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5 DECEMBER 09 AFTERSCHOOOL centre for social entrepreneurship 1 COMPANY LAW IN INDIA  by : DR. T.K. JAIN AFTERSCHOOL centre for social entrepreneurship sivakamu veterinary hospital road  bikaner 334001 rajasthan, india [email protected] mobile : 91+9414430763

25295622 Company Law in India

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COMPANY LAW IN INDIA

 by :

DR. T.K. JAIN

AFTERSCHO☺OL

centre for social entrepreneurship

sivakamu veterinary hospital road

 bikaner 334001 rajasthan, [email protected]

mobile : 91+9414430763

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WHAT IS A COMPANY

The word ‘company’ is derived fromthe Latin word (Com=with or together; panis =bread), and it

originally referred to an associationof persons who took their meals

together 

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CASE : SOLOMAN V/S

SOLOMAN

Soloman framed a company and became secured creditor. He sold hisown 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 caseof Salomon v. Salomon and Co. Ltd., (1897) A.C. 22, has clearlyestablished 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 whetherany 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, hedied in place crash. The court ordered the company to paycompensation in the case of Lee v. Lee’s Air Farming Ltd.

(1961) A.C. 12 (P.C.) In this case, a company was formedfor the purpose of aerial top-dressing. Lee, a qualified

 pilot, held all but one of the shares in the company. Hevoted himself the managing director and got himself 

appointed by the articles as chief pilot at a salary. Hiswidow claimed compensation for the death of her 

husband, which the compnay refused to pay as Lee wasshareholder.

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DIN

Director Identification Number (DIN) to be obtained by all existing

directors and every other person, intending to become a director. DIN to beallotted 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 tothe 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 or 

other specified authority by every company, within one week of the receiptof intimation by the Director. Intimation to be given in prescribed form and

manner. DIN to be quoted by every person or company while furnishingany return, information or particulars required to be furnished under theAct, 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

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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, companycan 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 soleCorporate includes company, corporate sole,

corporations framed by goverunment as per separate

act / parliament lawcorporation 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 realowner of the company). Company remains different fromshareholders. But it is lifted when in defence proceedings,

such as for the evasion of tax, an entity relies on itscorporate 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 forlifting 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 isregistered 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.

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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, minimumcapital 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 isnecessary: sec. 3(1)(iv)

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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 notgovernment employees and cannot claim the

same facilities as government employees

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Case : Hindustan Steel WorksConstruction Co. Ltd. v. State of 

Kerala (1998)

Government company is neither a governmentdepartment nor a government unit.

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Case : Andhra Pradesh RoadTransport Corporation v. ITO AIR 

1964

APRTC was a whole owned government

company, still it was held that it was separateentity and had to pay income tax. Income tax

was not payable by government

establishments, but the court held that APRTCis an separate company and not a governmentdepartment.

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Case : Heavy EngineeringMazdoor 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 andauditor general)

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Foreign company

A company registered in a country other than

India is called foreign company. It has to get itself registered with registrar of companies inthe state where it works and in Delhi as foreigncompany within 30 days of opening office in

India. It must display a notice stating itsregistered office. It can be limited or private

limited (but it has to mention it).

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Holding and subsidiary company

Section 4: subsidiary company is that in whichholding 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 acompany whose principal business is the

acquisition of shares, stocks, debentures or 

other securities. The main task of thesecompanies is buying and selling securities of other companies.

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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 581Ato 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.

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Finance company

It is a company which is engaged in acceptingdeposits, giving loans, and other related

activities, According to Rule 2(cc) of theCompanies (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).

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