Indian company law regulates
corporation
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...
s formed under Section 2(20) of the Indian
Companies Act of 2013, superseding the
Companies Act of 1956.
History
The 2013 Companies Act superseded the
Companies Act of 1956, under whose provisions Indian corporations previously operated. In addition to the Companies Act, corporations are subject to other regulations administered by the Ministry of Corporate Affairs (MCA), which has two branches: the Regional Director (RD) and the
Registrar of Companies
A company register is a register of organizations in the jurisdiction they operate under.
A statistical business register has a different purpose than a company register. While a commercial/trade register serves a purpose of protection, account ...
(ROC). At present, India has seven RDs and 22 ROCs. These two branches are also called in-house sources of adjudication.
Recent changes in Indian Company law
*
Companies Act 2013
The Companies Act 2013 is an Act of the Parliament of India on Indian company law which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company. The 2013 Act is divided into 29 chapters containin ...
*
Companies (1st Amendment) Act, 2015 The Companies (Amendment) Act, 2015, of India, was granted the assent of the President on May 25, 2015, but was published in the Official Gazette on May 26, 2015. This Amendment aims to swiftly bridge some of the most pressing concerns of stakeholde ...
*
Companies (2nd Amendment) Act 2017
*Companies (3rd Amendment) Act 2019
*Companies (Amendment) Bill 2020
*Companies Fresh Start Scheme 2020
*Companies (Amendment) Ordinance 2018
*Companies (1st Amendment) Ordinance 2019
*Companies (2nd Amendment) Ordinance 2019
2015 amendment act
The Amendment Act (21 of 2015), passed to consolidate and amend the 2013 Companies Act, received assent from the
President of India
The president of India ( IAST: ) is the head of state of the Republic of India. The president is the nominal head of the executive, the first citizen of the country, as well as the commander-in-chief of the Indian Armed Forces. Droupadi Mur ...
on 25 May 2015, and contained 23 sections. Official notice was published in the
Gazette of India
''The Gazette of India'' is a public journal and an authorised legal document of the Government of India, published weekly by the Department of Publication, Ministry of Housing and Urban Affairs. As a public journal, the ''Gazette'' prints offic ...
,
specifying 29 May as the date on which sections 1–13 and 15–23 of the act would come into force.
Indian companies may be
incorporated as either
private or
public
In public relations and communication science, publics are groups of individual people, and the public (a.k.a. the general public) is the totality of such groupings. This is a different concept to the sociological concept of the ''Öffentlichk ...
. Under the original Act, both required certain amounts of
paid-up capital; private companies required ₹100,000 (1
lakh) and public companies required ₹500,000 (5 lakh). However, the Amendment Act abolished these limits, in order to increase the
ease of doing business. It also permitted substitution of
company seal
A company seal (sometimes referred to as the corporate seal or common seal) is an official seal used by a company. Company seals were predominantly used by companies in common law jurisdictions, although in modern times, most countries have done ...
s with human
signature
A signature (; from la, signare, "to sign") is a handwritten (and often stylized) depiction of someone's name, nickname, or even a simple "X" or other mark that a person writes on documents as a proof of identity and intent. The writer of a ...
s to sign documents.
2017 amendment act
The Ministry of Corporate Affairs promulgated a new Act on 26 January 2018, constituting 93 sections; of them, approximately 90 were announced by the Ministry through a series of eleven notifications (with the latest issued on 19 September 2018). Several modifications were made to the original Act by this amendment, mostly to improve its clarity and
concision
Concision (also called brevity, laconicism, or conciseness) is a writing principle of eliminating redundancy.UNT Writing Lab. "Concision, Clarity, and Cohesion." Accessed June 19, 2012Link./ref> For example, this:
* "It is a fact that most argum ...
; among other changes, section 134 of the 2013 act was modified to require
financial statement
Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity.
Relevant financial information is presented in a structured manner and in a form which is easy to un ...
s to carry the signatures of
CEOs.
2019 amendment act
2020 amendment bill
A bill (88 of 2020) to amend the Companies Act was introduced in the
Lok Sabha
The Lok Sabha, constitutionally the House of the People, is the lower house of India's bicameral Parliament, with the upper house being the Rajya Sabha. Members of the Lok Sabha are elected by an adult universal suffrage and a first-p ...
on 17 March, by
Finance Minister
A finance minister is an executive or cabinet position in charge of one or more of government finances, economic policy and financial regulation.
