Application of company law in India

In India, the first company legislation dates back to 1850, called the Joint Stock Companies Act, adapted from the English Companies Act, of 1844.  After multiple amendments and additions, the Companies Act, of 1913 was passed by the Parliament. This was further amended and the Companies Act, of 1956 came into force, based on the English Companies Act, of 1943. Following this, currently, the Companies Act, 2013 (“the Act”) which came into force on 29th August 2013, regulates company law in India. This paper will look at the jurisdiction of the Companies Act, 2013, the companies defined under it, and the mode of resolving disputes.

The act extends to the whole of India.[i] The Act applies to all companies incorporated under any of the previous company laws[ii] all insurance companies except those which are not consistent with the provisions of the Insurance act, 1938,[iii] all banking companies except those which are inconsistent with the Banking Regulation Act, 1940,[iv] all companies engaged in supply or generation of electricity except those which are inconsistent with the Electricity Act, 2003,[v] any company governed by special acts unless they are not consistent with it,[vi] and any corporate body incorporated under any act in force.[vii]

Section 2 of the Act defines and classifies different kinds of companies, on factors such as liabilities, control, transferability of shares and so on.[viii] Companies fall under the category of a Private limited company, a public limited company, a company without share capital, and one person company.

  • A private company[ix] is a company with minimum paid-up shares with restrictions on the transfer of shares. The maximum number of members in a private company is 200 and the invitation to the public to subscribe to the securities of the company is prohibited.
  • A public company[x] is a company which is not private and has a minimum paid-up share capital. It needs to have a minimum of 7 shareholders and 3 directors.
  • In a one-person company[xi] a single person constitutes the whole company; this is a model which is generally used for small businesses.

Other than this, the act differentiates between companies on the basis of incorporation and the basis of liability. On the basis of incorporation, there are 3 different ways in which types of companies,

  • Firstly, there are chartered companies which are those incorporated before independence,
  • Secondly, there are statutory companies constituted by special acts of the parliament, and
  • Finally, there are registered companies incorporated under the companies act, 2013.

Based on liability, there are 3 different kinds of companies.

  • Firstly, there is an unlimited liability company,[xii] where the members are liable for the debts of the company.
  • Secondly, there are companies limited by guarantee,[xiii] where there is the person(s) who stand as a guarantee to pay the debts of the company.
  • Finally, there are companies limited by shares,[xiv] where members are liable to pay the amount up to the value of unpaid shares.

Other companies include those based on domicile. Indian companies are those which are incorporated under any Indian law, including the Companies Act, 2013 or any previous relevant legislation. Foreign companies are companies incorporated outside of India but have their place of business located within India either through an agent or by themselves. Other important companies are those registered under section 8 of the Companies Act, 2013. These companies are also known as Non-Profit Organizations (“NPOs”) and have valid licenses with the central government. The main purpose of Section 8 companies is to promote arts, science, sports, commerce, social welfare, research, education, environmental protection, religion, charity, and so on.

Other types of companies under the act include small companies, associate companies, dormant companies, and producer companies. A small company[xv] is a company other than a public limited company, with the paid-up capital being less than Rs. 50 Lakhs and an annual turnover of less than Rs. 2 crores. Associate companies[xvi] are those companies on which another entity has a substantial amount of influence. Dormant companies are companies incorporated under section 455 of the act but have no significant accounting transactions. And finally, producer companies[xvii] are companies aimed at providing support, living and standardized living for their members, as it is a legally recognized body of farmers and agriculturists.

Other than defining the different types of companies, which makes it easier to govern them, company law is very important, especially when it comes to matters of dispute resolution since a single litigation matter can have an impact on the life of the company itself. Therefore, the forum for company law matters had to be decided with careful consideration. In 1952, the Bhabha Committee[xviii] stated that all company law matters need to be dealt with in an expeditious manner, they further suggested that to achieve the same, all company law matters should be allotted to a special bench of the High Court. The same did not achieve the results that the committee wanted it to.

