the prior claim

15
Supra Note 210 Page 180
16
(1897) AC 22 )P. 51 Cited from Supra Note 210 Page 181-182
to the assets since the company was a mere sham. The House of Lords reversed this, holding that
the company was in law a person distinct from Soloman and that, therefore, Soloman was
preferentially entitled to the assets as the secured creditors.

Another important case dealing with a company as a separate entity from its members is Farrar V
Farrar Ltd.17Justice Lindley said in this case- “A sale by a person to a corporation of which he is
a member is not, either in the form or in substance, a sale by a person to himself. To hold that it
would be to ignore the principle which lies at the root of the legal idea of a corporate body and that
idea is that the corporate body is distinct from the persons composing it. A sale by a member of a
corporation itself is in every sense a sale, valid in equity as well as at law.

The leading American case on the point is People’s Pleasure Park V Rohleder,18 where the
question was whether a restrictive covenant that title to land should never pass to a colored person
operated to prevent a transfer to a corporation of which all the members were Negroes. It was held
that the corporation was distinct from its members and that the transfer was valid.

Indian courts have also recognized the judicial personality of a company or corporation distinct
from the members which compose it. In fact, this principle had secured a place in India even earlier
than Soloman‟s case. The decision of the Calcutta High Court in Kondoli Tea Co. Ltd., Re,19 seems
to be the first on the subject. In this case certain persons transferred a tea estate to a company and
claimed exemptions from Ad valorem duty on the ground that they themselves were the share-
holders in the company and therefore it was nothing but a transfer from them to themselves under
another name. Rejecting this, the Court observed that “the company was a separate person a
separate body altogether from the shareholders and the transfer was as much a conveyance, a
transfer of the property, as if the shareholders had been totally different persons”. In a number of
other cases this principle has been recognized.

CORPORATION SOLE

Corporation sole is an incorporated series of successive persons. It implies two persons to exist
under the same name, the one a human being and the other, the corporation sole, which is a creature

17
(1898) 40 Ch. D 395, 409
18
61 South Eastern Rep. 794
19
(1886) ILR 13 Cal 43
of the law and continues to exist though the human beings changes. “The live official comes and
goes”, said Salmond in a passage which has become the classic description of the corporation sole,
but this offspring of the law remains the same forever”. The most outstanding example of
Corporation Sole is the Crown (in England). Two persons are deemed to be occupying the throne
of England- one the queen in flesh and blood and the other is the Corporation sole which is the
creature of law. This Queen never dies though the Queen in flesh and blood may die.

In India various offices like that of the Governor of the Reserve Bank of India, the State Bank, The
Post Master General, The General Manager of Railways, the Registrar of Supreme Court and High
Courts etc. which are created under different statute are some example of Corporation sole. In
Govind menon V Union of India,20 the Supreme Court pointed out the main characteristic of
corporation sole. The court observed the Corporation sole is not endowed with a separate legal
personality. It is composed of one person only who is incorporated by law. The same person has a
dual character, one as a natural person and the other as Corporation sole, the later being created by
Statute. In this case the court rejected the contention of the appellant that the commissioner has a
separate legal personality as corporation sole under section 80 of the Act, ( Madras Hindu
Religious and Charitable Endowment Act 19 of 1951, which states that the commissioner shall be
a corporation sole and shall have perpetual succession and a common seal and may be sued in his
corporation name) and that he is exempt from disciplinary proceedings for any act or omission
committed in his capacity as commissioner. Their lordships observed, “In our opinion, the object
of the legislature in enacting section 80 and 81 of the Act was to constitute a separate fund and to
provide for the vesting of that fund in the commissioner as a corporation sole and thereby avoid
the necessity of periodic conveyance in the transmission of title to that fund.21

The idea of corporation sole originated according to Maitland with a piece of land, known as the
parson‟s globe, which was vested in a parson in his official capacity. Difficulties arose as to the
conveyance (legal paper transferring ownership of property) of the Seisin22 to a person for the
benefit of church. The Corporation sole was invented so that the Seisin could be vested in it. Today,

