Lifting The Corporate Veil under National Interest in Sri Lanka.



  • 3.0- COMPARISON.



… ‘The Doctrine laid down in Salomon’s case has to be watched very carefully. It has often been supposed to cast a veil over the personality of limited company through which the court cannot see. But that is not true. The courts can often do draw aside the veil. They can often do pull off the mask and look to see what really lies behind’…[1]

In general phenomenon, there is the dichotomy exists between different legal concept, because of it opposes each other. In the sphere of company law one of the indispensable dichotomy about the legal concepts as: Separate Legal Personality and Lifting of Corporate Veil or Piercing the Corporate veil.

In this backdrop, this study seeks to examine, in one hand there have been significant recognition of separate legal personality which was laid down in the land mark case of Salomon v Salomon and Co. Ltd, on the other hand the concept of lifting of veil which renders the tendency of ignoring the separate legal personality of a company. Therefore the author tries investigate the issues under the following heads.


When pay the attention on the concept of separate legal personality, it articulates that, once the company is incorporated; in once sense that company is distinct from it’s members, directors, shareholders creditors and promoters.[2]  In other sense it distinct from third party as well. From that there is this distinction created by the operation of the law and it leads artificial or fictional legal personality (nonphysical existence) of an incorporated company. In another way around it is manifested that, there is the divorce (legally separated) between company and it’s members and third party.



Nonetheless, when trace back the reasons why it is entered in to the company law that, this separate legal personality stimulates the protection and privileges. It means that the company is not liable for it’s members activity and vice versa, company can own property- that property is a separate property and the members of company can not claim company property as their own property,[3] company business is separate business[4] and company can enter into contract as separate person.[5]

Thereby in line with above reasoning the simple preposition of the rational behind this concept is known as corporate veil. It marks that, provides the protection in its own self as corporate legal personality. In this regard it advanced the another concept as limited liability too, because of in separate legal personality the company or in its members want to bear the liability is in limited(by distinction) as incurred or specified not like un limited liability.


This is the first case which furnished the mile achievement of recognition of the separate legal personality concept and by this case only the legal principle of corporate veil come into force. Prior to this case there is no this sort of protection or privileges given to company. This case is judicial precedent to the all most all cases in respect of separate legal personality.[6]


The doctrine of lifting of veil unequivocally elucidates, the privilege and safeguard of the separate legal personality (corporate veil) or limited liability can be ignored or lifted by court is known as lifting of veil or it’s epithet as piercing the veil.[7]

At this moment, it is interesting to raise the question that, why this principle embedded in the company law, rummaging of an answer for this, it may submit answer vis-a-vis essence of it rationale that :  in ordinary understanding veil is envisaged as curtain, however in company law the veil refers the corporate veil and it demonstrates as, the company face is covered by separate legal personality corporate veil, thereby no any person come to know or see or interfere the function of that company. Therefore by using those protections there are most probable chances to misused the veil or to commit fraud or exempt from the liability by showing that veil.

So in this sense for that aforesaid matters there is the essential interference of the court to open the veil and find out the perpetrator and impute the liability either in the form of civil or criminal liability. The consequences of separate legal personality are led to disregard the distinction and merge all the person as one. Therefore one person liability if it is rationally connected it shall impose the liability to another person.



Further when focus on the grounds for lifting the veil are mainly twofold. Such are: Common law ground and statutory ground. The court lifting the veil in common law ground is in the absence of statutory provision.[8] Nevertheless lifting of the veil in statutory ground in express existence of statutory provision is prerequisite character of in itself.[9]

However among the several ingredients of common law grounds, national interest is the one of the core ground and this ground has achieved in predominant position among the other grounds. Whereas labeling the name of this ground does not exist as it is. The perceived way of this ground vary from one jurisdiction to another jurisdiction. In this respect it is viewed in broad perspective in the name of public policy too. Hereinafter this paper is going to scrutinize upcoming parts on firmly stand on the sole ground of national interest or public policy.







Considering in this part, in almost all circumstances with regard political, law, economic, public order even in company law this concept of national interest impact on it, interconnect on it and play a cardinal role. Before move to further investigation it is essential to draw a picture of what is national interest.

