CASE STUDY

ON
CHARACTERISTICS OF A
COMPANY

-AKSHAYA.I
 WHAT IS A COMPANY?
 According to Section 2(20) of the Companies Act, 2013,
 “Company means a company incorporated under this Act or any previous Company Law.”
 According to Prof. Haney,
“A company is an artificial person, created by law having separate entity with perpetual
succession and a common seal.”
 A VOLUNTARY ASSOCIATION

A company is a voluntary association of persons. A group of persons

who have common object, join and form an association in order to
direct their efforts towards achievement of their common goal. The
initiative is being taken by persons who are willing to contribute to the
common fund in order to achieve their common end.
 Conservative and Unionist Central Office
V Burrell[1980]

FACT OF THE CASE

 The Inland Revenue argued that the contributions of members of the Conservative Party (formally, the
Conservative and Unionist Party) took effect as an accretion to the funds (legally termed "mixed fund")
which placed investments to make extra self-income, essentially controlled by the party leader due to
rules in place voted on by the members and were thus the subject matter of a contract,[3] which
safeguarded and determined what happened with the members' funds. It argued that if that is so, then
like a much smaller inter-members association where funds can revert with much more ease, such
corporation tax should be payable.
 Vinelott J at first instance in the Chancery Division of the High Court (Conservative and Unionist Central
Office v Burrell [1980] 3 All ER 42) held that each contributor enters a contract with the treasurer, who
undertakes to use the subscription for the association's purposes. Breach would mean liability in contract.
 JUDGEMENT

The Court of Appeal held there was no contract which connected the branches of the party with the members
tightly among themselves (inter se), so the Re Recher analysis could not apply. Brightman LJ said donations to
political parties give a mandate or authority as an agent to the party treasurer to add the party's funds. This must be
used for party purposes. The mandate is irrevocable, but (essentially of relevance to other scenarios) the contributor
has a remedy to restrain misapplication of money unless their own contribution had been spent already (the
moment of spending and any misapplication judged by ordinary accounting principles). It was accepted that the
same kind of temporary rescission and rare means of restraint (whether footed on contract or agency) could not
apply for a dead person. Such a person could have authorised their will's personal representatives (executives) to do
so.
Lord Justice Lawton, referring to the Income and Corporation Taxes Act 1970, section 526 said:
Parliament meant two or more persons bound together for one or more common purposes, not being business
purposes, by mutual undertakings, each having mutual duties and obligations, in an organisation which has rules
which identify in whom control of it and its funds rests and upon what terms and which can be joined or left at
will.
 INCORPORATED ASSOCIATION

A company must be incorporated under the prevalent

Companies Act. The Law relating to Companies in India is
contained in the Companies Act, 1956, as amended from
time to time. An association of persons registered under
the Companies Act is called as Joint Stock Company.
 TR PRATT Ltd. Vs. Sasson & Co. Ltd. (1936)

Fact OF THE CASE

There were three companies, namely, 'S MT & P Company. S company had been financing
P Company for a number of years and all transactions of loans were entered into through
the agency of MT Company which held almost all the shares of P Company. The Directors
of MT Company were also the Directors of P Company and this fact was known to S
Company. An equitable mortgage was created on the property of 'P' Company for a loan
granted by S to MT Company. In the winding up of P Company, it was held that the
official liquidator was entitled to avoid the equitable mortgage as S Company had the
knowledge of the facts through its directors
 JUDGEMENT
1. JUST AS IN CASE OF AGENCY, A NOTICE TO AGENT WILL AMOUNT TO A NOTICE TO THE PRINCIPAL, IN THE SAME WAY A
NOTICE TO DIRECTOR WILL BE DEEMED AS A NOTICE TO THE COMPANY

2. MONEY HAVING BORROWED AND USED FOR THE BENEFIT OF THE PRINCIPAL. COMPANY IN EITHER PAYING OFF DEBTS
OR FOR ITS LEGITIMATE BUSINESS, THE COMPANY COULD NOT REPUDIATE ITS LIABILITY ON THE GROUND THAT THE
AGENTS DIRECTORS HAD NO AUTHORITY FROM THE COMPANY TO BORROW.