20
AIR 1967 SC 1274
21
Supra Note 7 Ibid
22
Means Feudal Possession
under English law, there are number of bodies which can be said to be examples of Corporation
sole. Noted them are a parson, a bishop, public trustee, the postmaster General etc.23

CROWN AS THE CORPORATION SOLE

Section 40(1) of the Crown proceedings Act 1947, sharply underlines the distinction between
sovereign as an individual and the corporation sole. The Act does not apply to proceedings, by or
against the Queen in her private capacity. This invariably leads to the conclusion that the Crown
is Corporation sole meaning thereby the queen who adorns the Crown, is different from the one
(i.e. the corporation sole) which is the actual owner of the throne- being the creation of law. The
chief manifestation of this is to be seen in the proclamation that is made on the death of the reigning
monarch in England. The proclamation says, “The king is dead, long live the King”. It thus refers
both to the individual who has died and to the Corporation sole which survives, i.e. which never
dies but lives forever. If this device of Corporation sole is not accepted the following consequences
would result on the death of a ruling monarch:-

1. Pending actions in the Royal Court would lapse on the King’s death and would have to be
restarted when a new sovereign occupies the throne.

2. Parliament would stand dissolved and

3. Crown appointments would be automatically terminated.24

POSITION IN INDIA

Article 12 of the Constitution of India provides that the State includes the Government and
parliament of India and the legislature of each state. What is the position of Indian State? It is a
juristic person. In Shiv Prashad V Punjab State,25 the Punjab High Court observed

The natural and obvious meaning of the expression is that person is a living human being, a man,
woman or child, an individual of the human race. In law the word includes natural person and
artificial persons like corporation and joint stock companies, but it does not include a State or

23
Supra Note 7 Ibid
24
Supra Note 7 Page 187
25
AIR 1957 Punj. 150
Government,26 for although a state is a moral person, having an understanding and a will, capable
of possessing and acquiring rights and of directing and fulfilling obligations, the state in its political
organization is entirely different and distinct from the inhabitants who may happen to reside there.
Again in the State of Punjab V The Okara grain Buyers Syndicate Ltd.,27 the court observed that a
state is not a juristic entity for the reason that it does not partaken the characteristic of or satisfy in
whole the definition of a corporation. The state is an organized political institution which has
several of the attributes of a corporation, e.g. under article 300 of the constitution the Government
of the Union and the Government of a State are able to sue and be sued in the name of Union of
India and of the Government of the State as the case may be.

As regards Ministers of Indian Government, they are appointed by the President or the Governors
and are officers within the meaning of articles 53 and 154 of the constitution. They are in law,
subordinate to the executive head and so are not personally liable for their acts of commission and
omission. They are not directly liable in a court of law for their official acts. They have no legal
or constitutional entity. Any person aggrieved by them can bring a suit against the Union of India
or the State as the case may be. Consequently they are not corporation sole. Like any other servant
of the Government the Ministers are not liable personally. In either case it is the state whether at
the centre or in the federated units which is liable in torts28 and contracts.29

To conclude, it can be said that when there is an aggregate of persons forming a body corporate
we call it a corporation aggregate. But when there is not a body of persons, but a fund or an estate
or an officer-bearer by himself, we call it or him a corporation sole. In a corporation aggregate
there are two or more members at one time but in corporation sole there is only one member at a
time. Corporation aggregate is endowed with separate legal personality whereas a corporation sole
is not endowed with a separate legal personality.30

26
State of Rajasthan v Rikhabchand, AIR 1961 Raj 64
27
AIR 1964 SC 660
28
State of Rajasthan V Vidyawati, AIR 1962 SC 933
29
New Marine Coal Co. V Union of India , AIR 1964 SC 15
30
Supra Note 7 Page 188
CORPORATION WHETHER A CITIZEN

Citizenship as defined in Part II of the Constitution of India indicates only natural persons and not
juristic persons, like corporations. To throw more light on the subject we are examining certain
case laws on the topic.

