National Consumer Disputes Redressal Commission (NCDRC) has lifted the veil between housing developer Ansal Properties & Infrastructure (API) and its project-level subsidiary Ansal Hi-Tech Township for failing to comply with earlier rulings directing refund of homebuyers' money. API chairman Pranav Ansal was, however, not made personally liable, although the tribunal held that he controlled both companies that were inextricably linked. NCDRC took note of a Supreme Court ruling in another case involving Ansal that he could not be held personally liable because he was not party to the original consumer complaint. But he was found to have wilfully not complied with the tribunal's orders over refunds and interest. It also said it would go deeper into the question of corporate layering.
Courts lift the corporate veil - that is, disregard a company's separate legal identity - when the corporate structure is used to commit fraud or illegal actions, or to evade taxes and legal obligations. They do this in exceptional circumstances when there is specific evidence of wrongdoing. Once the veil is lifted, there's a possibility that personal liability of a company's directors can be invoked, depending on the crime's magnitude. In this case, the question of invoking personal liability was settled by a Supreme Court verdict on a similar matter involving Ansal.
Housing development companies use the corporate parent and project-level subsidiary structure extensively because of the business agility it provides. Yet, the structure needs to be used within overall safeguards around corporate layering. Inadequate governance could invite greater legal scrutiny in sensitive markets like housing. New regulations for the real estate industry have curbed malpractice. Yet, homebuyers still need legal recourse on occasion. These cases could involve more transparency over corporate layering. The market has been made more legally secure from the consumer's side. But a solution must extend to altering the market structure that allows easy violations.
Courts lift the corporate veil - that is, disregard a company's separate legal identity - when the corporate structure is used to commit fraud or illegal actions, or to evade taxes and legal obligations. They do this in exceptional circumstances when there is specific evidence of wrongdoing. Once the veil is lifted, there's a possibility that personal liability of a company's directors can be invoked, depending on the crime's magnitude. In this case, the question of invoking personal liability was settled by a Supreme Court verdict on a similar matter involving Ansal.
Housing development companies use the corporate parent and project-level subsidiary structure extensively because of the business agility it provides. Yet, the structure needs to be used within overall safeguards around corporate layering. Inadequate governance could invite greater legal scrutiny in sensitive markets like housing. New regulations for the real estate industry have curbed malpractice. Yet, homebuyers still need legal recourse on occasion. These cases could involve more transparency over corporate layering. The market has been made more legally secure from the consumer's side. But a solution must extend to altering the market structure that allows easy violations.
