Unit 3 Indian Companies Act, 2013
1. Overview of the Companies Act, 2013
- Introduction: History, purpose, and importance of the Companies Act, 2013 in replacing the Companies Act, 1956.
- Key Amendments and Objectives: Enhancing corporate governance, increasing transparency, and protecting shareholders and investors.
2. Essential Characteristics of a Company
- Definition of a Company: Legal entity, separate legal personality, perpetual succession, limited liability, and ability to own property.
- Case Law Examples: Salomon v. Salomon (UK case applied in India) for separate legal entity concept.
3. Types of Companies
- Classification Based on Liability: Companies limited by shares, by guarantee, and unlimited companies.
- Based on Number of Members: Private, public, and one-person company (OPC).
- Other Classifications: Section 8 companies (non-profit), government companies, and foreign companies.
- Relevant Sections: Sections 2(20), 2(42), 8, etc.
4. Incorporation and Registration of Companies
- Process and Documentation: Memorandum of Association (MoA), Articles of Association (AoA), certificate of incorporation.
- Steps for Registration: Name approval, obtaining digital signatures, submission of SPICe+ forms.
- Key Sections: Sections 3-12.
- Case Laws: Ashbury Railway Carriage v. Riche (ultra vires doctrine).
5. Memorandum and Articles of Association
- Memorandum of Association (MoA): Importance, clauses (name, registered office, objects, liability, and capital clauses).
- Articles of Association (AoA): Regulations, relationship between MoA and AoA.
- Alterations: Process for amending MoA and AoA, including necessary resolutions.
- Relevant Sections: Sections 4-10.
6. Capital Structure and Share Capital
- Types of Share Capital: Equity shares, preference shares, authorized capital, issued capital, subscribed capital.
- Issue of Shares: Types of share issuance, public issue, rights issue, bonus issue.
- Relevant Sections: Sections 43-72.
- Case Laws: LIC v. Escorts Ltd. (concerning shareholder rights).
7. Shareholding and Transfer of Shares
- Shareholding Rights and Restrictions: Types of shareholding, voting rights, restrictions.
- Transfer of Shares: Procedure, forms, role of Board of Directors.
- Key Sections: Sections 44, 56-59.
8. Directors' Duties and Liabilities
- Appointment of Directors: Eligibility, qualifications, disqualifications, maximum and minimum number of directors.
- Roles and Responsibilities: Fiduciary duties, statutory duties under the Act.
- Liabilities: Civil and criminal liabilities under Sections 166, 177, etc.
- Key Sections: Sections 149-172.
- Case Laws: Percival v. Wright (duties to shareholders); Foss v. Harbottle (company law doctrine).
9. Meetings and Resolutions
- Types of Meetings: Annual General Meeting (AGM), Extraordinary General Meeting (EGM), Board Meetings.
- Essentials for a Valid Meeting: Notice, quorum, minutes.
- Types of Resolutions: Ordinary resolution, special resolution.
- Key Sections: Sections 96-122.
10. Financial Statements and Auditing
- Financial Statements: Preparation, contents, and presentation.
- Audit Requirements: Appointment of auditors, powers and duties.
- Relevant Sections: Sections 128-138.
11. Liquidation and Winding Up
- Types of Winding Up: Voluntary winding up, compulsory winding up by Tribunal.
- Process: Petition, appointing a liquidator, duties of the liquidator.
- Key Sections: Sections 270-365.
12. Prevention of Oppression and Mismanagement
- Rights of Minority Shareholders: Safeguards against oppression and mismanagement.
- Legal Remedies: Application to the Tribunal, provisions in cases of oppressive conduct.
- Relevant Sections: Sections 241-246.
13. Recent Changes from the Companies Act, 1956
- Key Differences: Major changes, new provisions such as single-person companies (OPC), class action suits, corporate social responsibility (CSR).
- Introduction of New Concepts: National Company Law Tribunal (NCLT), corporate governance standards.
Mindmaps
1. Types of Companies
Mindmap Structure:
- Central Node: Types of Companies
- Branches:
- By Liability:
- Limited by Shares
- Limited by Guarantee
- Unlimited Companies
- By Number of Members:
- Private Company
- Public Company
- One-Person Company (OPC)
- By Purpose:
- Section 8 Companies (Non-profit)
- Government Companies
- Holding and Subsidiary Companies
- Foreign Companies
- By Liability:
Explanation: This mindmap will help visualize how companies are classified according to different criteria under the Companies Act, 2013, making it easy to understand the distinctions.