1. In State Trading Corporation of India v Commercial Tax officer,31 in this case Supreme
Court held that company or corporation is not citizen of India and cannot, therefore
claim such of the fundamental rights as have been conferred upon citizens. The
citizenship conferred on a citizen as per the provisions of the Constitution is concerned
only with natural persons and not juristic persons. In this case the State Trading
Corporation was sought to be taxed in respect of sales affected by them in the course
of their business operation. The corporation contended that its transaction related to
inter-state sales and was therefore, exempted from taxation under Article 286(1).The
impugned tax was therefore, an infringement of its fundamental right under Article 19
(1) (g) of the Constitution. The Supreme Court, however, held that the State Trading
Corporation was not a citizen and therefore could not claim the right under Article
19(1) (g).
2. In Tata Engineering & Locomotive Co. V State of Bihar,32 the petition was filed by the
company and some shareholders also joined it. They argued that though the company
was not a citizen but its shareholders were citizens and if it was shown that all its
shareholders were citizens the veil of corporate personality might be lifted to protect
their fundamental rights. The court rejected this argument and held that “If this plea is
upheld, it would really mean that what the corporations and companies cannot achieve
directly can be achieved by them indirectly by relying upon the doctrine of lifting the
corporate veil”.
3. In Heavy Engineering Mazdoor Union v State of Bihar,33 it was held that the mere fact
that the President of India and certain officers of the Central Government, in their
official capacity, held the entire share capital of the respondent company does not make

31
AIR 1963 SC 184
32
AIR 1965 SC 40
33
AIR 1970 SC 82
 the company as an agent either of the President or the Central Government. The
company and its shareholders are distinct entity.
4. In Bank nationalization case,34 the court held that “A measure executive or legislative
may impair the right of the company alone, and not of its shareholders: it may impair
the rights of the shareholders and not of company, it may impair the right of the
shareholders as well as of the company. Jurisdiction of court to grant relief cannot be
denied when by state action, the rights of the individual shareholders are impaired, if
that action impairs the rights of the company as well. The test in determining whether
the shareholder’s right is impaired is not formal; it is essentially qualitative, if the state
action impairs the right of the shareholders as well as of the company the court will
not, only upon technical ground, deny itself jurisdiction to grant relief. A shareholder
is entitled to the protection of Article 19 of the Constitution. The fundamental rights of
the shareholders as citizens are not lost when they associate to form a company. When
their fundamental rights as shareholders are impaired by state action their rights as
shareholders are protected. The reason is that the shareholder‟s rights are equally and
necessarily affected, if the rights of the company are affected”.
5. The above case of Bank nationalization was followed in by Supreme Court in Bennett
Coleman & Co. V Union of India.35 In that case, the question was whether the
shareholder, the editor, the printer have right to freedom under Article 19 of the
Constitution. Relying on the Bank Nationalization case the court held that the
protection of Article was available to a shareholder, editor, printer and publisher of a
newspaper. The court said the rights of shareholders with regard to Article 19 (1) (a)
were protected and manifested by the newspapers owned and controlled by the
shareholders through the medium of the corporation. The individual rights of speech
and expression of editors, directors and shareholders are all exercised through their
newspapers through which they speak. The press reaches the public through the
newspapers. The shareholders speak through their editor. The locus standi of the
shareholders is beyond challenge after the ruling of this Court in the Bank
Nationalization case.

