Development of Company Law in India

Introduction: The history and development of company law in India

is closely linked up with that of England and for that reason it
becomes essential to have a brief account of the history of English law
for a proper appreciation of Law. There are some branches of Law
which cannot be properly understood without their historical
background and company law is certainly one of them. Companies
formed for the purpose of carrying of business have a long history.
During Eleven to thirteen centuries, the association of merchants
called the merchant guilds were prevalent in England. In order to
secure for their members, a monopoly in respect of a particular trade
or commodity, the merchant guilds obtained a charter from the crown.
At the initial phase of development of company law, each members
traded in his own account. But, gradually the members started trading
on joint account. During that time the joint account trading was of two
types. 1) Commenda and 2) Societes. In Commenda, a trader lent
money to another for trading, and got a share from profit. And in case
of loss the moneylender,s liability was limited. So, it can be said the
moneylenders was somewhat, a sleeping partner with limited liability.
But, on the other hand, in Societes, all the members took active part in
the management of the trade and had unlimited liability. In the
fourteenth century, the word company was adopted by certain
merchants for trading overseas. By Royal Charter, these merchants
were given certain privileges in trading .

East Introduction of the Company concept in India

India indirectly. All East India Companies was Royal
Comp Charter Companies. Salt and opium business was
anies running by East India Company.

The In 1850, the first law on ‘registration of joint stock

Compa companies’ was enacted in India.
nies company was a distinct legal entity.
Act,
1850
The Joint Concept of Limited Liability introduced. Registration
Stock was made compulsory and winding up of a company
Compani was introduced.
es Act,
1856
The Consolidation of various laws
Compan
ies Act
of 1866
The Liability of Members limited but directors
Indian were with unlimited liability. Registered
Compani Minutes and Special Resolutions to form
es Act, part of MoA. Power to appoint Arbitrator
1882 to settle its dispute with others
The Concept of Private Company
Compa Annual General Meeting, Statutory Meetings and
nies Extra Ordinary General Meeting introduced
Act
Registration of Mortgage and Charges
1913
The Substantial Powers with Central Government
Compani
es
Amendm
ent Act,
1951
The The Companies Act, 1956 was enacted with a view
Compa to consolidate and amend the earlier laws relating to
nies companies and certain other associations. The Act
Act, came into force on 1st April, 1956. This Companies
1956 Act was based largely on the recommendations of
the Bhabha Committee. This Act was the longest
piece of legislation ever passed by our Parliament.
Amendments have been made in this Act
periodically. The Companies Act, 1956 consisted of
658 Sections and 15 Schedules.

Full and fair disclosure of various matters in

prospectus; detailed information of the financial
 affairs of company to be disclosed in its account;
provision for intervention and investigation by the
Government into the affairs of a company;
restrictions on the powers of managerial personnel;
enforcement of proper performance of their duties
by company management; and protection of
minority shareholders were some of the main
features of the Companies Act, 1956.
The Companies Act, 1956 was enacted with the
object to amend and consolidate the law relating to
companies. This Act provided the legal framework
for corporate entities in India and was a mammoth
legislation. As the corporate sector grew in
numbers and size of operations, the need for
streamlining this Act was felt and as many as 24
amendments had taken place since then.
The Based on the recommendations of Shastri
Compani Committee, this introduced several new provisions
es relating to various aspects of company management
(Amend which were overlooked in the 1956 Act.
ment)
Act,
1960
The This provided for the appointment of a Companies
Compani Tribunal and constitution of the Board of Company
es Law Administration. It also empowered the Central
(Amend Government to remove managerial personnel
ment) involved in cases of fraud, etc.
Act,
1963
The Based on the recommendations of the Vivian Bose
Compani Commission, this introduced some major changes,
es such as clear definition of the main and subsidiary
(Amend objects of a company in its Memorandum of
ment) Association; Strengthening the provisions relating to
Act, investigation into the affairs of the company, etc.
1965 The Companies Act was further amended twice in
1966.
The Two important changes were introduced through
Compani this. The institutions of managing agents and
es secretaries and treasurers were abolished with effect
(Amend from April 3, 1970. Secondly, contributions by
ment) companies to any political party or for any political
Act, purpose were prohibited.
1969
The This introduced some important and major changes
Compani in the Companies Act, 1956. The object of the
es Amendment Act was to inject an element of public
(Amend interest in the working of the corporate sector.
ment)
Act,
1974
The This brought about certain changes in Sections 58A,
Compani 220, 293, 620 and 634A of 1956 Act.
es
(Amend
ment)
Act,
1977
The The amending Act substituted Section 293A of
Compani Companies Act, 1956 with a new section permitting
es Non-Government companies to make political
(Amend contributions, directly or indirectly.
ment) With a view that legitimate dues of workers rank
Act, pari passu with secured creditors in the event of
1985 closure of the company and rank above even the
 dues to Government, Sections 529 and 530 of the
Companies Act, 1956, were amended and a new
Section 529A was introduced.
The Based on the recommendations made by the Expert
Compani Committee (Sachar Committee), the Companies
es (Amendment) Act, 1988 substantially amended the
(Amend Companies Act, 1956 in order to streamline some of
ment) the existing provisions of the Companies Act, 1956
Act, and to ensure better working and administration of
1988 the Act. The important changes introduced by the
Amendment Act of 1988 were:

