Introduction to Company Law

Lesson
LESSON 1

Introduction to Company Law

1

KEY CONCEPTS
nUltra Vires n Indoor Management n Constructive Notice n Lifting of Corporate Veil n MCA-21 n Types of
Definitions n E-Governance

Learning Objectives
To understand:
 Concept and principles of Company Law
 Background and evolution of corporate legislation in India
 Agencies under MCA
 Applicability of Companies Act, 2013 and Key Concepts
 MCA website and its features
 MCA Services
 Pre-requisites for E-Filing on MCA-21

Lesson Outline
 Introduction - Jurisprudence of Company Law
 History and development of Company Law in India
 Meaning and definition of Company
 Nature and characteristics of a Company
 Doctrine of Ultra Vires and Indoor Management
 Doctrine of Constructive Notice
 Doctrine of lifting of or piercing the corporate veil
 Important aspects and benefits of MCA-21
 Lesson Round-Up
 Glossary
 Test Yourself
 List of Further Readings
 Other References

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EP-CL&P Introduction to Company Law

INTRODUCTION – JURISPRUDENCE OF COMPANY LAW

Company Law in India, is the cherished child of the English parents. Our various Companies Acts have been
modelled on the English Acts. Following the enactment of the Joint Stock Companies Act, 1844 in England, the
first Companies Act was passed in India in 1850.
The Indian Companies Act, 1866, the Indian Companies Act, 1882, the Companies Act, 1913, and the Companies
Act, 1956 was earlier law passed in India. The Companies Act, 2013 received the assent of the President on
August 29, 2013 and was notified in the Gazette of India on August 30, 2013. Every Companies Act introduced
new concepts. Like, before notifying the Companies Act, 2013 there were no concepts regarding Corporate
Social Responsibility, One Person Company and internal/secretarial audit based on threshold limits etc.

HISTORY AND DEVELOPMENT OF THE CONCEPT OF COMPANY LAW IN INDIA

Joint Stock Company Act, 1850

Based on Company Legislation Registration for companies only in Limitation - only includes Unlimited
Act, 1844 Madras, Calcutta & Bombay Liability Company

Joint Stock Company Act, 1857

Includes both Limited & Unlimited liability Company Limitation - Banking & Insurance Company can only
be registered as Unlimited liability Company

Joint Stock Company Act, 1860

Banking and Insurance Company can also be Limited Liability Company

Joint Stock Company Act, 1866

Altogether new law governing incorporation, regulation and winding up of Company

The Companies Act, 1913

Also includes the functioning of commercial organizations, institution of private company apart from company

The Companies Act, 1936

Includes the functions of directors, managing agents & provisions for investigation of any fraudulent activity
and guarantying the security & payment of provident fund to its employees

The Companies Act, 1956

Introduced after World War II It applies to whole of India except Based on social & economic needs
(1944) & Independence (1947) Nagaland, J&K and Goa, Daman & of the Company
on the report of HC Bhabha Diu subject to some exceptions
Committee in 1952

The Companies Act, 2013

To encourage transparency and high standards of corporate governance

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Important Committees recommending changes to the Companies Act

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CONCEPT PAPER ON COMPANY LAW, 2004 & J.J. IRANI REPORT

Background
A Concept Paper on Company Law drawn up in the legislative format was exposed for public viewing on the
electronic media so that all interested parties may not only express their opinions on the concepts involved but
may also suggest formulations on various aspects of Company Law.
On August 4, 2004 the Ministry of Company Affairs had published a Concept Paper on Company Law on
its website to enable a broad-based examination of various Company Law issues requiring revision. A
large number of comments and suggestions were received on the Concept Paper. Later, on December 2,
2004, the Government constituted an Expert Committee on Company Law under the Chairmanship of Dr. J
J Irani, the then Director, Tata Sons, with the task of advising the Government on the proposed revisions to
the Companies Act, 1956 with the objective to have a simplified compact law that will be able to address
the changes taking place in the national and international scenario, enable the adoption of internationally
accepted best practices as well as provide adequate flexibility for timely evolution of new arrangements
in response to the requirements of ever- changing business models. The Committee submitted its report to
the Government on 31st May 2005. The report was charting out the road map for a flexible, dynamic and
user-friendly new company law.
The Report of the Committee had also sought to bring in multifarious progressive and visionary concepts
and endeavored to recommend a significant shift from the “Government Approval Regime” to a “Shareholder
Approval and Disclosure Regime”. Broad recommendations of the Expert Committee include:

The Companies Act, 2013

The Companies Act, 2013 received the assent of the President on August 29, 2013 and was notified in the
Gazette of India on August 30, 2013. It empowers the Central Government to bring into force various sections
from such date(s) as may be notified in the Official Gazette.

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The Companies Act, stipulates enhanced self-regulations coupled with emphasis on corporate democracy
coupled with following attributes:

The Companies Act, 2013 introduced new concepts supporting enhanced disclosure, accountability, better board
governance, better facilitation of business and so on. It includes associate company, one person company, small
company, dormant company, independent director, women director, resident director, special court, secretarial
standards, secretarial audit, class action, registered valuers, rotation of auditors, vigil mechanism, corporate
social responsibility, E-voting etc.

Reforms brought under the Companies Act, 2013 for Ease of Doing Business
The enactment of the Companies Act, 2013 allowed India to have a modern legislation for growth and
regulation of corporate sector in India. The Act was enacted in light of the changing economic and business
environment both domestically and globally to facilitate business-friendly corporate regulations, improve
corporate governance norms, enhances accountability on the part of corporates and auditors, raise levels of
transparency and protect interests of investors, particularly small investors. The objective of the Companies
Act, 2013 is to provide business friendly corporate regulation/ pro-business initiatives; e-Governance Initiatives;
good corporate governance and CSR; enhanced disclosure norms; enhanced accountability of management;
stricter enforcement of laws; audit accountability; Protection for minority shareholders; Investor protection and
Shareholder activism; Robust framework for insolvency regulation; and Institutional structure. Initially, it seems
that changes in the Companies Act, 2013 will brought out the significant changes in the manner of doing business
in India. It becomes true, when the initial unrest of business community was taken to the Government and to
address the practical difficulties faced by the business community upon notification of the various provisions of
the Act and Rules made thereunder and the term “Ease of Doing Business” was popularised in India.
On Ease of Doing Business front, the Government of India has enacted the series of amendments, relaxation,
exemptions and simplification in the various Acts, Rules, Regulations etc. covering various business related
issues and processes and also extends support to facilitate ease of doing business. In the series the Companies

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Act, 2013 has also been amended to extend relief to the business entities governed under the Companies
Act, 2013. The amendments were brought through the Companies (Amendment) Act, 2015, the Insolvency and
Bankruptcy Code, 2016, the Companies (Amendment) Act, 2017, and the Companies (Amendment) Act, 2019 and
the Companies (Amendment) Act, 2020.

DOCTRINE OF ULTRA VIRES

Ultra vires is a Latin term made up of two words “ultra” which means beyond and “vires” meaning power or
authority. Ultra vires acts are any acts that lie beyond the authority of a company to perform.

Any activity done in contrary to or in excess of the scope of activity of the Companies Act, Memorandum of
Association or Articles of Association will be ultra vires. Ultra vires activities can be divided into the following
three divisions:

Ultra Vires the Companies Act:

The power of a company is derived from the law governing it. Section 6 of the Companies Act, 2013 expressly
provides that the provisions of the Companies Act, 2013 shall prevail notwithstanding anything to the contrary
contained in the memorandum or articles of a company, or in any agreement executed by it, or in any resolution
passed by the company in general meeting or by its Board of Directors, whether the same be registered,
executed or passed, as the case may be, before or after the commencement of this Act.
Any act done contrary to or in excess of the scope of activity of the Companies Act will be ultra vires the Companies
Act. Such an act is void and cannot be ratified even by unanimous resolution of all the shareholders.

For Example; If board members are appointed or removed without following statutory provisions; payment
of dividend out of capital or reduced the share capital of the company without complying with the legal
formalities.

It also declares a provision contained in the memorandum, articles, agreement or resolution void if it’s repugnant
to any of the provisions in the Act.

Ultra Vires the Memorandum of Association:

What is Memorandum of Association?

The Memorandum of Association (MOA) is a document listing out the constitution of a company, essentially
represents the foundation stone on which the structure of the company is built. It contains clauses detailing
the boundaries of the company’s activities and its relations with the outside world.

The important attribute of the MOA is considered to be its “objects clause”. Section 4(1)(c) of the Companies
Act, 2013 requires every company to state in their MOA, the objects for which the company is proposed to
be incorporated and any matter considered necessary in furtherance thereof.

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The memorandum of association of a company restrict the powers of the company while defining the object of
the company. A company cannot do anything, which is beyond the purview of the object clause. Any act done
in contrary to the object clause of the memorandum of association will be ultra vires the memorandum of
association.

In the case of a company whatever is not stated in the memorandum as the objects or powers is prohibited
by the doctrine of ultra vires. As a result, an act which is ultra vires is void, and does not bind the company.
Neither the company nor the contracting party can sue on it. Such an act is void and cannot be ratified
even by unanimous resolution of all the shareholders.

Ultra Vires the Articles of Association:

What is Articles of Association:

In terms of Section 5(1) of the Companies Act 2013, the Articles of Association (AOA) of a company shall
contain the bye-laws and regulations for the management of the internal affairs of the company. It plays a
vital role in governing a company’s affairs and also defines the rights of its members inter-se.

If a company acts which are ultra vires the Articles of Association but intra vires the memorandum of association
(i.e. outside the scope of articles but within the powers conferred by the memorandum) will be ultra vires the
Articles of Association. That is, payment of interest on ‘advance calls’ at a rate higher than allowed by articles.
These acts are also void, but the company in general meeting may alter the Articles by a special resolution
and ratify the unauthorized acts.