3. "UNDER THE LAW AN INCORPORATED COMPANY IS A DISTINCT ENTITY, AND ALTHOUGH ALL THE SHARES MAY BE
PRACTICALLY CONTROLLED BY ONE PERSON, IN LAW A COMPANY IS A DISTINCT ENTITY AND IT IS NOT PERMISSIBLE OR
RELEVANT TO ENQUIRE WHETHER THE DIRECTORS BELONGED TO THE SAME FAMILY OR WHETHER IT IS COMPENDIOUSLY
DESCRIBED AS ONE MAN COMPANY
 ARTIFICIAL LEGAL PERSON

A company is an artificial person created by Law. It has no physical

body or soul like human being, but enjoys certain legal rights conferred
on it by Law. It is invisible and exists in the eyes of Law. It is because
of these disabilities that a company is called an artificial person. Like
an individual, it can buy the assets in its name and enter into contracts.
For most legal purposes, a company is legal person just like a natural
person, who has rights and duties at Law. Thus, a company is
considered as an artificial legal person.
 RC COOPER V UNION OF INDIA
1970

FACT OF THE CASE

In the year 1969 when the government of India nationalized 14 banks of India, RC
Cooper at that time had a major share in some of the banks and it affected him and
he felt that as an individual his fundamentals rights have been violated, he then
filed a writ petition. The government of India decided to nationalize banks in order
to make banking available to most parts of India.
 JUDGEMENT
SUPREME COURT SAID THAT THE GOVERNMENT HAS VIOLATED ARTICLE 31 BECAUSE OF
THE COMPENSATION DECIDED BY THE GOVERNMENT. SUPREME COURT ALSO SAID THAT
THE GOVERNMENT HAS ALSO VIOLATED ARTICLE 14 IN THIS CASE BECAUSE THE
GOVERNMENT ONLY NATIONALIZED 14 BANKS AND GAVE THEIR PERMISSION TO THE
REST OF THE BANKS TO WORK NORMALLY. SUPREME COURT ALSO SAID THAT ANY
SHAREHOLDER OR DIRECTOR CANNOT FILE A PETITION THAT THE COMPANY
FUNDAMENTAL RIGHTS HAVE BEEN VIOLATED BUT THEY CAN FILE A PETITION IF THE
FUNDAMENTAL RIGHTS OF THE SHAREHOLDER OR DIRECTOR IS BEEN VIOLATED AS AN
INDIVIDUAL. THESE JUDGEMENTS WERE PASSED WITH A MAJORITY OF 10:1.
 SEPARATE LEGAL ENTITY

Being an artificial person, a company is entirely distinct from its members. In

other words, it has an independent corporate existence. Any of its members can
enter into contracts with it in the same manner as any other individual can. The
members cannot be held liable for the acts of the company. It has the right to own
and transfer the title to property in any way it likes. No member can either
individually or jointly claim any ownership rights in the assets of the company
during its existence or in its winding up
 MacauraVs. Northern Assurance Co. Ltd. (1925)

FACT OF THE CASE

M was the holder of nearly all the shares except one of a timber company. He was
also a substantial creditor of the company. He insured the company's timber in his
own name. The timber was destroyed by fire & M claimed the loss from Insurance
Company.
 JUDGEMENT

1. THE INSURANCE COMPANY WAS NOT HELD LIABLE TO HIM.

2. A SHAREHOLDER CANNOT INSURE THE COMPANY'S PROPERTY IN HIS OWN NAME EVEN IF HE IS THE
OWNER OF ALL OR MOST OF THE COMPANY’S SHARES
 PERPETUAL EXISTENCE

The existence of the company will not be affected even if there is a substantial
change in the structure of its members. When compared to any other form of
organisation, the joint stock company is a more stable form of business
organisation. The life of the company does not depend upon the death, insolvency,
or retirement of the shareholder or the directors. Thus, the company has a perpetual
existence.
 Parag Engineering Works vs Union of India
1988