A finance minister's portfolio has a large variety of names around the world, such as "treasury", ...
Nirmala Sitharaman
Nirmala Sitharaman (born 18 August 1959) is an Indian economist and politician serving as the Minister of Finance and Corporate Affairs of India since 2019. She is a member of the Rajya Sabha, upper house of the Indian Parliament, since 2014. ...
, received the President's assent, and was announced on 28 September 2020.
[
] It decriminalized minor offenses (eliminating imprisonment as a consequence for over 46 offenses defined by the Act), permitted direct listing of Indian companies in certain foreign jurisdictions, added a new chapter for producer companies, and created exemptions to several requirements. These included setting up CSR committees and carry-forward mechanisms (previously set out in section 135 of the 2013 Act) and filing of
NBFC
A non-banking financial institution (NBFI) or non-bank financial company (NBFC) is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFC facilitate ba ...
resolutions with the Registry of Companies (previously set out in section 117 of the 2013 Act). It also provided the framework for exempting specific classes of companies and securities from the definition of "listed companies".
2020 Companies Fresh Start Scheme
Under this scheme introduced by the MCA, between 1 April 2020 and 30 September 2020, defaulting companies were provided a one-time opportunity to perform a "fresh start" and make their defaults good by filing belated documents (including annual returns and financial statements) without payment of any fee other than the normal statutory fee. Companies were, furthermore, provided some immunity to prosecution. Inactive companies were also permitted to obtain the status of a "dormant company" under section 455 of the Companies Act 2013.
The Companies (Amendment) Ordinance 2018
On 13 July 2018, the MCA assembled a committee to review specific terms of reference for the offenses under the Indian Companies Act 2013. The committee was directed by the authority to make its report public within 30 days of its first meeting; accordingly, the committee furnished the report on 14 August 2018. Some amendments recommended for immediate implementation included:
* Enlarging the jurisdictions of the two branches of the MCA (the Registrar of Companies and Regional Directors, also called the "in-house adjudications mechanism").
* Shifting the approvals process from tribunals to the in-house adjudication mechanism.
* Recategorizing the offenses punishable by imprisonment to be resolved through civil liabilities.
* Implementing 33 provisions of the original Act.
Unlike previous amendments to Acts, which went before houses of the
Indian parliament
The Parliament of India ( IAST: ) is the supreme legislative body of the Republic of India. It is a bicameral legislature composed of the president of India and two houses: the Rajya Sabha (Council of States) and the Lok Sabha (House of the ...
to be brought into law, these modifications were considered urgent enough to promulgate immediately as
ordinances.
Incorporation
Incorporating a company in India requires preparation of several documents. Requirements vary based on type of company.
Historically, there have been various types of corporations incorporated under different regulations:
* Companies incorporated under Royal Charter, a practice employed by the British government. For example, the
British East India Company
The East India Company (EIC) was an English, and later British, joint-stock company founded in 1600 and dissolved in 1874. It was formed to trade in the Indian Ocean region, initially with the East Indies (the Indian subcontinent and South ...
came under Royal Charter, which means it was granted Charter by the King or the Queen of Britain, and was controlled by the Charter. This type of incorporation is no longer performed.
* Companies incorporated by special legislature, such as the
Indian Parliament
The Parliament of India ( IAST: ) is the supreme legislative body of the Republic of India. It is a bicameral legislature composed of the president of India and two houses: the Rajya Sabha (Council of States) and the Lok Sabha (House of the ...
or State Legislature. Examples of this include the
Reserve Bank of India
The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible f ...
or
State Bank of India.
* Companies incorporated under the Indian Companies Act of 1956, which come under the memorandum of association and articles of association.
Modern companies, however, fall into the following categories.
*
Sole proprietorship
A sole proprietorship, also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity. A sole ...
: also known as a trader firm or proprietorship exclusively owned by one person, a sole proprietor may use a trading name or business name other than his or her name.
*Unregistered: some business activities do not require formal incorporation, and registration is not compulsory; this is sometimes an appealing option due to the ease of setting up operations and lack of required compliance activities. However, the main disadvantage is
unlimited liability
An unlimited company or private unlimited company is a hybrid company (corporation) incorporated with or without a share capital (and similar to its limited company counterpart) but where the legal liability of the members or shareholders is not ...