CASE LAW
In Re. South Durham Brewery Company [(1875) LR 7 HL 653], the MoA of the company was unclear as to
the classes of shares to be issued by it, but the AoA of the company gave power to issue shares of different
classes as described therein. The Hon’ble Court held that Articles can be used to explain the ambiguity
contained in the memorandum.
“……..their Lordships agree that in such cases the two documents must be read together at all events so far as
may be necessary to explain any ambiguity appearing in the terms of the memorandum, or to supplement it
upon any matter as to which it is silent."

Also, as stated earlier, the company cannot make it valid, even if every member assents to it. The general rule
is that an act which is ultra vires the company is incapable of ratification. An act which is intra vires the company
but outside the authority of the directors may be ratified by the company in proper form [Rajendra Nath Dutta v.
Shilendra Nath Mukherjee, (1982) 52 Com Cases 293 (Cal.)].
The rule is meant to protect shareholders and the creditors of the company. If the act is ultra vires (beyond
the powers of) the directors only, the shareholders can ratify it. If it is ultra vires the Articles of Association, the
company can alter its articles in the proper way and thereby such acts can be duly ratified.

CASE LAW
The doctrine of ultra vires was first enunciated by the House of Lords in a classic case, Ashbury Railway
Carriage and Iron Co. Ltd. v. Riche, (1878) L.R. 7 H.L. 653.
The memorandum of the company in the said case defined its objects thus: “The objects for which the
company is established are to make and sell, or lend or hire, railway plants to carry on the business of
mechanical engineers and general contractors. ”

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The company entered into a contract with M/s. Riche, a firm of railway contractors to finance the construction
of a railway line in Belgium. On subsequent repudiation of this contract by the company on the ground of
its being ultra vires, Riche brought a case for damages on the ground of breach of contract, as according to
him the words “general contractors” in the objects clause gave power to the company to enter into such a
contract and, therefore, it was within the powers of the company. More so because the contract was ratified
by a majority of shareholders.
The House of Lords held that the contract was ultra vires the company and, therefore, null and void.
The term “general contractor” was interpreted to indicate as the making generally of such contracts as
are connected with the business of mechanical engineers. The Court held that if every shareholder of
the company had been in the room and had said, “That is a contract which we desire to make, which
we authorize the directors to make”, still it would be ultra vires. The shareholders cannot ratify such
a contract, as the contract was ultra vires the objects clause, which by Act of Parliament, they were
prohibited from doing.
However, later on, the House of Lords held in other cases that the doctrine of ultra vires should be applied
reasonably and unless it is expressly prohibited, a company may do an act which is necessary for or incidental
to the attainment of its objects. Section 13(1)(d) of the Companies Act, 1956 [Corresponds to section 4(1)(c) of
the Companies Act, 2013] provides that the objects for which the company is proposed to be incorporated
and any matter considered necessary in furtherance thereof be stated in the memorandum. However, even
when the matters considered necessary in furtherance of the objects are not stated, they would be allowed
by the principle of reasonable construction of the memorandum.

CASE LAW
Justice Shah (afterwards C.J.) in the case A. Lakshmanaswami Mudaliar v. L.I.C., A.I.R. 1963 S.C. 1185, upheld
the doctrine of ultra vires. In this case, the directors of the company were authorized “to make payments
towards any charitable or any benevolent object or for any general public or useful object”. In accordance
with shareholders’ resolution the directors paid Rs. 2 lacs to a trust formed for the purpose of promoting
technical and business knowledge. The company’s business having been taken over by L.I.C., it had no
business left of its own.
The Supreme Court held that the payment was ultra vires the company. Directors could not spend company’s
money on any charitable or general objects. They could spend for the promotion of only such charitable
objects as would be useful for the attainment of the company’s own objects. It is pertinent to add that the
powers vested in the Board of directors, e.g., power to borrow money, is not an object of the company. The
powers must be exercised to promote the company’s objects. Charity is allowed only to the extent to which
it is necessary in the reasonable management of the affairs of the company. Justice Shah held: “There
must be proximate connection between the gift and the company’s business interest”. Thus “gifts to foster
research relevant to the company’s activities” and “payments to widows of ex-employees on the footing that
such payments encourage persons to enter the employment of the company” have been upheld as valid
and intra vires.
In this regard the Act provides for bonafide charitable spending by the company. Section 181 of the Companies
Act, 2013 authorizes the Board of directors to contribute to bona fide charitable and other funds. However,
prior consent of the company in general meeting shall be required for such contribution, in case any amount
the aggregate of which, in any financial year, exceed five percent of its average net profits for the three
immediately preceding financial year.

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The power of the Board as regards contribution to funds, which do directly relate to business of the company
is unrestricted. It should not be inferred from the language of the section that with the consent of the company
in general meeting, the board of directors may contribute to charitable funds to an unlimited extent, unless
MoA and AoA authorizes such expenditure. If it does not authorize so it will be ultra vires the powers of the
company.
A bank or any other person lending to a company, for purposes ultra vires the memorandum, cannot recover
[National Provincial Bank v. Introductions Ltd., (1969) 1 All. E.R. 887].
Further, in the case of Bell Houses Ltd. v. City Wall Properties Limited (1966) 36 Com Cases 779, the objects
clause included a power to “carry on any other trade or business whatsoever which can, in the opinion of
the Board of directors, be advantageously carried on by the company.” The Court has held the same to be
in order.

Loans, Borrowings, Guarantees and Ultra Vires Rule

An ultra vires borrowing does not create a relationship of a debtor and creditor. In a case, a company had
accepted deposits from outsiders which was outside the scope of the Memorandum. When the company was
ordered to be wound up, a question was raised whether the depositors were creditors of the company and
whether the contributories could be asked to contribute towards payment of deposits. The Court held that the
relationship between the company and the depositors was not that of debtor and creditor. But if the lender had
lent the amount for discharging lawful expenses, he may recover the amount.
Whether a transaction is ultra vires the company can be decided on the basis of the following:
1. if a transaction entered into by a company falls within the objects, it is not ultra vires and hence not void;
2. if a transaction is outside the capacity (objects) of the company, it is ultra vires;
3. if a transaction is in excess or abuse of the company’s powers, it is ultra vires and such transaction will
be set aside by the shareholders or even ratification by the shareholders would not validate the acts
done beyond the authority of the company itself.

Implied Powers
The powers exercisable by a company are to be confined to the objects specified in the memorandum. While
the objects are to be specified, the powers exercisable in respect of them may be express or implied and need
not be specified.
Every company may necessarily possess certain powers which are implied, such as, a power to appoint and act
through agents, and where it is a trading company, a power to borrow and give security for the purposes of its
business, and also a power to sell. Such powers are incidental and can be inferred from the powers expressed
in the memorandum. [Oakbank Oil Co. v. Crum (1882) 8 App Cas 65]. The principle underlying the exercise of
such powers is that a company, in carrying on the business for which it is constituted, must be able to pursue
those things which may be regarded as incidental to or consequential upon that business. [Egyptian Salt and
Soda Co. v. Port Said Salt Association].

Powers which are not implied

The following powers have been held not to be implied and it is, therefore, prudent to include them expressly
in the objects clauses:
1. acquiring any business similar to the company’s own business. [Ernest v. Nicholls, (1857) 6 HLC 40];

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2. entering into an agreement with other persons or companies for carrying on business in partnership or
for sharing profit, joint venture or other arrangements. Very clear powers are necessary to justify such
transactions [Re. European Society Arbitration Act (1878) 8 Ch 679];
3. taking shares in other companies having similar objects. [Re. Barned’s Banking Co., ex parte and The
Contract Corporation (1867) 3 Ch. App. 105. Re. William Thomas & Co. Ltd. (1915) 1 Ch 325];
4. taking shares of other companies where such investment authorizes the doing indirectly that which will
not be intra vires if done directly;
5. promoting other companies or helping them financially [Joint Stock Discount Co. v. Brown, (1869) LR 8
EQ 381];
6. a power to sell and dispose of the whole of a company’s undertaking;
7. a power to use funds for political purposes;
8. a power to give gifts and make donations or contribution for charities not relating to the objects stated
in the memorandum;
9. acting as a surety or as a guarantor.

Shareholder’s right in respect of ultra vires acts

A shareholder can get back the money paid by him to the company under an ultra vires allotment of shares. A
transferee of shares from him would not have been so allowed. [Margarate Linz v. Electric Wire Co. of Salestine
Ltd. (1948) 18 Com Cases 201, 205 : AIR 1949 PC 51].

Effects of ultra vires Transactions

(i) Void ab initio – The ultra vires acts are null and void ab initio. The company is not bound by these acts.
Even the company cannot sue or be sued upon [Ashbury Railway Carriage and Iron Company v. Riche].
Ultra vires contracts are void ab initio and hence cannot become intra vires by reason of estoppel or
ratification.
(ii) Injunction: The members can get an injunction to restrain a company wherein ultra vires act has been
or is about to be undertaken [Attorney General v. Gr. Eastern Rly. Co., (1880) 5 A.C. 473].
(iii) Personal liability of Directors: It is one of the duties of directors to ensure that the corporate capital is
used only for the legitimate business of the company and hence if such capital is diverted to purposes
alien to the company’s memorandum, the directors will be personally liable to replace it. In Jehangir
R. Modi v. Shamji Ladha, [(1866-67) 4 Bom. HCR (1855)], the Bombay High Court held, “A shareholder
can maintain an action against the directors to compel them to restore to the company the funds of the
company that have by them been employed in transactions that they have no authority to enter into,
without making the company a party to the suit”.
In case of deliberate misapplication, criminal action can also be taken for fraud.
However, a distinction must be drawn between transactions which are ultra vires the company and the
transactions which are ultra vires the directors. Where the directors exceed their authority the same
may be ratified by passing the resolution in the general body meeting of the shareholders. Provided
the company has the capacity to do that transaction as per its memorandum of association.
(iv) Where a company’s money has been used ultra vires to acquire some property, the company’s right
over such property is held secure and the company will be the right party to protect the property. This
is because, though the property has been acquired for some ultra vires object, it represents the money
of the company.

