You are on page 1of 26


Presented by Divya Mohanakumaran C041
Priyadarshini Chandrabose C014 Anirudh Naidu C043
Sujoy Kapoor C031 Dhanushram S C046
Bharat Mani C040 Tushar Srivatsava C059

Characteristics of Company
Common ed
Seal Associatio

Perpetual Artificial
Succession Person

lity of

. limited by shares of limited by guarantee.Companies authorised to Register under this Act • Partnership Firm • Limited Liability partnership • Co operative societies • Any company with seven or more members can register as unlimited company.

• Introduced Limited Liability . • Companies Act. East India Company • Joint Stock Companies Act.g. Evolution of Company Law • Royal Charter • Merchant Guilds obtained charters from the crown predominantly to gain monopoly. The Financier had limited liability while working partners had unlimited liability • E. 1856 • Based on English Companies Act 1856. 1850 • Enacted in India based on Joint Stock Companies Act. The Act assimilated the processes and principles accumulated over centuries. 1844 in Great Britain. • Created office of “Registrar of companies” with who annual returns must be filed.

• Amendments during Liberalisation Era • Provisions for capital restructuring. reversed many socialist oriented amendments . 1956 • First Post colonial company law again mimicked English law so as not to curtail freedom of companies as the country approached a socialist model. The motive behind transplanting English company law into India was to facilitate better trade between England and India. 1935. 1936 • Enacted after the government of India Act. 1913 • Mimicked English Law. which could be accomplished if there was symmetry in the corporate legislation between the two countries • Companies Act. • Amendments made considering Indian situation. • Companies Act. Evolution of Company Law • Companies Act – 1866.1882. Indian court decisions were considered.

Name of the registered entity • Registered office Clause . • Name Clause .Share capital. MEMORANDUM OF ASSOCIATION • This is considered to be the supreme document of any company. Even AOA has to comply with MOA.Aims and objectives of the company • The Association Clause . • The Capital Clause . • The Liability Clause .Information about its first shareholders and number of shares allocated to each of them. . State the liability of each member • The company cannot go against anything that is mentioned in this document.Clause about its limited liability.Registered office address • Object Clause . minimum paid up capital etc.

. Forfeiture of shares. • Lien of shares. the relationship of these rights. • Private companies limited by shares • Dividends and reserves • Further. rights of • Winding up. • Companies limited by guarantee qualifications. Surrender of shares. share certificates. voting by poll. regulations for management of the company. the articles of association must also • Accounts and Audits. various shareholders. Transfer of shares. remuneration. Conversion of shares in stock. payment of commission. their appointment. • The following companies must have their own • General meetings and proceedings articles of association: • Voting rights of members. proxies • Unlimited Companies • Directors. • Alteration of capital. powers and proceedings of the boards of directors meetings. ARTICLE OF ASSOCIATION • The articles of a company contains the Share warrant. Calls on shares. Transmission of shares. contain the following: • Borrowing powers • Share capital including sub-division.

PROSPECTUS • “prospectus” means any document described or issued as a prospectus and includes a red herring prospectus or shelf prospectus or any notice. advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate. • Reports with Prospectus • Declaration of Compliance • Clause (d) of Sub – section (1) of section 26 give unlimited power to central government to list other matters and set out other reports to be included in a prospectus. the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees and every person who is knowingly a party to the issue of such prospectus shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees. circular. or with both. • Delivery of Prospectus with Registrar • Statement of an Expert • If a prospectus is issued in contravention of the provisions of section 26. .

Agency problems • between minority-majority shareholder • Here the non-controlling owners can be thought of as the principals and the controlling owners as the agents. as agent. or misleading consumers.4 it appears whenever some subset of a firm’s owners can control decisions affecting the class of owners as a whole. • between the company and stakeholders other than shareholders. • the difficulty lies in assuring that the firm. While this problem is most conspicuous in tensions between majority and minority shareholders. . • Difficulty lies in assuring that the former are not expropriated by the latter. exploiting workers. does not behave opportunistically toward these various other principals—such as by expropriating creditors.

