IN THE HIGH COURT OF TANZANIA

DODOMA DISTRICT REGISTRY

AT DODOMA

MISC. CIVIL APPLICATION NO. 34 OF 2021

(Originating from the Civil Case No.09 of 2014 in the High Court of
Tanzania at Dodoma)

1. SAGUDA MAGAWA SALUM......................................... APPLICANT

2. ALBAN SHABAN CHOTA............................................. APPLICANT
3. MARTINI GAMBO....................................................... APPLICANT
4. MUSSA ABDI ABDILAHI............................................. APPLICANT

VERSUS

NAM COMPANY LIMITED.................................... 1st RESPONDENT

ASPENAS MAGINA NG'ARANGA.......................... 2nd RESPONDENT

RULING

Date of Last Order: 30/06/2022

Date ofJudgment: 13/07/2022

Mambi, J.

This Ruling emanates from the application filled by the applicants under

sections 38, 68 (e) and 95 of the Civil Procedure Code Cap 33 [R.E.2019J.

The applicants filed their application supported by their affidavits. The

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applicants have invited this Court to lift the veil of the corporate (NAM

Company limited) herein referred as the first respondent and hold the

second respondent liable to satisfy the decree.

During hearing the learned counsel for the applicants submitted that since
the second respondent was the one who entered into the contract he is
required to be liable. He referred the decision of the court in Yusufu
Manji vs Edward Masanja & another Civil ppeai No. 78 of2002.
In response, the respondents' counsel contended that the application has

no merit as there is no any proof for concealment on the part of the

second respondent. He argued that the case referred by the applicants is

distinguishable

I have keenly gone through and considered the brief submissions by both
parties in line with case studies and the provisions of the law. One of the
key issue to be first asked is whether the court has been properly moved.
In other words the first question to be determined is whether the
applicants were right in filling the matter. In other words the legal issue to
be determined is whether the applicants have advanced sufficient ground
for this court to the consider lifting the veil of corporate for the second
respondent. Before I determine the legal issues I have raised, I wish to
briefly highlight the concept of the corporate corporate veil and doctrine of
lifting the veil of corporation. I will also briefly address circumstances under
which the corporate veil can be lifted.
The term corporate veil can be briefly defined as the concept that
members of a company are shielded from liability connected to the

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company's action. This means that where the company incurs any debts or
contravenes any law, the corporate veil concept implies that members
should not be liable for those errors.
(See https://www.lawyersclubindia.com/articles/case-laws-pertaining-to-
lifting-up-of-corporate-veil-theory-11776.asp).

In other words the corporate veil concept provides that once a company is
validly registered under the Companies Act it becomes a separate legal
person from its members, for that purpose it is immaterial whether any
member has a large or small shareholding. It is trite law that once a
company is registered it legally becomes a separate person and therefore
members of the company are also considered as a different person and can
claim amount from the company just like any other secured creditors.
Generally, a company which is an artificial person, with no physical
existence is a legal entity represented by a set of members or association
of people, with specific objectives. The line of business structure of the
company (which is invisible and intangible) can be corporation,
partnership, or proprietorship, "a company is an artificial person, has no
physical existence. Indeed the registered company is invisible and
intangible and exists only in contemplation of law" . The court in Salomon
vs Salomon & Co Limited (1897)had once held that:

"the company is a real and legal company, fulfilling

all legal requirements. It had an identity different
from its members and therefore, the unsecured
creditors were to be paid at priority from the
secured debentures".

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Similarity in another persuasive case from Indian the Court in Lee vs Lee
Air Fanning Limited (1960) held that;

"Lee was a separate person from the company he

formed and his widow wife is entitled to get the
compensation".

It should be noted that under the provisions of the company law, a

corporate veil is a legal concept that separates the acts done by the
companies and organizations from the actions of the shareholders. The
doctrine of corporate veil protects the shareholders from being liable for
the actions done by the company. However, such protection is not an
absolute right as as the law empowers the court to uncover such protection
shield and make shareholders or company directors liable. On the other
hand, corporate personality is the reality expressed by the law that a
company is perceived as a legal entity distinct from its members. This
means that a company with such recognition and personality will be
considered as a separate legal entity having an independent legal existence
from the members of the company. In this regard, a company is known by
its own name and has its own right, duties, obligations, and liabilities. The
principle of veil of incorporation is a legal concept that separates the
personality of a corporation from the personalities of its shareholders and
protects them from being personally liable for the company's debts and
other obligations. Therefore, there is a clear difference between the
company and its members, this is commonly called a Corporate Veil.
The rationale behind the corporate veil is to shield members of the
company from labiality Connected to the company's actions. This means

