Consumer protection Act, 1986

• The Consumer Protection Act 1986 was passed by the Indian Parliament to
protect consumer rights and to redress consumer complaints and resolve
consumer disputes.

• It makes provision for the establishment of consumer councils and other

authorities for the settlement of consumers' disputes and for matters
connected therewith also.

• The act was passed in Assembly in October 1986 and came into force on
December 24 1986. The day is celebrated as consumer protection day.

• According to the Act, a consumer in India is any person who

a. Buys any goods;
b. Hires any services;
• With growing competition prevailing in the market, manufacturers, traders and
service providers have made an attempt to increase their sales by tempting
themselves to engage in exploitative and unethical malpractices which includes:
i. Sale of spurious goods i.e. selling something of little value instead of real
product;
ii. Sale of sub-standard goods i.e. selling goods not conforming to prescribed
quality standards;
iii. Sale of duplicate products;
iv. Overcharging i.e. charging more than Maximum Retail Price for the product;
v. Hoarding and black-marketing i.e. creating artificial scarcity in the market
thereby leading to price rise;
vi. Misleading advertisements i.e. false advertisement claiming a product or service
to be of superior quality;
vii. Sale of adulterated goods i.e. adding something inferior to the product;
viii. Fractional weights and measures i.e. use of false weights and measures leading to
underweight;
ix. Supply of defective goods;
The salient features of the Consumer Protection Act, 1986
• The Act extends to all the areas of the economy i.e. public, private and cooperative
sector.
• One of the most important features of this Act is the provision for compensation
and the extra help it provides to the customers.
• The Act also provides several rights to its consumers which are:
a. Right to be heard and to be assured that consumers interests will receive due
consideration at appropriate forum
b. Right to seek redressal against unfair trade practices or unscrupulous exploitation
of consumers
c. Right to consumer education
d. The right to be assured wherever possible, access to a variety of goods and
services at competitive prices
e. The right to be informed about the quality, potency, purity, standard and price of
goods (or services as the case may be) so as to protect the consumers against
unfair trade practices
f. The right to be protected against the marketing of goods (and services) which are
hazardous to life and property.
• The Act also safeguards the consumers against the risk of faulty or
defective goods and any risk it may cause to the consumer.
• The three-tier redressal system is also one of the most important aspects of
this Act.
• The complaints are to be addressed and resolved within the stipulated time
limit and hence all the cases are time bound.
• The Act also has the provision to establish consumer protection councils to
make the consumer aware of their rights.
• Has a time frame for disposal of cases.
• Empowers consumers seeking discontinuance of certain unfair trade
practices, defects or deficiencies in services and withdrawal of hazardous
goods from the market.
• Complaints can be filed on behalf of group of consumers having a common
interest.
• No technicalities in the procedure of Redressal Forum. In fact, the Act
provides for a simple, speedy and inexpensive redressal of consumer
grievances.
• The consumer protection act, 1986, protects consumers through three aspects:
a. Physical Protection of Consumers

b. Protection of Public Interest

c. Protection of Economic Interest

• Under the Consumer Protection Act, 1986, a three-tier judicial machinery was
set up to deal with consumer grievances i.e.

a. District level (known as the District Redressal Forum),

b. State level [known as State Consumer Dispute Redressal Commission

(S.C.D.R.C) ]

c. National level [known as National Consumer Dispute Redressal Commission

(N.C.D.R.C)]

• Any aggrieved consumer can lodge a complaint at any of the forums depending
upon the value of goods claimed for compensation.
Circumstances under which complaint can be filed:
• An aggrieved consumer can file a complaint relating to
any one or more of the following circumstances
a. If the goods purchased by the consumer are found to
be defective;
b. If any unfair trade practice or a restrictive trade
practice has been adopted by any trader;
c. If the consumer suffers from any deficiency in the
services hired or availed of;
d. If the consumer is charged in excess for the price fixed
by the seller or displayed on the goods or any package
containing such goods;
e. If the consumer uses goods or services which are
hazardous or likely to be hazardous to life and safety.
Procedure of filing a complaint:
• Filing of complaint under Consumer Protection Act is very simple. A complaint
should contain the following information:

a. The complaint should be in writing by the complainant putting the necessary facts
relating to the complaint and when and where it arose;

b. The name, address and description of the complainant or authorized agent;

c. The name(s), address and description of the opponent;

d. Documents, if any, and affidavit in support of the allegations contained in the

complaint;

e. The relief asked for by complainant;

f. The complaint should be signed by the complainant(s) or his authorized agent;

g. The prescribed fee for filing a complaint before the Consumer Dispute Redressal
Forum is to be deposited;

h. The complaint can be presented before the Consumer Dispute Redressal Forum
by complainant/authorized agent in person, or else the complaint can be sent by
registered post in order to be filed before Consumer Dispute Redressal Forum.
Reliefs available to consumers:
a. To remove the defect in goods or deficiency in services, if defective goods are
supplied to the customers.
b. To replace the defective product and supply proper goods to the consumers.
c. To take back the defective goods and refund the price paid for the product or
charges paid for the service to the aggrieved buyer.
d. To compensate the aggrieved buyer for supplying defective goods or wrong
services due to negligence of the supplier.
e. To reimburse the cost incurred by complainant while presenting the case at the
redressal forum.
f. To discontinue unfair trade practices or restrictive trade practices.
g. To warn the supplier to stop the selling of hazardous goods.
h. To contribute atleast 5% of the value of such goods and services towards the
Consumer Welfare Fund or any other organization.
i. To issue corrective advertisement to neutralize the effect of misleading
advertisement.
j. To provide adequate costs to parties.
Time-limit for filing the case:
• The consumer can file the complaint within two years
from the date on which the cause of action had arisen.