(a) Definition of Secretary brought in line with the

definition of ‘Company Secretary’ in the
Company Secretaries Act, 1980 and includes an
individual possessing the prescribed
qualifications.
(b) The concept of company secretary in practice
was introduced for the first time in the
Companies Act. The Amended Act, among
other things, also set up an independent
Company Law Board to exercise such judicial
and quasi-judicial functions, earlier being
exercised either by the Court or the Central
 Government.
The Dematerialization of securities was introduced by
Deposit the Depositories Act, 1996 and accordingly
ories amendments were made to register of members and
Act, several other consequential things were
1996 incorporated.

The The following major changes to the Companies Act,

Compani 1956:-
es a) Companies allowed to issue Sweat Equity
(Amend shares and to buy-back their own securities.
ment)
b) Facility for nomination provided for the
Act,
benefit of share/debenture/deposit
1999
holders.

c) An Investor Education and Protection Fund to

be established.

d) National Advisory Committee on Accounting

Standards for companies to be established.
e) Prior approval of Central Government not
required for inter-corporate investment/lending
proposals subject to certain conditions.
The The following major amendments were introduced:
Compani a. Private Companies and Public Companies to
es have a minimum paid-up capital
(Amend
of Rupees one lakh and five lakh respectively.
ment)
b. Provisions relating to deemed public companies
Act,
became inoperative and a new provision
2000
relating to conversion of a public company to a
private company inserted in the Companies
Act, 1956.

c. SEBI given powers regarding issue and transfer

of securities and non-payment of dividend by
listed public companies.
d. Every listed company making initial public
offer of any security for a sum of Rupees ten
crores or more will have to issue the same only
in a dematerialised form.
The The following changes to the Companies Act, 1956:-
Compani a) New Part IXA consisting of Section 581A to
es 581ZT relating to Producer
(Amend Companies inserted
ment)
b) The existing Company Law Board was
Act,
proposed to be dissolved and in its place a
2002 and
National Company Law Tribunal (Tribunal)
Compani
was to be constituted.
es
c) The Board for Industrial and Financial
(Second
Reconstruction was to be abolished and SICA
Amendm
was proposed to be repealed.
ent) Act,
2002 (not
enforced)
The This inserted new Sections 610B, 610C, 610D and
Compani 610E and also certain sections pertaining to Director
es Identification Number (DIN). With the advent of
(Amend new technologies this amendment introduced
ment) electronic filing, DIN, maintenance of electronic
Act, records in consistency with Information Technology
2006 Act, 2000.
 CONCEPT PAPER ON COMPANY LAW, 2004 & J.J.
IRANI REPORT

To frame a law that enables companies to achieve global

competitiveness in a fast changing economy, the Government
had taken up a fresh exercise for a comprehensive revision of
the Companies Act, 1956, albeit through a consultative
process. As the first step in this direction, a Concept Paper on
Company Law drawn up in the legislative format was
exposed for public viewing on the electronic media so that all
interested parties may not only express their opinions on the
concepts involved but may also suggest formulations on
various aspects of Company Law.
The response to the concept paper on Company Law was
tremendous. The Government, therefore, felt it appropriate that
the proposals contained in the Concept Paper and suggestions
received thereon be put to merited evaluation by an independent
Expert Committee. A Committee was constituted on 2nd
December, 2004 under the Chairmanship of Dr. J J Irani, the
then Director, Tata Sons, with the task of advising the
Government on the proposed revisions to the Companies Act,
1956 with the objective to have a simplified compact law that
will be able to address the changes taking place in the national
and international scenario, enable the adoption of internationally
accepted best practice