34
AIR 1970 SC 564
35
AIR 1973 SC 106
 6. In Godhra Electric Co. Ltd. V State of Gujarat,36 the court held that though a company
was not a citizen under Article 19 but a shareholder, a managing director of a company
had right to carry on business through agency of company and if that right was taken
away or abridged he was not disabled from challenging the validity of the provisions
of any Act, which affected his right.
7. D.C. & G.M. V Union of India,37 following the decisions of Bank Nationalization and
Bennett Coleman’s case, the Supreme Court in this case held that writ petition filed by
a company complaining denial of fundamental rights guaranteed under Article 19 is
maintainable. In the matter of fundamental freedom guaranteed by Article 19, Desai, J
held, the right of a shareholder and the company which the shareholders have formed
are coextensive and the denial to one of the fundamental freedom would be denial to
the other. The judge pointed out that this is the modern trend and suggested that the
controversy on the point should be put to an end by passing appropriate legislation.

THEORIES OF CORPORATE PERSONALITY

Law treats a corporation aggregate and a corporation sole as persons. About the nature of their
personality different theories have been advanced. These theories have either a political undertone
in so far as they attempt to project the nature of relationship between the state and the groups
existing within the state or provide a philosophical explanation about the existence of such persons
created by law or try to meet the practical implications of the existence of such groups as legal
persons. The courts have not, however, consistently followed any particular theory in dealing with
various problems relating to corporation and have, by and large, being guided by practical
considerations. These theories are not a mere existence in intellectual acrobatism but lead to
important legal and practical consequences.38

36
AIR 1975 SC 32
37
AIR 1983 SC 937
38
Paton, G.W. A Text Book of jurisprudence 1972 4rth Ed (Oxford University) page 410 Cited from Supra Note 210
Page 189
Various theories of corporate personalities are discussed below.

THE FICTION THEORY

According to some jurists, a corporation has a fictitious personality. This fictitious personality is
attributable to the necessity for forming an individual organization existing by itself and managing
for its beneficiaries, that is to say, the members of it and its affairs. In Roman law, we know of the
‘persona ficta’. Savigny developed the concept of the ‘persona ficta’. He called fictitious persons
by the term ‘juridical persons’. Juridical persons are those who exist only for juridical purposes.
While in the case of a natural person, he is born with a personality which the law has merely to
recognize, it is otherwise in the case of an artificial or juridical person whose personality is created
by the law (there being no personality apart from this fictitious creation by the law).39

Michaud has raised several objections to the fiction theory.40 One of the arguments against the
theory is that from the point of view of ownership, the fiction theory takes us nowhere. If a
corporation aggregate be only an imaginary person which exists only in the eyes of the law, how
can a non-existing (imaginary) person hold property?

Next it has been argued that a corporation has rights. But rights can only be had by real persons;
so a corporation must be real and not an imaginary person. Against these arguments it can be
replied that property can be held and rights owned and exercised by a body of persons instead of
by each member of such body, for it is that body which is recognized for the purposes of
convenience and ownership of property and rights as a separate entity.41

Another argument against the fiction theory is that its upholders “mistake the part played by the
legislator”. “The legislator makes nothing by itself. He only considers social want, social good and
social evil, and gives effect to what society generally considers as good or proper. It is idle,
therefore, to suggest that the legislature creates the personality of the corporation”. But here again
it may be said that this argument of the realists is fallacious. The legislation of the corporations
creates it, in recognition of the economic necessity and business convenience, resulting from such
recognition. Even the public opinion demands and is in real need of such recognition which the

39
Sethna Jehangir M.J., on “jurisprudence” 3rd revised Ed.(1973) Page 593-595
40
Michoud; La theorie se la Personalite Morale, 3rd Ed. 1924 page 18
41
Supra note 39 ibid
legislature satisfies. Undoubtedly the legislator, like the judge, can create something new, and
something worthy, or give effect to what is a commercial convenience or an economic facility.42

THE REALISTIC THEORY

According to another theory regarding personality of the corporation, a corporation has a real and
not a fictitious, personality. Its reality is psychic. Gierke is a leading exponent of realist Theory
which refutes the fiction theory. The realistic theory maintains that a corporation has a real psychic
personality recognized, and not created, by the law. The realist theory is also known as the
sociological theory of the group personality of the corporation. The upholders of the realist theory
are found not only over the continent but also in England. They hold that the collective will is, in
psychology, different from the individual. An individual, all by himself may come to a particular
decision; but in association with others he may come to a totally different decision. The will of the
many is different from the will of an individual. So a corporation has a real psychic will, and is,
therefore, not a fictitious creature of the law but a psychic personality recognized by the law.