.
*Partnership: liability is joint and unlimited.
**''Active partners'' take part in day-to-day operations of the business, in addition to investing in it; they are entitled to a share of profits.
**''Sleeping partners'' invest in the business and are entitled to a share of its profits, but do not participate in day-to-day operations.
*
Limited Liability Partnership
A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not ...
: a partnership in which the partners'
liability is limited.
*
Hindu Undivided Family (HUF): businesses owned by a
joint family
An extended family is a family that extends beyond the nuclear family of parents and their children to include aunts, uncles, grandparents, cousins or other relatives, all living nearby or in the same household. Particular forms include the stem a ...
. While this conventionally involves
Hindu
Hindus (; ) are people who religiously adhere to Hinduism. Jeffery D. Long (2007), A Vision for Hinduism, IB Tauris, , pages 35–37 Historically, the term has also been used as a geographical, cultural, and later religious identifier for ...
families,
Jain
Jainism ( ), also known as Jain Dharma, is an Indian religion. Jainism traces its spiritual ideas and history through the succession of twenty-four tirthankaras (supreme preachers of ''Dharma''), with the first in the current time cycle being ...
and
Sikh families (while not governed by the Hindu law) can still form a HUF.
*
Cooperative
A cooperative (also known as co-operative, co-op, or coop) is "an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically-contro ...
*
Family Owned Business
*Dormant company: a company created either for use in a future project or for
holding assets (including
intellectual property
Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, cop ...
).
*
Private Limited Company
A private limited company is any type of business entity in "private" ownership used in many jurisdictions, in contrast to a publicly listed company, with some differences from country to country. Examples include the '' LLC'' in the United St ...
: a company that may have 2–200 shareholders, whose shares are held privately and cannot be
offered to the public.
*Small Company: a non-public company whose
paid-up capital does not exceed ₹5,000,000 (50 lakh), and whose
turnover does not exceed ₹10,000,000 (one
crore).
*
Public Limited Company
A public limited company (legally abbreviated to PLC or plc) is a type of public company under United Kingdom company law, some Commonwealth jurisdictions, and the Republic of Ireland. It is a limited liability company whose shares may be fre ...
: a category analogous to the category of the same name in other systems of corporate law.
*
Public Sector Undertaking (PSU): alternatively known as a Public Sector Enterprise (PSE). A PSU may be a public limited company (listed on stock exchanges) or unlisted entity, with majority ownership by a government body. Some of these entities are formed as business entities through special legislation, where these entities are governed by the statutes of these legislation and may or may not be governed by company laws like a typical business entity.
*
Unlimited Company
An unlimited company or private unlimited company is a hybrid company ( corporation) incorporated with or without a share capital (and similar to its limited company counterpart) but where the legal liability of the members or shareholders is ...
- A company, similar to its limited counterpart, but where the liability of the members or shareholders is not limited.
Corporate governance
CA 2013 (section 149) mandates that every company shall have a board of directors.
The provisions of
CA 2013 (section 169) establish that any company director may be removed by the
general meeting
A general assembly or general meeting is a meeting of all the members of an organization or shareholders of a company.
Specific examples of general assembly include:
Churches
* General Assembly (presbyterian church), the highest court of presb ...
with a simple majority vote, after giving "special notice" of 28 days. In companies which elect the board by proportional representation according to section 163, there is an exception, so that directors appointed by one particular group of members cannot be ousted by the majority. Those directors can only be removed by the members that appointed them, so as to protect the system of proportional voting.
Employee rights
It was the view of many in the
Indian Independence Movement
The Indian independence movement was a series of historic events with the ultimate aim of ending British Raj, British rule in India. It lasted from 1857 to 1947.
The first nationalistic revolutionary movement for Indian independence emerged ...
, including
Mahatma Gandhi
Mohandas Karamchand Gandhi (; ; 2 October 1869 – 30 January 1948), popularly known as Mahatma Gandhi, was an Indian lawyer, anti-colonial nationalist Quote: "... marks Gandhi as a hybrid cosmopolitan figure who transformed ... anti- ...
