The judicial scrutiny through alter ego theory is generally practiced in cases where the

claimant has reasonable grounds to persuade that a fraud has been committed under the
corporate veil by a single entity or a shareholder or a member of the company.
In US the scope of the theory was explained in Rohmer Asso. Inc. v. Rohmer1 that any
individual or another corporation transacts through dominator's business instead of its own
and can be called the other's alter ego; the corporate form may be disregarded to achieve an
equitable result. The abuse of the corporate form for personal purposes by meddling with the
funds of the company has been one of the proofs in the aforementioned case.
The courts have established in Soroof Trading Development Co. Ltd. v. GE Fuel Cell
Systems LLC 2that it is not necessary for the plaintiff to prove the fraud beyond reasonable
doubt but can prove its existence by showing mingling in capitalization, solvency, payment
of dividends, adequate records, functioning officers and directors, other corporate formalities,
siphoning funds off, and the entity functioning as a faade for the owner were some of the
criteria to be examined.
The courts in US are liberal as compared to the common law jurisdiction as the burden of
proof in applying the alter ego theory is very minimal. The harm caused to the claimant is one
of the conditions as decided in Morris v. New York State Dept. of Taxation 3 which should be
an outcome of the diversion of funds, by the owner behind the veil, entitled to claimant.
In Adams v. Cape Inc Industries plc.4 and Woolfson v. Strathclyde Regional Council5 the
court relied on the requisite of circumstances like corporate being a sham or faade for the
controllers means to misappropriate. Under the Law of England the principle is used to
determine whether the company has the autonomy or is mere instrument for shareholders. In
Ben Hashem v Shayif6 it was ruled that corporate piercing to determine the alter ego should
be the last resort. In it Munby J gave five rules:
(i) Ownership and control of a company are not of themselves sufficient to justify piercing
the corporate veil; (ii) The court cannot pierce the corporate veil merely because it is thought
to be necessary in the interests of justice, but only in so far as it is necessary to provide a
remedy for the particular wrong and not for all purposes; (iii) The corporate veil can be
1 36 A.D.3d 990, 830 N.Y.S.2d 356 (3d Dept. 2007).
2 No. 10 Civ. 1391(LTS)(JCF), 2012 WL 209110 (S.D.N.Y. Jan. 24, 2012)
3 82 N.Y.2d 135, 623 N.E.2d1157 (1993)
4 [1990] Ch 433
5 [1978] UKHL 5
6 [2008] EWHC 2380.

pierced if there is some impropriety, but not just if the companys wrongdoing is breach of
contract; (iv) The impropriety must be linked to the use of the company structure to avoid
liability. It follows that, if the court is going to pierce the veil, it is necessary to show both
control of the company by the wrongdoer(s) and impropriety; (v) A company can be a faade,
even though it was not originally incorporated with any deceptive intent; the question is
whether it was so used at the time of the relevant transaction.
In Antonio Gramsci Shipping Corp. v Stepanovs7 and Alliance Bank LSC v Aquanta Corp.8,
the defendants became the charterers of the vessels of the claimant for which he was seeking
damage from the company run by the same defendants. The scope of the theory was widened
by not only holding the company liable but also making the controller liable for damage the
claimant faced due to non- completion of the contract.
However it was overturned in VTB Capital v Nutritek9 where the aforementioned ratio was
overturned as it disregarded the privity of the contract. The liability of company and
controller of such entity were held to be interchangeable in cases of breach of contract and
alter ego was not required in such cases.
Later in Petrodel v Prest10 the application was restricted to the evasion of the existing
liability but in Caterpillar v Saenz11 only the particular wrong done by the company would
be subjected to the principle, also as far the remedy is required. The guarantor was the
defendant who owned certain valuable properties, in which the Company had a shareholding
interest, and he asserted in court that he did not owned them and concealed his identity of
being the controller of the company.
In India the concept of alter ego is analogous to agency where the person or the parent
company is considered to be the controller of the entity or the subsidiary. In Novartis v.
Adarsh Pharma12 the Madras High Court had ruled that court can investigate into the
relationship of the parent company and subsidiary and the application of the theory differs
from case to case. The aforementioned case also relied on the New Horizon v. Union of
India13 that restricted the use of the theory till a high degree of control of the parent company
or the owner in the transactions of the party.
7 [2011] EWHC 333.
8 [2012] 1 Lloyds Rep 181.
9 [2012] EWCA Civ 808.
10 [2013] UKSC 34, [2013] 3 WLR 1
11 [2012] EWHC 2888 (Comm)
12 2004 (3) CTC 95, 2004 (29) PTC 108 Mad

In Vodafone International Holdings B.V. v. Union of India14 it was stated that the extent of the
shares and control over the decision of the entity or the subsidiary should be either
substantive or complete that there is no legal independence of the company but is an
instrument. This court also relied that the extent of application of theory varies from case to
case.

13 1995 SCC (1) 478

14 (2012) 6 SCC 613