It is apparent that there is no universal acceptance of definition for what is national interest, because of it complicates to define in four corners.  Although it can be enunciated that national interest is the root of one state if it agitates then everything will collapse in lines of stability of one state, the parameters of it determinations are  resulted with regard the good interest of order, cultural, environmental, economic, social, law, security and military. As though it is keen to rid of or be in vigilant about adverse impact on it.

In deed, nowadays the contributions of the company towards national interest is widely at large. Within that, the tremendous contribution of company mostly centralized on economic national interest. Thus, when/ if the company affairs resulted on the attribution of jeopardize impact of national interest, in that situation in order to eradicate threat of national interest the court will lift veil on that above line of reason. So that is the major sprit of lifting of veil under national interest.

In this background, when analyzing the early stage of this ground, it might fitly to referable that, this ground was narrowed in relation of war situation exist between two or more countries and applied this ground in order to terminate the enemy company function in its own territory and strike down the threat of national interest which is annexed by that enemy company. For example the same standard was up held by the court of law in Daimeler v Continental Tyre and Rubber Co.[10] This is the famous and quotable case for lifting of veil under national interest namely war. The subscriber of conservative view over national interest ascribed that this ground mostly appropriate to war situation only by showing this case justifications.

Later on the modern tendency routed in and delivered the liberal view over the applications to this ground in wider interpretations. Thus in light of contemporaneous approach interpretation and deploy of this ground is being reached the level of aggrandizement by the agile tendency of court of law. For instance this ground widely interpreted in all good interest towards national interest. It can be exemplified in following instance as, if one company manufacturing goods which is ultimately endanger to environmental and it is severe threat to environmental national interest. Therefore in this circumstance the court lift the veil and impose the liability to the perpetrator.


As the foregoing discussion makes clear that national interest is one ground which is yielded the lifting of veil and it is achieved in different dimension. Focusing in this part this research takes into account of in which manner the national interest conceived by Sri Lankan legislation, administrative and court of law, how does the court of law deploy the national interest in lifting of veil, does the Companies Act of Sri Lanka sufficiently enhance the national interest, what is the test and approach is used to lifting the veil.

It is obvious to refer that Sri Lanka also one of the country which follows the common law traditions.[11] So needless to express that Sri Lankan court of law also lifting of veil on the ground in national interest. However in Sri Lanka understanding or define the national interest often treated as vexatious question. Because there is no clear cut parameters which is laid down the perception of what is national interest.

For instance, if the term national interest is uttered in Sri Lanka the Prevention of Terrorism Act[12] inevitably clicks or come to remembrance as firstly. However this piece of legislation does not provide the interpretation of national interest. Nonetheless there is the tradition exists in the court of law that it keen to use the Prevention of Terrorism Act to the matter connects or questions the national  interest in respect of national security only.[13] From that it may argue that, the understanding of national interest mostly restricted to the national security (not in broad sense).



The another instance, 1978 2nd republic constitution of Sri Lanka in one hand provides the right to engage trade, business and enterprise.[14] So it can be said that, this right gives the validity to run (a) company/ies too. On the other hand it provides the restrictions to the fundamental rights[15] including the aforementioned rights.[16]

Whereas it is evidence from such restriction that it placed under the national interest. Though here also it fails to define what is national interest, instead of such things, it merely elaborated of it components in the form of national security[17], social religious harmony,[18]national economy,[19]public order and protection of public health and morality.[20] Hence it is submitted that in one hand there is no precise definition about what is national interest in another hand there is no extended exhaustive level of the applications of national interest in various forms.

In this background it is right to look upon in what manner the court lifting of the veil under this ground can be summed up that, in Sri Lanka the Commercial High Court vested the jurisdictions to adjudicate of company matter includes the lifting the veil,[21]and the Companies Act section 87 (1) recognized the separate legal personality[22] and the court follows the common law grounds  to lift the veil also.  Even though until this moment there is no cases have been recorded under this ground. So it is well evidence that knowing about the utilization of court under this ground could not be taken.