• However, even after the expiry of two years the

consumer can file a complaint, provided sufficient
cause is shown for the delay.
Time-limit for deciding the case:
• Every complaint must be disposed off by the adequate
Forum/Commission with a time period of three months
from the date of notice received by the opposite party.

• However, if the complaint requires laboratory testing of

goods, this period can be extended and complaint can
be made within five months.
 The Central Consumer Protection
Council (Sec 4)
• The Central Government through a notification in the
official Gazette establishes a Council known as Central
Consumer Protection Council.

• It acts as an apex body in consumer affairs. The Council

consists of

a) The Minister-in-charge of the Consumer Affairs who shall

be the Chairman of the Council and

b) Other official or non-official members representing such

interest as may be prescribed
• The Central Council consist of 150 members which includes
a) The Minister in-charge of Consumer Affairs who shall be the Chairman of the
Central Council;
b) The Minister of State or Deputy Minister in-charge of Consumer Affairs who
shall be the Vice- Chairman of the Central Council;
c) Minister- in-charge of Consumer Affairs in States or Food and Civil Supplies;
d) Five members from Lok Sabha and three members from Rajya Sabha;
e) Commissioner of Schedule Castes and Tribes;
f) Representatives not exceeding twenty of the Central Government Departments
and autonomous organization concerned with consumer interest;
g) Representatives not below thirty-five of the Consumer Organization or
consumers;
h) Representatives of women not below ten;
i) Representatives of farmers, trade and industries not exceeding twenty;
j) Persons capable of representing consumer interest not exceeding fifteen;
k) The Secretary in charge of Consumer Affairs in the Central Government shall be
the member-secretary of the Central Council
Procedure of meetings (Sec 5):
• As per Section 5 of Consumer Protection Act, at least one meeting shall be held every
year as and when necessary and the time and place of the meeting shall be decided by
the Chairman.
Term of office:
• The term of office of the Council shall be three years.
Objective of the Council:
• According to section 6 of the Act, the objects of the Central Council are to promote and
protect the following rights of the consumers:

(a) the right to be protected against the marketing of goods and services which are
hazardous to life and property;
(b) the right to be informed about the quality, quantity, potency, purity, standard and
price of goods or services, so as to protect the consumers against unfair trade
practices;
(c) the right to be assured, wherever possible, access to a variety of goods and
services at competitive prices;
(d) the right to be heard and to be assured that consumer's interests will receive due
consideration at appropriate forums;
(e) the right to seek redressal against unfair trade practices or restrictive trade
practices or unscrupulous exploitation of consumers; and
(f) the right to consumer education.
 State Consumer Protection Council
(Sec 7)
• The State Government by notification shall establish a Council
known as the State Consumer Protection Council

Members of the State Consumer Protection Council:

• The State Council shall consist of the following members, namely

a) Minister-in-charge of Consumer Affairs in the State Government

who shall be its Chairman

b) Other officials or non-official members not exceeding ten as

nominated by Central Government representing such interest as
prescribed by State Government.
Procedure of Meetings:
• The State Council shall conduct atleast two meetings
every year as and when necessary.

Place of Meeting:
• The time and place of meeting shall be fixed by the
Chairman. The State Council shall meet at such time
and place as the Chairman may think convenient.
•
Objective of the State Council:
• Same objects, within the states as have been laid down
in section 6 of the Act for the Central Council.
 District Consumer Protection
Council (Sec 8 A)
• In 2002, two new sections, sections 8A and 8B have been inserted in the Act which
empower the state government to establish for every district a consumer protection
council.
• The State Government by notification shall establish for every district a council
known as the District Consumer Protection Council
Objectives of the District Council (Sec 8 B):
• The objective of every District Council is to promote and protect the rights of
consumers within the State.
Members of the District Council:
• The District Council shall consist of members namely
1. Collector of the District (by whatever name called) who shall be its Chairman.
2. Other officials and non-official members as prescribed by the State Government.
Procedure of Meetings:
• The District Council shall conduct atleast two meetings every year as and when
necessary.
Place of Meeting:
• The District Council shall meet at such time
and place within the District as the Chairman
may think fit and shall follow the procedure as
prescribed by the State Government.
 Consumer Disputes Redressal
Machinery
• Section 9 of the Act provides for the establishment of a three-tier
consumer dispute redressal system:

(a) the Consumer Disputes Redressal Fora (District Forum) to be

established in each district by the state government,

(b) the Consumer Disputes Redressal Commission (State

Commission) to be established in each state by the state
government,

(c) the National Consumer Dispute Redressal Commission (NCDRC)

to be established by the central government.

• The Act contains detailed provisions about the composition,

jurisdiction and procedure to be followed by these fora
District Forum:
Composition of the Forum:
• Each district forum is to consist of a president and two other members.

• The president should be a person who has been or is qualified to be a

district judge.

• Out of the other two members, one member must be a women.

Qualification of the members:

• Should not be less than 35 years of age.

• Should possess a bachelor’s degree from a recognized University.

