The law recognizes that a company is a separate legal entity distinct from its shareholders. Therefore the courts usually do not look behind "the veil" to inquire why the company was formed or who really controls it. The Company is treated as in some degree identified with its members or directors or managers. These exceptions are described as "lifting the veil of incorporation.
The cases in which the corporate veil has been lifted fall into four main categories namely: -
1. Where a relationship of agency is found to exist.
2. Where the company is being used as a mechanism to avoid legal obligations.
3. In the case of a group of companies, where the justice of the case requires that the companies within that group should be regarded as a single economic entity.
4. Where the corporate veil is lifted to ensure compliance with a court order.
Piercing the veil of incorporation has become imperative so that an error in law is not made public inconvenience is defeated and public injury caused thereby is avoided. Both Gower and Farrar have classified in their books various categories of cases where the corporate veil may be pierced by the Court. But they also agree that no consistent and inflexible principle can be evolved in determining the question as to whether the veil of incorporation should be lifted or not. It remains on the court to decide whether the facts of the case justify the lifting of veil of incorporation and this Court held that this is an apt case to do so. ….. [Professor Muzaffer Ahmed vs. Bangladesh Bank & others, 20 BLD (HCD) 235]