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(v) Ultra vires borrowing does not create the relationship of creditor and debtor [In Re. Madras Native
Permanent Fund Ltd., (1931) 1 Com Cases 256 (Mad.)].
(vi) Ultra vires torts: A company will not be liable for torts committed outside its objects.
In order to make the company liable for the torts/crime of its employees, it will have to be proved
that:
i) the tort was committed in the course of an activity which is in the purview of company’s
memorandum, and
ii) it was committed by the employee within the course of his employment.
(vii) Ultra vires grants and guarantees: Directors cannot make an unauthorized grant unless object is
to promote prosperity of the company or the grant is incidental to carrying out of the object of the
company. [In Re LEE Behrens & Co., (1932) 2 Comp Cas 588 (Ch. D).]
A Guarantee for the payment of dividends, which enables the guarantee to bring an action against the
company for reimbursement even when there are no profit, is ultra vires and void. [In Re Walter’s Deed
of Guarantee, (1933) 3 Comp Cas 308 (CD)].

Exceptions to the doctrine of ultra vires

DOCTRINE OF INDOOR MANAGEMENT

While the doctrine of, ‘constructive notice” seeks to protect the company against the outsiders, the principal of
‘indoor management’ operates to protect the outsiders against the company. This doctrine emphasizes on the
concept that an outsider whose actions are in good faith and has entered into a transaction with a company can
have a presumption that there are no irregularities internally and all the procedural requirements have been
complied with by the company.
The doctrine of indoor management, also known as the Turquand rule is an around one fifty years old concept,
which protects outsiders against the actions done by the company.

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CASE LAW

In Royal British Bank v. Turquand, the directors of a banking company were authorized by the articles
to borrow on bonds such sums of money as should from time to time, by resolution of the company in
general meeting, be authorized to borrow. The directors gave a bond to Turquand without the authority
of any such resolution. It was held that Turquand could sue the company on the strength of the bond,
as he was entitled to assume that the necessary resolution had been passed. Lord Hatherly observed:
“Outsiders are bound to know the external position of the company but are not bound to know its indoor
management”.

Section 176 of the Companies Act, 2013 provides for the Validity of Acts of Directors - No act done by a person as
a director shall be deemed to be invalid, notwithstanding that it was subsequently noticed that his appointment
was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in
this Act or in the Articles of the company:
Provided that nothing in this section shall be deemed to give validity to any act done by the director after his
appointment has been noticed by the company to be invalid or have been terminated.
The object of the section is to protect persons dealing with the company - outsiders as well as members by
providing that the acts of a person acting as director will be treated as valid although it may afterwards be
discovered that his appointment was invalid or that it had terminated under any provision of this Act or the
Articles of the company [Ram Raghubir Lal v. United Refineries (Burma) Ltd., (1932) 2 Com Cases 359; AIR 1931
Rang 139].

Example of Indoor Management:

Question: Planet Limited received a cheque from Earth Limited. The Articles of Association of Earth Limited
provided that cheques issued by the company need to be signed by two directors and countersigned by
the secretary. The directors nor the secretary who signed the cheque was appointed properly and thus the
cheque issued was not valid. Planet Limited sued the company for the irregularities in the procedure. Is Planet
Limited liable for relief?
Answer: Planet Limited is entitled to relief and the company has to pay the amount of the cheque since the
appointment of directors is a part of the internal management of the company and a person dealing with the
company is not required to enquire about it.

Relation of company with members and outsiders

The validation of the acts of unqualified directors may apply to circumstances from two different angles:
(1) as between outsiders, strangers and the company as in Royal British Bank v. Turquand, (1856) 5 E&B
327, British Asbestos Co. Ltd. v. Boyd. (1903) 2 Ch 439 : (1900-3) All ER Rep 323; and Ram Buran Singh
v. Mufassil Bank Ltd. AIR 1925 All 206; and
(2) in relation to the internal affairs of the company as in Dawson v. African Consolidated Land & Trading
Co., (1898) 1 Ch 6 (CA), where calls made by unqualified directors were held valid. Even if the public
documents of the company, and the facts which are apparent, would make it clear that a director was
not duly qualified to act, this will not oust the effect of the Section 176 (British Asbestos case) (supra).
Similarly in Boschoek Proprietary Co. Ltd. v. Fuke, (1906) 1 Ch 148, a resolution of a general meeting
convened by de facto directors was upheld.

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Forgery and incompetent acts

This section does not apply where the act itself is not in the competence of the Board of directors, e.g.
compromising unpaid calls under the guise of forfeiture, the transaction being ultra vires and invalid [Bhagirath
Spinning & Wvg. Co. v. Balaji Bhavani Pawar, AIR 1930 Bom. 267].

Directors not aware of their disqualification

The allotment and forfeiture of shares made by the directors who continued to act even after they were
disqualified but were not aware of it, were saved by the Section 176. [Shiromani Sugar Mills Ltd. v. Debi Prasad,
(1950) 20 Com Cases 296: AIR 1950 All 508]. Where this section does not save the situation, the company
may in general meeting ratify allotment of shares even if made by de facto directors with mala fide intentions
[Bamford v. Bamford, (1969) 39 Com Cases 838 : (1969) 2 WLR (1107) (CA) and an appeal (1969) : 1All ER 969].
Where the directors in question were not aware of the fact that by virtue of certain provisions in the articles, they
had vacated their office, their acts in passing resolutions for starting certain business transactions were held to
be valid [Seth Mohan Lal v. Grain Chambers Ltd., (1968) 38 Com Cases 543 : AIR 1968 SC 772; Shiromani Sugar
Mills Ltd. v. Debi Prasad, (Supra)].
It is important to remember that the doctrine of “constructive notice”, can be invoked by the company and it
does not operate against the company. It operates against the person who has failed to inquire but does not
operate in his favour. But the doctrine of “indoor management” can be invoked by the person dealing with the
company and cannot be invoked by the company.
An outsider is entitled to act on a certified copy of the resolution of the Board of directors delegating the powers
of borrowing money to the managing director subject to the limitation mentioned therein [C.K. Siva Sankara
Panicker v. Kerala State Financial Corporation, (1980) 50 Com Cases 817 (Ker.)].

Exceptions to the Doctrine of Indoor Management

The above noted ‘doctrine of indoor management’ is, however, subject to certain exceptions. In other words,
relief on the ground of ‘indoor management’ cannot be claimed by an outsider dealing with the company in the
following circumstances.
1. Where the outsider had knowledge of irregularity – The rule does not protect any person who has
actual or even an implied notice of the lack of authority of the person acting on behalf of the company.
Thus, a person knowing fully well that the directors do not have the authority to make the transaction
but still enters into it, cannot seek protection under the rule of indoor management. In Howard v.
Patent Ivory Co. (38 Ch. D 156), the articles of a company empowered the directors to borrow upto one
thousand pounds only. They could, however, exceed the limit of one thousand pounds with the consent
of the company in general meeting. Without such consent having been obtained, they borrowed 3,500
pounds from one of the directors who took debentures. The company refused to pay the amount. Held
that, the debentures were good to the extent of one thousand pounds only because the director had
notice or was deemed to have the notice of the internal irregularity.
2. No knowledge of Memorandum and Articles – Again, the rule cannot be invoked in favour of a person
who did not consult the memorandum and articles and thus did not rely on them. In Rama Corporation v.
Proved Tin & General Investment Co. (1952) 1All. ER 554, T was a director in the company. He, purporting
to act on behalf of the company, entered into a contract with the Rama Corporation and took a cheque
from the latter. The articles of the company did provide that the directors could delegate their powers
to one of them. But Rama Corporation people had never read the articles. Later, it was found that the
directors of the company did not delegate their powers to T. The Plaintiff relied on the rule of indoor
management. Held, they could not because they even did not know that power could be delegated.

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3. Forgery – The rule of indoor management does not extend to transactions involving forgery or to
transactions which are otherwise void or illegal ab initio. In the case of forgery it is not that there is
absence of free consent but there is no consent at all. The person whose signatures have been forged
is not even aware of the transaction, and the question of his consent being free or otherwise does not
arise. Consequently, it is not that the title of the person is defective but there is no title at all. Therefore,
howsoever clever the forgery might have been, the personates acquire no rights at all. Thus, where the
secretary of a company forged signatures of two of the directors required under the articles on a share
certificate and issued certificate without authority, the applicants were refused registration as members
of the company. The certificate was held to be nullity and the holder of the certificate was not allowed
to take advantage of the doctrine of indoor management [Rouben v. Great Fingal Consolidated (1906)
AC 439].
Forgery, in the case of a company, can take place in different forms. It may, besides forgery of the
signatures of the authorized officials, include the execution of a document towards the personal
discharge of an official’s liability instead of the liability of the company. Thus, a bill of exchange signed
by the manager of a company with his own signature under words stating that he signed on behalf
of the company, was held to be forgery when the bill was drawn in favour of a payee to whom the
manager was personally indebted [Kreditbank Cassel v. Schenkers Ltd. (1927) 1 KB 826]. The bill in this
case was held to be forged because it purported to be a different document from what it was in fact;
it purported to be issued on behalf of the company in payment of its debt when in fact it was issued in
payment of the manager’s own debt.
4. Negligence – The ‘doctrine of indoor management’, in no way, rewards those who behave negligently.
Thus, where an officer of a company does something which shall not ordinarily be within his powers,
the person dealing with him must make proper enquiries and satisfy himself as to the officer’s authority.
If he fails to make an enquiry, he is estopped from relying on the Rule. In the case of Underwood v.
Benkof Liverpool (1924) 1 KB 775, a person who was a sole director and principal shareholder of a
company deposited into his own account cheques drawn in favour of the company. Held, that, the bank
should have made inquiries as to the power of the director. The bank was put upon an enquiry and was
accordingly not entitled to rely upon the ostensible authority of director.
Similarly, in the case of Anand Behari Lal v. Dinshaw & Co. (Bankers) Ltd. AIR 1942 Oudh 417, an
accountant of a company transferred some property of a company in favour of Anand Behari. On an
action brought by him for breach of contract, the Court held that the transfer to be void. It was observed
that the power of transferring immovable property of the company could not be considered within the
apparent authority of an accountant.
5. Again, the doctrine of indoor management does not apply where the question is in regard to the very
existence of an agency. In Varkey Souriar v. Keraleeya Banking Co. Ltd. (1957) 27 Com Cases 591 (Ker.),
the Hon’ble Kerala High Court held that the ‘doctrine of indoor management’ cannot apply where the
question is not one as to scope of the power exercised by an apparent agent of a company but is with
regard to the very existence of the agency.
6. This Doctrine is also not applicable where a pre-condition is required to be fulfilled before company
itself can exercise a particular power. In other words, the act done is not merely ultra vires the directors/
officers but ultra vires the company itself – Pacific Coast Coal Mines v. Arbuthnot (1917) AC 607.
In the end, it is worthwhile to mention that section 6 of the Companies Act, 2013 gives overriding
force and effect to the provisions of the Act, notwithstanding anything to the contrary contained in the
memorandum or articles of a company or in any agreement executed by it or for that matter in any
resolution of the company in general meeting or of its board of directors. A provision contained in the
memorandum, articles, agreement or resolution to the extent to which it is repugnant to the provisions
of the Act, will be regarded as void.