• Should be a person of ability, integrity and have adequate knowledge and

experience of atleast 10 years in dealing with problems relating to
economics, law, commerce, accountancy, industry, public affairs or
administration.
Dis-Qualifications of Members:
A person, as a member also has the right to be disqualified
from appointment on the following grounds
a. If the person is an insolvent.
b. If the person has been convicted and sentenced to
imprisonment because of moral turpitude.
c. If the person has been declared of unsound mind by a
competent court.
d. If the person has been dismissed from Government service
or a body corporate owned or controlled by the
Government.
e. If the person has such other disqualifications as may be
prescribed by the State Government.
f. If the person in the opinion of the State Government has
such financial or other interest which is likely to affect
prejudicially his discharge of his functions as a member.
Appointment of the Members:
• On the basis of the recommendations of a selection committee, the
appointment of the member is to be made.
• The appointment is to be made under the Chairmanship of the
President of the State Commission, Secretary of Law Department of
State and Secretary in-charge of the Department dealing with
consumer affairs in the State as its member.
Term of Office[Sec 10(2)] :
• Member of the District Forum has to hold office for a term of 5
years or upto the age of 65 years whichever is earlier.
• A member shall be reappointed for another term of five years or
upto the age of sixty-five whichever is earlier, provided he fulfills
the necessary qualifications and other conditions for appointment.
Resignation:
• A member may put forward his resignation addressed to the State
Government and on being accepted of the resignation his office shall
be vacated and will be filled by appointment as mentioned in Sec
10(2).
Salary:
• The salary or honorarium and other allowances payable to the members of
the District Forum shall be prescribed by the State Government.
• The President of the District Forum shall receive a salary of the Judge of a
District Court on full-time basis or an honorarium of Rs.150 per day on
part-time basis.
• The members of the District Forum shall receive an honorarium of Rs.2000
per month on whole-time basis or an honorarium of Rs.100 per day on part-
time basis.
• The President and members shall receive travelling and daily allowance on
official tour as admissible to Grade-I Officer of the State Government.
Jurisdiction (Sec 11):
• A written complaint can be filed before the District Consumer Forum if the
value of goods or services along with the compensation claimed does not
exceed rupees twenty lakhs
Appeal:
• If the aggrieved party is dissatisfied with the judgement of the District
Forum, an appeal against the order of the District Forum can be filed before
the State Commission within a period of 30 days of the passing of the order
of the District Forum and by depositing Rs 25,000 or 50% of the penalty
whichever is less.
Powers of the District Forum:
• The district forum has the same powers as that of a civil
court while trying a suit, which include:
(a) the summoning and enforcing the attendance of any
defendant or witnesses and examining the witnesses on
oath;
(b) the discovery and production of any document or other
material object as evidence;
(c) the reception of evidence on affidavits;
(d) the requisitioning of the report of the concerned analysis
or test from the appropriate laboratory or from any other
relevant source;
(e) issuing of any commission for the examination of any
witness; and
(f) any other matter which may be prescribed by the
government.
Nature of relief granted by the district forum:
1. to remove the defect in goods;
2. to replace the goods with new goods of similar description free from
defects;
3. to return to the complainant the price or the charges paid by him;
4. to pay compensation to the consumer for loss or injury suffered due to the
negligence of the opposite party;
5. to remove the deficiencies in services;
6. to discontinue an unfair trade practice or the restrictive trade practice Or
not to repeat them;
7. to desist from offering hazardous goods for sale;
8. to withdraw the hazardous goods having been offered for sale;
9. to stop manufacture of hazardous goods and offering hazardous services;
to direct the opposite party to pay any determinate sum in case of loss or
injury suffered by a large number of consumers who are not identifiable
conveniently;
10. to issue corrective advertisements to neutralize the effect of any
misleading advertisement at the cost of the opposite party responsible for
issuing such misleading advertisement;
11. to provide for adequate costs to parties.
State Commission(Sec 16):
Composition of the State Commission:
• The State Commission is headed by a –
1. Judge of a High Court who shall be designated as its President and
2. Two other members, one of whom shall be a woman
Qualification of Members:
• To be a member of the State Commission one should possess the
following qualifications:
1. Should not be less than 35 years of age.
2. Should possess a bachelor’s degree from a recognized University.
3. Should be a person of ability, integrity and have adequate
knowledge and experience of atleast 10 years in dealing with
problems relating to economics, law, commerce, accountancy,
industry, public affairs or administration provided that not more
than 50% of the members shall be from amongst persons having
judicial background.
Dis-Qualification of Members:
• A person, as a member also has the right to be disqualified
from appointment on the following grounds
1. If the person is declared insolvent.
2. If the person has been convicted and sentenced to
imprisonment because of moral turpitude.
3. If the person is of unsound mind as declared by a
competent court.
4. If the person has been dismissed from Government service
or a body corporate owned or controlled by the
Government.
5. If the person has such other disqualifications as may be
prescribed by the State Government.
6. If the person in the opinion of the State Government has
such financial or other interest which is likely to affect
prejudicially his discharge of his functions as a member.
Appointment of the Members:
• On the basis of the recommendations of a selection committee, the
appointment of the member is to be made. The appointment is to be
made under the Chairmanship of the President of the State Council.

• If the President of the State Council is not present then the State
Government may refer the matter to the Chief Justice of the High
Court to act as the Chairman.

Term of Office:
• The term of office of the member of the State Commission is for a
period of five years or till the incumbent reaches the age of sixty-
seven years, whichever is earlier.

• A member shall be reappointed for another term of five years or

upto the age of sixty seven whichever is earlier, provided he fulfills
the necessary qualifications and other conditions for appointment.
Resignation:
• A member may put forward his resignation addressed to the State
Government and on being acceptance of such resignation his office shall
become vacated and may be filled by appointment of a person possessing
any of the qualifications mentioned in the Act.

Salary:
• The salary or honorarium and other allowances payable to the members of
the State Commission shall be prescribed by the State Government.

• The President of the State Commission shall receive a salary of the Judge
of a High Court on full-time basis or an honorarium of Rs.200 per day on
part-time basis.