FACT OF THE CASE

The company Parag Engineering Works is a partnership with its headquarters in Tinsukia, Dibrugarh. The company has a branch office
in Gauhati, where it has subscribed to a phone with the number 27010 and STD service. The phone is at the centre of the dispute in this
case. In this case, the firm will be made reference to as the ‘telephone subscriber.’ The subscriber frequently discovered flaws in the
telephone’s performance. The subscriber reported the problems to the Telephone Department. “There was some fault in the earthing,” the
subscriber was told. The subscriber voiced concerns of bill inflation in letters dated December 14, 1985, January 6, and April 17, 1987,
as well as wrongful discharge of the apparatus for an extended time in letters dated March 17, May 2, June 1, and October 27, 1987, but
nothing was done to correct the problems. One of the Telephone Department’s officers apprised the subscriber of the cable fault as a
genuine issue at one point. It was suggested that by simply changing the apparatus’s indicator, the apparatus’s performance could be
enhanced. Concerning the indicator, on May 30, 1988, the local Chamber of Commerce in Gauhati arranged a meeting with the Telecom
District Manager at the request of the subscriber. The District Manager agreed to change the indicator during that meeting, but it has not
been changed since. The subscriber contacted the Sub-Divisional Officer several times. The subscriber was always verbally assured, but
the promises were never fulfilled. Finally, on March 17, 1988, the Department was served with a legal notice, and the instant writ
petition was filed on April 4, 1988.
 JUDGEMENT
• IN THIS REGARD, THE COURTS’ RESTRICTIONS ARE ENUMERATED IN S.14 OF THE (SPECIFIC RELIEF ACT OF 1963). (ACT 47 OF 1963). THAT ACT STATES THAT ORDERS
SHOULD NOT BE ISSUED WHERE THE IMPLEMENTATION OF WHICH INVOLVES THE PERFORMANCE OF A CONTINUOUS DUTY THAT THE COURT CANNOT SUPERVISE. THIS IS
STATED IN CL. (D) OF S.14 OF THE ACT, WHICH WE CONSIDER TO BE RELEVANT WHEN EXECUTING THE COURT’S POWERS UNDER ART.226 OF THE CONSTITUTION.
• “IF THE AUTHORITY HAD MEANT TO DENY THE NOTIFICATION ONLY ON THE GROUND THAT THE CENTRAL EXCISE NOTIFICATION APPLIES ONLY FOR INDIGENOUSLY
