HISTORY OF COMPANY

LAW
► The Company Legislation in India has closely followed the Company Legislation in
England.
► The first legislative enactment for registration of Joint Stock Companies
was passed in the year 1850 which was based on the English Companies Act, 1844.
This Act recognised companies as distinct legal entities but did not introduce the
concept of limited liability.
► The concept of limited liability, in India, was recognised
for the first time by the Companies Act, 1857 closely following the English
Companies Act, 1856 in this regard.
► The Act of 1857, however, kept the liability of the members of banking companies
unlimited.
It was only in 1858 that the limited,liability concept was extended to
banking companies also.
Thereafter in 1866, the Companies Act, 1866 was passed for
consolidating and amending the law relating
to incorporation, regulation and winding-up of trading companies and
other
associations. This Act was based on the English Companies Act, 1862.
This Act continued
till 1913 when it was replaced by the Companies Act, 1913. The Act of
1913 had been
passed following the English Companies Consolidation Act, 1908.
► This Act continued till 1913 when it was replaced by the Companies Act,
1913. The Act of 1913 had been passed following the English Companies
Consolidation Act, 1908.
► Till 1956, the business companies in India were regulated by this Act of 1913. Certain
amendments were, however, made in the years 1914, 1915,1920, 1926, 1930 and 1932. The
Act was extensively amended in 1936 on the lines of the English Companies Act, 1929.
Minor amendments were made a number of times.
► At the end of 1950, the Government of independent India appointed a Committeeunder the
Chairmanship of Shri H.C. Bhaba to go into the entire question of the revision of the Indian
Companies Act, with particular reference to its bearing on the development of Indian trade
and industry. This Committee examined a large number of witnesses in different parts of the
country and submitted its report in March 1952. Based largely on the recommendations of
the Company Law Committee, a Bill to enact the present legislation namely the Companies
Act, 1956 was introduced in Parliament.
► The Companies Act, 1956 has been amended several times since then. The major
amendments were introduced in the years 1960, 1962, 1963, 1964, 1965, 1966,
1967,1969, 1974, 1977, 1985, 1988, 1991, 2001, 2002, 2006, 2013, 2015 and
2017.
► Companies Act, 2013: The Companies Act, 1956 has now been replaced by
Companies Act, 2013, a more contemporary, simplified and rationalized
legislation.
► The objective behind this new Act is said to be to bring our company law at par
with the best global practices. The Act of 2013 has, inter alia, introduced ideas
like Corporate Social Responsibility (CSR), class action suits and a fixed term
for independent directors. It also tightens provisions for raising money from the
public, prohibits any insider trading by company directors or key managerial
personnel by treating such activities as a criminal offence
 However, it permits shareholders’ agreements providing for ‘Right of first
offer’ or ‘Right of first refusal’ even in case of public companies. Further, it
requires certain companies to earmark 2 per centof the average profit of
the preceding three years for CSR activities and make a disclosure to
shareholders about the policy adopted in the process.
► Companies (Amendment) Act, 2015: Companies (Amendment) Act, 2015
which received the Presidential assent on 25th May, 2015 and became
operative w.e.f. 29th May, 2015 is designed to address some issues raised by
stakeholders such as Chartered Accountants and other professionals.
► The Companies (Amendment) Act, 2017 has introduced several amendments
to the Companies Act, 2013, realigning provisions to improve corporate
governance and ease of doing business in India while continuing to strengthen
compliance and investor protection.
 Meaning and Nature of a
Company
► The Companies Act, 2013 does not define a company in terms of its features.
Section 2(20) of the Companies Act, 2013 defines a company to mean a
company incorporated under this Act or under any previous company law.
► Chief Justice Marshall - “a corporation is an artificial being, invisible, intangible,
existing only in contemplation of the law. Being a mere creation of law, it
possesses only the properties which the Charter of its creation confers upon it,
either expressly or as incidental to its very existence.”
► The word ‘company’, in simple terms, may be described to mean a voluntary
association of persons who have come together for carrying on some business
and sharing the profits therefrom.
Characteristic features of a company