6 billion. forcing Raju to admit that he had fudged and inflated numbers. Satyam Scandal • Crisis struck Satyam after investors and analysts questioned a move to buy two infrastructure firms (Maytas) allegedly promoted by Raju’s kin for $1. alarm bells were set off. The Satyam founder said he inflated the numbers to be among the top four firms in the IT industry. Auditors and others of Satyam computer services alleging that her retirement benefits were invested in purchasing the shares of Satyam computer services on seeing the performance of the company as reflected in the balance sheet. • The Union Government came to the rescue of over 50. • Though the company withdrew the decision the same day. Directors. Leena Mangat filed a complaint against Chairman. MD. • Due to fudging of the company accounts by the Accused who gained unfairly the share prices fell causing huge financial loss to shareholders . drawing experts from different sectors. • Mrs.000 employees by scrapping the board and appointing a temporary board.

The same remedy is now available to Indian stakeholders. 2013 • Independent Directors • An auditor cannot perform non-audit services for the company and its holding and subsidiary companies. • This provision seeks to ensure that there is no conflict of interest • Additional disclosure norms • formal evaluation of the performance of the board of directors. filing returns with the Registrar of Companies with respect to any change in the shareholding positions of promoters and the top ten shareholders. . Companies Act. were also mandated. • Class Actions • Satyam stakeholders in the United States were able to initiate class action suits against the company and its auditors for damages.

Major Additions to Companies Act.2013 • Companies • One person company • Private company • Small company • Dormant company • Mandatory Rotation of Auditors • Mergers and acquisitions • Insider trading and prohibition on forward dealings • entrenchment provisions in respect of the articles of association of a company • Prohibition on issue of shares at a discount .

positive attributes and independence of a director • Loans and investments by a company • The 2013 Act states that companies can make investments only through two layers of investment companies subject to exceptions which includes company incorporated outside India . key managerial personnel and other employees. outstanding loans or borrowings or debentures or deposits exceeding 200 crore INR. relating to the remuneration for the directors.2013 • Business Hours . in aggregate. • The Nomination and Remuneration Committee is required to formulate and recommend to the Board of Directors. criteria for determining qualifications. • Nomination and remuneration committee • The 2013 Act includes this new section requiring constituting the nomination and remuneration committee by every listed company and Every other public company that has a paid-up capital of 100 crore INR or more or which has. the company’s policies.Major Additions to Companies Act.defined as between 9 am and 6 pm by the Act.

. 2013 • Small Shareholder: a shareholder holding shares of nominal value of not more than 20. the dissenting shareholders have been provided with an option to exit which act as a protection of the interests of small shareholders. 000 INR • A listed company may have one director elected by such small shareholders in the manner and with the terms and conditions as may be prescribed. variation in terms of contract or object in prospectus. for example. • Specific disclosure under the scheme of mergers or amalgamation regarding the effect of merger on minority shareholders is to be provided. • stakeholders relationship committee • The board of directors of a company which consists of more than 1. • Under various sections in the 2013 Act.000 security holders at any time during a financial year shall constitute a stakeholders relationship committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the board. to consider and resolve the grievances of security holders of the company. Special consideration to small shareholders in Companies Act.

V.Life Insurance Corporation of India V. G. C. Escorts Ltd .Cotton • Fraudulent Conduct Corporation of India Ltd. Directors • Holding and Subsidiary Company and shareholders for the corporation's • Failure to Deliver Share Certificate wrongful acts • Failure to return application money • Case Laws • Misrepresentation in prospectus • Company is separate entity . Odusumath • Corporate Veil should be lifted . Lifting the Corporate Veil • Piercing the corporate veil is the judicial • In Act act of imposing liability on otherwise • Reduction of Membership immune corporate officers.

the "majority rule principle" . They asked that the guilty parties be held accountable to the company and that a receiver be appointed. The company had been set up in September 1835 to buy 180 acres (0. a reiteration of the Salomon principle. the "proper plaintiff rule" is that a wrong done to the company may be vindicated by the company alone. • The defendants were the five company directors and the solicitors and architect and several others • Verdict • The court dismissed the claim and held that when a company is wronged by its directors it is only the company that has standing to sue. this became Victoria Park. Secondly. an Act of Parliament incorporated the company. In effect the court established two rules. Subsequently. Firstly. Manchester. Foss Vs Harbottle • Facts • Richard Foss and Edward Starkie Turton were two minority shareholders in the "Victoria Park Company". • The claimants alleged that property of the company had been misapplied and wasted and various mortgages were given improperly over the company's property.73 km2) of land near Manchester and.