2. Directors' Duties and Liabilities
Mindmap Structure:
- Central Node: Directors' Duties and Liabilities
- Branches:
- Statutory Duties:
- Act in good faith (Section 166)
- Exercise due and reasonable care
- Avoid conflict of interest
- Promote the objectives of the company
- Fiduciary Duties:
- Duty of loyalty
- Duty of care
- Obligation to act in the company's best interests
- Liabilities:
- Civil Liabilities: Breach of duty to the company
- Criminal Liabilities: Non-compliance with statutory requirements
- Statutory Duties:
Explanation: This mindmap categorizes the duties and liabilities of directors under both statutory and fiduciary categories, allowing students to grasp the broader responsibilities and consequences of non-compliance.
3. Memorandum and Articles of Association (MoA and AoA)
Mindmap Structure:
- Central Node: MoA and AoA
- Branches:
- Memorandum of Association:
- Name Clause
- Registered Office Clause
- Object Clause
- Liability Clause
- Capital Clause
- Articles of Association:
- Rules and Regulations for Internal Management
- Powers and Duties of Directors
- Voting Rights and Procedures
- Process for Amendment
- Memorandum of Association:
Explanation: This mindmap shows the components and purpose of the MoA and AoA, illustrating how each part helps define the company's structure and governance.
Flowcharts
1. Incorporation of a Company
Flowchart Structure:
- Start: Name Approval
- Steps:
- Obtain Digital Signature Certificate (DSC) for directors
- Obtain Director Identification Number (DIN)
- File SPICe+ Form for Incorporation
- Attach MoA and AoA
- Submit Required Fees and Documents
- End: Issuance of Certificate of Incorporation
Explanation: This flowchart outlines each step in the incorporation process, visually breaking down each requirement.
2. Procedure for Winding Up
Flowchart Structure:
- Start: Application for Winding Up (voluntary or by Tribunal)
- Steps:
- Tribunal Hearing and Order
- Appointment of Liquidator
- Liquidator Takes Charge of Assets
- Settling of Claims and Liabilities
- Distribution of Remaining Assets
- Filing Report with Registrar
- End: Company is Dissolved
Explanation: This flowchart provides a step-by-step guide to the winding-up process, illustrating the required legal steps and the role of the Tribunal and liquidator.
3. Types of Meetings and Resolutions
Flowchart Structure:
- Start: Types of Meetings
- Branches:
- Annual General Meeting (AGM)
- Ordinary and Special Resolutions Passed
- Extraordinary General Meeting (EGM)
- Special Resolutions Passed
- Board Meetings
- Board Resolutions Passed
- Annual General Meeting (AGM)
- End: Execution of Resolutions Passed
Explanation: This flowchart shows the types of meetings in a company, their purpose, and the resolutions typically passed, providing a structured understanding of corporate decision-making.
4. Allotment and Transfer of Shares
Flowchart Structure:
- Start: Application for Share Allotment
- Steps:
- Board Approval
- Issue of Allotment Letter and Share Certificates
- Filing Return of Allotment with Registrar
- Transfer of Shares:
- Request for Transfer by Shareholder
- Verification by Board
- Entry in Share Register and Issuance of New Share Certificate
- End: Share Transfer Process Completed
Explanation: This flowchart outlines the process for both allotment and transfer of shares, highlighting the role of the Board in approving and documenting each step.
1. Table of Important Sections in the Companies Act, 2013
| Topic | Section | Description |
|---|---|---|
| Definitions and Scope | Section 2 | Contacts for definitions (e.g., company, director, share, collection) |
| Incorporation of Company | Section 3-22 | Provision for incorporation, types of companies, and registration requirements. |
| Memorandum of Association | Section 4-10 | Requirements for drafting and contents of the MoA, including name and digital classes. |
| Articles of Association | Section 5 | Provision related to the internal management and structure of the company. |
| Prospectors and Allotments | Section 23-41 | Rules for issuance of prospectus, public affairs, and private placements. |
| Share Capital | Section 43-72 | Provision on types of share capital, variation of rights, issue of bonnet shares, and buybacks. |
| Directors and Governance | Section 149-172 | Requirements for appointment, qualifications, duties, and liabilities of directors. |
| Meetings | Section 96-132 | Provision for AGMs, EOMs, Board Meetings, and resolution types. |
| Financial Statements and Audit | Section 110-183 | Rules by maintaining books of account, preparing financial statements, and auditing requirements. |
| Corporate Social Responsibility | Section 155 | Mandates CSR obligations for eligible companies, defining scope and reporting requirements. |
| Cooperation and Mismanagement | Section 241-246 | Provision for protection of minority shareholders and retail in cases of deportation. |
| Working up of Companies | Section 270-288 | Procedures for reducing and compulsory working up, appointment and invalidation. |
| Inspiration and Investigation | Section 206-229 | Powers of government in impact, investigate, and take action against companies. |
Note: This table summarizes key sections of the Companies Act, 2013 for reference purposes.