► The most important characteristic features of a company

are
► Incorporated Association
► Separate legal entity
► Limited liability
► Incorporated association
Incorporated association- A company must be incorporated or
registered under the Companies Act.
Legal entity distinct from its members: The company is distinct from
the persons who constitute it. Hence, it is capable of enjoying rights
and of being subjected to duties which are not the same as those
enjoyed or borne by its members
A company has its own distinct legal identity, separate from its:
1. Shareholders: The people who own shares in the company.
2. Directors: The people who manage the company.
3. Employees: The people who work for the company.
This means the company can:
1. Own assets: The company can own property, equipment, and
other assets in its own name.
2. Enter contracts: The company can sign contracts, agreements,
and deals with other parties.
3. Sue and be sued: The company can go to court to resolve
disputes, and can be taken to court by others.
4. Pay taxes: The company pays its own taxes, separate from its
shareholders.
5. Borrow money: The company can borrow money and take loans
in its own name.
► The first case on the subject (even before the famous Solomon’s
case) was that of
Kondoli Tea Co. Ltd., Re ILR [1886].
► In this case certain persons transferred a tea
estate to a company and claimed exemption from ad
valorem duty on the ground
that they themselves were the shareholders in the company
and, therefore, it was
nothing but a transfer from them in one to themselves under
another name
► In the Kondoli Tea Co. Ltd. case,
the shareholders argued that the company was just a "mere facade" or a sham,
and that it was essentially just them (the shareholders) operating under a
different name. They claimed that the transfer of the tea estate to the company
was essentially just a transfer from themselves to themselves, and therefore
should be exempt from ad valorem duty (a type of tax).However, the court
rejected this argument, stating that the company was a separate legal entity,
distinct from its shareholders. The court held that the company was not just a
facade or a sham, but a real and separate entity that could own assets, enter
into contracts, and sue or be sued in its own name.
► In other words, the court refused to "pierce the corporate veil" and recognize
the shareholders as the true owners of the company's assets. Instead, it
treated the company as a separate entity, with its own distinct identity.This
was an important ruling, as it established that companies have a separate
legal personality, and that their shareholders are not identical with the
company itself. This principle has had far-reaching implications for company
law and corporate governance.
The Kondoli Tea Co. Ltd. case is significant because it:
1. Established separate legal personality: The court recognized that a company
is a separate legal entity, distinct from its shareholders.
2. Rejected the " mere facade" argument: The shareholders argued that the
company was just a different name for themselves, but the court rejected
this, stating that the company was a separate body altogether.
3. Confirmed transfer of property: The court held that the transfer of the tea
estate to the company was a genuine conveyance, just like a transfer to a
completely different person.This judgment laid the groundwork for the
concept of separate legal personality, which was later reinforced by the
Solomon case. It's fascinating to see how these early cases shaped the legal
framework for companies and their relationships with shareholders.
► Again, by changing members of Board of directors or by changing shareholding
pattern, a company does not become different legal entity - Amit Products (India)
Ltd. v. Chief Engineer, (O and M) Circle [2005] 127 Comp. Cas. 443 (SC).

