Synopsis – Unit 1
Introduction and Concept
History of Company Law in England:
• 17th – 18th century – formation of companies by Royal Charter or Acts of
Parliament
• Bubbles Act, 1720-1825
• Registration of companies – Joint Stock Companies Act 1844
• Introduction of limitation of liability in 1855
History of Company Law in India:
• Joint Stock Companies Act, 1850
• Introduction of limited liability in 1857
• Freedom to form voluntary associations under Article 19(1)(c), and
regulations on companies as reasonable restrictions
• H. C. Baba Company Law Committee and Companies Act 1956
• Liberalization and the Companies Bill 1997, Companies (Amendment)
Ordinances 1998 and 1999
• Companies Act 2013 and investor protection
• Changes brought in by the 2017 amendment
Features of a company:
• Body Corporate
Salomon v. Salomon & Co. Ltd. 1897
In re Kondoli Tea Co. Ltd. 1886
Lee v. Lee’s Air Farming Ltd. 1960
Bacha F. Guzdar v. Commissioner of Income Tax, Bombay 1955
Madras Central Urban Bank Ltd. v. Corporation of Madras 1932
Macaura v. Northern Assurance Company 1925
• Citizenship, Fundamental Rights, Nationality, Domicile and Residence
State Trading Corporation of India Ltd. v. CTO 1963
Chiranjilal Chaudhari v. Union of India 1951
De Beers Consolidated Mines Ltd. v. Howe 1906
Gasque v. IRC 1940
• Limitation of Liability – types: limitation by shares and by guarantee
• Perpetual Succession
In re K/9 Meat Suppliers (Guildford) Ltd. 1966
• Common Seal
Table F, Regulation 79(2)
Lifting of the Corporate Veil
Limitations on corporate personality: State of Karnataka v. Selvi J. Jayalalitha
2017, Life Insurance Corporation of India v. Escorts Ltd. 1986
Grounds:
1. Determination of character
Daimler Co. Ltd. v. Continental Tyre & Rubber Co. Ltd. 1916
2. Tax Evasion
Apthorpe v. Peter Schoenhofen Brewing Co. Ltd. 1899
Bacha F. Guzdar v. CIT Bombay 1955
In Re, Sir Dinshaw Maneckjee Petit 1927
Santanu Ray v. Union of India 1989
3. Fraud or improper conduct
Gilford Motor Co. Ltd. v. Horne 1940
4. Determination of ownership
Som Prakash Rekhi v. Union of India 1981
5. Subsidiary acting as agent of holding company
Smith, Stone and Knight v. Birmingham Corporation 1939
6. Avoidance of welfare legislation
Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry
Ltd. 1986
7. Punishment for contempt of court
Jyoti Limited v. Kanwaljit Kaur Bhasin 1987
8. Determining competence
New Horizons Ltd. v. Union of India 1995
9. In the interest of equity
Prem Lata Bhatia v. Union of India 2006
State of Rajasthan & Ors. v. Gotan Lime Stone Khanji Udyog Pvt. Ltd. 2016
[Link] provisions
S. 34, 35, 39, 12, 216, 339, and 219 (r/w S. 210, 212, 213)
[Link] Tax Act
Foreign Exchange Management Act
Types of Companies
• By liability
Limited by shares S. 2(22)
Limited by guarantee S. 2(21)
Limited by guarantee, having share capital S. 285(e)
Unlimited S. 2(92)
• By restriction on membership
Public S. 2(71)
Private S. 2(68)
One person S. 2(62)
• By management
Foreign company S. 2(42)
Government company S. 2(45)
Andhra Pradesh State Road Transport Corporation v. ITO 1964
Western Coalfields Limited v. Special Area Development Authority 1982
Mysore Paper Mills Ltd.v. Mysore Paper Mills Officer’s Association
2002
Ajay Hasia v. Khalid Majit 1981
• By relationship
Holding 2(46) -Subsidiary 2(87)
Associate S. 2(6)
• Small company S. 2(85)
• Statutory companies S. 2(72)
• Associations not for profit S. 8
• Producer companies Part IXA
• Illegal Association S. 464 r/w Rule 10, Companies (Miscellaneous) Rules,
2014
Exceptions: not for profit companies, HUF, and stock exchanges (V. V. Ruia
v. Dalmia 1968)
Kumar Swami Chettiar v. M.S.M. Chinnathambi Chettiar
Gopalji Co. v. CITA
• Dormant company S. 455
• Unregistered company S. 375
Public company Private company
Min. members S. 3 7 2
Max members S. 200
N/A
2(68)
Share transfer S. 2(68) Unrestricted Restricted
Prospectus 2(68) Barred
Allowed
Public deposits S. 76
Min. directors S. 149 3 2
Retirement of No restriction
2/3rd retire by rotation
directors S. 152(6)
Quorum for GM S. Members < 1000, then 5
103 1000<Members<5000, then 15 2
(subject to AoA) Members>5000, then 30
Managerial Not more than 11% of net profits No restriction
remuneration S. 197 (per director 5%)
Promoter
• Definition
S. 2(69)
S. 2(76), S. 188
Whaley Bridge Printing Co. v. Green 1880
Twycross v. Grant 1877
• Position of promoter
Erlanger v. New Sombrero Phosphate Co. 1878
Lidney & Wigpool Iron Ore Co. v. Bird 1866
• Liabilities of promoter
S. 26, 34, 35, 339
• Duties of promoter
Duty to disclose secret profits
In re Cape Breton Co. 1885
Erlanger v. New Sombrero Phosphate Co. 1878
Gluckstein v. Barnes 1900
Disclosure to whom made:
Erlanger v. New Sombrero Phosphate Co. 1878
Lagunas Nitrate Co. v. Lagunas Syndicate Ltd. 1899
Whaley Bridge Calico Printing Co. v. Green 1880 – content of disclosure
Duty to disclose interest
End of promoter’s duties:
Lagunas Nitrate Co. v. Lagunas Syndicate Ltd. 1899
Twycross v. Grant 1877
In re, British Seamless Paper Box Company 1981
• Remedies against promoter
1. Rescission of contract
2. Recovery of secret profit where
(a) property acquired prior to promotion
(b) property acquired during promotion
• Remuneration of promoter
In re English & Colonial Produce Company 1906
• Pre-incorporation contracts
Kelner v. Baxter 1866
Specific Relief Act, 1963 S. 15(h)
Phonogram Limited v. Lane 1982, Kelner v. Baxter 1866