2. Table of Key Definitions in the Companies Act, 2013
| Item | Section | Definition |
|---|---|---|
| Company | Section 1000 | A company incorporated under the Companies Act, 2013 or any previous company. |
| Director | Section | A director appointed to the Board of a company. |
| Independent Director | Section | A share executive director who is an material relationship with the company, as part of these HSB. |
| Share | Section 1000 | A share in the share capital of a company, including stock. |
| Debenture | Section | Includes debentures stock, bonds, and any other securities of a company contributing a debt. |
| Prospectus | Section | Any deceased family of directors from the public for shares or debentures of a company. |
| Member | Section | A shareholder to the company's remuneration at any other person entered in its register of members. |
| One-Person Company (DPO) | Section | A company with only one person as a member. |
| Private Company | Section | A company that restricts share transfers and limits members to 300. |
| Public Company | Section | A company that then a parent company, with no limit on the amount of members. |
| Subsidiary Company | Section | A company which has holding company controls more than 50% of total share capital. |
| Holding Company | Section | A company having control over the composition of the Board or holding majority of shares. |
| Foreign Company | Section | A company incorporated outside India but with a place of business in India. |
| Financial Year | Section | The period ending on the 31st of March every year. |
| Key Managerial Personnel | Section | Includes CFO, IGO, company secretary, CFO, and other significant positions related by the company. |
3. Table of Types of Companies under the Companies Act, 2013
| Type of Company | Definition | Key Characteristics |
|---|---|---|
| Private Company | Links number to 202, restrict share transfers. | Connect freely issue shares to the public; minimum new members required. |
| Public Company | A company often than a private company with no material trust. | Can trust shares to the public not have an material number of shareholders. |
| One Person Company (OPC) | Only you attribute securities market businesses. | Eligible owner, listed liability on mandatory AGM requirements. |
| Section 8 Company | Non-profit company for charitable, educational, and social purposes. | Restricted from distributing profits to members may receive tax exemptions. |
| Foreign Company | Incorporated outside India but with operations in India. | Next comply with additional reporting and regulatory requirements under the Companies Act, 2013. |
| Government Company | Company in which the government holds 15% or more of the share capital. | Subject to additional audit and disclosure requirements. |
| Holding Company | A company with control over a subsidiary. | Majority ownership or Board control over a subsidiary. |
| Subsidiary | A company controlled by a holding company. | Holding company owns more than 50% of shares in that Board control. |
| Listed Company | A company whose securities set aside on a recognized stock exchange. | Subjects to abnorm governance norms, SEII regulations, and mandatory disclosure. |
4. Table of Types of Resolutions in the Companies Act, 2013
| Resolution Type | Required Voting | When Applicable |
|---|---|---|
| Ordinary Resolution | Simple majority (>50%) | Adoption of annual accounts, appointment of auditors, dividend declarations. |
| Special Resolution | 75% or more | Alteration of articles, reduction of share capital, and winding up decisions. |
| Board Resolution | Majority of Board members | Routine company management decisions, including approval of financials. |
| Unanimous Resolution | 100% Board approval required | Major strategic decisions, especially in private and market companies. |
5. Table of Important Forms under the Companies Act, 2013
| Form No. | Purpose | Reference |
|---|---|---|
| SPICe+ | For company incorporation | Section 7 |
| DIR-3 | Application for Director Identification Number (DIN) | Section 153 |
| MGT-7 | Annual Return of a company | Section 92 |
| AOC-4 | Filing of financial statements | Section 137 |
| ADT-1 | Notice of appointment of auditor | Section 139 |
| SH-1 | Notice for alteration of share capital | Section 64 |
| SH-2 | Notice of change of registered office | Section 12 |
| CHG-1 | Registration of charge created on a company's assets | Section 77/78 |
| PAS-3 | Return of allotment of shares | Section 39 |
| DIR-12 | Particulars of appointment of directors and key managerial personnel | Section 170 |
| MR-1 | Return of appointment of managing director or whole-time director | Section 196 |
6. Table of Key Concepts and Doctrines
| Concept/Doctrine | Explanation |
|---|---|