• The members of the State Commission shall receive a consolidated

honorarium of Rs.3000 per month on whole-time basis or a consolidated
honorarium of Rs.150 per day on part-time basis. The President and
members shall receive travelling and daily allowance on official tour as
admissible to Grade-I Officer of the State Government.
Jurisdiction (Sec 17):
• A written complaint can be entertained by the State
Commission where the value of goods or services and
compensation claimed if any, exceeds rupees twenty lakhs
but does not exceed rupees one crore.

Appeal:
• If the aggrieved party is not satisfied with the judgement of
the State Commission, then it can prefer an appeal against
such order before the National Commission within 30 days
of the passing of the order and by depositing Rs. 35,000 or
50% of penalty amount whichever is less.

• A late appeal may also be entertained provided that the

Commission is satisfied that there was a sufficient cause for
not preferring an appeal within the prescribed period.
Powers of the State Commission:
• In addition to the powers enjoyed by the district forum the state
commission powers also includes
a. The state commissions enjoy supervisory powers over the district forums.
On the application of the complainant or of its own motion, the state
commission may, at any stage of the proceeding, transfer any complaint
pending before a district forum to another district forum within the state if
the interest of justice so requires.

b. The state commissions may call the records of any consumer dispute
pending before or decided by any district forum within its limits of
jurisdiction if it appears to the commission that the district forum has
exercised a jurisdiction not vested in it by law or has failed to exercise
jurisdiction so vested in it.

c. The revisional jurisdiction may be exercised by a state commission, either

suo motu or on the application of a party. The revisionary power of the
state commission can be exercised only in matters pertaining to the
jurisdiction of a district forum. Any error in the judgment of the district
forum which does not have any relation to jurisdiction cannot be made a
ground of revision.
National Commission(Sec 20):
Composition of the National Commission:
• The National Commission shall consist of –
1. A President appointed by the Central Government who is the Judge
of the Supreme Court. His appointment is made in consultation
with the Chief Justice of India.
2. Four other members appointed by the Central Government, one of
whom should be a woman.
Qualification of Members:
• The following qualification should be possessed by a member of the
National Commission
1. Should not be less than 35 years of age.
2. Should possess a bachelor degree from a recognized University.
3. Should be a person of ability, integrity and standing and have
adequate knowledge and experience of atleast 10 years in dealing
with problems relating to economics, law, commerce, accountancy,
industry, public affairs or administration provided that not more
than 50% of the members shall be from amongst persons having
judicial background.
Dis-Qualification of Members:
• A person, as a member also has the right to be disqualified
from appointment on the following grounds
a. If the person is declared insolvent.
b. If the person has been convicted and sentenced to
imprisonment because of moral turpitude.
c. If the person is of unsound mind as declared by a
competent court.
d. If the person has been dismissed from Government service
or a body corporate owned or controlled by the
Government.
e. If the person has such other disqualifications as may be
prescribed by the State Government.
f. If the person in the opinion of the State Government has
such financial or other interest which is likely to affect
prejudicially his discharge of his functions as a member.
Appointment of the Members:
• On the basis of the recommendations of a selection committee, the
appointment of the member is to be made.
• The appointment is to be made under the Chairmanship of the Judge of the
Supreme Court and the Secretary in the Department of Legal Affairs in the
Government of India and the Secretary of the Department dealing with
consumer as its member.
Term of Office:
• Every member of the National Commission shall hold office for a term of
five years or upto the age of seventy years whichever is earlier.
• A member shall be reappointed for another term of five years or upto the
age of seventy years whichever is earlier, provided he fulfills the necessary
qualifications and other conditions for appointment.
Resignation:
• A member may put forward his resignation addressed to the Central
Government and on being accepted of the resignation his office shall be
vacated and will be filled by appointment of a person possessing any of the
qualifications mentioned in the Act.
Salary:
• The salary or honorarium and other allowances payable to the members of
the National Commission shall be prescribed by the Central Government.
• The President of the National Commission shall receive a salary of the
sitting Judge of the Supreme Court.
• The members of the National Commission shall receive a consolidated
honorarium of Rs.10,000 per month on whole-time basis or a consolidated
honorarium of Rs.500 per day on part-time basis.
• The President and members shall receive conveyance allowance of Rs.150
per day of its sitting or a sum of Rs. 1500 per month.
• The President and members shall be entitled to travelling and daily
allowances on official tour as admissible to Grade-A Officers of the Central
Government.
Jurisdiction (Sec 21):
• All complaints pertaining to those goods and services and compensation
whose value exceeds rupees 1 crore can be filed before the National
Commission.
• The appeals can also be filed before the National Commission against the
orders of a State Commission.
Appeal:
• If the aggrieved is not satisfied with the judgement of
the National Commission, then it can make an appeal
against the order of the National Commission to the
Supreme Court of India within a period of 30 days, by
depositing Rs. 50,000 or 50% of penalty amount.

• But cases where the value of goods or services exceeds

Rs. 1 crore, the aggrieved can file an appeal in Supreme
Court against National Commission.
Powers of National Commission:
• The National Commission may call the records of any consumer dispute which is
pending before or has been decided by any state commission, if it appears to the
National Commission that the state commission has exercised a jurisdiction not
vested in it by law.
• It can exercise such powers also in cases whose a state commission has failed to
exercise a jurisdiction vested in that or has acted in the exercise of its jurisdiction
illegally or with material irregularity. The National Commission can exercise this
power either suo motu or on the application of either party.
• It has the power to review any of its orders if there is an error apparent on the face
of the record.
• The National Commission enjoys the power to transfer any complaint pending
before a district forum of one state to another district forum of any other state or
before one state commission to another state commission.
• Ordinarily the National Commission functions at New Delhi but it may perform its
functions at any such other place as the central government may notify in
consultation with the National Commission.
• The National Commission enjoys the administrative control over all the state
commissions in the matter of calling for periodical returns regarding the institution,
disposal and pendency of cases.
• The National Commission may generally keep observing the working of the state
commissions and the district forums for their proper functioning
 Companies Act, 2013
• In the terms of the companies act, a company means a body formed
and registered under the companies act, 2013 or under any previous
company law

• A company is a legal entity or legal person which is separate from

and capable of surviving beyond the lives of its members.