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Introduction to Company Law LESSON 1

A corporation, organization or other entity set up to provide a legal shield for the person actually controlling
the operation.

Illustration:
Question: Butterfly Limited receives a share certificate of Flower Limited issued under the seal of the
company. The company secretary issues the certificate after affixing the seal and forging the signature of the
two directors. Butterfly Limited files a lawsuit claiming that the forging of signatures is a part of the internal
management of the company. Is the claim by Butterfly Limited valid and is liable to get relief?
Answer: According to the exceptions to the doctrine of indoor management, a transaction involving forgery
is null and void. Since the document issued to Butterfly Limited is null and void, the claim made by him is not
valid. Thus, he is not entitled to any relief.

DOCTRINE OF CONSTRUCTIVE NOTICE

In companies law the doctrine of constructive notice is a doctrine where all persons dealing with a company
are deemed (or “construed”) to have knowledge of the company’s Articles of Association and Memorandum of
Association.
The Memorandum and Articles, when registered, become public documents and can be inspected by
anyone on payment of nominal fee. Therefore, every person who contemplates entering into a contract
with a company has the means of ascertaining and is consequently presumed to know, not only the exact
powers of the company but also the extent to which these powers have been delegated to the directors,
and of any limitations placed upon the exercise of these powers. In other words, every person dealing with
the company is deemed to have a “constructive notice” of the contents of its memorandum and articles.
In fact, he is regarded not only as having read those documents but also as having understood them
according to their proper meaning [Griffith v. Paget, (1877) Ch. D. 517]. Consequently, if a person enters
into a contract which is beyond the powers of the company, as defined in the memorandum, or outside
the limits set on the authority of the directors, he cannot, as a general rule, acquire any rights under the
contract against the company [Mohony v. East Holyfrod Mining Co., (1875) L.R. 7 H.L. 869]. For example, if
the articles provide that a bill of exchange to be effective must be signed by two directors, a person dealing
with the company must see that it is so signed; otherwise he cannot claim under it.

A common example of Constructive Notice is when a court is unable to directly reach someone and publishes
summons in the public newspaper and it is assumed that everybody has read it.

In another case, the articles required that all documents should be signed by the managing director, secretary
and the working director on behalf of the company. A deed of mortgage was executed by the secretary and
the working director only and the Court held that no claim would lie under such a deed. The Court said that
the mortgagee should have consulted the articles before the deed was executed. Therefore, even though the
mortgagee may have acted in good faith and the money borrowed applied for the purpose of the company,
the mortgage was nevertheless invalid [Kotla Venkataswamy v. Rammurthy, AIR 1934 Mad 579]. The doctrine of
indoor management protects third parties who are entitled to an assurance that all the procedural aspects of a
transaction are carried out.
Outsiders dealing with incorporated bodies are bound to take notice of limits imposed on the corporation by the
memorandum or other documents of constitution. Nevertheless, they are entitled to assume that the directors
or other persons exercising authority on behalf of the company are doing so in accordance with the internal
regulations as set out in the Memorandum & Articles of Association.

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EP-CL&P Introduction to Company Law

The impact of this doctrine on practical relations is thus stated in HALSBURY: “A company is subject to the rule
that, where the conduct of a party charged with a notice shows that he had suspicions of a state of facts the
knowledge of which would affect his legal rights, but that he deliberately refrained from making inquiries, he
will be treated as having had notice, though he is not entitled to claim for his own advantage,” [Jones v. Smith,
(1841) 1 Hare 43].

DOCTRINE OF ALTER EGO

The term “Alter Ego” is a Latin word. Literally translated, it means the “Other I”. More idiomatic it can be
understood as the identical copy or a person’s clone. It is a common tenet that a company is a separate legal
entity from its shareholders and directors. This common law principle grants immunity to the shareholders
and directors from being held liable for the debts as well as criminal liabilities of the corporation. The doctrine
of alter ego, however, provides for an exception to this presumption in law. Alter ego is the doctrine which
prevents the stakeholders of the corporation, i.e., shareholders and directors from taking the refuge of doctrine
of separate legal entity. Hence, the Doctrine of alter ego is based on lifting of the corporate veil between the
directors/ shareholders and the corporation and treating both as one entity.
The doctrine of alter ego is based on the assumption that the company as well as the shareholders and the
managing directors are the alter egos of each other, i.e., one is the shadow or reflection of the other or can
be understood as two sides of the same coin. Hence, the courts can rely on alter ego doctrine when they find
that there is a very thin line of distinction between the shareholders/ directors and the corporation or a limited
liability corporation.
It is used by the courts to ignore the status of shareholders, officers, and directors of a company in reference to
their liability in their respective capacity so that they may be held personally liable for their actions when they
have acted fraudulently or unjustly.
In Lennards Carying Co. Ltd. v. Asiatic Petroleum Co. Ltd. [1915] AC 705, Viscount Haldane propounded the
“alter ego” theory and distinguished it from vicarious liability. The House of Lords stated that the default of the
managing director who is the “directing mind and will” of the company, would be attributed to him and he be
held for the wrong doing of the company.

CASE LAW

The Supreme Court of India, in the judgment of Sunil Bharti Mittal v. Central Bureau of Investigation AIR 2015
SC 923, clarified the law of "alter ego". In the instant case the Special Judge had summoned and proceeded
against the Directors of the Company. The Special Judge, had held "On the other hand, the reason for
summoning these persons and proceeding against them are specifically ascribed in this para which, prima
facie, are:
i. These persons were/are in the control of affairs of the respective companies.
ii. Because of their controlling position, they represent the directing mind and will of each company.
iii. State of mind of these persons is the state of mind of the companies. Thus, they are described as "alter
ego" of their respective companies.
The Apex Court while overruling the decision of the Special Judge, observed that while the Special Judge
had applied the principle of alter ego, it had done so in reverse. The criminal mens rea had been attributed
to the directors on the assumption that they are the directing minds behind the acts of the Company. The
Supreme Court observed that the Special Judge had ignored the fact that such an interpretation of the alter
ego doctrine would go against the position of law that there is no vicarious liability in criminal law, unless
expressly provided in the statute.

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Introduction to Company Law LESSON 1

DOCTRINE OF LIFTING OF OR PIERCING THE CORPORATE VEIL

The separate personality of a company is a statutory privilege and it must be used for legitimate business
purposes only. Where a fraudulent and dishonest use is made of the legal entity, the individuals concerned
will not be allowed to take shelter behind the corporate personality. The Court will break through the
corporate shell and apply the principle/doctrine of what is called as “lifting of or piercing the corporate
veil”. The Court will look behind the corporate entity and take action as though no entity separate from the
members existed and make the members or the controlling persons liable for debts and obligations of the
company.

The corporate veil is lifted when in defence proceedings, such as for the evasion of tax, an entity relies on its
corporate personality as a shield to cover its wrong doings. [BSN (UK) Ltd. v. Janardan Mohandas Rajan Pillai
[1996] 86 Com Cases 371 (Bom)].

However, the shareholders cannot ask for the lifting of the veil for their purposes. This was held in Premlata
Bhatia v. Union of India (2004) 58 CL 217 (Delhi) wherein the premises of a shop were allotted on a licence to the
individual licencee. She set up a wholly owned private company and transferred the premises to that company
without Government consent. She could not remove the illegality by saying that she and her company were
virtually the same person.

Statutory Recognition of Lifting of Corporate Veil

The Companies Act, 2013 itself contains some provisions [Sections 7(7), 251(1) and 339] which lift the corporate
veil to reach the real forces of action. Section 7(7) deals with punishment for incorporation of company by
furnishing false information; Section 251(1) deals with liability for making fraudulent application for removal of
name of company from the register of companies and Section 339 deals with liability for fraudulent conduct of
business during the course of winding up.

Lifting of Corporate Veil under Judicial Interpretation

Ever since the decision in Salomon v. Salomon & Co. Ltd., (1897) A.C. 22, normally Courts are reluctant or at
least very cautious to lift the veil of corporate personality to see the real persons behind it. Nevertheless,
Courts have found it necessary to disregard the separate personality of a company in the following
situations:

(a) Where the corporate veil has been used for commission of fraud or improper conduct. In such a
situation, Courts have lifted the veil and looked at the realities of the situation.

CASE LAW

In Jones v. Lipman, (1962) I. W.L.R. 832

A agreed to sell certain land to B. Pending completion of formalities of the said deal, A sold and
transferred the land to a company which he had incorporated with a nominal capital of £100 and of
which he and a clerk were the only shareholders and directors. This was done in order to escape
a decree for specific performance in a suit brought by B. The Court held that the company was the
creature of A and a mask to avoid recognition and that in the eyes of equity A must complete the
contract, since he had the full control of the limited company in which the property was vested, and
was in a position to cause the contract in question to be fulfilled.

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(b) Where a corporate facade is really only an agency instrumentality.