► company, as a person separates from its members, may even sue one of its
own members for libel. The publication of any statement which disparages the
business of the company, defames the company at the same time. Hence, the
company is entitled to sue in damages for libel or slander as the case may be -
Floating Services Ltd. v.M.V. San Fransceco Dipalola [2004] 52 SCL 762 (Guj.)
► Even where a single shareholder virtually holds the entire share capital, a
company is to be differentiated from such a shareholder. In the well known case
of Solomon v. Solomon & Co. Ltd. [1895-99] All. ER 33 (HL),
► Solomon was a prosperous leather merchant. He converted his business into a
Limited Company—Solomon & Co. Ltd. The company so formed consisted of
Solomon, his wife and five of his children as members. The company
purchased the business of Solomon for £39,000, the purchase consideration
was paid in terms of £10,000 debentures conferring a charge over the
company’s assets, £20,000 in fully paid £1 share each and the balance in cash.
The company in less than one year ran into difficulties and liquidation
proceedings commenced. The assets of the company were not even sufficient
to discharge the debentures (held entirely by Solomon himself). And nothing
was left for the unsecured creditors.
► The House of Lords unanimously held that the company had been validly constituted, since the Act only
required seven members holding at least one share each. It said nothing about their being independent, or
that there should be anything like a balance of power in the constitution of the company. Hence, the
business belonged to the company and not to Solomon. Solomon was its agent. The company was not the
agent of Solomon.
► Here's a summary of the key points:1. Solomon, a prosperous leather merchant, converted his business
into a Limited Company, Solomon & Co. Ltd.
► 2. The company had 7 members: Solomon, his wife, and 5 children.
► 3. The company bought Solomon's business for £39,000, paid in: - £10,000 debentures (loan from
company to Solomon) - £20,000 in fully paid £1 shares (Solomon bought his own company's shares) -
£9,000 in cash (balance)
► 4. The company faced financial difficulties and went into liquidation within a year.
► 5. The company's assets couldn't cover the debentures (held by Solomon), leaving nothing for unsecured
creditors.
► 6. The House of Lords ruled that: - The company was validly constituted, meeting the minimum
7-member requirement. - The company was a separate entity from Solomon, despite him being the
majority shareholder. - Solomon was the company's agent, not the other way around.
► This landmark case established the principle of separate legal personality, recognizing a company as a
distinct entity from its shareholders, even if one shareholder has majority control.
► Likewise, in the case of Lee v. Lee’s Air Farming Ltd. [1960] 3 All. ER 420 (PC), ‘L’
formed a company with a share capital of three thousand pounds, of which 2999
pounds were held by ‘L’. He was also the sole governing director. In his capacity as
the controlling shareholder, ‘L’ exercised full and unrestricted control over the affairs of
the company. ‘L’ was a qualified pilot also and was appointed as the chiepilot of the
company under the articles and drew a salary for the same. While piloting the
company’s plane he was killed in an accident. As the workers of the company were
insured, workers were entitled for compensation on death or injury.The question was
while holding the position of sole governing director, could ‘L’ also be an
employee/worker of the company. Held that the mere fact that someone was the
director of the company was no impediment to his entering into a contract to serve the
company. If the company was a legal entity, there was no reason to change the
validity of any contractual obligations which were created between the company and
the deceased. The contract could not be avoided merely because ‘L’ was the agent of
the company in its negotiations. Accordingly, ‘L’ was an employee of the company
and, therefore, entitled to compensation claim.
► Artificial person
► The company, though a juristic person, does not possess the
body of a natural being.
► It exists only in contemplation of law. Being an artificial person, it
has to depend
► upon natural persons, namely, the directors, officers,
shareholders, etc., for getting
► its various works done. However, these individuals only represent
the company and
► accordingly whatever they do within the scope of the authority
conferred upon
► them and in the name and on behalf of the company, they bind
the company and
► not themselves.
► Limited liability
► The members of the company are only liable to contribute
towards payment of its debts to a limited extent. Limited
liability means that shareholders' personal assets are
protected in case the company incurs debts or liabilities.
Shareholders are only responsible for the amount they
invested in the company, and their personal assets remain
separate.
► Separate Property
► Shareholders are not, in the eyes of the law, part
owners of the undertaking. In India,this principle of
separate property was best laid down by the
Supreme Court in Bacha F. Guzdar v. CIT [1955]
AIR 740. The Supreme Court held that a
shareholder is not the part owner of the company
or its property, he is only given certain rights by
law, for example, to vote or attend meetings, or to
receive dividends.
► Transferability of shares
► One particular reason for the popularity of joint stock companies
has been that their
► shares are capable of being easily transferred. The Act in section
44 echoes this
► feature by declaring “the shares, debentures or other interest of
any member in a
► company shall be movable property, transferable in the manner
provided by the
► articles of the company”. A shareholder can transfer his shares to
any person
► without the consent of other members. Articles of association,
even of a public
► company can put certain restrictions on the transfer of shares but
it cannot
► altogether stop it.
 Perpetual succession
► Company being an artificial person cannot be
incapacitated by illness and it does not have an allotted
span of life. Being distinct from the members, the
death,insolvency or retirement of its members leaves the
company unaffected. Members may come and go but the
company can go for ever. It continues even if all its
human members are dead. Even where during the war all
the members of a private company, while in general
meeting were killed by a bomb, the company survived.Not
even a hydrogen bomb could have destroyed it [K/9 Meat
Suppliers (Guildford)Ltd., Re [1966] 1 W.L.R. 1112]. “
Common seal
► A company being an artificial person is not bestowed with a body
of a natural being.Therefore, it does not have a mind or limbs of
human being. It has to work through the agency of human
beings, namely, the directors and other officers and employees
of the company.
► A common seal (or company seal) is a legal company
signature that's used for the execution of documents.
► While a company is an artificial person and works through the
agency of human beings, it has an official signature. This is
affixed by the officers and employees of the company on all its
documents. This official signature is the Common Seal.
► However, the Companies (Amendment) Act, 2015 has made the
Common Seal optional. Section 9 of the Act does not have the
phrase ‘and a common seal’ in it. This provides an alternative
mode of authorization for companies who do not wish to have a
common seal.
► According to this amendment, if a company does not have a
common seal, then the authorization shall be done by:
• Two Directors or
• One Director and the Company Secretary (if the company has
appointed a Company Secretary).
Body corporate and company

