[Umakanth Varottil is a Professor of Corporate Law at the National University of Singapore.
Thanks to Raghav Bhatia for alerting the author to the Supreme Court ruling that forms the basis for this post.
This is continued from Part 1]
The circumstances of the case and the ruling of the Supreme Court in Alpha Corp Development Private Limited v. Greater Noida Industrial Development Authority (GNIDA) 2026 INSC 449 (5 May 2026) give rise to interesting legal questions. What are the grounds for piercing the veil? Does the mere existence of a corporate group suffice as a justification for veil piercing? Is there a distinction between traditional (or “forward”) veil piercing and “reverse” veil piercing? What are the consequences of judicial veil piercing? Could the same result have been achieved through alternative means without piercing the corporate veil? Finally, and normatively, is there a case for a more principled approach to judicial veil piercing under Indian law? This post seeks to touch upon some of these issues in the context of Alpha Corp Development.
Grounds for Veil Piercing
As a thumb rule, one might say that a court can pierce the corporate veil, and thereby disregard the separate legal personality of a corporate entity, in broadly two circumstances. The first relates to a situation where a company has been incorporated by a shareholder to evade a (generally pre-existing) legal obligation. This has been articulated as the “evasion principle” by the UK Supreme Court in Prest v. Petrodel Resources Limited. This effectively amounts to an abuse of the corporate form by the shareholder. The second relates to the scenario where the company is established for a legal purpose, but is operated as if it is part and parcel of the shareholder. This is essentially the alter ego ground by which the company’s day-to-day operations are not carried out in a manner consistent with it being a legal person that is distinct from its shareholder. This ground focuses on the actual functioning of the company from the facts and circumstances of the case.
Admittedly, Indian law knows of no such compartmentalisation for determining the grounds for piercing the corporate veil, thereby conferring courts with considerable discretion. As the Supreme Court noted in Life Insurance Corporation of India:
“It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of public interest, the effect on parties who may be affected, etc.”
It is hard to reason against the need for such discretion to the courts in a jurisdiction like India where a more constricted approach to veil piercing may be antithetical to corporate law jurisprudence as a whole, which is not only more stakeholder-oriented but also subsumes the element of public interest in determining the conduct of corporations in society. But what matters more is the manner in which courts exercise this comparatively wider discretion to engage in judicial veil piercing within specific facts and circumstances. Perhaps the case at hand and its facts will help illuminate this point further.
Evasion of Legal Obligations
One question that would arise in a case like Alpha Corp Development is whether the company concerned was incorporated predominantly with a view to evading a legal obligation of the shareholder. That is certainly not the case here. In fact, much to the contrary, ETIPL was established as an SPC because this was the structure envisaged when a consortium comprising EIL and two other partners intended to obtain an allocation of land by way of a lease deed from GNIDA. Rather than evading a legal obligation, EIL was only discharging its legal obligation under the relevant guidelines applicable to GNIDA land allotments by incorporating ETIPL as a subsidiary.
Alter Ego Principle; Single Economic Unit
Under the alter ego principle, the corporate veil is pierced if the subsidiary is not in fact operated as a separate entity that is distinct from its parent. In this context, the Supreme Court noted in Alpha Corp Development:
“In any event, we may note that all three companies either share common directors with EIL and/or have their relations as directors. The only assets of the three companies were the lands leased out to them by GNIDA for these projects. The companies’ shareholdings indicate that EIL was the dominant and majority shareholder.” [paragraph 55]
The question that arises is whether mere common directorships and the fact that EIL was the dominant shareholder of ETIPL suffice to establish that ETIPL is an alter ego of EIL. While the Court used these factors by themselves to conclude that the corporate veil can be pierced, other facts would also come into play before a court ought to arrive at a determination: whether the subsidiary (i) has its own employees, (ii) operates its own bank accounts through which its monies are channeled, (iii) occupies office premises that are distinct from that of the parent company, and similar such operational factors. In this case, the Court arrived at a veil piercing conclusion without undertaking such an in-depth factual analysis that is germane to the question of whether a company’s separate existence can be disregarded merely because it essentially operated as a mere extension of its shareholder (i.e., its parent company). Another question that often emerges is whether the company carries on any other business, but that is irrelevant in the present context as the very objective of establishing a subsidiary as a “special purpose” vehicle is to undertake the specific task at hand of accepting the allocation of lands from GNIDA as the vehicle operating for the consortium members.
Finally, another ground relates to whether, in a scenario involving a group of companies, all such companies within the group can be treated as a single economic unit (“SEU”). All that needs to be established is that the parent “controls” the subsidiary or that two or more companies are under “common control” of the same parent company. The ground of SEU does not attract burdensome factual details such as common directorships and other factors necessary to establish that the subsidiary is an alter ego of the holding company. Instead, in the SEU, it is necessary to show the existence of “control” among various companies within the group. This leaves open the possibility that courts could be quick in piercing the veil in cases involving corporate groups, even if there are no specific factors that favour such an approach. It is no wonder that other jurisdictions have eliminated SEU as a ground for piercing the corporate veil: see, Adams v Cape Industries plc [1990] Ch 433 (in the UK); and Manuchar Steel Hong Kong Ltd v Star Pacific Line Pte Ltd [2014] 4 SLR 832 (in Singapore).
By not fully engaging with the applicability of the alter ego doctrine by delving into the more specific relationship between the holding company (EIL) and its subsidiaries (including ETIPL), the Supreme Court in Alpha Corp Development may have effectively pivoted towards the SEU ground, which has been spurned in other common law jurisdictions.
Type of Veil Piercing: Forward or Reverse?
