CORPORATE LAW – I
S. No. Case Yea Ratio/Relevance
r
1. Saloman v. Saloman & Co. 1897 Company is a separate
legal entity
2. Lee v. Lee Air Farming Ltd. 1960 Company is a separate
legal entity
3. Macuare v. Northern Assurance Co. Ltd. 1925 Company is a separate
legal entity
4. Gluckstein v. Barnes 1900 Duty of promoters
5. D. R. Patel v. A. S. Dimellow 1959 Promoter’s liability in the
pre-incorporation stage
6. S. Sivashanmugham & Ors. v. Butterfly 1999 Scope of Memorandum of
Marketing Ltd. Association
7. Dr. A. Lakshmanswamy v. Life Insurance 1962 Scope of Memorandum of
Corporation Association
8. K. Leelakumar v. Government of India 1997 Articles of Association do
not have force of law
9. cGMP Pharmaplan Ltd. v. Regional 2010 Identical and undesirable
Director, Delhi name
10. Make My Trip (India) Pvt. Ltd. v. Make My 2019 Identical and undesirable
Travel (India) Pvt. Ltd. name
11. Ashbury Railway Carriage v. Riche 1875 Scope of Object Clause
12. Royal British Bank v. Turquand 1856 Indoor Management Rule
13. Jahangir R. Modi v. Shamji Ladha 1866 Doctrine of Ultra Vires
14. Adam v. Cape Industries 1990 Lifting of Corporate Veil
15. State of Uttar Pradesh v. Renusagar 1988 Lifting of Corporate Veil
16. New Horizon Ltd v. Union of India 1994 Lifting of Corporate Veil
INTRODUCTION
Introduction to the subject (Company Law to Corporate Law)
The terminology of company law took the shape of corporate law for the reason that from the
time of incorporating a company to its winding up, various laws govern these bodies, not just
company law. It is not only the Companies Act, but also the SEBI Act, SARFAESI Act,
Insolvency and Bankruptcy Code, amongst others, that govern companies.
Difference between a company and a business entity
A company is a business entity which has been incorporated in accordance with the laws of
the country.
History, Origin and Development of Corporate Law in India
Stages of development in the legislative framework (Timeline):
I. Till 1913
II. 1913 to 1956
III. 1956 to 2013
IV. Post 2013
Prior to 1913, there was no law as such that governed companies in India. In fact, companies
were non-existent in the 16th and 17th centuries. There were only joint stocks. These joint
stocks led to the formation of the concept of companies. Joint stocks brought to light the
concept of profit sharing, which further led to the idea of inviting investments from the
public.
Initially, there was a lot of resistance amongst Indians to follow the British company law. In
1913, due to protests, an Indian company law was evolved. Indian company law was only
partly introduced in 1913. Moreover, this law was largely based on the English company
law. During that time there were hardly any Indian companies, and the 1913 law did not
provide for any clear-cut provisions.
In 1947, the Government recognized the need to introduce a company law specifically for the
Indian companies. The Bhaba Committee was the first company law committee which was
constituted to study the Indian business environment and come up with a legislation. The Bill
of 1954 took the shape of the Companies Act, 1956 [“1956 Act”]. This was a landmark
legislation.
Some of the key features of the Act were:
1. Special legal procedure for the formation of a company [clear incorporation procedure]
2. Recognition in the form of a special status was given to companies existing before 1956,
provided that they were business entities incorporated in India [Companies which were
set up by the Queen were wound up as a result of this provision]
3. Procedure for private placement for raising funds legally [Different ways of raising funds
were laid down]
4. Corporate governance [Composition of Board of Directors, Appointment and
Responsibilities of Directors, amongst others]
Note: However, the 1956 Act merely introduced the concept of corporate governance.
The provisions were not very stringent. The Companies Act, 2013, on the other hand lays
down a very strict law with respect to corporate governance.
5. Procedure for corporate restructuring [includes mergers, taking over, etc.]
Note: Prior to the 1956 Act, corporate restructuring was based on the instructions and
notifications by the British Government. In a way, the British enjoyed monopoly.
Some provisions pertaining to corporate restructuring were present in the 1956 Act.
During P.V. Narasimha Rao’s government, changes were brought in the Monopolistic and
Restrictive Trade Practice (MRTP) Act to incorporate these provisions. Subsequently,
these were brought back within the purview of the Companies Act.
6. Procedure for winding up
Note: Previously, winding up of companies used to take place upon the instruction of the
Queen. With the introduction of the 1956 Act, criteria were laid down for winding up
(there was clarity with respect to who could file a winding up petition, when such a
petition could be filed and where it must be filed).
Changes after 1956
1. The Companies (Amendment) Act, 1988
- Prior to 1988, Section 10 of the 1956 Act gave jurisdiction only to High Courts to act
under “company law jurisdiction”. This was neither original or appellate jurisdiction.
- Special powers were given to High Courts to hear company law matters.
- Section 10 also empowered the Central Government to empower a district court with the
same powers as that of the High Courts in this regard, by way of notification.
- In 1988, the Company Law Board (CLB) came into existence. The Board exercised
company law jurisdiction. It is a quasi-judicial body. Four regional benches and one
Principal bench were set up in 1988.
- However, this did not completely take away the jurisdiction of the High Court, district
courts (by notification) or the Ministry of Corporate Affairs. But there was one exclusive
power with the CLB which could not be exercised by courts or the Ministry – matters
pertaining to prevention of oppression and mismanagement. Any case pertaining to
O&M had to be decided by the CLB and no other court.
2. Sick Industrial Companies Act, 1985 [SICA]
- The SICA was enacted as a special legislation to revive and rehabilitate sick industrial
companies.
- This legislation was enacted in light of economic reform – to revive companies which
were undergoing stress or loss.
3. Securities and Exchange Board of India [SEBI] Act, 1992
- The SEBI was established in 1992. The SEBI is empowered with regulation-making
powers under the SEBI Act.
- Consequently, these regulations affected the company law practice.
- In addition to the Ministry of Corporate Affairs and the Reserve Bank (for banking
companies), the SEBI also acts as a regulator.
4. Depository Act, 1996
- Dematerialization of securities was introduced by the Depositories Act, 1996 [DMAT
Accounts].
- Accordingly, amendments were made to register of members and several other changes
were introduced in the Companies Act.
5. The Companies (Amendment) Act, 2000
- For the first time, the minimum-occurring share capital was made mandatory in law.
- Private Companies needed to have a minimum paid-up capital of one lakh rupees.
- Public Companies needed to have a minimum paid-up capital of five lakh rupees.
- This minimum requirement, however, has been done away with by the 2015 Amendment
to the 2013 Act. But in light of recent cases, there are ongoing talks of reintroducing the
minimum mandatory requirement.
6. The Companies (Amendment) Act, 2002
- There were two important amendments made in 2002. They are referred to as the 2002
First Amendment and the 2002 Second Amendment.
- 2002 First Amendment: In light of various farmers’ suicides, a new Part IXA consisting
of Section 581A to 581ZT relating to Producer Companies was inserted.
- 2002 Second Amendment: The existing Company Law Board was proposed to be
dissolved and, in its place, a National Company Law Tribunal (Tribunal) was to be
constituted, as a tribunal with company law jurisdiction. This has been regarded as a very
controversial amendment. Despite the fact that the amendment was made in 2002, the
first NCLT was established only in 2016.
7. The Companies (Amendment) Act, 2006
8. The Companies (Amendment) Act, 2002
9. Bill of 2019
10. The Companies Act, 2013
The new Act replaced the 1956 Act, except the chapter dealing with producer companies.