CASE LAW
In Re. R.G. Films Ltd. (1953) 1 All E.R. 615
An American company produced a film in India technically in the name of a British Company, 90%
of whose capital was held by the President of the American company which financed the production
of the film. Board of Trade refused to register the film as a British film which stated that English
company acted merely as the nominee of the American corporation.

(c) Where the conduct conflicts with public policy, courts lifted the corporate veil for protecting the
public policy.

CASE LAW
In Connors Bros. v. Connors (1940) 4 All E.R. 179
The principle was applied against the managing director who made use of his position contrary to
public policy. In this case the House of Lords determined the character of the company as “enemy”
company, since the persons who were de facto in control of its affairs, were residents of Germany,
which was at war with England at that time. The alien company was not allowed to proceed with the
action, as that would have meant giving money to the enemy, which was considered as monstrous
and against “public policy”.

(d) Further, In Daimler Co. Ltd. v. Continental Tyre & Rubber Co., (1916) 2 A.C. 307, it was held that a
company will be regarded as having enemy character, if the persons having de facto control of its
affairs are resident in an enemy country or, wherever they may be, are acting under instructions
from or on behalf of the enemy.

(e) Where it was found that the sole purpose for which the company was formed was to evade taxes the
Court will ignore the concept of separate entity and make the individuals concerned liable to pay the
taxes which they would have paid but for the formation of the company.

CASE LAW

Re. Sir Dinshaw Maneckjee Petit, A.I.R. 1927 Bombay 371

The facts of the case are that the assessee was a wealthy man enjoying large dividend and interest
income. He formed four private companies and agreed with each to hold a block of investment as
an agent for it. Income received was credited in the accounts of the company but the company
handed back the amount to him as a pretended loan. This way he divided his income in four parts
in a bid to reduce his tax liability.

But it was held “the company was formed by the assessee purely and simply as a means of avoiding
super- tax and the company was nothing more than the assessee himself. It did no business, but was
created simply as a legal entity to ostensibly receive the dividends and interests and to hand them
over to the assessee as pretended loans”. The Court decided to disregard the corporate entity as it
was being used for tax evasion.

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Vodafone case

One of the landmark case of the Supreme Court, is its decision in the case of Vodafone International
Holdings B.V. v. Union of India & Another [S.L.P. (C) No. 26529 of 2010]. In judgment, the Supreme
Court set aside the Bombay High Court’s judgment directing Vodafone International Holdings BV
(“Vodafone”), to pay INR 110 billion, as withholding tax in a transaction that took place off-shore.

The facts, as briefly put, are that in May 2007, Vodafone, incorporated in the Netherlands, acquired
from Hong Kong based Hutchison Group, the entire share capital of CGP Investments (Holdings)
Limited (“CGP”), a company incorporated in the Cayman Islands, which in turn controlled a 67%
interest in Hutchison-Essar Limited (“HEL”), Hutchison’s Indian mobile business. The Indian income
tax authorities contended that capital gains were made by Hutchison in India and that Vodafone
was therefore liable to pay withholding tax thereon, amounting to approximately INR 110 billion (the
sale price being USD 11.2 billion).

Vodafone challenged the tax demand in the Bombay High Court, which ruled in favour of the income
tax authorities, holding that the essence of the transaction was a change in the controlling interest in
HEL, which constituted a source of income in India. Vodafone appealed to the Supreme Court, which
overruled the High Court and held that the transaction fell outside India’s territorial tax jurisdiction
and was hence not taxable.

The judgment was not only important in the context of taxation, but also covers other issues
of corporate law. One of these are in the context of the principle of the corporate veil, and the
circumstances under which it may be lifted, particularly in the context of commercial cross-border
transactions and tax avoidance.

The Court recognised the fundamental principle of the corporate veil by noting that, “The approach
of both the corporate and tax laws, particularly in the matter of corporate taxation, generally is
founded on the abovementioned separate entity principle, i.e., treat a company as a separate
person. The Indian Income Tax Act, 1961, in the matter of corporate taxation, is founded on the
principle of the independence of companies and other entities subject to income-tax.” It observed in
the context of parent / subsidiary relationships, that it is generally accepted that the group parent
company would give guidance to group subsidiaries, but that by itself would not justify piercing
the veil or imply that the subsidiaries are to be deemed residents of the State in which the parent
company resides, and that “a subsidiary and its parent are totally distinct tax payers”.

Six factors that may be considered to determine whether the transaction is a bogus and whether in
a specific case, the corporate veil may be lifted, are: “(i) the concept of participation in investment,
(ii) the duration of time during which the Holding Structure exists; (iii) the period of business operations
in India; (iv) the generation of taxable revenues in India; (v) the timing of the exit; and (vi) the continuity
of business on such exit.”

In the final analysis, the Supreme Court decided against lifting the corporate veil in Vodafone, as the
tax authorities failed to establish that the transaction was a bogus or tax avoidance scheme.

(f) Avoidance of welfare legislation is as common as avoidance of taxation and the approach in considering
problems arising out of such avoidance has necessarily to be the same and, therefore, where it was
found that the sole purpose for the formation of the new company was to use it as a device to reduce
the amount to be paid by way of bonus to workmen, the Supreme Court upheld the piercing of the veil
to look at the real transaction.

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CASE LAW

The Workmen Employed in Associated Rubber Industries Limited, Bhavnagar v. The Associated
Rubber Industries Ltd., Bhavnagar and another, A.I.R. 1986 SC 1.
The facts of the case were that a new company was created wholly by the principal company with
no assets of its own except those transferred to it by the principal company, with no business or
income of its own except receiving dividends from shares transferred to it by the principal company
i.e. only for the purpose of splitting the profits into two hands and thereby reducing the obligation
to pay bonus. The Supreme Court of India held that the new company was formed as a device to
reduce the gross profits of the principal company and thereby reduce the amount to be paid by way
of bonus to workmen. The amount of dividends received by the new company should, therefore, be
taken into account in assessing the gross profit of the principal company.

(g) Another instance of corporate veil arrived at by the Court arose in Kapila Hingorani v. State of Bihar.

CASE LAW
Kapila Hingorani v. State of Bihar, 2003 (4) Scale 712
In this case, the petitioner had alleged that the State of Bihar had not paid salaries to its employees
in PSUs etc. for long periods resulting in starvation deaths. But the respondent took the stand that
most of the undertakings were incorporated under the provisions of the Companies Act, 1956, hence
the rights etc. of the shareholders should be governed by the provisions of the Companies Act and
the liabilities of the PSUs should not be passed on to the State Government by resorting to the
doctrine of lifting the corporate veil. The Court observed that the State may not be liable in relation
to the day-to-day functioning of the PSUs but its liability would arise on its failure to perform the
constitutional duties and the functions of these undertakings. It is so because, “life means something
more than mere ordinal existence. The inhibition against deprivation of life extends to all those limits
and faculties by which life is enjoyed”.

(h) Where it is found that a company has abused its corporate personality for an unjust and inequitable
purpose, the court would not hesitate to lift the corporate veil. Further, the corporate veil could be
lifted when acts of a corporation are allegedly opposed to justice, convenience and interests of
revenue or workmen or are against public interest.
Thus, in appropriate cases, the Courts disregard the separate corporate personality and look behind the legal
person or lift the corporate veil.

Lifting the Corporate Veil of Small Scale Industry

Where small scale industries were given certain exemptions and the company owning an industry was controlled
by some group of persons or companies, it was held that it was permissible to lift the veil of the company to
see whether it was the subsidiary of another company and, therefore, not entitled to the proposed exemptions
[Inalsa Ltd. v. Union of India, (1996) 87 Com Cases 599 (Delhi)].

Use of Corporate Veil for Hiding Criminal Activities

Where the defendant used the corporate structure as a device or facade to conceal his criminal activities
(evasion of customs and excise duties payable by the company), the Court could lift the corporate veil and treat
the assets of the company as the realisable property of the shareholder.

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Introduction to Company Law LESSON 1

For example, in a case, there was a prima facie case that the defendants controlled the two companies, the
companies had been used for the fraudulent evasion of excise duty on a large scale, the defendant regarded
the companies as carrying on a family business and that they had benefited from companies’ cash in substantial
amounts and further no useful purpose would have been served by involving the companies in the criminal
proceedings. In all these circumstances it was therefore appropriate to lift the corporate veil and treat the
stock in the companies’ warehouses and the companies’ motor vehicles as realisable property held by the
defendants. The Court said that the excise department is not to be criticized for not charging the companies.
The more complex commercial activities become, the more vital it is for prosecuting authorities to be selective
in whom and what they charge, so that issues can be presented in as clear and short form as possible. In the
present case, it seemed that no useful purpose would have been served by initiating criminal proceedings.
[H. and Others, Restraint Order : Realisable Property), Re, (1996) 2 BCLC 500 at 511, 512 (CA)].

APPLICABILITY OF THE COMPANIES ACT, 2013 AND KEY CONCEPTS

Applicability
According to section 1 of the Companies Act, 2013, the Act extends to whole of India and the provisions of the
Act shall apply to the following:-
(a) companies incorporated under this Act or under any previous company law;
(b) insurance companies, except in so far as the said provisions are inconsistent with the provisions of the
Insurance Act, 1938 or the Insurance Regulatory and Development Authority Act, 1999;
(c) banking companies, except in so far as the said provisions are inconsistent with the provisions of the
Banking Regulation Act, 1949;
(d) companies engaged in the generation or supply of electricity, except in so far as the said provisions are
inconsistent with the provisions of the Electricity Act, 2003;
(e) any other company governed by any special Act for the time being in force, except in so far as the said
provisions are inconsistent with the provisions of such special Act; and
(f) such body corporate, incorporated by any Act for the time being in force, as the Central Government
may, by notification, specify in this behalf, subject to such exceptions, modifications or adaptation, as
may be specified in the notification.
The Companies Act, 2013 is not applicable to unincorporated companies.
By virtue of section 464 of the Companies Act, 2013 r/w Rule 10 of the Companies (Miscellaneous) Rules, 2014,
no association or partnership consisting of more than 50 persons shall be formed for the purpose of carrying on
any business that has for its object the acquisition of gain by the association or partnership or by the individual
members thereof, unless it is registered as a company under this Act or is formed under any other law for the
time being in force. The maximum number of persons which may be prescribed under this section shall not
exceed 100.
Section 464 of the Act does not apply to –
(1) In the case of a Hindu undivided family carrying on any business whatever may be the number of its
members.
(2) In case of an association or partnership, if it is formed by professionals who are governed by special
Acts.
Every member of an association or partnership carrying on business in contravention of sub-section (1) of Section
464 shall be punishable with fine which may extend to one lakh rupees and shall also be personally liable for
all liabilities incurred in such business.