MANUFACTURED GOODS AND, THEREFORE, THE QUESTION OF IMPOSING A COUNTERVAILING DUTY ON THE IMPORTED GOODS HAS NOTHING TO DO WITH THE CENTRAL
EXCISE NOTIFICATION, ONE CAN UNDERSTAND THE ARGUMENT OF THE PETITIONER. BUT ON THE OTHER HAND, THE SAID SENTENCE CONTAINS TWO POINTS. I AM MORE
CONCERNED WITH THE LATTER PART WHICH SAYS “SUBJECT TO THE TERMS/CONDITIONS LAID DOWN BY THE NOTIFICATION”. THEREFORE, THERE IS SOME SCOPE FOR
ENQUIRY ON THE QUESTION OF WHETHER THE IMPORTED GOODS WERE MANUFACTURED AS PER THE EXEMPTION NOTIFICATION WHICH I HAVE QUOTED ABOVE.
THEREFORE, I CAN’T SAY THAT THE IMPUGNED ORDER IS ON THE FACE OF IT ILLEGAL OR ULTRA VIRES. IN RESPECT OF THE IMPORT OF IDENTICAL GOODS, I HAD PASSED
AN ORDER IN W.P. NO. 17557 OF 1990. THAT DECISION WAS APPROVED IN W.P. NO. 1145 OF 1990. DR KANTAWALA, APPEARING FOR THE PETITIONER SAYS THAT THE SAID
JUDGMENT RELATED TO A DIFFERENT ADJUDICATION ORDER WHICH WAS NOT IDENTICAL TO THE REMAINING GIVEN IN THE PRESENT IMPUGNED ORDER. I THINK THAT
WILL NOT ALTER THE SITUATION BECAUSE/HAVE HELD THAT THE QUESTION HAS TO BE GONE INTO BY THE AUTHORITIES REGARDING THE CONDITIONAL GRANT OF
EXEMPTION. I AM THEREFORE NOT INCLINED TO ACCEPT THE PROPOSITION THAT THE PETITIONER IS ENTITLED TO AGITATE THIS MATTER IN THIS COURT WITHOUT
FILING AN APPEAL. I, THEREFORE, PREFER TO FOLLOW MY EARLIER JUDGMENT IN W.P. NO. 17557 OF 1990 AND DIRECT THE PETITIONER TO SEEK REDRESS IN THE
APPELLATE COURT IN RESPECT OF THE VALIDITY OF THE LEVY OF COUNTERVAILING DUTY. HOWEVER, FOR THE RELEASE OF THE GOODS, I AM PASSING THE PRESENT
ORDER IMPOSING CONDITIONS FOR THE RELEASE OF THE GOODS. IN MY JUDGMENT DATED 19.11.1990, THE FACTS OF THE CASE IN W.P. NO. 17557 OF 1990 WERE SLIGHTLY
DIFFERENT FROM THE FACTS OF THE PRESENT CASE AND IT CANNOT BE DISPUTED THAT PRIMA FACIE, THE ARGUMENT OF THE PETITIONER IS ATTRACTIVE. THIS IS
BECAUSE THE TEST REPORT OF THE ASSISTANT COLLECTOR OF CUSTOMS WHICH HAS NOW BEEN PRODUCED BEFORE ME SHOWS THAT THE IMPORTED GOODS ARE MADE
OF A PARTICULAR MODE OF SYNTHETIC RESINS. BUT MR NARASIMHAN LEARNED SENIOR CENTRAL GOVERNMENT STANDING COUNSEL FOR THE RESPONDENT SAYS THAT
HE HAS TO GET INSTRUCTIONS ON THE VALIDITY OF THE TEST REPORT.
• BECAUSE OF THOSE RIVAL CONTENTIONS, I DIRECT THE RELEASE OF THE GOODS ON THE FOLLOWING
CONDITIONS:

• 1. THE PETITIONER SHOULD PAY THE ADMITTED DUTY.

• 2. THE PETITIONER SHOULD PAY 1/4TH OF THE COUNTERVAILING DUTY IN CASH.
• 3. THE PETITIONER SHALL ALSO FURNISH BANK GUARANTEE.
• 4. THE PETITIONER SHOULD FURNISH BANK GUARANTEE IN RESPECT OF THE REMAINING PORTION OF THE
COUNTERVAILING DUTY. IN RESPECT OF THE ENTIRE BALANCE, THE PETITIONER SHALL EXECUTE A PERSONAL
BOND. IN OTHER RESPECTS, THE PETITIONER IS DIRECTED TO SEEK REDRESS FOR FILING AN APPEAL. ON
APPLICATION, THE RESPONDENTS ARE DIRECTED TO ISSUE A DETENTION CERTIFICATE BY THE LAW.

• THE WRIT PETITION IS ORDERED IN THE ABOVE TERMS. NO COSTS.”

 COMMON SEAL
Being an artificial person created by Law, a company cannot sign documents for itself. The
directors are entrusted with the power to act on behalf of the company. But having a legal
personality, it is bound by only those documents, which bear its signature. Therefore, the Law
has provided for the use of a common seal, with the name of the company engraved on it, as
a substitute for its signature. Any document bearing the common seal of the company will be
legally binding on the company. The company may confine the usage of such seal which will
be given in the Articles of the company. Table A has also contains the provisions relating to
usage of this common seal. According to the regulation 84 of Table A, the seal of the
company shall not be affixed to any instrument except by the authority of a resolution of the
Board or a Committee of the Board authorised by it in that behalf and it shall be affixed in
the presence of at least two directors and the secretary or such other person specified in that
behalf.
 LIMITED LAIBILITY

In a joint stock company, the liability of members is limited to the face value of
their shares held by them. Because of this peculiar character of a company, the
personal properties of the shareholder cannot be seized for the debts of the
company, if he/she holds a fully paid-up share. The liability of the member for the
debts of the company is limited to the amount unpaid on their shares
 TRANSFERABILITY OF SHARES

No restriction is being levied upon the transferability of shares held in a public

company, except in certain cases. The members of public company can freely
transfer their shares, without seeking permission from the company. But this
provision is not applicable to the private companies. In private company, some
restrictions are laid over the transfer of shares.
 Saloman Vs. Saloman & Co. Ltd. (1895-99)

Facts of the case

Saloman sold his business to a company named Saloman & Company Ltd., which he formed.
Saloman took 20,000 shares. The price paid by the company to Saloman was £ 30,000, but
instead of paying him, cash, the company gave him 20,000 fully paid shares of £ 1 each &
£10,000 in debentures. The company wound up & the assets of the company amounted to £
6,000 only. Debts amounted to £ 10,000 due to Saloman & Secured by debentures and a further
£ 7,000 due to unsecured creditors. The unsecured creditors claimed that as Saloman & Co.
Ltd., was really the same person as Saloman, he could not owe money to himself and that they
should be paid their £ 7,000 first.
 JUDGEMENT
• 1. A COMPANY IS A "LEGAL PERSON" OR "LEGAL ENTITY" SEPARATE FROM AND CAPABLE OF SURVIVING
BEYOND THE LIVES OF, ITS MEMBERS.

• 2. THE COMPANY IS NOT IN LAW THE AGENT OF THE SUBSCRIBERS OR TRUSTEE FOR THEM.
• 3. SALOMAN WAS ENTITLED TO £ 6,000 AS THE COMPANY WAS AN ENTIRELY SEPARATE PERSON FROM
SALOMAN.

• 4. THE UNSECURED CREDITORS GOT NOTHING.

 SEPARATE PROPERTY

As a company is treated as an individual in the eyes of law, it is capable of owning,

enjoying, and disposing of property in its own name. Even though the share capital
of the company is contributed by its shareholders, the property of the company is
not the property of the shareholders.
 Lee vs. Lee Air Farming Limited, 1960

FACT OF THE CASE

In 1954 the appellant’s husband Lee formed the company named LEE’S AIR FARMING LTD. for the purpose of
carrying on the business of aerial top-dressing with 3000 thousand share of 1euro each forming share capital of the
company and out of which 2999 shares were owned by Lee himself. Lee was also the director of the company. He
exercised unrestricted power to control the affairs of the company and made all the decision relating to contracts of the
company. Company entered into various contract with insurance agencies for insurance of its employees and few
premiums of the policies were paid through companies bank account for the personal policies taken by Lee in its own
name but it was debited in the account of lee in companies book. Lee apart from being the director of the company was
also a pilot. In March, 1956, Lee was killed while piloting the aircraft during the course of aerial top-dressing. Lee’s
wife who is appellant claimed worker compensation under New Zealand Workers’ Compensation Act, 1922 as she
claimed that Lee during work as employee of the company. The New Zealand Court of Appeal declined the claim of
appellant as it refused to hold that Lee was a worker, holding that a man could not in effect, employ himself.
 JUDGEMENT