| Separate Legal Entity | Established in Salomon v. Salomon, meaning a company has its own distinct legal identity separate from its shareholders. |
| Doctrine of Ultra Vires | Actions beyond the powers defined in the company’s Memorandum of Association are ultra vires and void (Ashbury Railway Carriage v. Riche). |
| Doctrine of Indoor Management | Outsiders dealing with a company can assume that internal company rules have been followed, unless obvious irregularities (Royal British Bank v. Turquand). |
| Doctrine of Constructive Notice | The public is presumed to know the contents of a company’s Memorandum and Articles of Association. |
| Fiduciary Duty of Directors | Directors are expected to act in good faith and in the best interest of the company, not their personal interests. |
| Piercing the Corporate Veil | Courts can ignore the separate legal identity of a company in cases of fraud or misrepresentation, holding shareholders personally liable. |
Table 1: Foundational Case Laws
| Case Law | Legal Principle | Explanation |
|---|---|---|
| Salomon v. Salomon & Co. Ltd. (1897) | Separate Legal Entity | Established that a company has a separate legal identity distinct from its shareholders, even if one person holds majority shares. |
| Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875) | Doctrine of Ultra Vires | Held that any act beyond the scope of a company’s objectives as per the Memorandum of Association is void. |
| Royal British Bank v. Turquand (1856) | Doctrine of Indoor Management | Established that external parties dealing with the company can assume internal procedures are followed, barring irregularities. |
| Foss v. Harbottle (1843) | Rule in Foss v. Harbottle | Stated that shareholders cannot sue for wrongs done to the company; only the company itself can sue. |
| Lee v. Lee’s Air Farming Ltd. (1961) | Separate Legal Entity and Employment Relationship | Held that a sole owner of a company could also be an employee of the company, reinforcing separate legal identity. |
| Daimler Co. Ltd. v. Continental Tyre & Rubber Co. (1916) | Corporate Nationality | Ruled that a company can be treated as an enemy if its controlling members are enemy nationals. |
Table 2: Case Laws on Directors and Fiduciary Duties
| Case Law | Legal Principle | Explanation |
|---|---|---|
| Percival v. Wright (1902) | Fiduciary Duty of Directors | Held that directors’ fiduciary duties are owed to the company, not to individual shareholders. |
| Howard Smith Ltd. v. Ampol Petroleum Ltd. (1974) | Directors’ Power to Issue Shares | Stated that directors must exercise the power to issue shares in the best interest of the company, not personal interests. |
| Regal (Hastings) Ltd. v. Gulliver (1942) | Directors’ Profit from Position | Held that directors must not profit from their position without the company’s consent, even if no harm occurs. |
| Cook v. Deeks (1916) | Breach of Fiduciary Duty | Ruled that directors cannot divert business opportunities meant for the company for personal gain. |
| Ramsay v. IRC (1982) | Anti-Avoidance Principle | Established that corporate arrangements aimed solely at tax avoidance may be invalidated by courts. |
| Smith v. Van Gorkom (1985) | Duty of Care for Directors | Defined that directors should exercise reasonable care and diligence in decision-making, setting the standard for duty of care. |
Table 3: Case Laws on Shareholding, Transfer, and Meetings
Important case laws governing shareholding, transfer of shares, and company meetings under Indian corporate law.
Table 4: Case Laws on Corporate Veil, Mismanagement, and CSR
| Case Law | Legal Principle | Explanation |
|---|---|---|
| Gifford Motor Co. Ltd. v. Home (1933) | Lifting the Corporate Veil | Held that courts can disregard corporate entity if used to commit fraud or evade legal obligations. |
| Delhi Cloth & General Mills Co. v. Union of India (1980) | Lifting the Corporate Veil | Courts lifted the corporate veil when the company was used to avoid tax obligations. |
| Vodafone International Holdings BV v. Union of India (2012) | Tax and Corporate Veil | Established that corporate veil can only be lifted in cases where a company is formed for tax avoidance. |
| Tata Engineering and Locomotive Co. Ltd. v. State of Bihar (1964) | Mismanagement | Defined "oppression" and "mismanagement" under Indian law, setting criteria for minority shareholder protection. |
| S. Ramaswamy Iyer v. Brulmanya & Co. (1968) | Mismanagement and Auditors' Duty | Held that auditors are responsible for certifying the company's financial integrity and preventing mismanagement. |
| MC Mehta v. Union of India (1986) | Corporate Social Responsibility | Established a legal precedent for corporate responsibility in preventing environmental harm. |
Note: This table summarizes key case laws related to corporate veil, mismanagement, and CSR under Indian law.
