Article submitted By Garima Bothra, Associate, assisted by Vaibhav Tripathi, Intern
The Delhi High Court, in its recent judgement in Ajay Gupta v Amit Sales Corporation Pvt. Ltd.,[i] has reiterated a crucial tenet of corporate criminal liability— “when corporate identity is exploited for fraudulent conduct, the courts are empowered to look beyond the legal fiction of separate personality”. The Hon’ble Court upheld that piercing the corporate veil at the execution stage stands allowed, and further imposed personal liability on the directors of a defaulting company for dishonoured cheques, deviating from the standard practice wherein directors of a company cannot be ipso facto made a party to the proceedings involving corporate offences. The judgment carries heavy jurisprudential implications for the evolution of the doctrine of corporate criminal accountability in India.
[i] Ajay Gupta v Amit Sales Corporation Pvt. Ltd. (2025) SCC OnLine Del 4703
Facts of the Case:
Respondent 2 was a company managed by the Petitioners, to which Respondent 1 provided goods. Payment was attempted via two cheques, which were dishonoured due to insufficient funds. The suppliers instituted recovery proceedings and secured a favourable order from the lower court. In execution, the Petitioners who were former directors of the Respondent 2, out of which one had signed the cheques in question, were found to have absconded to the UAE and been declared proclaimed offenders. The trial court concluded that the corporate structure had been misused to perpetrate fraud, and hence, invoked the doctrine of piercing the corporate veil to enforce personal liability on the directors.
Judgment by the High Court: Reconciling Corporate Autonomy with Legal Responsibility:
The Hon’ble High Court reaffirmed that while a company is a distinct legal entity, this autonomy is not unbounded. When the corporate structure is instrumentalised to commit fraud or evade liabilities, courts have no option but to intervene. The ruling is consistent with established jurisprudence, particularly the “alter ego principle”, which views the directors or controlling minds of a company as indistinguishable from the company itself when deceit or mala fide intent is evident.
This principle was notably articulated in Standard Chartered Bank v Directorate of Enforcement,[i] where the Hon’ble Supreme Court held that corporations can be prosecuted and punished for offences involving mens rea, notwithstanding the impossibility of imposing imprisonment on corporate persons. Similarly, in Iridium India Telecom Ltd v Motorola Inc.,[ii] the Apex Court clarified that companies may be prosecuted for offences requiring mens rea through the acts and intentions of their directing minds, which are the directors.
The Delhi High Court’s application of this doctrine at the execution stage rather than at the trial stage extends its functional utility and prioritises substance over form in culpability of companies.
Corporate Criminal Liability in Theory and Practice:
The judgment also surfaces a deeper issue explored in general legal discourse, to what extent should individuals be shielded by the company’s legal identity. Traditional formulations of company law, which are deeply rooted in Salomon v A Salomon & Co Ltd,[iii] uphold the company as a separate person. However, this precedent becomes increasingly untenable in cases of organised financial fraud, especially where directors and key managerial personnel are the sole actors steering the company towards such illegalities.
In India, the regulatory framework under the Companies Act of 2013, specifically the Section 447, recognises the criminal nature of corporate fraud. Section 318 of the Bharatiya Nyaya Sanhita also criminalises cheating by any person, which extends to legal persons. Yet, the procedural burden of proving directorial intent often enables perpetrators to evade liability under the guise of their company. This judgment sidesteps that evasion, implicitly recognising that evidence of systemic misuse of corporate form should suffice to lift the corporate veil, even if individual fraudulent acts are difficult to isolate in such cases.
The Ministry of Corporate Affairs in a 2020 circular[iv] directed authorities not to proceed against non-executive directors without sufficient evidence. This principle finds its roots in the precedent established in the case of Sunil Bharti Mittal v Central Bureau of Investigation,[v] where the Apex Court cautioned against automatically arraying directors in criminal proceedings, and laid down stringent conditions towards the same. However, as clarified in the current judgment, when the corporate structure itself is a vehicle for fraud, directors cannot hide behind the corporate form and the protections offered by the same.
Conclusion: Towards a More Accountable Corporate Regime
This ruling reinforces the judiciary’s evolving posture towards balancing corporate independence with criminal responsibility. It contributes to a necessary shift in India’s legal landscape from treating corporate crime as an abstract notion to recognising the individuals behind corporate misconduct and holding them personally liable. Courts are no longer hesitant to lift the veil when the company becomes a façade for evasion, deception, or criminality.
A copy of the judgment of the Hon’ble Delhi High Court is available here.
[i] Standard Chartered Bank v Directorate of Enforcement, (2005) 4 SCC 530
[ii] Iridium India Telecom Ltd v Motorola Inc. (2005) 2 SCC 145
[iii] Salomon v A Salomon & Co Ltd UKHL [L.R.] 1 App. Cas. 22
[iv] General Circular No. 05/2020 F. No. 16/1/2020
[v] Sunil Bharti Mittal v Central Bureau of Investigation (2015) 4 SCC 609