The realistic theory, however, is incapable of being applied to a corporation sole, because the
theory of the „collective psychic will does not come in the case of a corporation sole where there
is a single natural person whose will does not stand supported by the will of anyone else‟ ( there
being none else). Moreover, taking the case of an artificial person as a corporation sole, as for
example, an universitates bonorum (like a public fund or estate), we may say that the question of
the collective will cannot arise, because a public fund or estate has no collective will; there is the
will of its administrator. The realist theory can have significance only in the case of a corporation
aggregate. We may say that it is from the point of view of convenience and a continuing existence
(despite demise and insolvency of its members), with a limited liability of its members and a
separate liability of the incorporation, that the law has thought it fit to give corporations separate
fictitious personality. The realist theory asserts that group personality has the same features as a
human personality. The groups have a real mind, a real will and a real power of action.

THE CONCESSION THEORY

The concession theory of the personality of the corporation, which is akin to the fiction theory, but
not identical with it, says that legal personality can follow from law alone. It is by grace or
concession alone that the legal personality is granted, created or recognized. The grace of the state
and its law prevails. This theory is, to an extent, correct; it is correct, in the sense only that all
rights, whether human or corporate, flow from what the law gives, and where the law does not
give anything, at least, its recognition is necessary to validate, maintain or perpetuate what already
exists or is conferred by nature or what man has taken or created for himself. In all civilized
societies, man can assume his rights, only through the force of the law at his help and to his
recognition.248

THE BRACKET THEORY

The bracket theory of the personality of the corporation maintains that the members of a
corporation have their rights and liabilities referred to the corporation itself, simply from the point
of view of convenience. To determine, however, the real nature of the corporation and its state of
affairs, the brackets have to be removed, for the names of the members of the corporation are kept
in brackets. If and when the brackets are removed, one would be able to see what the corporation
is, what its true nature is, and how its members are revealed through the removal of brackets. The
great defect, however, in the reasoning of the upholders of this theory of corporate personality is
that rights, duties and liabilities are thought to be possessed by natural persons alone and not by
corporations which are legal entities. The bracket theory is also known as Jhering‟s theory, as
Jhering was its exponent. It was developed in France by Vareilles-Sommieres. However, to
understand the real nature of the corporation, we must remove the bracket to find out the actual
position of the company.

LIFTING THE VEIL OF CORPORATE PERSONALITY

As we know that after incorporation a company becomes a legal person separate and distinct from
its members. It has a corporate personality of its own with rights, duties and liabilities separate
from those of its individual members. Thus, a veil of incorporation exists between the company
and its members and due to this a company is not identified with its members. In order to protect
themselves from the liabilities of the company, its members often take the shelter of the corporate
veil. Sometimes this corporate veil is used as a vehicle of fraud or evasion of tax etc. To prevent
unjust and fraudulent acts, it becomes necessary to lift the veil of the corporation or disregard the
corporate personality to look into the realities behind the legal façade and to hold the individual
member of the company liable for its acts or liabilities.43

In State of U.P. V Renusagar Power Co.,44 the court held that the concept of lifting the corporate
veil is a changing concept. Its frontiers are unlimited. However, it depends primarily on the realities
of the situation.

In The Deputy Commissioner V Cherian Transport Corporation,45 the court has held that the
company is a legal person distinct from its members. It is capable of enjoying rights and being
subject to duties which are not the same as those enjoyed or borne by its members. In certain
exceptional cases the court is entitled to lift the veil of corporate entity and to pay regard to the
economic realities behind the legal façade.

The corporate veil has been lifted by the courts and legislatures both in the interests of justice,
equity and good conscience.

