Company Law in India

COMPANY LAW IN INDIA

by : DR. T.K. JAIN AFTERSCHO☺OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india [email protected] mobile : 91+9414430763 5 DECEMBER 09

AFTERSCHOOOL centre for social

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WHAT IS A COMPANY The word ‘company’ is derived from the Latin word (Com=with or together; panis =bread), and it originally referred to an association of persons who took their meals together 5 DECEMBER 09


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CASE : SOLOMAN V/S SOLOMAN Soloman framed a company and became secured creditor. He sold his own business to company and made his family shareholders. Company became bankrupt and payment was made to only soloman as a creditor. Thus Other unsecurited creditors didnt get payment. The case of Salomon v. Salomon and Co. Ltd., (1897) A.C. 22, has clearly established the principle that once a company has been validly constituted under the Companies Act, 1956 it becomes a legal person distinct from its members and for this purpose it is immaterial whether any member has a large or small proportion of the shares, and whether he holds those shares beneficially or as a mere trustee.

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Case : Lee v/s Lee's air farming Lee was a pilot and managing direcor of the company, he died in place crash. The court ordered the company to pay compensation in the case of Lee v. Lee’s Air Farming Ltd. (1961) A.C. 12 (P.C.) In this case, a company was formed for the purpose of aerial top-dressing. Lee, a qualified pilot, held all but one of the shares in the company. He voted himself the managing director and got himself appointed by the articles as chief pilot at a salary. His widow claimed compensation for the death of her husband, which the compnay refused to pay as Lee was shareholder. 5 DECEMBER 09


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DIN Director Identification Number (DIN) to be obtained by all existing directors and every every other person, intending to become a director. DIN to be allotted by the Central Government within one month from the receipt of application for allotment of DIN. Individuals prohibited to apply, obtain or possess more than one DIN. Every existing Director to intimate his DIN to the company or all companies wherein he is a director, within one month of receipt of DIN. Intimation of DIN, to the Registrar or any other officer o fficer or other specified authority by every company, within one on e week of the receipt of intimation by the Director. Intimation to be given in prescribed form and manner. DIN to be quoted by every person or company while furnishing any return, information or particulars required to be furnished under the Act, if such return etc. relate to the director or contain any reference of the director

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CHARACTERISTICS OF COMPANY PERPETUAL SUCCESSION ARTIFICAL PERSON SEPARATE ENTITY LEGAL ENTITY COMMON SEAL NOT A CITIZEN 5 DECEMBER 09


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TYPES OF COMAPNY

PUBLIC OR PRIVATE LIMITED OR UNLIMITED SHARES OR GUARANTEE

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Difference Between company & partnership Partnership require 2 to 20 partners, company can have 2to 50 (private company) or 7 to unlimited (public company). Separate entity principle perpetual succession principle

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Difference between company and corporate sole Corporate includes company, corporate sole, corporations framed by goverunment as per separate act / parliament law corporation generally means government organisation Corporate word is wider than company corporate sole is a single person keeping some official position, but company is a group of persons.

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LIFTING CORPORATE VEIL No body is permitted to lift corporate veil (who is the real owner of the company). Company remains different from shareholders. But it is lifted when in defence proceedings, proceedings, such as for the evasion of tax, an entity relies on its corporate personality as a shield to cover its wrong doings. [BSN (UK) Ltd. v. Janardan Mohandas Rajan Pillai [1996] 86 Comp. Cas. 371 (Bom).] Shareholders cannot ask for lifting veil for their purpose - held in Premlata Bhatia v. Union of India (2004)

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Illegal association Section 11 of the Companies Act, no company, association or partnership consisting of more than 20 persons (10 in the case of banking business) can be formed for the purpose of carrying on any business for gain, unless it is registered as a company under the Companies Act, or is formed in pursuance of some other Indian Law, or is a Joint Hindu Family carrying on business for gain. 5 DECEMBER 09


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Types of companies :

Private / public / producer limited / unlimited limited by shares / guarantee chartered / registered / statutory

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Private company

Minimum 2 and max 50 members, shares /deposits cannot be offered to public, minimum capital is 1 lakh, does not require prospectus or certificate to commence business, no ceiling on director's remuneration, sec. 3(1) (iii)

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Public company

Minimum 7 members, no maximum limit, shares are transferable, certificate of commencement of business is required, minimum capital : 5 lakhs, statutory meeting and statutory report is necessary, prospectus is necessary: sec. 3(1)(iv) 5 DECEMBER 09


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Government company

Minimum 51% capital held by government, Sec. 617

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Case : A.K. Bindal v. Union of India (2003)

Employees of a government company are not government employees and cannot claim the same facilities as government employees

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Case : Hindustan Steel Works Construction Co. Ltd. v. State of Kerala (1998)

Government company is neither a government department nor a government unit.

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Case : Andhra Pradesh Road Transport Corporation v. ITO AIR 1964 APRTC was a whole owned government company, still it was held that it was separate entity and had to pay income tax. Income tax was not payable by government establishments, but the court held that APRTC is an separate company and not a government department. 5 DECEMBER 09


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Case : Heavy Engineering Mazdoor Union v. State of Bihar (1969)

Legal status of a company will not change just because government is a shareholder in that company

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Audit in government company

Auditor is appointed by CAG (Comptroller and auditor general)

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Foreign company A company registered in a country other than India is called foreign company. It has to get it self registered with registrar of companies in the state where it works and in Delhi as foreign company within 30 days of opening office in India. It must display a notice stating its registered office. It can be limited or private limited (but it has to mention it). 5 DECEMBER 09


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Holding and subsidiary company

Section 4: subsidiary company is that in which holding company holds 50% voting power / stake or controls the board of directors

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Investment company According to Section 2(10A) of the Insurance Act, 1938, an investment company means a company whose principal business is the acquisition of shares, stocks, debentures or other securities. The main task of these companies is buying and selling securities of other companies. 5 DECEMBER 09


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Producer company Companies (Amendment) Act, 2002 had added a new Part IXA to the main Companies Act, 1956 consisting of 46 new Sections from 581A to 581ZT. It is a company framed by workers / producers and it is more of a type of cooperative of workers. It tries to distribute its profits among the producers / workers who act as producers. 5 DECEMBER 09


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Finance company It is a company which is engaged in accepting deposits, giving loans, and other related activities, According to Rule 2(cc) of the Companies (Acceptance of Deposits) Rules, 1975, a ‘Financial Company’ means a non banking company which is a financial institution within the meaning of clause (c) of Section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934). 5 DECEMBER 09


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Company Law in India

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