• A company is a legal device for the attainment of any social or

economic end and to a large extent publicly & socially responsible

• Like any juristic person, a company is legally an entity apart from

its members, capable of rights and duties of its own and endowed
with the potential of perpetual succession.
• Companies Act, 2013, extent of application includes [section 1 (4)]:
a. Companies incorporated under this act or under any previous company
law
b. Insurance companies, this application is only to the extent to which the
provisions of the act are not inconsistent with those of the Insurance act
of 1938 and the insurance regulatory & development authority act of
1999
c. Banking companies, subject to the provisions of the banking regulations
act 1949
d. Companies engaged in the regeneration or supply of electricity, to the
extent to which the provisions of the act are not inconsistent with those of
the electricity act, 2003
e. Any other company governed by any special act except to the said
provisions are inconsistent with the provisions of such special act
f. Any such corporate body, incorporated by any act, as the central
government may by notification specify for such application subject to
such exceptions, modifications or adaptations as may be specified in the
notification
• Corporate bodies came into existence during the 17th and 18th century &
were established either by a Royal Charter or by a special act of Parliament

• Both these methods were very expensive and dilatory

• Consequently to meet the growing commercial needs of the nation, large

incorporated partnerships came into existence, trading, however in
corporate form

• The membership of each such concerns being very large, the management
of the business was left to a few trustees. This resulted in separation of
ownership from management

• Trustees had the opportunity of trading with other people’s money and in
the absence of any specific rule, exploitation of public money started

• The English parliament, therefore passed ac Act known as Bubbles Act,

1720, which instead of prohibiting the formation of fraudulent companies,
made the very business of promoting companies illegal
• This act was repealed in 1825 and in 1844 the registration &
incorporation of large partnerships was made compulsory

• The joint stock company act of 1844 was the first legislative
measure which facilitated registration, although the concerns
registered under it were known as partnerships and the principle of
unlimited liability was maintained

• The right to trade with limited liability was granted in 1855 and in
year 1856 the whole law relating to the companies was consolidated

• The history of Indian company law began with the joint stock
companies act 1850, since then the cumulative process of
amendment and consolidation brought the most comprehensive and
complicated piece of legislation, the companies act of 1956

• In 2013 the companies act 1956 was replaced by the companies act
2013, which came into effect on 1st April, 2014
Main Objectives:
• To provide for more simplified and rationalized
legislation

• To bring company law at par with global practices

• Strict provisions prohibiting insider trading

• To promote CSR

• Wider protection to investors

• Promote corporate governance

Characteristics:
 Independent corporate existence (Section 9)
• A company has an independent corporate existence i.e. a distinct legal
persona existing independently of its members
• By incorporation under the act, the company is vested with a corporate
personality which is distinct from the members who compose it.
• One of the effects of incorporation as stated in Section 9 is that upon the
issue of the certificate of incorporation, the subscribers to the memorandum
and persons, who from time to time be the members of the company shall
be a body corporate capable of forthwith of exercising all functions of an
incorporated company and have perpetual succession and common seal
 Limited Liability
• The privilege of limited liability for business debts is one of the principal
advantage of doing business under the corporate form of organization
• The company, being a separate person, is the owner of its assets and bound
by its liabilities.
• Members, even as a whole, are neither the owners of the company’s
undertaking , nor liable for its debts
 Perpetual Succession:
• An incorporated company never dies, it is an entity with perpetual
succession.
• Members of a company hold its shares, which may be transferred or
inherited.
• Perpetual succession means that the membership of a company may
keep changing from time to time, but that does not affect continuity
of a company
• The death or insolvency of individual members does not, in any
way, affect the corporate existence of the company.
 Separate Property:
• A company, being a legal person, is capable of owning, enjoying and
disposing of property in its own name.
• No shareholder has any right to any item of property owned by the
company
 Transferable Shares:
• The shares or debentures in a company is a movable property, transferable in the
manner provided by the articles of the company.

• Thus, incorporation enables a member to sell his shares in the open market and to
get back his investment without having to withdraw the money from the company

• This provides liquidity to the investors and stability to the company

 Capacity to sue and be sued
• A company being a corporate body with independent existence, can sue and be sued
in its own name

• Cases can be filed by a company but it must be represented by a natural person

 Professional Management

 Finances

 A Company is not a citizen

 Kinds of Company
Unlimited & Limited Companies
• A company limited by shares means a company having the liability of its
members limited by the memorandum to the amount due on shares
respectively by them [section 2(22)].
• The right of limited liability is desirable, but not a necessary adjunct to
incorporation. A company not having any limit on the liability of its
members is termed as an unlimited company [section 2(92)]
• Companies with unlimited liability are rarely formed now. But such a
company is definitely a suitable choice in cases where heavy liabilities are
not likely to be incurred.
• An unlimited company must have articles of association stating the number
of members with which the company is to be registered and if the company
has a share capital, the amount of share capital with which it is to be
registered.
Guarantee Companies (Limited by Shares v/s Limited by
Guarantee)
• Where it is proposed to register a company with limited liability, the
choice is to limit liability by shares or by guarantee.
• The liability of the members of a guarantee company is limited by a
fixed sum which is specified in the memorandum and beyond which
they cannot be called upon to contribute.
• The memorandum of a company limited by guarantee has to state
that each member undertakes to contribute to the assets of the
company in the event of its being wound up, for payment of the
debts and liabilities of the company, such amount as may be
required not exceeding a specified amount.
• A company limited by shares means a company having the liability
of its members limited by the amount due on shares.
Public & Private Company:
• A private company means a company which has minimum
paid up share capital of Rs. 1 lakh and minimum two
persons. It means a company which in its articles of
association contains following:

a. Minimum paid-up capital of Rs. 1 lakh

b. Restriction on transferability of shares
c. Restriction on number of members

• A public company means a company which has minimum

paid up share capital of Rs. 5 lakh and minimum seven
persons. It following features:
a. It is not a private company
b. It has paid up capital of Rs. 5 Lakh
c. Alteast seven members or more
One Person Company
• Section 2 (62) defines one person company meaning a company
which has only one person as a member.
• Section 3(1)(c) provides for incorporating such company by saying
that a company may be formed for any lawful purpose by one
person
• The memorandum of one person company has to state the name of
some other person, with his prior written consent in the prescribed
form, who will, in the event of death of the subscriber to the
memorandum or his capacity to contract, become the member of the
company
• Only one director is compulsory for such a company (section 149),
who has stayed in India for a total period of not less than 182 days
in previous calendar year
Holding & Subsidiary Company
Domestic Company & Foreign Company
Formation of Company (Section 3):
• A company may be formed for any lawful purpose by the following
a. Public Company
b. Private Company
c. One Person Company

• Registration of a company is obtained by filling an application with the

registrar of companies with following documents

a. Memorandum of Association
b. Articles of Association
c. Copy of Agreement, if any
d. A declaration that all the requirements of the companies act have been
complied with

• If the registrar finds the documents to be satisfactory, he registers and

enters the name of the company in the registrar of companies and issues
certificate of incorporation as well as corporate identity number
 Meetings
• Meetings is a gathering of several number of members of a
company for discussing on important corporate matters and
for decision making, based on majority of votes.

• According to companies Act 2013, meetings are an

important provision for ensuring transparency and good
governance in a company

• Meetings are generally classified into three categories

a. Annual General Meeting.
b. Extra Ordinary General Meeting.
Annual General Meetings (Section 96):
• Every company is required to call at least one meeting of its shareholders
each year.
• The first general meeting of a company must be held within 09 months
from the date of closing of the first financial year.
• Thereafter, one general meeting must be geld every year.
• The gap between one meeting and the next should not be more than 15
months.
• If a company fails hold this meetings two consequences will follow
a. Any member can apply to the Tribunal and latter will order the calling of
the meeting
b. The failure to call this meeting either generally or in pursuance of the
order of the Tribunal is an offence punishable with fine. The penalty is
imposed upon the company as well as every officer “who is in default”
• The registrar has been given the power, for any special reason, to extend
the time for holding an annual meeting for a period of only three months.
• The meeting should be held during business hours i.e. between 9:00 am to
6:00 pm on a day which is not a public holiday and at the registered office
of the company or at any place within the town where registered office is
situated.
• Annual general meeting is an important institution for the protection of
shareholders of a company
• The ultimate control and destiny of a company should be in the hands of its
shareholders.
• It is at this meeting that some of the directors will retire and come up for re-
election and shareholders will able to exercise real control by “refusing to
re-elect a director of whose action and policy they disapprove”
• Again, auditors retire at this meeting enabling shareholders to consider
whether they should re-appointed or replaced.
• Dividends are declared at this meeting
• Chairman delivers a speech listing the advances of the company during the
meeting
• Directors have to present annual accounts for the consideration of the
shareholders. A failure to present the accounts is a punishable offence.
• The business to be transacted at the meeting is generally provided for and is
known as the “ordinary business”.
• The meeting may take up any other business also and that will be known as
“special business”
Extra-Ordinary General Meetings (Section 100):
• All general meetings other than AGM shall be known as Extra-Ordinary General
Meetings
• The board may, whenever it thinks fit, call can Extra-Ordinary General Meeting.
• An Extra-Ordinary General Meeting also becomes necessary on requisition under
section 100 (2) which provides that on requisition of a given number of
shareholders the directors must forthwith call a meeting
• The requisition must be signed by holders of atleast one-tenth paid-up capital
having the right to vote on the matter of requisition.
• If the company has no share capital the requisition must be signed by as many
members as have one-tenth of the total voting power
• The requisition must set out the matters for the consideration of which the meeting
is to be called
• When a requisition is deposited at the registered office of the company the directors
should, within 21 days, move to call a meeting and the meeting should actually be
held within 45 days from the date of the requisition
• If the directors fail to do so, the requisitionists may themselves proceed to call the
meeting and claim the necessary expenses from the company
Notice of meeting
• A general meeting of a company may be called by giving not less than clear
twenty-one days notice either in writing or through electronic mode in such manner
as may be prescribed

• Every notice of a meeting shall specify the place, date, day and the hour of the
meeting and shall contain a statement of the business to be transacted at such
meeting.

• The notice of every meeting of the company shall be given to—

(a) every member of the company, legal representative of any deceased member or
the assignee of an insolvent member;

(b) the auditor or auditors of the company; and

(c) every director of the company.