Nevertheless the author thinks fit that, the Sri Lankan court of law missed the golden opportunity to dealt the matter under this ground in so called Avant-Garde case. Because everybody knows and there is reasonable existence of prima facie evidence in reliance of illegally maintains the state owned weapons in floating armoury is questioning the national interest over national security. So what the court would have done that lifting the veil of Avant-Garde Maritime Services (Pvt) Ltd company and find out the perpetrator and impute the liability.

By contrast what was actually happened, a corruption and illegal transfer of state-owned weapons case filed against former Defense Secretary Gotabaya Rajapaksa who is the promoter and one of the director of that company and seven others for allegedly causing a Rs.11.4 billion unlawful loss to the government by permitting the said company.[23]

Thus, if this abovementioned case was brought under the national interest as the ground for lifting of veil, the approach of the court can be articulated in a following way: Such as, in the absence of indications of national interest the court by way of judicial activism defines the national interest and make sure that there is due reasoning[24] of prejudicial to national interest, thereby in order to send off the threatening to national interest lift the veil and impose the liability.

Further, focusing on does the Companies Act 2007 sufficiently provide protections over the national interest? The answer is not in affirmative character. Because when deeply swim in to the provisions of  Companies Act of 2007 it leaves so many spaces to endanger the national interest. For example section 13 of this Act states as the company may provide the objective in its Article of Associations. So here providing objective is not mandatory. Therefore there is the chance to clash with national interest.

Because if it is compulsorily to refer the objective in its Articles of Association there is the high probability to know it objective, so at the time if it is inconsistent with national interest the Registrar of the company will not give the certification of incorporation of company. By that, here the threat to national interest can be whitewashed. However the section does not require mandatory to provide the objective can be treated not consider the national interest and still not give the protection to national interest.

The another example is section 2 (a) of this act refers that the company undertake any business or activity, do any act or enter into any transaction. This is caused severe questioned about national interest. Because any business or any act or any transaction authorize the company to do legal and even illegal business or transaction which is contradict with national this section also gives the space to question the national interest. The next example is the section 375 of this act merely states the fraudulent trading. Moreover if it is seemed entirely it reveal that there is no statutory provision/s with regard national interest.

Whereas answering the question of what is the test which is used in lifting of veil under the national ground, it can be considered that the answer is same to the question of how does the court tackle the lifting of veil, because in order to identify the answer the relevant cases needed, but here, there is no cases recorded under this ground, thereby it could not be identify the test. However the author emphasis that in future upon the court lift the veil under this ground it want use the test of “real existence of national threat” for the sake of providing justice.


Under this part this paper scrutinize about what is the understanding of national interest with regard lifting of veil in USA, how to tackle this national interest issue on the application of lifting of veil, what is the test is using to determines the matter, what is the role of the court in reliance lifting of veil, with this questions in mind, when answering the questions the following can be considered.

At first sight, it noteworthy to cites that USA is the well example country in dealing with lifting of the veil under the national interest. However in USA there is the practice that using the term public policy instead of national interest. It does not means that public policy vary from national interest. Because the name can be different but the objective or spirit is same in reasoning of public policy primarily concern about the national interest at the same time national interest fuel by the engine of public policy too.

Furthermore, in USA the national interest considers not only its own territory but also omnipresent from the global too. It takes omnifarious cumulative effect over national interest. In this sense the national interest is widely interpreted in the way of take off the prejudice to national interest of economic, political, social, law, freedom, state integrity, security, environmental and threat against terrorism. Hence, from that it can be come to know that understanding of national interest extended to the all area which is either expressly or impliedly connects with national interest.

Despite, in USA the national interest widely considered-the paramount value over national interest is given to national interest in relating with national security and threat against terrorism. It means that after the attacks of September 11, 2001 in World Trade Center, the USA declared the famous term of “War against Terrorism” and commenced it counter terrorism activity in the all arena. Among the all arena it is noticed about the economic interest in way of illegal transaction by company, money laundering by company, financial support to terrorist group, company backed by terrorist group.

