Facts: Aron Salomon had carried on business as a boot manufacturer for 30 years. He incorporated Salomon & Co. Ltd. with himself, his wife, and five children as the seven members (each holding one share). He sold his business to the company for £39,000, receiving £20,000 in debentures (secured creditor) and the rest in shares. The company failed. Unsecured creditors claimed Salomon was the real owner and must be personally liable; the company was his agent or trustee.

Issue: Is a company a separate legal person from its members — even if one person controls it and holds most shares?

Held (unanimously by House of Lords): The company was a separate legal entity. It was not Salomon’s agent. The debentures made Salomon a secured creditor with priority over unsecured creditors. The company’s debts were not Salomon’s personal debts. The legislature had permitted one-man companies (subject to the formalities); courts should not override Parliament’s choice.

Principle: A duly incorporated company is a separate legal entity from its members; it can be a creditor of, or debtor to, its own controlling member; the fact that one person owns most shares does not make the company that person’s agent or alter ego.

Facts: Lee was the sole governing director and almost sole shareholder of Lee’s Air Farming Ltd. He employed himself as the company’s chief pilot at a salary. He was killed in a crash while flying for the company. His widow claimed workmen’s compensation. The company’s insurer argued Lee could not be both employer and employee of the same company.

Held: Lee and the company were distinct legal persons. The company (as a separate entity) could employ Lee as chief pilot. Widow’s claim for compensation succeeded.

Principle: The doctrine of separate legal entity allows a controlling shareholder/director to simultaneously occupy multiple roles vis-à-vis the company — including as its employee, thus entitled to compensation as such.

Facts: A newspaper company challenged Government regulations restricting newspaper page count as violating Article 19(1)(a) (freedom of speech). The Government argued a company cannot hold fundamental rights.

Held: A company can invoke Article 19 rights through its shareholders who are citizens. Freedom of speech of the press includes the right to determine the volume and content of publication. The regulations were struck down.

Principle: A company (though not a citizen) can exercise certain fundamental rights through its citizen-shareholders; newspaper companies can invoke Article 19(1)(a) freedom of speech and expression.

Facts: During World War I, Continental Tyre was an English-registered company, but all its shareholders and directors except one were German nationals (enemy aliens). Daimler owed money to Continental Tyre and refused to pay, arguing it would be trading with the enemy.

Held: Courts can look behind the corporate veil to determine the nationality/character of those who control a company where national interest demands it. Continental Tyre’s controlling shareholders were enemy aliens — the company took their character. Daimler need not pay during wartime.

Principle: In exceptional circumstances (wartime, national security), courts may pierce the corporate veil to determine the character of those controlling the company; a company may be treated as an enemy alien if its controllers are enemies.

Facts: Horne, a former employee bound by a non-solicitation covenant, formed a company (J.M. Horne & Co. Ltd.) and used it to solicit Gilford’s customers. The company itself had not signed the covenant.

Held: The company was a mere sham — formed solely to evade the covenant. Injunction granted against both Horne and his company. The corporate veil was lifted.

Principle: A company formed as a mere sham/cloak to evade a legal obligation will be treated as the alter ego of the person who formed it; courts will lift the veil and grant relief against both the individual and the company.

Facts: Associated Rubber transferred assets to a subsidiary to reduce its profits, thereby reducing the bonus payable to workmen under the Bonus Act. The workmen sought inclusion of the subsidiary’s profits in calculating bonus.

Held: The veil was lifted. The subsidiary was created solely to defeat the workmen’s legitimate bonus claim. The assets and profits of the subsidiary were treated as part of the parent’s assets for Bonus Act purposes.

Principle: Courts will lift the corporate veil where a subsidiary is created with the sole purpose of evading a statutory obligation of the parent company — the parent and subsidiary will be treated as one entity for that purpose.

Facts: Dinshaw created four private companies and transferred investments to them. He received income as dividends at a lower tax rate, avoiding super-tax. The IT authorities sought to tax him on the income as if it were his personal income.

Held: The companies had no independent existence — formed solely to avoid super-tax. The veil was lifted and income attributed to Dinshaw personally.

Principle: The corporate veil may be lifted to prevent tax evasion where companies are formed purely as vehicles for avoiding personal tax liability with no genuine independent business purpose.