• Any accidental omission to give notice to, or the non-receipt of such notice by, any
member or other person who is entitled to such notice for any meeting shall not
invalidate the proceedings of the meeting.
Quorum for meetings
• Unless the articles of the company provide for a larger number:
in case of a public company,
(i) five members personally present if the number of members as on the date of meeting is not more
than one thousand;(
(ii) fifteen members personally present if the number of members as on the date of meeting is more
than one thousand but up to five thousand;
(iii) thirty members personally present if the number of members as on the date of the meeting
exceeds five thousand;
in the case of a private company,
(i) two members personally present, shall be the quorum for a meeting of the company.
• If the quorum is not present within half-an-hour from the time appointed for holding a meeting of the
company:
(a) the meeting shall stand adjourned to the same day in the next week at the same time and place, or
to such other date and such other time and place as the Board may determine; or
(b) the meeting, if called by requisitionists under section 100, shall stand cancelled:
• Provided that in case of an adjourned meeting or of a change of day, time or place of meeting
a) the company shall give not less than three days notice to the members either individually or by
publishing an advertisement in the newspapers (one in English and one in vernacular language)
which is in circulation at the place where the registered office of the company is situated.
• If at the adjourned meeting also, a quorum is not present within half-an-hour from the time appointed
for holding meeting, the members present shall be the quorum.
Chairman of meetings
(1) Unless the articles of the company otherwise provide,
the members personally present at the meeting shall
elect one of themselves to be the Chairman thereof on
a show of hands.

(2) If a poll is demanded on the election of the Chairman,

it shall be taken forthwith in accordance with the
provisions of this Act and the Chairman elected on a
show of hands under sub-section (1) shall continue to
be the Chairman of the meeting until some other
person is elected as Chairman as a result of the poll,
and such other person shall be the Chairman for the
rest of the meeting.
Proxies
• Any member of a company entitled to attend and vote at a meeting
of the company shall be entitled to appoint another person as a
proxy to attend and vote at the meeting on his behalf.
Voting rights
• Every holder of equity shares has the right to vote and company
cannot prohibit any member form exercising his voting right on the
ground that he has not held his shares for any specified period
before the meeting or on any other ground
• The only ground on which the right to vote may be excluded is non-
payment of calls by a member or other sum due against a member or
where the company has exercised the right of lien on the shares
• Voting can be exercised through
a. By show of hands
b. Voting by electronic means
c. Poll
d. Postal Ballot
Resolutions:
a. Ordinary Resolutions (based on simple
majority)
b. Special Resolutions (three-fourth majority of
shareholders)
Statutory Meeting:
• Every public company limited by shares—and every company limited by
guarantee and having a share capital—must, within a period of not less than
one month and not more than six months from the date at which the
company is entitled to commence business, hold a general meeting of the
members which is to be called the Statutory Meeting.

• In this meeting the members are to discuss a report by the Directors, known
as the Statutory Report, which contains particulars relating to the formation
of the company.
Section 165(3) provides that the Statutory Report must contain the
following particulars:
(i) The total number of fully paid-up and partly paid-up shares allotted;
(ii) The total amount of cash received ;
(iii) The receipts, classifying them and also the expenses incurred for
commission, also brokerage etc.
(iv) The names, addresses and also occupations of directors, auditors,
managers and secretaries and also changes of the names, address etc.
(v) Particulars of contracts with proposed modifications presented at meeting
for approval;
(vi) Commissions and brokerages paid to directors and managers.
Class Meetings
• Class meetings are meetings which are held by holders of a particular class of
shares, e.g., preference shareholders.

• Such meetings are normally called when it is proposed to vary the rights of that
particular class of shares.

• At such meetings, these members discuss the pros and cons of the proposal and vote
accordingly.

• Class meetings are held to pass resolution which will bind only the members of the
class concerned, and only members of that class can attend and vote.

• Unless the articles of the company, all provisions pertaining to calling of a general
meeting and its conduct apply to class meetings in like manner as they apply with
respect to general meetings of the company.
Meetings of the Board of Directors
• The Board of Directors controls the management of the company. Therefore, the
Directors are to meet frequently to decide both policy and also other related
matters. It is conducted four times in a year.
Meeting of debenture holders:
• A company issuing debentures may provide for the holding of meetings of
the debenture holders.
• At such meetings, generally matters pertaining to the variation in terms of
security or to alteration of their rights are discussed.
• All matters connected with the holding, conduct and proceedings of the
meetings of the debenture holders are normally specified in the Debenture
Trust Deed.
• The decisions at the meeting made by the prescribed majority are valid and
lawful and binding upon the minority.