Thereby number of institutions are assigned or empowered to carry out its functions to dealing with counter terrorism activity with regard economic interest. Such are; actions of congress, the Securities and Exchange Commission and courts-federal intervention. These are the organs mutually works together, specially assist the federal courts to lifting of the veil under the national interest in the heading of economic interest.

When focusing on the national economic interest the following instances are well example of the instances of lifting the veil by court. Firstly it can be referred the court use the 4D strategy (defeat, deny, diminish and defend) combating terrorism to put the harness and lifting the veil of the company which is backed by terrorist group, financially support to terrorist group, illegal fund raising to terrorist group, for example under this strategy court lift the veil of companies backed by Al Qaeda.[25]

The second instance of court lifting the veil is Targeted Financial Sanctions to the companies which are doing fund raising, illegal transaction and money laundering to terrorist group.[26] Thirdly lifting of the veil for illegal transaction which is adverse to securities law and non disclosure transactions records which is questioned the national interest.[27]

However the court lifting of veil under national environmental matter too. For that the court is empowered by the Comprehensive Environmental Response, Compensation and Liability Act 1980 (CERCLA) to the intervention in the wake of environmental disasters and impose the liability.[28]

Further it is correctly to say about the approach of the court when lifting the veil in USA,  in one hand it is used the test in order to lifting the veil under national interest is “real existence threat to national interest” not mere threat of national interest, therefore it follows standard which is  akin to Hashem test.[29] On the other hand it is very care full to prevent the threat of national interest and protecting national investment as well.



Indeed, Because of separate individual discussion already been provided, the objective of this part is to provided the epitome of comparison between Sri Lankan approach and United States of American approach of lifting of veil under the ground of national interest.

In USA the lifting the veil under national interest has deployed in comprehensive way because of it extended the ground in each of components which are connected with the national interest.[30] However when compare with Sri Lanka there is a canter and restricted way of approach in dealing with the term national interest only with national security.[31]

Generally the power to lift the veil vested with court. However in USA number of another institutions also have the consideration over national interest and assist or empower the court to lift the veil under the national interest.[32] Typically in Sri Lanka court and another institution also have the interest over national interest. However the another institution not assist the court to lift the veil, even the court still not exercise of its power under national interest to lift the veil.

In USA the court lifting the veil under national interest in the factor of national economy in many modes.[33] However in Sri Lanka no such much of methods entertained still not by the court.

In USA the court use test of “real existence of threat to national interest” to ascertain and lift the veil.[34] So it provides the fair and justice verdict because of come to decision by assessment through the test. However in Sri Lanka no more case therefore no more test to lift the veil under national interest.

In USA the piece of legislations which are dealing with company, provides no room for confusion or ambiguity because of define the terms in clearly or by judicial activism interpret the term in accurately. However in Sri Lankan Companies Act fail to define the term, for example national interest, fraud, fraudulent trading. Therefore it leads the confusion and question the national interest also.

In USA money laundering in one sense treated as separate cause of action in another sense it also cover under national interest to lifting the veil. However in Sri Lanka still not it covered by national interest to lift the veil. So it is separate cause of action which is come under the ambit of Money Laundering Act.[35]

Eventually under this part, it may point out the common feature of both that as like all most all countries, Sri Lanka and USA also give the tantamount consideration to national interest in respect of national security.



It already been seen that Sri Lanka is lacking in the matter of lifting the veil under national interest. So when savvy the reasons of its lacking, it might fitly to referable that there are so many impairment factors intervene to that.

In Sri Lanka there is no much more development in company ventures as to compare with the developed countries company evolvement. It is worthy to say that Companies Act, No. 07 of 2007 is the current piece of legislation with regard company law in Sri Lanka. Further it has been enacted very nearly in 2007 and does not give the important to national interest or comprise no provision dealing with national interest. Therefore the court willingness to lift the veil under national interest is being imperfection.

Furthermore, at this moment when ruminate from the tendency of Sri Lanka treating the national interest mostly with national security, there is the question or practical issue arises as do the Tamil diaspora companies threat to national interest and what will be the approach of court of law.

For the first question the answer is no. Because it is wrongly and intentionally implanted in south that Tamil diaspora means the persons backed by Liberations Tigers of Tamil Elam and also the government treat them companies as threat to national interest.