Facts: When a company was nationalised, a dispute arose whether the property of its subsidiary was also nationalised. The subsidiary was a separate legal entity.

Held: Nationalisation of the parent does not automatically nationalise the subsidiary. A wholly-owned subsidiary remains a distinct legal entity. The veil was not lifted merely because of majority ownership by the parent.

Principle: The fact that a company is a wholly-owned subsidiary does not by itself justify piercing the veil; subsidiaries remain distinct legal entities with their own rights and liabilities.

Facts: Ashbury’s objects permitted making railway carriages — not constructing railways. Despite this, Ashbury contracted with Riche to build a railway in Belgium. When Ashbury repudiated the contract, Riche sued.

Held: The contract was ultra vires and void ab initio. The objects clause limits the company’s capacity. Even unanimous shareholder ratification cannot validate an ultra vires act. Riche could not enforce the contract.

Principle: An ultra vires act is void from the beginning and incapable of ratification — even by unanimous consent of all shareholders; it is outside the company’s legal capacity as defined by the Memorandum.

Facts: A company’s objects clause contained numerous objects each stated as independent objects, with a sub-clause making each an independent main object (not merely ancillary). The company’s lender relied on this wide objects clause.

Held: The “independent objects” sub-clause was valid. Each object could be treated as an independent main object. This significantly broadened the company’s capacity and reduced the risk of ultra vires.

Principle: A company may draft its objects clause widely, with an “independent objects” sub-clause; courts give effect to each stated object as a main object rather than treating them as merely ancillary — this largely nullifies the ultra vires doctrine in practice.

Facts: The company’s objects permitted making costumes. Instead, it carried on a different business — building a factory. A creditor supplied materials for the factory.

Held: The supply contract was ultra vires. The creditor was fixed with constructive notice of the company’s limited objects. He could not recover.

Principle: Third parties are deemed to have constructive notice of a company’s Memorandum (its public document); they cannot enforce ultra vires contracts — they are presumed to know the company’s limited objects.

Facts: An “independent judgment” sub-clause in the objects permitted the company to carry on any business the directors believed could be advantageously carried on in connection with its main business. Bell Houses acted as commission agent. City Wall refused to pay and claimed the activity was ultra vires.

Held: The directors’ bona fide judgment sub-clause was valid. If directors bona fide believed the activity was advantageously connected to the main business, it was intra vires. The contract was enforceable.

Principle: An “objects by directors’ opinion” sub-clause is valid; activity done bona fide within the directors’ judgment of what is connected to the company’s business is intra vires.

Facts: The company’s AoA authorised borrowing money as authorised by a general resolution. The directors issued a bond to the bank without any resolution having actually been passed. When the company defaulted, it denied the bond was valid.

Held: The bank was entitled to assume the resolution had been passed (it was a mere internal requirement). The company was bound by the bond. Outsiders need not ensure that internal requirements have been met.

Principle: Persons dealing in good faith with a company may assume that all internal proceedings have been regularly conducted; they need not inquire into internal formalities — only the external constitution (MoA/AoA) which is publicly available binds them.

Facts: The company’s AoA required a deed to be signed by the MD, secretary, and working director. A mortgage deed was signed by only the secretary and working director (MD’s signature was absent). The plaintiff relied on the deed.

Held: Turquand’s rule did not apply. The requirement of three signatures was in the publicly available AoA — not a mere internal resolution. The plaintiff was fixed with constructive notice and should have checked the AoA. The deed was not binding.

Principle: The indoor management rule protects outsiders from internal procedural irregularities not visible from public documents; if the irregularity is apparent from the MoA/AoA itself (a public document), there is no protection — the outsider is presumed to know.

Facts: Kapoor, a director, acted as managing director (employing architects, making contracts) without being formally appointed as such. The board knew of and permitted his acts but never formally resolved to appoint him MD. The company refused to pay the architects.

Held: The company was bound. The board’s conduct in permitting Kapoor to act as MD constituted a representation to outsiders that he had authority. “Ostensible authority” or “apparent authority” was sufficient to bind the company.

Principle: A company is bound by acts done within the ostensible (apparent) authority created by its conduct — even without formal appointment; the principal is estopped from denying the agent’s authority when it has represented that the agent has such authority.