Meeting of creditors:
• Sometimes, a company, either as a running concern or in the event of
winding up, has to make certain arrangements with its creditors.
• Meetings of creditors may be called for this purpose so as to make
arrangements with creditors with respect to reconstruction or any
arrangement with its creditors.
 Winding Up
• Winding up is the method of putting an end to the life of a company
• Winding up of a company is the process whereby company’s life is
ended and its property is administered for the benefits of its
creditors and members
• An administrator, called a liquidator, is appointed and he takes
control of the company, its assets and pays its debts and finally
distributes any surplus among the members in accordance with their
rights.
• Types of winding up(section 270)
a. Compulsory winding up under the order of the Tribunal
b. Voluntary winding up
I. Members voluntary winding up
II. Creditors winding up
Compulsory winding up:
• Section 271 empowers the tribunal in its discretion to order the winding up of a company in the
following cases:
 Inability to pay debts [section 271(2)]:
• Inability to pay debts is explained in section 272(2) and according to the sub-section a company shall
be deemed to be unable to pay its debt in three cases
a. Statutory Notice:
• If a creditor to whom the company owes a sum exceeding one lakh rupees has served on the
company, a demand requiring the company to pay the amount so due and the company failed to pay
within 21 days, or to provide adequate security or restructure or compound the debt to reasonable
satisfaction of the creditor.
• The debt must be presently payable and the title of the petitioner demanding it should be complete
• Petition for winding up is not to be sought for as a short cut and cheap device to coerce payment and
stifle contest
• It is also necessary that the creditor should have delivered a demand under his hand at the registered
office of the company
• Statutory notice is a highly formal and important document and it would appear to follow that the
provisions of the Act as to its service upon the company must be strictly observed
b. Decreed Debt :
• A company shall be deemed to be unable to pay its debts if execution or other process issued on a
decree or order of any court in favor of a creditor of the company is returned unsatisfied in whole or
in part
c. Commercial Insolvency:
• If it is proved to the satisfaction of the tribunal that the company is
unable to pay its debts
• In determining this the tribunal shall take into account the
contingent and prospective liabilities of the company
 Special Resolutions [Section 271(1)(b)]
• If the company has by special resolutions, resolved that it be wound
up by the Tribunal
• The tribunal is, however, not bound to order winding up simply
because the company has so resolved
• The power is discretionary and may not be exercised where winding
up would be opposed to the public or company’s interests
 Acts against sovereignty
• If the company has acted against the interests of sovereignty and
integration of India, the security of the State, friendly relations with
foreign States, public order, morality or decency
 Sick company
 Fraudulent conduct of affairs
 Default in filing financial statements
• If the company has made a default in filing with the
registrar its financial statements or annual returns for
immediately preceding five consecutive financial years
 Just & Equitable
– Deadlock
– Loss of substratum
– Losses
– Oppression of minority
– Fraudulent purpose
– Incorporated or quasi partnership
– Public interest
Who can apply for winding up:
• An application to the tribunal for the winding up of a company is made by
a petition. A petition may be presented by any one of the following:
a. Petition by company [section 272(1)(a)]
b. Creditors petition [section 272(1)(b)]
c. Contributory’s petition
d. Registrar’s petition [section 272(1)(e) and (4)]
e. Central government’s petition
f. Central or state government’s petition[section 272(1)(g)]
Powers of Tribunal:
After hearing a winding up petition, the tribunal may
a. Dismiss it with or without costs
b. Make an interim order, as it thinks it
c. Appoint a provisional liquidator of the company till a winding up order
d. Make an order for winding up with or without costs
e. Any other order it thinks fit
Commencement of winding up(Section 357):
• Winding up commences not from the date of the order,
it shall be deemed to commence from the time of the
presentation of the petition

• But where, before the presentation of the petition, a

resolution has been passed by the company for winding
up, the winding up shall be deemed to have commenced
at the time of the passing of the resolution

• Where there were more than one petitions, winding up

was deemed to have commenced from the date of the
earliest of the creditor’s petition
Liquidator:
• The tribunal at the timing of passing a winding up order has to appoint an
official liquidator from the panel maintained under section 275(2).

• The liquidator has to submit within 60 days of the winding up order a

report containing:
a. Nature and details of assets of the company including their location and
value
b. Cash balance in hand and in the bank
c. Negotiable securities
d. Amount of capital issued, subscribed and paid up
e. Existing and contingent liabilities
f. Debts due to the company
g. List of contributories and dues payable
h. Details of trademarks and intellectual properties owned by the company
i. Details of legal cased filed by or against the company
j. Any kind of information which tribunal may direct or the liquidator may
consider necessary to include
Voluntary Winding Up:
• A company may be wound up voluntarily in the following two ways (Section 304):
a. By ordinary resolution
• A company may be wound up voluntarily by passing an ordinary resolution when
the period, if any, fixed for the duration of the company by the articles, has expired.

• Similarly, when the event, if any, has occurred, on the occurrence of which the
articles provided for the company is to be dissolved, the company by passing an
ordinary resolution to that effect, commences its voluntary winding up
b. By special resolution
• A company may at any time pass a special resolution providing that the company be
wound up voluntarily.

• Within 14 days of the passing of the resolution, the company shall give notice of
resolution by advertisement in the official gazette and also in some newspaper
circulating in the district of the registered office of the company.

• A default in this respect in punishable with fine (Section 307)

• Voluntary winding up used to be of two kinds i.e.
a. Members voluntary winding up
b. Creditors voluntary winding up

• Under Act, 2013, the creditors can convert the winding up into winding up by
tribunals and thus there is only one kind of voluntary winding up

• The declaration has to be made by a majority of the directions at a meeting of the

Board and verified by an affidavit

• They have to declare that they have made a full inquiry into the affairs of the
company and have formed the opinion that the company has no debts or that it will
be able too pay its debts in full from the sale of assets

• The declaration should contain a statement that the company is not being wound up
to defraud any person or persons

• It should be accompanied by a copy of the report of the auditors on the profit and
loss account and the balance sheet of the company prepared up to the date of the
declaration and should be embody a statement of the company’s assets and
liabilities as that date.
• There is a penalty for making the declaration without having reasonable
grounds for the opinion that the company will be able to pat its debts.

• The act of 2013 has abolished distinction between the members voluntary
winding up and creditors winding up

• The requirement now is that after members meeting for voluntary winding
up, a meeting of creditors must also be called

• Such meeting has to be called and held on the same day or next day by
sending notice of meeting to creditors.

• If two-third in value of the creditors are of opinion that its is in the interest
of all parties that the company wound up voluntarily, the company’s
voluntary winding up is to proceed.

• If they are of the opinion that the company may not be able to pay its debts
in full form and pass a resolution that is to be in interest of all parties to
wound up by tribunal , the company has to file an application before the
tribunal within 14 days.