What is Company Law?


Law exists for different segments in a society. It can be applied in a variety of sectors whether civil or corporate. In discharging the lawful duties, law also governs companies. In respect of companies, company law is applied to regulate different matters in relation to companies. The global business community has grown rapidly in recent decades. The commercial sector is crucial to the economies of many countries, including India. More than 53% of India’s GDP comes from this sector.[i] Promotion opportunities for those working in this field are plentiful. As a result of this growth, a well-developed corporate law has emerged, one that requires businesses to keep tabs on investigations, litigation, mergers and acquisitions, international trade issues, and so on. There’s an equal amount of attention paid here to the importance of good corporate governance to the efficient running of any business.

As a result, businesses have representatives and employees are educated on their rights and responsibilities to guarantee the legality of business dealings. In India, companies are governed by the Companies Act 2013 act.[ii] The companies act 2013 under the sec.2(68)[iii] defines company as the formation of a legal entity under the act. The formation of such a legal entity is separate from its owners and thus any personal obligation which arises by the company cannot be held to be a personal obligation of the owner as both are different and distinct from each other. This was held in the famous case of Salomon v. Salomon [iv]which originated the idea of limited liability.

It further divides the company into public and private company respectively. Public company is defined in a very arbitrary manner of not being a private company which makes it a public company under sec.2(71)[v]. However, it is the inclusion of transferrable shares in the minimum paid up share capital which helps us in differentiating as to how a public company is different from a private company. Similarly, a private company is defined as a company with a minimum paid up share capital but is restricted in transferring of shares through its articles, except in the cases of one person company; which limits the number of its members to just two hundred members. Company law provides for various measures to protect people from the vicious injustice that an incorporation may enforce on its people or others. Under company law, a business can be dissolved if a judge determines that doing so is in the public interest. For example, in the interest of right of minority shareholders, company law helps in enrichment of protecting the minority shareholder from the fitters of dominant shareholder by giving him the right to approach the court in certain matters of disputes and allowing the court to wind up the company and give him his share of the assets of the company. However, in most situations, it is not realistically possible to do so due to the going concern principle involved in the making of such companies. It is just and equitable to wind up the company if its affairs are being managed in a way that is substantially prejudicial to the interests of the business or its shareholders.

The Company Law Board can be contacted instead of the court (now proposed to be renamed as the Company Law Tribunal). If the Company Law Tribunal, a quasi-judicial body, finds that it is just and equitable to wind up the company on these grounds but that such winding up would unfairly prejudice the members, it can make appropriate orders for the situation. It’s possible that the Company Law Tribunal’s remedies are more effective than the power of winding up vested in the Courts, but it’s also possible to wonder if the Tribunal’s powers are too broad. However, they only apply in the most severe cases of mismanagement, when it is fair and just to dissolve the company.

Some informative actions under company law

Disclosure forms a very important part of company law too. By law, companies must provide periodic financial reports to their shareholders, complete with an auditing firm’s opinion. When seeking shareholder approval for a variety of decisions, the company is also obligated to disclose all relevant information, such as the interests of directors and their relatives in the matter. Even though disclosure isn’t enough to stop the dominant shareholders on its own, it is necessary before the minority shareholders can use any of their other options. The ability of the capital market to impose discipline on the issuers of capital relies heavily on the availability of information, which is why disclosure is so important. 

Disclosure requirements in prospectuses and annual reports are set by the law itself for companies. To give these papers more weight, SEBI has imposed a number of new, stringent requirements. The context of your interactions with the controlling shareholder may dictate the importance of certain of these disclosures. One of the most valuable is data on comparable companies’ performance, especially for those that have recently gone public on a stock exchange. Investors can use this data to form an opinion about the dominant shareholder’s behaviour and incorporate that into their future dealings with him.

Furthermore, the law necessitates that certain major decisions be approved by a special majority of 75% or 90% of the shareholders by value as another form of protection. In situations where the dominant shareholders own a large majority of the shares and therefore need the approval of only a small percentage of the minority shareholders to reach the 75% level, this safeguard may not be very effective. Even if it does, the process of holding shareholder meetings may not be conducive to broader participation by a large section of the shareholding public, rendering the safeguard ineffective. In this way, dissident shareholders would be able to gather proxies from other shareholders to block any actions that would hurt the minority’s stake.

A case that came under the purview of company law was Sri Gopal Jalan and Co. v. Calcutta Stock exchange Association ltd[vi]. Allocation’s meaning under Section 75(1)[vii] of the Companies Act, 1956 was contested in court. According to the Court’s interpretation of Section 75(1), the re-issuance of a forfeited share is not the same as an allocation of a share.

One of the recent cases that deal with the subject matter of company law is Union of India v. Delhi Gymkhana Club[viii]. The petition dealt on the matters of oppression and mismanagement that were sometimes seen in company matters. The petition was filed on the basis of section 241(2)[ix] of companies act 2013 which required the government to assess in its opinion whether or not certain activities of a company are harmful to public interest. It also required them to define public interest which was interpreted to not mean all Indian individual nationals. It would also suffice  even if only a small subset of society, such those aspiring to become “common citizens,” had their rights, security, economic well-being, health, and safety compromised, that would be enough. A similar stand was also taken in the case of Smruti Shreyans Shah v. The Lok Prakashan Ltd. & Ors[x] which stated that the tribunal is authorized to make interim order under the section if such a prima facie case arises.[xi]

In Conclusion, it is also mandated that the scope of authority of tribunals is not narrow but can also be broad in conjunction to the severity of case received. This was established through precedents like Dhananjay Mishra v Dynatron Services Private Limited & Ors[xii]

[i] Statisticstimes- https://statisticstimes.com/economy/country/india-gdp-sectorwise.php

[ii] Companies Act, 2013, No.18, Acts of Parliament, 2013, (India)

[iii] Companies Act, 2013, §2(68), No.18, Acts of Parliament, 2013, (India)

[iv] Salomon v. Salomon, UKHL 1, AC 22

[v] Companies Act, 2013, §2(71), No.18, Acts of Parliament, 2013, (India)

[vi] Sri Gopal Jalan and Co. v. Calcutta Stock exchange Association ltd, 1964 AIR 250

[vii] Companies Act, 2013, §75(1), No.18, Acts of Parliament, 2013, (India)

[viii] Union of India v. Delhi Gymkhana Club, Company Appeal (AT) No. 94 of 2020, 2021 SCC OnLine NCLAT 123

[ix] Companies Act, 2013, No.18, §241(2), Acts of Parliament, 2013, (India)

[x]  Smruti Shreyans Shah v. The Lok Prakashan Ltd. & Ors Company Appeal (AT) No. 25 of 2018

[xi] Legal Service India, https://legalserviceindia.com/legal/article-8705-famous-cases-under-company-law.html

[xii]  Dhananjay Mishra v Dynatron Services Private Limited & Ors, Company Appeal (AT) 389 of 2018

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