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Interpretation of Definitions under the Companies Act, 2013

A definition is a statement of the meaning as of a word or phrase.
Usually, every statute has a definitions sections (also called ‘interpretation clause’) which provides definitions
of various words and phrases used in the statute (e.g. Section 2 of the Companies Act, 2013).
Definition:
l To Define : The Act of making something definite, distinct or clear.
l Definition : An exact statement or description of the nature, scope, or meaning of something (Oxford
dictionary)
l In relation to a Statute : Definitions given in a statute are those of certain words or expressions used
elsewhere in the Statute.
l Object of using Definitions : - To avoid frequent repetitions - To aid interpretation of words for that
specific statute

Types of Definitions

Restrictive Definitions Extensive Definitions

- Use of the word “mean” - Use of the word “include”

When in a definition the word “mean” is used, it means word is restricted to the scope indicated in the definition
section. It means definition is hard and fast definition and no other meaning can be assigned to the expression
than is put down in definition.

For Example:
l “Director” means a director appointed to the Board of a company

The word “include” gives a wider meaning to the words or phrases in the statute. The legislature does not
intend to restrict the definition, it makes the definition enumerative but not exhaustive. This is to say, the term
defined will retain its ordinary meaning may or may not compromise. The word “includes” by the legislature
shows the intention of the legislature that it wanted to give extensive and enlarged meaning to such
expression.

For Example:
l “Body Corporate or Corporation” includes a company incorporated outside India, but does not
include:
(i) a co-operative society registered under any law relating to co-operative societies; and
(ii) any other body corporate (not being a company as defined in this Act), which the Central
Government may, by notification, specify in this behalf.

‘Explanations’ in Statutes:
Object and Purpose of explanations:
l To explain/clarify the meaning of words contained in the particular section,

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l Part and Parcel of the enactment,

l Does not widen the scope of the word explained.

For eg: “Holding Company”, in relation to one or more other companies, means a company of which such
companies are subsidiary companies.

Explanation.—For the purposes of this clause, the expression “company” includes any body corporate.

Definitions and Key Concepts under the Companies Act, 2013

Section 2 of the Companies Act, 2013 contains definitions:
l Clause (20) “Company” means a company incorporated under this Act or under any previous company
law.
l Clause (21) “Company Limited by Guarantee” means a company having the liability of its members
limited by the memorandum to such amount as the members may respectively undertake to contribute
to the assets of the company in the event of its being wound up.
l Clause (22) “Company Limited by Shares” means a company having the liability of its members limited
by the memorandum to the amount, if any, unpaid on the shares respectively held by them.
l Clause (46) “Holding Company”, in relation to one or more other companies, means a company of
which such companies are subsidiary companies.
Explanation : For the purpose of this Clause, the expression “Company” includes any Body Corporate.
l Clause (71) “Public Company” means a company which –
(a) is not a private company;
(b) has a minimum paid-up share capital , as may be prescribed:
Provided that a company which is a subsidiary of a company, not being a private company, shall
be deemed to be public company for the purposes of this Act even where such subsidiary company
continues to be a private company in its articles.
l Clause (87) “Subsidiary Company” or “Subsidiary”, in relation to any other company (that is to say the
holding company), means a company in which the holding company –
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power either at its own or together with
one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers
of subsidiaries beyond such numbers as may be prescribed.
Explanation. — For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even if the
control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the
holding company;
(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another
company, if that other company by exercise of some power exercisable by it at its discretion can
appoint or remove all or a majority of the Directors.

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l Clause (62) “One-person Company”- The Companies Act, 2013 introduces a new type of entity to the
existing list i.e. apart from forming a public or private limited company, the Act enables the formation
of a new entity a ‘one-person company’ (OPC). An OPC means a company with only one person as its
member.

l Clause (68) “Private Company” means a company having a minimum paid-up share capital as may be
prescribed, and which by its articles,—

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits the number of its members to two hundred:

Provided that where two or more persons hold one or more shares in a company jointly, they
shall, for the purposes of this clause, be treated as a single member:

Provided further that—

(a) persons who are in the employment of the company; and

(b) persons who, having been formerly in the employment of the company, were members
of the company while in that employment and have continued to be members after the
employment ceased,

shall not be included in the number of members; and

(iii) prohibits any invitation to the public to subscribe for any securities of the company.

l Clause (85) “Small Company”- Rule 2(1)(t) of the Companies (Specification of definitions Details) Rules,
2014 with effect from September 15, 2022 has amended the definition of Small Company stating that
for the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up
capital and turnover of the small company shall not exceed rupees four crore and rupees forty crore
respectively.

Thus, the definition of “small company” under Section 2(85) read with Rule 2(1)(t) of the Companies
(Specification of definitions Details) Rules, 2014 with effect from September 15, 2022 is given hereunder:

A small company has been defined as a company, other than a public company.

(i) paid-up share capital of which does not exceed 4 Crore rupees or such higher amount as may be
prescribed which shall not be more than 10 crore rupees; and

(ii) turnover of which as per profit and loss account for the immediately preceding financial year does
not exceed 40 crore rupees or such higher amount as may be prescribed which shall not be more
than 100 crore rupees:

Provided that nothing in this clause shall apply to –

(a) a holding company or a subsidiary company;

(b) a company registered under section 8; or

(c) a company or body corporate governed by any special Act.

l Dormant company: A company formed and registered under this 2013 for a future project or to hold
an asset or intellectual property and has no significant accounting transaction such a company or
an inactive company may make an application to the Registrar for obtaining the status of a dormant
company.(Section 455)

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Introduction to Company Law LESSON 1

l Nidhi company: means a company which has been incorporated as a Nidhi with the object of cultivating
the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members
only, for their mutual benefit, and which complies with such rules as are prescribed by the Central
Government for regulation of such class of companies. (Section 406).

l Clause (52) “Listed Company” means a company which has any of its securities listed on any
recognised stock exchange;

Provided that such class of companies, which have listed or intend to list such class of securities, as
may be prescribed in consultation with the Securities and Exchange Board, shall not be considered as
listed companies.

Companies not to be considered as listed companies [Rule 2A of the Companies (Specification of

definitions details) Rules, 2014].

The following classes of companies shall not be considered as listed companies, namely:-

a) Public companies which have not listed their equity shares on a recognized stock exchange but
have listed their –

(i) non-convertible debt securities issued on private placement basis in terms of SEBI (Issue and
Listing of Debt Securities) Regulations, 2008; or

(ii) non-convertible redeemable preference shares issued on private placement basis in terms
of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations,
2013; or

(iii) both categories of (i) and (ii) above.

b) Private companies which have listed their non-convertible debt securities on private placement
basis on a recognized stock exchange in terms of SEBI (Issue and Listing of Debt Securities)
Regulations, 2008.

c) Public companies which have not listed their equity shares on a recognized stock exchange but
whose equity shares are listed on a stock exchange in a jurisdiction as specified in section 23(3)
of the Companies Act, 2013.

l Clause (45) “Government Company” means any company in which not less than fifty-one percent of the
paid-up share capital is held by the Central Government, or by any State Government or Governments,
or partly by the Central Government and partly by one or more State Governments, and includes a
company which is a subsidiary company of such a Government company.

l Clause (42) “Foreign Company” means any company or body corporate incorporated outside India
which,—

(a) has a place of business in India whether by itself or through an agent, physically or through
electronic mode; and

(b) conducts any business activity in India in any other manner.

Roles and Responsibilities under the Companies Act, 2013

1. Officer: “officer” includes any director, manager or key managerial personnel or any person in
accordance with whose directions or instructions the Board of Directors or any one or more of the
directors is or are accustomed to act [section 2(59)].

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EP-CL&P Introduction to Company Law

2. Key Managerial Personnel: The term ‘key managerial personnel’ has been defined in the Act which
means :

(i) the Chief Executive Officer or the Managing Director or the Manager;
(ii) the Company Secretary;

(iii) the Whole-Time Director;

(iv) the Chief Financial Officer;

(v) such other officer, not more than one level below the directors who is in whole-time employment,
designated as key managerial personnel by the Board; and

(vi) such other officer as may be prescribed [section 2(51)].

The role and liability have been defined at various places under the Companies Act, 2013.

3. Promoter: The term ‘promoter’ means a person –

(a) who has been named as such in a prospectus or is identified by the company in the annual return;
or

(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder,
director or otherwise; or

(c) in accordance with whose advice, directions or instructions the Board of Directors of the company
is accustomed to act:

Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional
capacity. [section 2(69)].

4. Independent Director: The term ‘Independent Director’ has been defined in the Act, along with several
new requirements relating to their appointment, role and responsibilities. “Independent Director”
means an independent director referred to in sub-section (6) of section 149 of the Companies Act, 2013.
[Section 2(47) & Section 149(6)].

5. Audit and Auditors

a. Mandatory auditor rotation and joint auditors: The Act mandates the rotation of auditors after
the specified time period. (Section 139).

b. Secretarial audit: The Act mandates Secretarial Audit for the following:

i. Listed companies;

ii. every public company having a paid-up share capital of fifty crore rupees or more;

iii. every public company having a turnover of two hundred fifty crore rupees or more;

iv. every company having outstanding loans or borrowings from banks or public financial
institutions of one hundred crore rupees or more.

The Secretarial Audit Report is required to be annexed to the Board’s Report (Section 204).

c. Secretarial Standards: The Act requires every company to observe secretarial standards
specified by the Institute of Company Secretaries of India with respect to general and board
meetings [Section 118 (10)].

