5 Landmark Judgments on Company Law

In Company Law, we come across different issues that a company or shareholders face. Therefore, to know how the courts deal with such issues and what is law and logic behind such rulings, it is important to know some landmark judgments.

  1. Salomon v Salomon & Co. Ltd; 1896

Aaron Salomon incorporated his business into a company in 1892 comprising of wife, daughter, four sons, and himself. Aaron Salomon being the managing director of the company has sold the company for the £39,000 amount. He took £10,000 debt for himself out of it. Edmund Broderip on the Security of the debentures paid an advance of £5000 to Mr. Salomon. Soon after that, there was a decrease in sales followed by strike action leading to a downturn in business. Thereafter to enforce security, Mr. Edmund sued Mr. Salomon because of his position and responsibility in the company.

The issue before the court was that, Whether Mr. Salomon can be sued because of his position and responsibility in the Company and is responsible for the debts himself. Subsequently, the court in its judgment said that, the company is a separate legal entity distinct from its members and so shielding Mr. Salomon, the founder of the company from personal liability to the creditors. The court maintained the doctrine of corporate personality stated under the Companies Act 1862. Therefore, creditors of an insolvent company could not sue the shareholders of the company to pay up outstanding debts.

  • Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Association Ltd;1963

In this case, appellant was accepted as a shareholder in the respondent’s Company. The present proceedings alleged because the company has failed to file a return of the allotment of the appellant’s shares with the registrar as the law mandates and moved the High Court at Calcutta.

The main question that was brought up before the Court was the meaning of the word allotment stated under Section 75(1) of the Companies Act, 1956. Later, the court in its judgment held that the re-issue of a forfeiture share cannot be the same as an allotment of a share as prescribed under Section 75(1). The term allotment is described as the acceptance of the company to take the offer of shares.

  • The State Trading Corporation of India Ltd. & Ors V. The Commercial Tax Officer, Visakhapatnam & Ors;1963

The State Trading Corporation approached the court for issuing special writs against the state government agencies on the ground sales tax which was levied on the corporation. The petition was made to determine the facts in the Article 32 of the Constitution that permits the Supreme Court to issue special orders for the implementation of the fundamental rights of citizens. But the question before the court was whether the State Trading Corporation which is a company that is listed and registered under the Indian Companies Act, 1956 and can it be regarded as a citizen and can seek for the implementation of the fundamental rights of citizens. Moreover, whether STO is an organ of the government and can request for the implementation of the rights of citizens against a state as provided under part III of the constitution of India.

The Hon’ble Supreme Court on the 26th of July 1963 has dismissed the said appeal as implied by the Powers of the Corporate entity, all citizens are persons but all persons cannot be a citizen, and a Company or a corporation ceases to be a person from the date of its incorporation. Since, the corporation performs commercial functions, it cannot be regarded as an organ or a department of the government of India.

  • Re South of England Natural Gas and Petroleum Co. Ltd;1911

The facts of the present case are such that the shareholders of the company have received copies of the Prospectus with a title that clearly stated that it is meant for private circulation only and therefore not to be advertised to the public. Around 3,000 copies of the document in the form of a prospectus were distributed to the members of certain gas companies only. Issue before court was that can a prospectus be shared and circulated among the public at large even if it specifies that it is for private circulation only.

Hon’ble Court in its judgment ruled that the prospectus is a public offer of shares despite the indication that it has to be private circulation only.

  • Ramasgate Victoria Hotel v. Montefiore;1866

Mr. Montefiore is the defendant in the present case wanted to purchase shares from the hotel owned by the complainant. He made an advanced deposit to the bank account that was held by the owner of the Hotel, with intent of implementing the transaction in June. After six months, a letter was received by him of acceptance of the offer from the complainant. By that time, the shares had lost their value and the defendant too has lost interest in the business. However, Mr. Montefiore declined to continue with the transactions but did not remove his shares.

The question before the court was about the existence an agreement between the parties along with the specific performance of it. However, the Court ordered the dismissal of the claim of specific performance of the contract that a great deal of time had passed before the offer was made. As the period of six months has elapsed it is enough time for the termination of shares being offered.

References:

https://www.lawyersclubindia.com/articles/landmark-judgments-of-corporate-law-13988.asp#comments

https://www.caclubindia.com/articles/important-caselaws-on-company-law-7630.asp

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