THE CASE WENT FOR APPEAL BEFORE THE NEW ZEALAND’S COURT OF APPEAL TO
DECIDE WHETHER THE DECEASED WAS EMPLOYED BY THE RESPONDENT COMPANY AS
“WORKER” UNDER THE WORKER’S COMPENSATION ACT, 1922. THE DECISION CAME IN
NEGATIVE AND THE JUDGMENT SAID THAT THE DECEASED WAS THE SOLE GOVERNING
DIRECTOR FOR LIFE VESTED WITH FULL CONTROL OVER THE COMPANY, YET THERE CAN
BE A CONTRACT OF EMPLOYMENT BETWEEN THE DIRECTOR AND THAT OF COMPANY BUT
IN THIS CASE THE COMPANY ONLY HAD A SINGLE PERSON WITH AUTHORITY AND HE
CANNOT BE THE ONE GIVING ORDERS AND OBEYING THEM. THEREFORE, IN SUCH A
MATTER BOTH THE OFFICES CANNOT EXIST TOGETHER IN A SINGLE PERSON AND ARE
INCOMPATIBLE. ALSO THE COURT OF APPEAL DECIDED THAT THE POSITION OF THE
DIRECTOR PRECLUDED THE DECEASED FROM BEING AN EMPLOYEE OF THE RESPONDENT
COMPANY, THEREFORE HE CANNOT BE SERVANT OR WORKER OF THE COMPANY.
 THE APPELLANT APPEALED THEN IN THE PRIVY COUNCIL WHERE THE LORDSHIPS TOOK INTO VIEW THE PRECEDENT
SET BY THE SALOMON V SALOMON CASE WHICH DECIDED THAT A PERSON CAN WORK IN DUAL CAPACITIES AND YET
THE COMPANY AND ITS SINGLE OWNER OR SHAREHOLDER WILL BE SEPARATE LEGAL ENTITIES. SIMILARLY IN THIS
CASE THERE WAS A CONTRACTUAL RELATIONSHIP BETWEEN MR. LEE AND THE RESPONDENT COMPANY AS SOON AS
THE COMPANY WAS INCORPORATED AND IT CANNOT BE INVALIDATED DUE TO THE CIRCUMSTANCE OF THE DECEASED
BEING THE MAJORITY SHAREHOLDER AND CONTROLLING FORCE IN THE COMPANY. IT SHALL BE UNCLEAR THAT WHAT
POSITION HE MIGHT BE ENACTING WHILE PERFORMING HIS DUTIES WHEN HE DIED BUT IT WAS BEING DONE AT THE
REQUEST OF THE FARMERS WHOSE CONTRACTUAL RIGHTS AND OBLIGATIONS WERE WITH THE RESPONDENT
COMPANY. ALSO MERELY THE POSITION OF THE DECEASED CANNOT UNDERMINE THE FACT THAT A CONTRACTUAL
RELATIONSHIP CAN ONLY BE ESTABLISHED BETWEEN TWO INDIVIDUAL LEGAL ENTITIES WHICH HAS ALREADY BEEN
PROVED. THUS, THE APPELLANT WAS ABLE TO RECEIVE THE COMPENSATION AS THERE WAS A CONTRACT OF SERVICE
BETWEEN THE COMPANY AND THE WORKER.
 CAPACITY TO SUE

A company can file a suit against others and it can be sued by others in its
corporate name. the ability, power, or legal right to take a civil legal action against
a person or organisation, often (but not only) when claiming money for some
harm, injury or wrong that they have caused you. A person's capacity to sue is
determined by legal status, age, and mental capacity etc.
 Carlill VS Carbolic Smoke Ball
Company [1892]

fact of the case

Carbolic smoke ball co, advertise in paper - whoever consume their
medicine will not suffer from influenza. In case they suffer they will
give 1000 pound. This advertise read by Carlill Mathew and she
consumed and used in spite of that she suffering from influenza.
She went to company and asking for reward but company said she
didn't communicate that she purchasing their company's product.
 JUDGEMENT

As mentioned above here Mrs. Mathew read the

giving Advertisement and according to the
instruction she performed that means she accept
the given order and in spite of that she suffered
from Aids. The parties can enter in to contract
when there is an offer and acceptance. here both
are present so it is an contract.

Therefore Mrs. Mathew can claim for the compensation.