Table 5: Case Laws on Contractual Capacity, Loans, and Agreements
| Case Law | Legal Principle | Explanation |
|---|---|---|
| Hadley v. Baxendale (1854) | Damage in Contract | Established the principle that damages in contract law should be foreseeable and directly resulting from the breach. |
| MRF Ltd. v. Manohar Parrikar (2001) | Doctrine of Constructive Notice | Clarified that parties dealing with a company should be aware of public documents filed by the company. |
| Re City Equitable Fire Insurance Co. Ltd. (1925) | Standard of Duty of Care | Defined a basic standard for director liability and due care required in financial management. |
| Bell Homes Ltd. v. City Wall Properties Ltd. (1969) | Quasi Contracts | Ruled that a company can be liable for benefits received in the absence of a formal contract, on equity grounds. |
| Steel Authority of India Ltd. v. S. Jayawal NECO Ltd. (2004) | Lifting the Corporate Veil | The Supreme Court held that SAIL could recover unpaid debts by disregarding the corporate form under certain conditions. |
| Ruttonjee & Co. v. NLC Ltd. (1966) | Related Party Transactions | Established that directors must disclose their interests in related party transactions to avoid conflicts. |
Note: This table summarizes important case laws governing contractual relationships, corporate loans, and agreements in business law.
Table 1: Key Terms in the Companies Act, 2013
| Key Term | Definition |
|---|---|
| Company | A legal entity formed under the Companies Act, 2013, having a separate legal identity from its members. |
| Director | An individual appointed to the board of a company to manage its affairs and act in the company's best interest. |
| Memorandum of Association (MoA) | A foundational document that outlines a company's objectives, powers, and scope of operations. |
| Articles of Association (AoA) | The document containing rules and regulations for the internal management and governance of a company. |
| Share | A unit of ownership in a company's capital, enabling the holder to voting rights and a portion of profits. |
| Debenture | A type of debt instrument that represents a loan made by investors to the company, typically paying fixed interest. |
| Dividend | A portion of a company's profits distributed to shareholders, as approved by the board of directors. |
| Annual General Meeting (AGM) | A mandatory yearly meeting where shareholders discuss financial statements, elect directors, and review company performance. |
| Special Resolution | A resolution passed by at least 75% majority of voting members, required for significant decisions like altering the Memorandum. |
| Corporate Social Responsibility (CSR) | The obligation of certain companies to spend a percentage of their profits on social and environmental initiatives. |
| Quorum | The minimum number of members or directors required to be present at a meeting for valid decision-making. |
| Minority Shareholders | Shareholders who do not hold a controlling stake but are protected against oppression by majority shareholders. |
| Winding Up | The process of dissolving a company by liquidating assets to pay off creditors and distribute remaining assets to shareholders. |
| One-Person Company (OPC) | A company with only one member, designed for individual entrepreneurs with simplified regulatory requirements. |
| Oppression and Mismanagement | Legal provisions allowing minority shareholders to seek relief from actions that are oppressive or unfairly prejudicial. |
Note: This table provides definitions of essential terms under the Companies Act, 2013. Some definitions have been corrected and standardized for clarity.
Table 2: Conditions for Important Events in the Companies Act, 2013
| Event | Conditions Required |
|---|---|
| Incorporation of a Company |
|
| Issuance of Prospectus |
|
| Annual General Meeting (AGM) |
|
| Share Buyback |
|
| Appointment of Directors |
|
| Appointment of Auditor |
|
| Alteration of Memorandum |
|
| Declaration of Dividend |
|
| CSR Spending |
|
| Extraordinary General Meeting (EGM) |
|
| Winding Up of Company |
|
| Increase in Share Capital |
|
| Reduction of Share Capital |
|
| Transfer of Registered Office |
|
| Oppression and Mismanagement Relief |
|
Note: This information is based on the Companies Act, 2013 and may be subject to updates.