► The word corporation has derived from the word corpus

meaning body .
► A body corporate owes its existence either to
► 1. A special act of parliament: corporations like Lic,SBI
etc brought into existence by special acts of parliament
► 2.Company law :Tata ,reliance or companies formed under
the companies act.
► So body corporate = corporations +company law
► Body corporate is a wider term than company law
► All body corporates are company but all companies are
not body corporates.
► The essential characteristics of a body corporate are
► Incorporated under any law for the time being in office
► Perpetual Succession
► Common seal
► Sue and to be sued
► Separate legal entity
► S 2 (11) of the companies act defines body corporate
► Incudes a company incorporated outside India but does
not include
► A cooperative society registered under any law relating to
coopearative societies and
► any other body corporate not being a company which the
Central Government may, by notification in the Official
Gazette, specify in this behalf.”
 ► So a body corporate includes all companies
(1) Incoprorated in India and
(2) Outside India (foreign companies)
Foreign com: Facebook ,Microsoft etc
But foreign company having subsidiary in India and
incorporated under the companies act shall be called as
company
Eg); Google (India)Pvt Ltd
► A society registered under the Societies Registration Act
has been held by the
► Supreme Court in Board of Trustees Ayurvedic & Unani
Tibia College, Delhi v. State
► of Delhi AIR 1962 SC 458 not to come within the term ‘body
corporate’ under this
► Act, though such a society is a legal person capable of
holding property and
► becoming a member of a company.
 Is company a citizen

► Although a company is regarded as a legal person (though artificial), it is

not a citizen either under the Constitution of India or the Citizenship Act,
1955 - Heavy Engineering Mazdoor Union v. State of Bihar [1969] 39
Comp. Cas. 905 (SC). The Supreme Court of India in State Trading
Corporation of India Ltd. v. CTO [1963] 33 Comp. Cas.1057 held that a
Corporation (including a Company) cannot have the status of a citizen
under the Constitution of India.
Thus, under the Constitution, a company has
► no fundamental rights which are expressly available to
citizens only. It can,
► however, claim the protection of those fundamental rights
which are available to all persons, whether citizens or not,
for example, the right to own property.