But actually these most Tamil diaspora companies are not threat to national interest. So these are the companies either incorporated under Companies Act of Sri Lanka and function in Sri Lanka or incorporated in foreign country but function in Sri Lanka. The aim of these companies is to improve the infrastructure and develop the economic level of Tamil peoples in North and East. So this companies function is required aftermath of the war end inevitable.

However the author believe that in present or future the court of law will entertain the case on lifting the veil under national interest. So there is no doubt that, it should be warmly welcome when it be actual emerging issue of national interest.

Nonetheless, by contrast in reliance  of merely shows the threat to national interest, if any politically motivated case bring against the Tamil diaspora company for lifting the veil, , on this moment it again put the practical barrier with regard in which manner ascertain the threat of national interest and how does provide the fair and just results.

On this occasion the courts want to exercise it powers in vigilantly to ensure the fair and just results in the way of look upon and apply the test of real existence to national interest, then from the application if the answer is resulted as yes- there is the actual threat or endanger to national interest the court will not hesitate to lift the veil. However if the answer is resulted as no-there is the mere presence threat of national interest then the court in no any circumstances lift the veil.


At firstly when focus on the merit of separate legal personality; provides the distinction between company and it members and ensure the limited liability. Thus in turn of de merit of this concept are; there is the exemption from the liability by showing this concept and there is probability to commit fraud or misused the corporate veil. Nonetheless some scholars do not subscribe the concept as artificial separate legal personality, because they claim that only natural or human beings can claim legal rights and obligation, and have rights and duties arising from legal relationship. [36]

Secondly, look upon the merits of lifting the veil would be that; (1) dislodging the veil, and merge the distinction and impose the liability to find outed perpetrator (2) prevent the exoneration from liability (3) sweep away the company threat to national interest.

Whereas, the doctrine of the lifting of the veil subject of much criticism and de merit too. Such are;  it break the preservation of limited liability, in some extent it can be expounded that the sake of lifting the veil the court exercise the discretionary power irrespective of  specified circumstances leads to unnecessary interference over the company.[37]

The major criticism over lifting of veil is, the strict followence of this doctrine fail to keep balance between protects the national interest and national investment. Because of country like Sri Lanka which is needed larger foreign investment in order to attain the stable economic position. Hence if it the concept be strict in approach the investor or companies reluctant or afraid of or rid of put the investment, then, consequently it also question the economy of one country.

The another annotate of critics is; the lifting of veil actually tenure mere piercing the veil (as opposed to being totally removed). It means ignoring the separate personality only for assigned purpose in no ways destroys the independent and autonomous of entire entity for all other purpose.[38]  However in practical the grounds of national interest and sake of justice encompass the wider application thereby when these grounds used it annihilate or annul the entire concept of separate legal personality.


Generally recommendations connote about the speculations about what ought to be done in order to overcome from the shortcomings. Thus this paper suggests the recommends as; the companies act or pieces of legislations want to define the national interest in order to precisely apply this ground, when apply this ground examines the case by the test of “real existence of threat to national interest” like USA to Sri Lanka, make the interconnections of  the institutions which are dealing  with national interest to assist or empower the court to lift the veil, Sri Lankan judiciary want to interpret in wider sense to national interest as like USA and eventually maintains the balance approach between national interest and national investment.


Epilogue of this essay can be concluded as the mile stone principle of separate legal personality has culminated in the way providing distinct and limited liability characteristic to corporate governance[39] and separation of powers of company itself. However ensure the accountability and liability of company or it members in regardless of corporate veil resulted from the consequences of lifting the veil also enhance the corporate governance too. Therefore in order to maintain the corporate governance and proper sustainable application to keen the both concept the key play role of court is inevitable.

However in Sri Lanka the lifting of veil under national interest mostly be in the position of vague and there is the essential need to concern it progressive evolvement to accelerate and generate the good company function environment.  So in modern world the companies ventures are important to deciding the key factors of one country namely economic position. Thereby modern era of company in one sense needed the unique recognitions to company to survive by separate legal personality, in another sense it require the intended limited purpose of  interference  to the company by lifting the veil to make sure national interest as whole.