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Introduction to Company Law LESSON 1

6. Class Action Suits- The Act introduces a new concept of class action suits which can be initiated by
members or depositors against the company (Section 245).

E-GOVERNANCE AND MCA-21

With the advent of Information and Communication Technology in all sectors today, Governments across the
globe including the Government of India are taking major initiatives to integrate IT in all their processes. Electronic
Governance (e-Governance) is the application of Information Technology to the Government functioning in order
to bring about Simple, Moral, Accountable, Responsive and Transparent (SMART) Governance. e-Governance
is a highly complex process requiring provision of hardware, software, networking and re-engineering of the
procedures for better delivery of services.
Earlier the businessmen and professionals had to visit MCA offices to file the statutory forms, to review public
documents or to fulfil any compliance in physical mode. It was very hectic and time consuming. People had
to stand in long queue which often led to inadvertent missing of filing of statutory e-forms leading to Non-
Compliance and levy of fine or imprisonment.
So keeping in tune with the e-Governance initiatives
the world over, Ministry of Corporate Affairs (MCA), MCA21 has been part of Mission Mode projects
Government of India, has initiated the MCA-21 project, of the Government of India. Bagging several
to enable an easy and secure access to MCA services accolades in past, the project has now reached its
in a manner that best suits the corporate entities and 3rd version. MCA21 version-3.0 is a technology-
professionals besides the public. driven forward-looking project, envisioned to
strengthen enforcement, promote Ease of Doing
MCA-21 is an ambitious e-Governance initiative of Business and enhance user experience. MCA21
Government of India that builds on the Government’s version-3.0 rollout has been planned in phases to
vision of National e-Governance in the country. As ensure minimum disruption in regulatory filings.
part of the Government’s focus on governance norms
All LLP e-filing and Company forms are available live
to meet the expectations arising from globalization,
at MCA V3 portal.
MCA project was launched as a flagship initiative
of Ministry of Corporate Affairs (MCA). MCA-21 has The MCA vide issuing notification dated March 17,
resulted in improved procedures for better delivery 2023 has established the Centre for Processing
of services by the MCA. This reform of administration Accelerated Corporate Exit (C-PACE). The C-PACE
has not only improved efficiency and transparency in be located at the Indian Institute of Corporate Affairs
the government operations, but has also enabled the (IICA), Manesar, Gurugram. It is effective from 01st
Ministry to concentrate more on policy matters. The April, 2023. C-PACE is a significant step towards
portal is designed to fully automate all processes providing ease to companies for closing their
related to enforcement and compliance of legal business and getting their names removed from the
requirements under the Companies Act, 2013, Limited Register of Companies. It caters to make the process
Liability Partnership Act, 2008 & other allied Acts and of removal of names more streamlined and efficient,
Rules & Regulations framed there-under mainly for saving time and effort for companies.
regulating the functioning of the corporate sector in
accordance with law.

AGENCIES UNDER MCA-21

The Ministry of Corporate Affairs (MCA) is primarily concerned with administration of the Companies Act
2013, the Limited Liability Partnership Act, 2008 & other allied Acts alongwith rules & regulations framed there-
under mainly for regulating the functioning of the corporate sector in accordance with law. Besides, it exercises
supervision over the three professional bodies, namely, Institute of Chartered Accountants of India (ICAI), Institute
of Company Secretaries of India (ICSI) and the Institute of Cost Accountants of India which are constituted under
three separate Acts of the Parliament for proper and orderly growth of the professions concerned.

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EP-CL&P Introduction to Company Law

The Ministry also has the responsibility of carrying out the functions of the Central Government relating to
administration of Partnership Act, 1932 and the Societies Registration Act, 1980 etc.

Registrar of Companies (ROC) as defined under Section 2 (75) of the Companies Act, 2013 means a Registrar, an
Additional Registrar, a Joint Registrar, a Deputy Registrar or an Assistant Registrar, having the duty of registering
companies and discharging various functions under this Act.
Registrars of Companies (ROC) appointed in the various States and Union Territories are vested with the primary
duty of registering companies and LLPs floated in the respective states and the Union Territories and ensuring
that such companies and LLPs comply with statutory requirements under the Act. These offices function as
registry of records, relating to the companies registered with them, which are available for inspection by
members of public on payment of the prescribed fee. The Central Government exercises administrative control
over these offices through the respective Regional Directors.
Regional Director (RD) is in-charge of the respective region, each region comprising a number of States and
Union Territories. They supervise the working of the offices of the Registrars of Companies and the Official
Liquidators working in their regions. They also maintain liaison with the respective State Governments and the
Central Government in matters relating to the administration of the Companies Act and LLP Act. Certain powers
of the Central Government under the Act have been delegated to the Regional Directors.
Official Liquidators (OL) means an Official Liquidator appointed under sub-section (1) of section 359 of the
Companies Act, 2013.
As per Section 359 (1) of the Companies Act, 2013, for the purposes of this Act, so far as it relates to the winding
up of companies by the Tribunal, the Central Government may appoint as many Official Liquidators, Joint,
Deputy or Assistant Official Liquidators as it may consider necessary to discharge the functions of the Official
Liquidator.
The liquidators appointed shall be whole-time officers of the Central Government. The salary and other
allowances of the Official Liquidator, Joint Official Liquidator, Deputy Official Liquidator and Assistant Official
Liquidator shall be paid by the Central Government.
Serious Fraud Investigation Office
As per the Companies Act, 2013, Serious Fraud Investigation Office (SFIO) has been established through the
Government of India vide Notification No. S.O.2005(E) dated 21.07.2015. It is a multi-disciplinary organization
under the Ministry of Corporate Affairs, consisting of experts in the field of accountancy, forensic auditing,
banking, law, information technology, investigation, company law, capital market and taxation, etc. for detecting
and prosecuting or recommending for prosecution white-collar crimes/frauds. Investigation into the affairs of a
company is assigned to SFIO, where Government is of the opinion that it is necessary to investigate into the
affairs of a company –
1. on receipt of a report of the Registrar or inspector under section 208 of the Companies Act, 2013.
2. on intimation of a special resolution passed by a company that its affairs are required to be investigated.
3. In the public interest; or On request from any department of the Central Government or a State
Government.

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Introduction to Company Law LESSON 1

The National Financial Reporting Authority (NFRA) was constituted on 01st October, 2018 by the Government
of India under Sub Section (1) of section 132 of the Companies Act, 2013.
As per Sub Section (2) of Section 132 of the Companies Act, 2013, the duties of the NFRA are to:
l Recommend accounting and auditing policies and standards to be adopted by companies for approval
by the Central Government;
l Monitor and enforce compliance with accounting standards and auditing standards;
l Oversee the quality of service of the professions associated with ensuring compliance with such
standards and suggest measures for improvement in the quality of service;
l Perform such other functions and duties as may be necessary or incidental to the aforesaid functions
and duties.
Sub Rule (1) of Rule 4 of the NFRA Rules, 2018, provides that the Authority shall protect the public interest and the
interests of investors, creditors and others associated with the companies or bodies corporate governed under Rule
3 by establishing high quality standards of accounting and auditing and exercising effective oversight of accounting
functions performed by the companies and bodies corporate and auditing functions performed by auditors.
National Company Law Tribunal/National Company Law Appellate Tribunal (NCLT/NCLAT) - The setting up
of the NCLT and NCLAT are part of the efforts to move to a regime of faster resolution of corporate disputes, thus
improving the ease of doing business in India. The Ministry of Corporate Affairs (MCA) on 1st June, 2016 notified
the Constitution of National Company Law Tribunal (NCLT) & The National Company Law Appellate Tribunal
(NCLAT) in exercise of powers conferred under section 408 and 410 of the Companies Act, 2013.
The constitution of NCLT & NCLAT was a step towards improving and easing all the judicial matters relating to
the Company law under one roof.

MCA-21

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EP-CL&P Introduction to Company Law

With the advent of Information and Communication Technology in all sectors today, Governments across the
globe including the Government of India are taking major initiatives to integrate IT in all their processes. Electronic
Governance (e-Governance) is the application of Information Technology to the Government functioning in order
to bring about Simple, Moral, Accountable, Responsive and Transparent (SMART) Governance. e-Governance
is a highly complex process requiring provision of hardware, software, networking and re-engineering of the
procedures for better delivery of services.
So keeping in tune with the e-Governance initiatives the world over, Ministry of Corporate Affairs (MCA),
Government of India, has initiated the MCA-21 project, to enable an easy and secure access to MCA services in
a manner that best suits the corporate entities and professionals besides the public.

IMPORTANT ASPECTS OF MCA-21

Organization of ROC Office under MCA

The ROC office working from its present address has virtually became the Back Office of the Ministry. Since the
number of companies/entities found it difficult to switch over to e-Filing at the initial stage, Facilitation Centers
known as Physical Front Offices (PFOs) were set up throughout the Country to provide requisite comfort for
e-Filing to such companies.

Front Office and Back Office

Front Office
The major components involved in this comprehensive e-governance project are front office and back office.
Front Office represents the interface of the corporate and public users with the MCA-21 system. This comprises
of Virtual Front Office and Registrar’s Front Office.
Virtual front office
Virtual front office is one of the various channels available to stakeholders (companies and the professionals)
to enable them to do the statutory filing with ROC Offices across the Country. It merely represents a computer
facility for filing of digitally signed e-forms by accessing the MCA portal through internet (www.mca.gov.in).
It also pre- supposes availability of related facilities to convert documents into PDF format and scanning of
documents wherever required.
Registrar’s Front Office (RFO)
To facilitate the change over from Physical Document Filing to Digital Document Filing, the Ministry started
offices known as the Registrar Front Office. It is one of the various channels available to stakeholders to enable
them to do the statutory filing with ROC Offices across the Country. Registrar’s Front Offices are managed
and operated by the operator RFO has all facilities which are required for online filing like trained manpower,
broadband connectivity, scanner, printer and related computer accessories.
Back Office
Back Office represents the offices of Registrar of Companies, Regional Directors and Headquarters and takes
care of internal processing of the forms filed by the corporate user as per MCA norms and guidelines. The
e-forms are routed dynamically to the concerned authority for processing depending upon the assigned role.
All the e-forms along with attachments are stored in the electronic depository, which the staff of MCA can view
depending upon the access rights.