Facts: The majority shareholders of Kalinga Tubes used their control to reduce the petitioner (minority shareholder) from being a director, to deny him access to company records, and to conduct the affairs in a manner that systematically excluded him from the management he had a right to participate in.

Held: This constituted oppression. The conduct must be burdensome, harsh, and wrongful. It must involve a lack of probity and fair dealing. Mere disapproval of management decisions is not oppression — but systematic exclusion and unfair treatment qualifies. Relief granted.

Principle: “Oppression” requires conduct that is burdensome, harsh, and wrongful — involving lack of probity and fair dealing; it is more than mere commercial unfairness — there must be an element of unfair abuse of majority power against the minority.

Facts: After the removal of Cyrus Mistry as Executive Chairman of Tata Sons Ltd. in October 2016, the Mistry family (through Cyrus Investments) challenged the removal as oppressive and mismanagement under Sections 241–244. NCLT dismissed the petition; NCLAT reversed and restored Cyrus Mistry; Supreme Court heard Tata’s appeal.

Issue: Whether Cyrus Mistry’s removal was oppressive; whether the Tata Sons’ Articles (particularly Article 75 allowing removal of any director by the Board) were valid.

Held (Supreme Court, 2021): NCLAT’s restoration of Cyrus Mistry as Executive Chairman was set aside. The removal was within the Board’s and shareholders’ legitimate powers. There was no oppression — the removal was a valid exercise of corporate governance rights. Article 75 was valid. However, the Court noted that Tata Sons’ status as a “public company” was a separate issue warranting examination.

Principle: Removal of a director by a Board or shareholders acting within their legitimate constitutional powers does not constitute “oppression” under Section 241 — oppression requires conduct that goes beyond the proper exercise of corporate governance rights and amounts to an abuse of the majority’s power against the minority.

Facts: Family company — petitioner (minority) alleged that the majority shareholders/directors excluded him from management, failed to hold meetings, denied him access to accounts, and misapplied company funds.

Held: Conduct of majority shareholders that systematically excluded minority from their rightful role in management, combined with financial irregularities and failure to hold statutory meetings, constituted oppression. Relief granted — including purchase of minority shares by majority at a fair value.

Principle: In a quasi-partnership company (family company where members expected mutual participation in management), exclusion from management combined with financial irregularities constitutes oppression warranting NCLT relief.

Facts: Two shareholders of the Victoria Park Company sued the directors for fraudulent misapplication of company property. The company itself did not bring the suit.

Held: The court dismissed the suit. Two principles emerge:

1. Proper Plaintiff Rule: The proper plaintiff in an action in respect of a wrong done to a company is the company itself — not individual shareholders
2. Majority Rule: If the act complained of is one that can be confirmed or ratified by a simple majority of shareholders, the court will not interfere at the instance of a minority

Principle: The company is the proper plaintiff for wrongs done to it (not individual shareholders); courts will not interfere with the internal management of a company at the instance of a minority if the majority can ratify the act complained of.

Facts: A minority shareholder sought to challenge acts of the majority which were claimed to be oppressive. The question was whether a minority shareholder could maintain an action for acts which were within the majority’s power but oppressive to the minority.

Held: Courts are reluctant to interfere with the internal management of companies. However, where the acts are oppressive (not merely unfair or unwise), the court can intervene. The distinction is between mere commercial unfairness (no remedy) and a lack of probity/unfair abuse of power (remedy available).

Principle: Mere commercial unfairness or business disagreement between majority and minority does not attract court intervention; oppression requires something more — an element of lack of probity, unfair abuse of majority power, or wrongful conduct toward the minority.

Facts: The company’s directors were themselves the majority shareholders committing fraud. The minority alleged the directors had misappropriated company funds. The majority prevented the company from taking action against the directors.

Held: Where the wrongdoers control the company and use that control to prevent the company from suing them, individual minority shareholders can bring a derivative action on behalf of the company. This is the “fraud on the minority” exception to the Foss v. Harbottle rule.

Principle: The “fraud on the minority” exception applies when: (1) the majority shareholders commit fraud on the company; (2) they are in control and prevent the company from suing; — then minority shareholders can bring a derivative action on behalf of the company.