[1] Lord Denning stated in Littlewoods Mail Order Stores Ltd v IRC (1961) 1 WLR  1241 at p 1254.

[2] Salomon v Salomon and co Ltd (1897) AC 22.

[3] Macaura v Northern Assurance Co. Ltd (1925) AC 619.

[4] Metropolitan Saloon Omnibus Co. Ltd v Hawkins (1859) 4 H and N 87.

[5] Mayson, French and Ryan on Company Law 1992-93 Edition, BLACKSTONE PRESS LIMITED,P-119,Para-3.


[6] This case followed in  Lee vs Air Farming Ltd (1960 )AC 12, DHN Food Scottish Co-operative Whole sale Society vs. Meyer (1959) AC 324 HL, Constitution Insurance Co v Kosmopoulos (1987) 34 DLR (4th) 208.

[7] Allan B. Diamond, Esq. David Rubinstein,Esq. Piercing the corporate veil: a view from both sides of the pond, p 1

[8] Stephen Griffin, Company Law- FUNDAMENTAL PRINCIPLES, Third Edition, Pearson Education, p-10.

[9] Mayson, French and Ryan on Company Law, 1992-93 Edition, BLACK STONE PRESS LIMITED p-127.

[10] (1916) 2 AC 307.

[11] For example see section 3 of Civil Law Oridinance.

[12]Prevention Terrorism Act, No. 48 of 1979

[13] See Nallaratnam Singarasa v. Sri Lanka, Communication No. 1033/2001,
U.N. Doc. CCPR/C/81/D/1033/2001 (2004).

[14] See Article 14 (g) of 1978 Constitution.

[15] See Chapter 3, Article 15 of 1978 Constitution.

[16] See Article 15 (5) of 1978 Constitution.

[17] See Article 15(1) of 1978 constitution.

[18] See Article 15(3) of 1978 constitution.

[19] See Article 15(4) of 1978 constitution.

[20] See Article 15(7) of 1978 constitution.


[21] See section 529 of Companies Act, No. 07 of 2007, “the Court” means High Court established under Article 154P of the Constitution for a Province, empowered with civil jurisdiction by Order published in the gazette under section 2 of the High Court is established; the High Court established for the Western Province.

[22]Section 87 (1) of Companies Act, No. 07 of 2007-  A shareholder shall not be liable for any act, default or an obligation of the company, by reason only of being a shareholder.

[23] see http/:>2017/05/30>law-order.

[24] Due reasoning refers the real existence threat to national interest.

[25] See the report of National Strategy for Combating Terrorism p- 15

[26] See the chapter 4 of the Anti- Money laundering and counter-terrorist Financing measures in the United States.

[27] See Exhibit B. One case, Securities and Exchange Commission v Kalvex Inc, CCH Fed. Sec. Rotr.195,226 (July 7,1975)

[28] See Carter-Jones Lumber co v LTV Steel Co, 166 F.3d 840,847 (6th Cir 1999)

[29] See Hashem case, (2008) EWHC 2380 (Fam)

[30] See 2.3 of this Article at p-10, para- 5.

[31] See 2.2 of this Article at p-7, para-4.

[32] See 2.3 of this Article at p-11, para-2.

[33] See 2.3 of this Article at p-11, para-1.

[34] See 2.3 of this Article at p-11, para-6.

[35]  The Prevention of Money Laundering Act No.5 of 2006.

[36] See Max Radin, ‘The endless problem of corporate personality’ (1932) 32 Colum L Rev 643 at p.665

[37] See Lord Denning’s  judgement in Littlewoods Mail Order Stores Ltd v IRC (1961) 1 WLR 1241 and Wallensteiner v Moir  (1974) 1 WLR 991.

[38] See Nedco Ltd v Clark (1973) 43 DLR (3d) 714 P.721

[39] See California Public Employees Retirement System (CalPERS) defined the Corporate governance as “The relationship among various participants in determining in the direction and performance of corporations.


Create a free website or blog at

Up ↑