Typically, veil piercing gets invoked when a shareholder (such as a holding company) is sought to be held liable for the debts of a company (such as a subsidiary). This is the context in which most veil piercing cases arise. However, the converse scenario sometimes emerges, as it did in Alpha Corp Development. Here, in a situation that has come to be known as “reverse” veil piercing, the company becomes responsible for meeting the liability of the shareholder. In either situation, the corporate personality is disregarded when it comes to meeting the liability, but only the direction in which the liability trail passes changes.
Reverse veil piercing is also of two types: (i) “outsider” reverse veil piercing, where a third party seeks to pierce the corporate veil to make the subsidiary liable for the shareholders’ debts; and (ii) “insider” reverse veil piercing, where an insider such as a shareholder approaches a court to disregard the veil that separates it from the company in which it holds majority shareholding. Insider veil piercing is generally viewed with circumspection by courts as a shareholder who has taken advantage of the separate legal personality of the corporate form cannot disavow it at will when it suits such shareholder. However, outsider veil piercing is viewed with greater acceptance as the principle is applied to benefit the position of a third party rather than a rank insider of the company.
Interestingly, although the Supreme Court in Alpha Corp Development was tacit in its approach to the precise nature of the veil piercing, a reader is likely to be led towards a customary forward veil piercing scenario. However, in reality, the case involves outsider reverse veil piercing, as the assets of the subsidiary (ETIPL) are sought to be used to discharge the obligations of the parent (EIL) for the benefit of a third party (the resolution applicant, Alpha Corp Development) in the course of an insolvency resolution plan under the IBC. To be sure, this is not to suggest that tests for forward and (outsider) reverse veil piercing ought to be radically different, but the judicial analysis ought to induce the necessary clarity as far as the directional element of the veil piercing is concerned.
Consequences of Veil Piercing
While much ink has been spilt on the jurisprudence surrounding the grounds on which the corporate veil can be pierced, there is also merit in focusing on the consequences that emerge once the veil has indeed been pierced. It is trite law that veil piercing does not obliterate the company’s existence as a separate legal personality. Instead, veil piercing only imposes some specific obligations of a company onto its shareholders. In the case of reverse veil piercing, the obligations flow in the opposite direction. Hence, courts ought to delineate the precise obligations of one company that are foisted on the other and determine how those obligations are to be discharged within the circumstances of the case. A veil piercing ruling without such delineation would only partially accomplish the judicial task. At the same time, the consequences of veil piercing may be self-evident, as one might see in Alpha Corp Development where the assets (in the form of allocation rights) of the subsidiary (ETIPL) become available as part of the insolvency resolution plan of the parent (EIL).
Alternatives to Veil Piercing
Existing literature suggests that veil piercing ought to be the remedy of last resort. If the legal imbroglio could be untangled using other means, there is no need to engage in veil piercing. Other alternatives to veil piercing, as recognised by the UK Supreme Court in Prest, include agency and trust relationships between the parent and the subsidiary by which the obligation of one would belong to the other in a representative capacity.
In a similar vein, in Alpha Corp Development too, the same conclusion could have been arrived at without piercing the corporate veil, simply by giving effect to the existing contractual arrangement between the parties. As the Supreme Court notes: “What is contemplated under the resolution plans is merely transfer of possession of the lands to the successful resolution applicants to enable them to complete the projects and to deliver the units to the allottees, as sub-lessees.” [paragraph 44] In this case, the Supreme Court facilitated this outcome using veil piercing.
Instead, one can envisage a scenario where the successful resolution applicant steps into the corporate debtor (in this case EIL) without piercing the corporate debtor’s veil. EIL is party to an unregistered development agreement with ETIPL, under which it has the ability to undertake and complete the real estate projects. ETIPL, in turn, obtained allocation of the lands from GNIDA by way of lease. In effect, even without really piercing the corporate veil, the resolution applicant could obtain all the same development rights that EIL has under the contractual arrangement with ETIPL, which has in turn obtained lease rights from GNIDA. Hence, it is not clear whether the veil piercing exercise was indispensable in this scenario because a similar outcome could have ensued through other legal means.
Moving forward, yet another more specific method would be available for insolvency of one or more companies within a corporate group. This is through the explicit recognition of group insolvency under section 59A of the IBC introduced by way of the Insolvency and Bankruptcy Code (Amendment) Act, 2026. This statutory provision is skeletal in nature as it confers powers on the Central Government to promulgate rules for the conduct of insolvency proceedings against two or more corporate debtors that form part of the same group. While this is likely to minimise the use of legal tools like judicial veil piercing in corporate insolvency proceedings, its applicability is more procedural in nature and it relates to cases where parallel insolvency proceedings are initiated in respect of multiple members of a corporate group. The new legislative dispensation still does not encompass scenarios such as the one present in Alpha Corp Development where the insolvency proceedings are initiated against only one company, but that assets of the other companies within the group get subsumed within the insolvency arrangements.
Conclusion
Given that corporate group structures are omnipresent in the Indian business scene, issues of judicial veil piercing are bound to arise from time to time. In Alpha Corp Development, the jurisprudential enquiry arose in the context of corporate insolvency resolution. Existing case law, while imposing some restraints, generally confers considerable discretion upon courts to pierce the corporate veil. While jurisdictions such as the UK have sought to narrow that discretion, such an approach may not necessarily be suitable to the Indian context. However, there is a strong case for a more principled approach toward veil piercing, as the litany of questions emerging from the Supreme Court’s ruling in Alpha Corp Development demonstrates.
– Umakanth Varottil
Leave a Reply