The Evolving Landscape Of The Doctrine Of Reverse Piercing

Rayna Yagnesh Joshi, OP Jindal Global University

ABSTRACT

Corporations have for years revolved around the basic principle of having a separate legal entity. However, over the years companies came to the realization that shareholders manipulated this separation of liabilities for their selfish financial means. In response, the equitable doctrine of ‘piercing of corporate veil’ came into existence, holding culpable individuals accountable for their actions despite the shield of the traditional corporate structure. This doctrine has slowly woven itself into the fabric of Indian Jurisprudence, despite the criticism it faces due to its inherent flaw of not being able to distinguish between the guilty and innocent members, the main cause for this limitation is the over reliance on outdated concepts like the ‘Alter ego test’ and ‘lack of separation’. The onset of the doctrine of ‘reverse piercing of the corporate veil’ has been seen in American jurisprudence as in the case of Kingston Dry Dock Co. v. Lake Champlain Transportation Co., allowing both insiders and third parties to challenge the corporate structure, aiming to expand the pool of assets to protect the plaintiffs interest and discharge the liabilities of its members. The paper then explores the evolution of reverse piercing, its application in US as well as Indian Courts, and its potential implications for Indian corporate law by analysing the Companies Act of 2013 and other legislations. Although Indian courts have not legally employed the doctrine of reverse piercing, they have made references to similar principles in notable cases such as Aneeta Handa & Ors v. Godfather Travels and State Bank of India and Ors. v. Kingfisher Airlines Ltd. and Ors. This research paper advocates the need for a more practical and well framed approach to apply reverse piercing in India. While this doctrine continues to be relatively unexplored, it offers a beacon that can help protect the interests of creditors and innocent stakeholders from corporate abuse. After careful consideration of the limitation and advantages of adopting this doctrine into Indian Jurisprudence, the courts can by taking inspiration from foreign legislation, efficiently develop a more equitable legal framework.

Keywords: Separate Legal Entity, Reverse Piercing, Alter ego, Limited Liability, Third parties, Indian Legal Framework, Equitable Remedy.