COMPANY LAW IN INDIA

by :
DR. T.K. JAIN
AFTERSCHO☺OL
centre for social entrepreneurship
sivakamu veterinary hospital road
bikaner 334001 rajasthan, india
afterschoool@in.com
mobile : 91+9414430763

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 WHAT IS A COMPANY

The word ‘company’ is derived from

the Latin word (Com=with or
together; panis =bread), and it
originally referred to an association
of persons who took their meals
together
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 CASE : SOLOMAN V/S
SOLOMAN

Soloman framed a company and became secured creditor. He sold his

own business to company and made his family shareholders. Company
became bankrupt and payment was made to only soloman as a
creditor. Thus Other unsecurited creditors didnt get payment. The case
of Salomon v. Salomon and Co. Ltd., (1897) A.C. 22, has clearly
established the principle that once a company has been validly
constituted under the Companies Act, 1956 it becomes a legal person
distinct from its members and for this purpose it is immaterial whether
any member has a large or small proportion of the shares, and whether
he holds those shares beneficially or as a mere trustee.

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 Case : Lee v/s Lee's air farming
Lee was a pilot and managing direcor of the company, he
died in place crash. The court ordered the company to pay
compensation in the case of Lee v. Lee’s Air Farming Ltd.
(1961) A.C. 12 (P.C.) In this case, a company was formed
for the purpose of aerial top-dressing. Lee, a qualified
pilot, held all but one of the shares in the company. He
voted himself the managing director and got himself
appointed by the articles as chief pilot at a salary. His
widow claimed compensation for the death of her
husband, which the compnay refused to pay as Lee was
shareholder.
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 DIN
Director Identification Number (DIN) to be obtained by all existing
directors and every other person, intending to become a director. DIN to be
allotted by the Central Government within one month from the receipt of
application for allotment of DIN. Individuals prohibited to apply, obtain or
possess more than one DIN. Every existing Director to intimate his DIN to
the company or all companies wherein he is a director, within one month of
receipt of DIN. Intimation of DIN, to the Registrar or any other officer or
other specified authority by every company, within one week of the receipt
of intimation by the Director. Intimation to be given in prescribed form and
manner. DIN to be quoted by every person or company while furnishing
any return, information or particulars required to be furnished under the
Act, if such return etc. relate to the director or contain any reference of the
director

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 CHARACTERISTICS OF
COMPANY

PERPETUAL SUCCESSION
ARTIFICAL PERSON
SEPARATE ENTITY
LEGAL ENTITY
COMMON SEAL
NOT A CITIZEN
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 TYPES OF COMAPNY

PUBLIC OR PRIVATE
LIMITED OR UNLIMITED
SHARES OR GUARANTEE

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 Difference Between company &
partnership

Partnership require 2 to 20 partners, company

can have 2to 50 (private company) or 7 to
unlimited (public company).
Separate entity principle
perpetual succession principle

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Difference between company and
corporate sole
Corporate includes company, corporate sole,
corporations framed by goverunment as per separate
act / parliament law
corporation generally means government organisation
Corporate word is wider than company
corporate sole is a single person keeping some official
position, but company is a group of persons.

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 LIFTING CORPORATE VEIL

No body is permitted to lift corporate veil (who is the real

owner of the company). Company remains different from
shareholders. But it is lifted when in defence proceedings,
such as for the evasion of tax, an entity relies on its
corporate personality as a shield to cover its wrong doings.
[BSN (UK) Ltd. v. Janardan Mohandas Rajan Pillai [1996]
86 Comp. Cas. 371 (Bom).] Shareholders cannot ask for
lifting veil for their purpose - held in Premlata Bhatia v.
Union of India (2004)

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 Illegal association
Section 11 of the Companies Act, no company,
association or partnership consisting of more
than 20 persons (10 in the case of banking
business) can be formed for the purpose of
carrying on any business for gain, unless it is
registered as a company under the Companies
Act, or is formed in pursuance of some other
Indian Law, or is a Joint Hindu Family
carrying on business for gain.
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 Types of companies :

Private / public / producer

limited / unlimited
limited by shares / guarantee
chartered / registered / statutory

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 Private company

Minimum 2 and max 50 members, shares

/deposits cannot be offered to public, minimum
capital is 1 lakh, does not require prospectus or
certificate to commence business, no ceiling on
director's remuneration, sec. 3(1) (iii)

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 Public company

Minimum 7 members, no maximum limit,

shares are transferable, certificate of
commencement of business is required,
minimum capital : 5 lakhs, statutory meeting
and statutory report is necessary, prospectus is
necessary: sec. 3(1)(iv)

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 Government company

Minimum 51% capital held by government,

Sec. 617

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 Case : A.K. Bindal v. Union of
India (2003)

Employees of a government company are not

government employees and cannot claim the
same facilities as government employees

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 Case : Hindustan Steel Works
Construction Co. Ltd. v. State of
Kerala (1998)

Government company is neither a government

department nor a government unit.

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 Case : Andhra Pradesh Road
Transport Corporation v. ITO AIR
1964
APRTC was a whole owned government
company, still it was held that it was separate
entity and had to pay income tax. Income tax
was not payable by government
establishments, but the court held that APRTC
is an separate company and not a government
department.
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 Case : Heavy Engineering
Mazdoor Union v. State of Bihar
(1969)

Legal status of a company will not change just

because government is a shareholder in that
company

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 Audit in government company

Auditor is appointed by CAG (Comptroller and

auditor general)

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 Foreign company

A company registered in a country other than

India is called foreign company. It has to get it
self registered with registrar of companies in
the state where it works and in Delhi as foreign
company within 30 days of opening office in
India. It must display a notice stating its
registered office. It can be limited or private
limited (but it has to mention it).
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Holding and subsidiary company

Section 4: subsidiary company is that in which

holding company holds 50% voting power /
stake or controls the board of directors

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 Investment company

According to Section 2(10A) of the Insurance

Act, 1938, an investment company means a
company whose principal business is the
acquisition of shares, stocks, debentures or
other securities. The main task of these
companies is buying and selling securities of
other companies.
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 Producer company

Companies (Amendment) Act, 2002 had added

a new Part IXA to the main Companies Act,
1956 consisting of 46 new Sections from 581A
to 581ZT. It is a company framed by workers /
producers and it is more of a type of
cooperative of workers. It tries to distribute its
profits among the producers / workers who act
as producers.
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 Finance company
It is a company which is engaged in accepting
deposits, giving loans, and other related
activities, According to Rule 2(cc) of the
Companies (Acceptance of Deposits) Rules,
1975, a ‘Financial Company’ means a non-
banking company which is a financial
institution within the meaning of clause (c) of
Section 45-I of the Reserve Bank of India Act,
1934 (2 of 1934).
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