In the
Escorts Case, under the Foreign Exchange Regulation Act (FERA) And the
portfolio Investment Scheme, non-resident Indians were permitted to invest in
Indian Companies upto 1% of its paid up equity capital. This facility was also
extended to overseas companies in which ownership to the extent of at least 60%
was with the non-resident Indians. In 1983, 13 Companies purchased shares of
Escorts Ltd. More than 60% of the shares of all these 13 foreign companies were
held be a trust of which one person, Mr. Swaraj Paul and the members of his
family were the trustees. The Indian Company, Escorts Ltd., questioned the
purchase of the shares by the 13 companies.
It was contended that they were only 13 Companies in name, but only one
individual in fact, i.e. Swaraj Paul and his family members only being
circumvented by purchase being made by one person through 13 companies. It
insisted on lifting the corporate veil to discover that.
The Supreme Court held that in such a case
lifting the corporate veil is necessary and permissible only to find out the
nationality or origin of the share holders of the foreign companies seeking to
invest in shares of Indian companies.
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