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8/3/2019 25295622 Company Law in India
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5 DECEMBER 09 AFTERSCHOOOL centre for socialentrepreneurship
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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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