Hooper’s Telegraph Works Ltd. Nil Kamal Chakravarty • Wrongdoers in control . Parasrampuria Synthetic Ltd • Exceptions • Acts Ultra Vires . Nageshwar Rao • ICICI v. v. Kanhaiya Lal2 • Fraud on Minority . then the court will not interfere • The rule is not completely applicable to Indian scenario and the right of minority members are protected by the law. Atkin • Individual Membership rights . Madras Race Club • Oppression and mismanagement .Nagappa Chettiar v. • Related Cases in India • Rajamundhry Electric Supply Corpn.Glass v.Dhakeswari Cotton Mills v. • Acts requiring special Majority .Menier v. A. Rameshwar Dayal Dubey .Kanika Mukherjee v.Bharat Insurance Company Ltd v. proper plaintiff rule and Majority Rule Principle • The proper plaintiff Rule • wrong done to the company may be vindicated by the company alone • Majority Rule Principle • if the alleged wrong can be confirmed or ratified by a simple majority of members in a general meeting.

• National Financial Reporting Authority (NFRA): • Serious Fraud Investigation Office (SFIO): . New Regulatory Bodies • Sections 408 and 410 require Government to form NCLT and NCLAT • National Company Law Tribunal and Appellate Tribunal.

and • (c) intends to prohibit the payment of any dividend to its members. education. social welfare. charity. protection of environment or any such other object. research. sports. Companies with Charitable Objectives • Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company— • (a) has in its objects the promotion of commerce. • (b) intends to apply its profits. if any. art. . religion. or other income in promoting its objects. science.

Corporate Social Responsibility • Section 135 of the Companies Act. or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors. 2013 • Every company having net worth of rupees five hundred crore or more. out of which at least one director shall be an independent director .

CSR Contention .

called a liquidator is appointed and he takes control of the company. • Winding up Registered and Unregistered companies • Grounds for compulsory Winding up . • Winding Up vs Dissolution • At the end of winding up. pays its debts and finally distributes any surplus among the members in accordance with their rights. On dissolution. the dissolution of the company takes place. Winding Up • Winding up of a company is the process whereby its life is ended and its Property is administered for the benefit of its members & creditors. the company will have no assets or liabilities. the company's name is struck off the register of the companies and its legal personality as a corporation comes to an end. collects its assets. An Administrator. When the affairs of a company are completely wound up.

Lee‘s Air Farming Ltd • Conflict • L formed a company with a share capital of three thousand pounds. of which 2999 pounds were held by L. • Verdict • Held that the mere fact that someone was the director of the company was no impediment to his entering into a contract to serve the company. workers were entitled for compensation on death or injury. As the workers of the company were insured. therefore. He was also the sole governing director. • The question was while holding the position of sole governing director could L also being an employee/ worker of the company. L exercised full and unrestricted control over the affairs of the company. Lee V. If the company has a legal entity. there was no reason to change the validity of any contractual obligations which were created between the company and the deceased. L was a qualified pilot also and was appointed as the chief pilot of the company under the articles and drew a salary for the same. In his capacity as the controlling shareholder. Accordingly L was an employee of the company and. While piloting the company‘s plane he was killed in an accident. The contract could not be avoided merely because L was the agent of the company in its negotiations. entitled to compensation claim .

Oriental made an application to the DCA for extending the financial year of its Subsidiary to bring it in line with its accounting year for complying with section 212 of the Act. Thereafter Oriental acquired 88% percent shares of Poonam Hotels in two tranches. Oriental Industrial Investment corp Ltd Vs Union of India [1981] • the effect of section 4 in relation to sections 255. This brought about holding and subsidiary relationship in terms of section 4 of the Act. • The Department rejected the application on the ground that Article included by Poonam conferring authority on Oriental to appoint majority of directors is violative of sections 255. 1975 between Oriental Limited and Poonam Hotels. This gave power to Oriental to appoint majority of directors on the board of Poonam Hotels with power to remove such directors and to appoint another in his place. Request of Oriental for reconsideration did not evoke positive response and the Department reiterated its stand whereupon Oriental filed a writ in the High Court of Delhi. .256 and 257 • The facts of the case is that by an agreement dated August 19.256 and 257of the Act and treated it as void as per section 9 of the Act and consequently Poonam cannot be treated as Subsidiary company. Oriental was given full and absolute power to appoint five directors on the board of directors of Poonam Hotels. Poonam also amended its Articles suitably and Oriental appointed five of its directors on the board of Poonam Hotels.

htm • • governance-law-in-india/ • scenario-1876-1.legalservicesindia.html • http://shodhganga. References •

Thank You .