In Sugar India Ltd. V Chander Mohan Chadha,46 the Supreme Court has made it clear that it is not
open to the company to ask for unveiling its own cloak and examine as to who are the directors
and shareholders and who are in reality controlling the affairs of the company.

The doctrine of the lifting the veil of corporate personality is a doctrine that advocates going behind
and looking behind the juristic or corporate personality of a body corporate. Undoubtedly, as a
general rule, a company is a person distinct and separate from its members. But, in exceptional
cases, that veil of corporate personality can be lifted; and looking behind the veil, one could see
the corporate personality fading away. Law courts have, in exceptional cases, cracked the shell of
corporate personality and have looked upon a corporation and its members from a different point
of view. Courts have lifted the veil, with the objective of preventing fraud. In such cases the
members of the corporation are considered as persons working for the corporation. In Tata
Engineering & Loco-motive Co. Ltd. V State of Bihar,47 although the veil was not lifted, however
the doctrine of lifting the veil of the corporation was considered at great length.

43
Rai Kailash on Company Law 10th Ed. 2006 Page 47
44
(1992) 74 Comp. Case 128 (SC)
45
(1992) 74 Comp. Case 563 (Mad
46
AIR 2004 S.C. 4368
47
1964, 1 S.C.J. 666
The law is complicated by the facts that the courts do not always take account of the distinct
personality of a company. It renders impossible to any consistent theory as to the nature of
personality and emphasizes more strongly than anything else the need to proceed empirically in
understanding the law. The courts do in some cases pierce (lift) the veil of legal personality in
order to detect and redress frauds upon creditors; the evasion of obligations or statutes or to
suppress tax evasion.

In England, the problem was faced soon after War. The court may lift the veil of personality for a
number of reasons

Firstly- it may be done to ascertain whether a company is to be treated as an „Enemy Company‟

in times of War. Thus during the First World War in Dalmer Co. Ltd. V Continental Tyre & Rubber
Co. ( Great Britain) Ltd.,48 a company which was registered in England and which should normally
be treated as an English Company was nevertheless held by the House of Lords to be an enemy
company because, all its directors and its shareholders except one were Germans. This is, however,
not a departure from the general rule that a company is distinct from its members, it only shows
that its character whether friendly or enemy is to be ascertained by looking behind the veil.

A different view has been expressed in case of Kuemgel V Donnersmarch49, where it was held that
a company which acquires enemy character in this way still remains An English Company, if it
had been registered in England.

Secondly, public policy may make it necessary to lift the veil of a legal personality to look at the
realities of a situation.

Thirdly, it may become necessary to disregard corporate personality in order to prevent fraud.

48
(1916), 2 AC 307
49
(1965) 1 All ER 46
 BIBLEOGRAPHY

Books referred-

• Avtar Singh: Company Law, Eastern Book Company, Lucknow.

• J.P. Sharma, Corporate Laws, Ane Books Pvt Ltd, New Delhi.

Websites-

• www.ipleadersblog.com
• www.lexlexicon.com
• www.legalbytes.com
 Index

S. NO TOPIC PG. NO

1. INTRODUCTION

2. CORPORATE PERSONALITY

3. DEFINITION OF LEGAL/JURIST PERSON

4. JURISTIC PERSON

5. PURPOSE OF INCORPORATION

6. KINDS OF CORPORATION

7. POSITION IN INDIA

8. CORPORATION WHETHER A CITIZEN

9. THEORIES OF CORPORATE PERSONALITY

10. LIFTING THE VEIL OF CORPORATE PERSONALITY

11. CONCLUSION

12. BIBLEOGRAPHY
 FACULTY OF LAW, JAMIA MILLIA ISLAMIA

ASSIGNMENT ON CORPORATE PERSONALITY

(SESSION- 208-2019)

SUBMITTED BY- NIKHIL KUMAR

B.A.LL.B (HONS), 6TH SEMESTER

ROLL NO- 37

SUBMITTED TO- PROF. MOHD. QAZI USMAN

SUBMISSION DATE

………………………….