Company Law Project on

Comparative Analysis of Companies Act,

1956 and Companies Act, 2013

By-

Adhip Ray
Semester – 6
Section – B
Course – BA,LLB(H)
Batch – 2017-2022

Amity Law School, Amity University Kolkata

 Abstract

Plagued with bureaucratic red tape, Government hurdles and archaic regulatory frameworks,
most Indian companies had lost their competitiveness in the world economy. While the old
Companies Act, 1956, even after continuous amendments to itself failed to adapt itself to the
rising changes in Corporate governance and business structure, the Parliament found it had to
usher in a change and brought in the Companies Act, 2013 which was aimed at improving the
functioning of companies in India as well as improve the “Ease of Doing Business” in India.
The new legislation aimed at improving corporate democracy in a country which is famous
worldwide for its corporate protectionism. In this article, we shall delve into a comparative
analysis of the new Companies Act 2013 and the old Companies Act, 1956 to understand what
remains the same and what has changed and how the new Act affects companies now.

Keywords

Companies Act 1956, Companies Act 2013, Company Act, Business Law, Corporate Law
 Chapterisation

Table of Cases

Abbreviations

Introduction

Structure of Companies
Table of Cases
Abbreviations
 Introduction

The Companies Bill, 2012 was passed in Rajya Sabha on 8th August, 2013, and became
Companies Act, 2013 finally replacing the decades old Companies Act, 1956 which was a very
much outdated legislation guiding companies in India.

The statute contains 29 chapters, 470 sections and 7 schedules, which is comparatively more
streamlined than the Companies Act, 1956 which contained 658 sections and 14 schedules.

The phrase “as may be prescribed” has been used around 336 times in the 2013 Act which gives
the Central Government ample power to fine-tune the workings of the Act to the continuous
economic changes that plague the present world.

However, probably the main aim of the Companies Act, 2013 has been to reduce the
bureaucratic red tape and bring down the continuous hurdles that businesses and start-ups face
when and after incorporating themselves into a company. The Companies Act, 2013 aims at
lessening Government approvals and boosting self-regulations by companies so as to provide for
speedy workings by companies and to enable them be competitive players in the world economy.

Although it has been the golden aim of the Government, it can be said that the Companies Act,
2013 has brought in a mixed basket of results with some successes and some failures. The
following pages shall traverse all the fundamental aspects of the two Acts so as to compare and
analyse them in different respects.
 Structure of Companies

The new Companies Act, 2013 has made some much-needed changes in the types of companies
that can be incorporated. For example, the Companies Act, 1956 did not have any provisions
relating to formation of One-Person Companies.

However Section 2(62) of Companies Act, 2013 Act provides for the one-person companies
which mean a company having only one person as a member. Section 3(1)(c) provides for
incorporating such a company by saying that a company may be formed for any lawful purpose
by one person, where the company formed is to be one person company, that is to say, a private
company.

One person companies are required to have at least one director according to Section 149, who
shall have to comply with the provision laid out in Section 149(3) that a director must have had
to stay in India for a period of not less than 182 days in the previous calendar year, but the 1956
Act is silent about resident directors.

There is no requirement for annual general meetings. Provision as to meetings shall be deemed to
have been complied if at least one meeting of the board is conducted in half a calendar year and
the gap between two meetings is not below 90 days. Provisions of Section 174 as to quorum of
the meeting shall also not apply to one-person companies as per the Companies Act, 2013.

However, the memorandum of such companies must mention the name of a person, with his/her
prior written consent who shall in the event that the subscriber to the memorandum dies or
becomes incapacitate to contract, shall become the member of the company.

Further the new act has provided for changing the upper-limit of members of a private company
from 50 to 200.
 Board of Directors

It has been held in by Justice Marshall in Dartmouth College v. Woodward1, that a corporation is
an artificial being that exists only in contemplation of the law. Justice Haldane observed in
Lennard’s Carrying Co. Ltd v. Asiatic Petroleum Co. Ltd 2 that a corporation does not have a
mind of its own. Therefore Lord Reid stated in Tesco Supermarkets Ltd v. Nattrass3 that a
company must act through living persons. It is these living persons who guide the day to day
business of companies that we call directors of a company. Section 2(34) provides that a director
means a director appointed to the Board of a company. In a public company, the minimum
number of directors that has to be kept is 3 and the maximum is 15, as per Companies Act, 2013
as has been changed from 12 in the Companies Act, 1956. Further, in the old statute the upper
limit could only be increased by taking Government permission whereas in the new statute, the
upper limit can be increased by a resolution passed in the Annual General Meeting. This change
allows for a company to quickly increase the number of its directors in times of contingencies
and situations that require more hands on board.

Since directors are not servants of a company4 even if they work as an employee in a different
capacity5, and that they are agents6 and trustees7 of a company, it is imperative that companies
and members of companies are given more room to adapt during change in business conditions
in the global environment, which the 2013 Act aims to do.

1
4 L Ed 629
2
1915 AC 705
3
1972 AC 153
4
Moriarty v. Regent’s Garage Co, (1921) 1 KB 423
5
Lee v. Lee’s Air Farming Ltd, 1961 AC 12
6
Ferguson v. Wilson (1866) LR 2 Ch App 77
7
Ramaswamy Iyer v. Brahamayya & Co, (1966) 1 Comp LJ 107