Finally, the establishment of a single national tribunal that will be empowered to deal with all issues arising in company law was suggested by the Eradi Committee.[xix] Following these suggestions, the Companies Act, of 1956 was amended to establish the National Company Law Appellate Tribunal (“NCLAT”) and National Company Law Tribunal (“NCLT”), and their constitutionality was upheld in the R Gandhi case.[xx] The powers of the forums have been laid down under sections 241 and 242 of the act.[xxi] There are, however, some questions regarding the exclusivity of the jurisdiction of NCLT in company law matters. The powers of the NCLT and the NCLAT are exhaustive and expansive, restricted to powers defined under the Act. However, section 424 of the Act allows both forums to go beyond their powers and apply the principles of natural justice, subject to the governing provisions, they can thus, create their procedures.[xxii] Under section 244 of the Act, there lie multiple reasons for being able to approach the NCLT or the NCLAT, and section 245 only expands on this right in case there is mismanagement or oppression within the company.[xxiii]

Section 430[xxiv] of the Act establishes an exclusive jurisdiction for the NCLT and NCLAT, to avoid concurrent jurisdiction between these forums and other civil courts, which might result in conflicting judgements. However, section 430 only bars the jurisdiction of civil courts for matters over which power has been exclusively conferred to NCLT or NCLAT.[xxv] In a recent judgement, the court held that the establishment of the company law forums does not exclude the jurisdiction of the High Court in all matters,[xxvi] in certain cases where the jurisdiction of the company law forums does not seem enough, the high court can be approached directly if it is about matters not under section 430.

The Companies Act, 2013 is a comprehensive set of rules and regulations, which has painstakingly defined different companies and has set out the procedures for governing them. it is a well-thought-out act, and the same is visible from the multiple amendments that the act has gone through to exist in its current form. Along with the help of the judiciary of the country and suggestions of different committees, the act has managed to create a comprehensive set of regulations and forums for dispute resolution to ensure speedy and effective remedies for companies. Companies Act, 2013 has covered all the important aspects required from the establishment of the company to any dispute arising in the company.

[i] Companies Act, 2013, Section 1(2).

[ii] Companies Act, 2013, Section 1(4)(a).

[iii] Companies Act, 2013, Section 1(4)(b).

[iv] Companies Act, 2013, Section 1(4)(c).

[v] Companies Act, 2013, Section 1(4)(d).

[vi] Companies Act, 2013, Section 1(4)(e).

[vii] Companies Act, 2013, Section 1(4)(f).

[viii] Vineeta, ‘Origin and Development of Company Law in India,’ (Legal Service India), <> Accessed 7th October.

[ix] Companies Act, 2013, Section 2(68).

[x] Companies Act, 2013, Section 2(71).

[xi] Companies Act, 2013, Section 2(62).

[xii] Companies Act, 2013, Section 2(92).

[xiii] Companies Act, 2013, Section 2(21).

[xiv] Companies Act, 2013, Section 2(22).

[xv] Companies Act, 2013, Section 2(85).

[xvi] Companies Act, 2013, Section 2(6).

[xvii] Companies Act, 2013, Section 456(1).

[xviii] Report of the Company Law Committee, Bhabha Committee Report, 1952, Government of India Press, New Delhi.

[xix] Ministry of Law, Justice and Company Affairs, Eradi Committee Report, 2000.

[xx] R Gandhi case, (2010) 11 SCC 1.

[xxi] Companies Act, 2013, Section 241, 242.

[xxii] Viji Jospeh v. P. Chandur, MANU/TN/1866/2019.

[xxiii] Companies Act, 2013, Section 244, 245.

[xxiv] Companies Act, 2013, Section 430.

[xxv] Shashi Prakash Khemkha v. NPEC, (2019) 18 SCC 569.

[xxvi] Zee Entertainment Enterprises Limited v. Invesco Developing Markets Fund, (2021) 229 Comp Cas 540 (Bom).

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