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that corporate Veil is a legal concept that separates the personality of a
corporation from the personalities of its shareholders, and protects them
from being personally liable for the company's debts and other obligations.
Indeed shareholders or directors may hide behind the corporate veil,
assured that their liability does not extend beyond the value of their share
if they are not controlled through lifting the veil of the corporation.
One can ask the question that can the corporate veil of the company be
lifted and make shareholders or directors liable? The answer is that there
are circumstances where the corporate veil of the company can be lifted
under the doctrine of lifting the veil of corporation. The doctrine of lifting
the corporate veil plays an important role in identifying the offenders who
do these crimes and hide behind the curtains of the company. The doctrine
of a separate legal entity plays the same role as that of the lifting of the
corporate veil but in a much broader sense. The concept of a separate
legal entity itself is the cause of action or reason behind the members of
any given company or an organization to commit crimes and hide behind
the curtains of the company. This notion of hiding behind the walls of the
company was removed by the courts and the law and the true meaning of
a separate legal entity can be seen in many landmark cases, which led to
the establishment of laws.
While a company is a separate legal entity, the fact that it can only act
through human agents cannot be neglected. Since an artificial person is
not capable of doing anything illegal or fraudulent, the faqade of corporate
personality might have to be removed to identify the persons who are
really guilty. This is known as lifting of the corporate veil.

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Besides the statutory provisions for lifting the corporate veil, courts also do
lift the corporate veil to see the real state of affairs. However, even though
the legislature and the courts have in many cases now allowed the
corporate veil to be lifted. It should be noted that the principle of veil of
incorporation is still the rule and the instances of lifting or piercing the veil
are the exceptions to this rule.

At times it may happen that the corporate personality of the company is

used to commit frauds and improper or illegal acts. Since an artificial
person is not capable of doing anything illegal or fraudulent, the fagade of
corporate personality might have to be removed to identify the persons
who are really guilty and take the liability on behalf of the company. This is
known as 'lifting of corporate veil'. The doctrine of 'lifting of corporate veil
refers to the situation where a shareholder is held liable for its
corporation's debts despite the rule of limited liability and/of separate
personality. The veil doctrine is invoked when shareholders blur the
distinction between the corporation and the shareholders. This means that,
a company or corporation can only act through human agents that
compose it. As a result, there are two main ways through which a company
becomes liable in company or corporate law: firstly through direct liability
(for direct infringement) and secondly through secondary liability (for acts
of its human agents acting in the course of their employment).
In this regard the court in certain circumstances may go beyond principle
described in Solomon (supra) by lifting the veil where there are grounds
to do so. Generally there are grounds under which Corporate veil can be
lifted. These grounds among other include; Situation where the Company is
a Sham (Fraud), invocation of the principal of agency, Public Policy and

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protection of Revenue (Tax Evasion). Other grounds where the veil of
corporate can be lifted include Statutory Provisions. In those statutory
provision support of Lifting the Corporate Veil can be invoked where it is
established that there is reduction of number of members below the
statutory minimum, failure to refund application fee and fraudulent trading.
The question is, have the applicant established all these conditions for
lifting the corporate veil for the second respondent?. The answer in my
view is yes that the applicants have established that the second respondent
was among the directors of the first respondent and he is the one who
entered into the contract on behalf of the company. Since the satisfaction
of the decree sought by the applicants depends on the liability of the acts
done by the second respondent, he cannot use corporate veil as the shield
to escape liability if any. My reasons are based on the fact that if the
purpose of incorporation of the company is to defeat law or avoid legal
obligation then lifting of corporate veil cannot be avoided at any rate. In
other words, if the purpose of incorporation of the company is to
contravene any law or to avoid any legal obligations (arising by way of
contract) or any illegal activity then there is lifting of corporate veil and
that particular person/persons are liable.
Consequently, since the company act and it transact its business through
the its directors and since the second respondent was one of the directors
responsible for the decree which has yet to be honoured the court cannot
permit the second respondent to use shield and hide under the corporation
veil to avoid his legal obligation as a director who was responsible for the
contract.

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Looking at the records, I am of the settled mind that this court has
satisfied itself that there are grounds for lifting the corporate veil as prayed
by the applicants.
In the premises and from the foregoing reasons, in terms of the enabling

provisions of the Companies Act the application filed by the applicants is

hereby granted. I make no order as to costs.

Ruling delivered in Chambers this 13th of July, 2022 in presence of both