, that workers had as much of a right to participate in management of firms as shareholders or other property owners. Article 43A of the Constitution, established by the
Forty-second Amendment of the Constitution of India
The 42nd amendment, officially known as The Constitution (Forty-second amendment) Act, 1976, was enacted during the Emergency (25 June 1975 – 21 March 1977) by the Indian National Congress government headed by Indira Gandhi.
Most provisions o ...
in 1976, created a right to
codetermination
In corporate governance, codetermination (also "copartnership" or "worker participation") is a practice where workers of an enterprise have the right to vote for representatives on the board of directors in a company. It also refers to staff having ...
, requiring legislation to "secure the participation of workers in the management of undertakings". However, like other rights in Part IV, this article is not directly enforceable; it instead creates a duty upon state organs to implement its principles through legislation (and potentially through court cases). In 1978, the Sachar Report recommended legislation for inclusion of workers on boards; however, this has not yet been implemented.
The
Industrial Disputes Act 1947 (section 3) created a right of participation in joint
work councils
A works council is a shop-floor organization representing workers that functions as a local/firm-level complement to trade unions but is independent of these at least in some countries. Works councils exist with different names in a variety of re ...
to "provide measures for securing amity and good relations between the employer and workmen and, to that end to comment upon matters of their common interest or concern and endeavour to compose any material difference of opinion in respect of such matters". However, trade unions had not taken up these options on a large scale. In ''National Textile Workers Union v Ramakrishnan'' the Supreme Court (with Bhagwati J giving the leading judgment) held that employees had a right to be heard in a winding-up petition of a company, because their interests were directly affected, and their standing was not excluded by the wording of the
Companies Act 1956
The Companies Act 1956 was an Act of the Parliament of India, enacted in 1956, which enabled companies to be formed by registration, and set out the responsibilities of companies, their directors and secretaries. It was repealed and replaced b ...
section 398.
*''Excel Wearv. Union of India'' A.I.R. 1979 S.C. 25, 36
Directors' duties
Directors owe a range of duties to the company, which primarily involve acting within its constitution, avoiding
conflicts of interest
A conflict of interest (COI) is a situation in which a person or organization is involved in multiple wikt:interest#Noun, interests, finance, financial or otherwise, and serving one interest could involve working against another. Typically, t ...
, and performing their role to a desired standard of competence. The
Companies Act 2013
The Companies Act 2013 is an Act of the Parliament of India on Indian company law which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company. The 2013 Act is divided into 29 chapters containin ...
(section 166) lists directors' duties, which reflect existing principles developed by case law in most Commonwealth countries, in
common law
In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omnipres ...
and
equity. Part of the reason for codification of directors' duties was to provide a transparent statement of the duties directors owe, thereby publicizing principles of best practice.
Corporate social responsibility
In a new with the
Companies Act 2013
The Companies Act 2013 is an Act of the Parliament of India on Indian company law which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company. The 2013 Act is divided into 29 chapters containin ...
, section 135 requires companies to spend 2% of their net profit on socially responsible projects, if they have a net worth of over ₹5,000,000,000 (500 crore), or a turnover of over ₹10,000,000,000 (100 crore), or a net profit over ₹50,000,000 (5 crore). Socially responsible projects are defined in Schedule VIII, and mainly involve community development.
Enforcement
*
National Company Law Tribunal
The National Company Law Tribunal is a quasi-judicial body in India that adjudicates issues relating to Indian companies. The tribunal was established under the Companies Act 2013 and was constituted on 1 June 2016 by the government of India ...
, replacing the previous
Company Law Board and
Board for Industrial and Financial Reconstruction
The Board for Industrial and Financial Reconstruction (BIFR) was a development finance institution under the ownership of Ministry of Finance, Government of India, part of the Department of Financial Services of the Ministry of Finance. Set up i ...
.
*
Indian Corporate Law Service
See also
*
UK company law
The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary lega ...
*
European company law
European company law is a part of European Union law, which concerns the formation, operation and insolvency of companies (or corporations) in the European Union. The EU creates minimum standards for companies throughout the EU, and has its own co ...
*
US corporate law
United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governanc ...
Notes
References
*HK Saharay, ''Company Law'' (5th edn 2008)
External links
Companies Act 2013 on the Ministry for Corporate Affairs website* {{cite book, title=Company Law, first=Avtar, last=Singh, year= 2015 , edition=16th, publisher=Eastern Book Company, place=Lucknow, isbn=978-93-5145-330-7