Certified Filing Centre (CFC)

In order to provide the Companies to do their e Filing, Professional Institutes (ICSI, ICAI, ICAI-cost), their Regional
Councils/Local chapters, individual practicing members and firms of professionals were authorised to create

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Introduction to Company Law LESSON 1

and set-up the required facilities for facilitating the e Filing process. The Certified Filing Centers, thus set-up by
the Professionals are over and above the Registrar’s Front Office set-up by the Ministry under the programme.
While the services available from the Facilitation Centers set-up by the Ministry are without any charge, the
services provided by these Certified Filing Centers entail payment of service charges.

SUBSTANTIAL BENEFITS OF MCA21

 Elimination of interface with the offices of ROCs, RDs and the MCA
MCA-21 has been designed virtually to eliminate the physical interface between the companies and the offices
of ROCs, RDs and even MCA. It has not only saved time and energy of the company representatives but
also enabled them to focus on other creative tasks. Time consuming works of professionals i.e. the tasks of
incorporation of new companies, conducting searches of important documents, obtaining certificates of creation,
modification and satisfaction of charges, filing of statutory forms and returns etc. have now become very quick
and easy.

 Effective use of database

With the help of database collected, the vital information has been collected, segregated in such a way that it
can be used by various stakeholders for various purposes. It will help in transparency in operations and benefits
to players in stock markets as well as easy and prominent exposure of defaulters.
The following websites are created:
Website for Investor Education and Protection Fund: http://iepf.gov.in
It would provide information about IEPF and the various activities that have been undertaken/funded by it.
It would also provide information relevant for investors, including about various instruments for investment,
regulatory system and grievance redressal mechanism.
Awareness to Investors – www.watchoutinvestors.com
It is a national web-based registry covering entities including companies and intermediaries and, wherever
available the persons associated with such entities, who have been indicted for an economic default and/or for
non-compliance of laws/guidelines and/or who are no longer in the specified activity.
CSR portal-https://www.csr.gov.in/
The National Corporate Social Responsibility Data Portal is an initiative by Ministry of Corporate Affairs,
Government of India to establish a platform to disseminate Corporate Social Responsibility related data and
information filed by the companies registered with it.
Security Clearance Online Portal: https://esahajmcaservices.nic.in/
Security Clearance is a pre-requisite for granting permission to individuals who are citizens of countries sharing
land borders with India and intending to apply for issuance of Director Identification Number (DIN)/appointment
of director in new/existing company.
E-Sahaj Seva offers online service for security clearance of applications seeking issuance of Director
Identification Number (DIN)/appointment of Director in new/existing company from MCA.

 Better supervision and monitoring of compliance

MCA-21 has ensured better supervision and control of the MCA over Companies with regard to compliance with
the provisions of the Companies Act. Thus, enforcement of law has become easier and will ultimately benefit
the investors, the stakeholders and the concerned Regulatory bodies.

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EP-CL&P Introduction to Company Law

 Mutually beneficial system

The focus of the MCA-21 program is on bringing about a fine balance between trade facilitation on one hand
and enforcement requirements on the other.

 Speed, transparency and efficiency

MCA-21 project aims to bring speed, transparency and efficiency in the delivery of the services rendered by the
MCA to all the stakeholders through a set of pre-defined service levels.

 Effective due diligence

Banks and Financial Institutions can conduct a thorough scrutiny of the documents filed by the company before
advancing loan(s) and other financial assistance to such a company.

 Efficient services by professionals

Professionals will be able to offer efficient services to their client companies.

 Environment Friendly
MCA-21 has also proved to be environment friendly since paper work involved in filing of forms and documents
has been eliminated.

 Integration with NSWS

The Ministry of Corporate Affairs vide issuing notification dated October, 2023 has informed that it has integrated
with National Single Window System (NSWS) for the incorporation of Companies and LLPs.

MCA SERVICES
The MCA-21 application is designed to fully automate all processes related to the proactive enforcement and
compliance of the legal requirements under the Companies Act, 2013 and Limited Liability Partnership Act,
2008. This helps the business community to meet their statutory obligations.
(1) Register Digital Signature Certificate - The Information Technology Act, 2000 has provisions for use
of Digital Signatures on the documents submitted in electronic form in order to ensure the security
and authenticity of the documents filed electronically. This is secure and authentic way to submit a
document electronically. As such, all filings done by the companies/LLPs under MCA-21 e-Governance
programme are required to be filed using Digital Signatures by the person authorised to sign the
documents. An user can register DSC and update particulars of the DSC through the MCA Portal.
(2) Apply for Director Identification Number (DIN) - The concept of a Director Identification Number (DIN)
was introduced for the first time with the insertion of Sections 266A to 266G of Companies (Amendment)
Act, 2006, since then the system has evolved and Companies Act, 2013 also makes a provision for
obtaining DIN.
(3) View Master details of any Company/LLP registered with Registrar of Companies - A facility has
been made available to the general public to view master details of any company/LLP registered with
Registrar of Companies. This facility may be availed by clicking “View Company Master Data”. A user
can view Master Data of a Company or an LLP, signatory details of a particular company, details of
companies and directors under prosecution, details of Companies and LLP’s registered in the last 30
days, master data of directors specifying the name of Companies/LLP’s they are director/partner in,
director/designated partner’s details, etc.

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Introduction to Company Law LESSON 1

(4) Index of Charges - A similar facility has also been made available in respect of the ‘Register of Charges’
for the Companies/LLPs by clicking on to the ‘View Index of Charges’ and for the viewing the details of
the signatories of any company/LLP by clicking on ‘View Signatory Details’.
(5) LLP Services - A user can check LLP name, find LLPIN (Limited Liability Partnership Identification
Number), avail services related to incorporation of an LLP, services related to annual e-Filing for an LLP,
services related to change in LLP information and services related to closure of an LLP.
(6) LLP E-Filing - to be used if the user wants to avail LLP e-filing services. LLP e-filing services are available
in the V3 system.
(7) FO Services - A user can verify DIN, PAN details of directors, enquire DIN status, find LLPIN, CIN,
associate DSC, Track Payment status at NTRP, enquires fees etc.
(8) Company Services - A user can check company name, find CIN (Corporate Identity Number), services
related to incorporation of a company, avail services related to compliance filing of a company, services
related to change in company information, services related to charge management, informational
services and services related to closure of a company.
(9) Company E-filing Services - A user can have all e-filing services related to all incorporation, DIN,
charge, deposit, nidhi services, foreign company services, etc.
(10) Complaints - A user can raise service related complaints, track the complaints created, create investor/
serious complaint, track the status of complaints created as ‘investor/serious complaint’, give feedback
or suggestions to MCA-21 and raise employee grievances.
(11) Document Related Services - A user can get certified copies of forms and documents of a company,
view forms and documents online etc.
(12) Fee and Payment Services - A user can avail services through Enquire Fees, pay later, link NEFT
payment, pay miscellaneous fee, pay stamp duty and track the payment status.
(13) Public Search of Trademark - A user can search whether trademark has been registered or applied for
a particular name by a company.
(14) Investor Services - A user can search amount unclaimed/unpaid amount due to be transferred to the
Investor Education and Protection Fund (IEPF), upload investor details, confirm uploaded files.
(15) Track SRN/Transaction Status - A user can track the transaction status of the uploaded forms i.e.,
whether they are approved or pending for approval or required for resubmission or are rejected.
(16) Independents Director Database Services: It includes individual and Corporate Registration.
(17) Public Search of Trademark.
(18) Applicable MHA Security clearance.
Besides above mentioned services, to align with global best practices and aided by emerging technologies
such as AI, MCA-21 Version 3.0 is envisioned to transform the corporate regulatory environment in India. The
key components of MCA-21 are:
l e-Scrutiny: MCA is in process of setting up a Central Scrutiny Cell which will scrutinise certain Straight
Through Process (STP) forms filed by the corporates on the MCA-21 registry and flag the companies for
more in depth scrutiny.
l e-adjudication: E-adjudication module, has been conceptualised to manage the increased volume
of adjudication proceedings by Registrar of Companies (RoC) and Regional Directors (RD) and will
facilitate end to end digitisation of the process of adjudication, for the ease of users. It will provide a
platform for conducting online hearings with stakeholders and end to end adjudication electronically.

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EP-CL&P Introduction to Company Law

l e-Consultation: To automate and enhance the current process of public consultation on proposed
amendments and draft rules etc., e-consultation module of MCA-21 V 3.0 will provide an online platform
wherein, proposed amendments/draft legislations will be posted on MCA’s website for external users/
comments and suggestions pertaining to the same in a structured digital format. Further, the system
will also facilitate AI driven sentiment analysis, consolidation and categorization of stakeholders’ inputs
and creation of reports on the basis thereof, for reference of MCA.
l Compliance Management System (CMS): CMS will assist MCA in identifying non-compliant companies/
LLPs, issuing e-notices to the said defaulting companies/LLPs, generating alerts for internal users of
MCA. CMS will serve as a technology platform/solution for conducting rule based compliance checks
and undertaking enforcement drives of MCA wherein e-notices will be issued by MCA for effective
administration of corporates.
l MCA Lab: As part of MCA21 V 3.0, a MCA LAB is being set up, which will consist of corporate law experts.
The primary function of MCA Lab will be to evaluate the effectiveness of Compliance Management
System, e-consultation module, enforcement module, etc. and suggest enhancements to the same on
an on-going basis. The Lab will help MCA in ensuring the correctness of results produced by these key
modules in view of the dynamic corporate ecosystem.
Additionally, MCA-21 V 3.0 will have a cognitive chat bot enabled helpdesk, mobile apps, interactive user
dashboards, enhanced user experience using UI/UX technologies, and seamless data dissemination through
APIs.

Online Inspection of Documents

The documents filed online, once taken on record by ROC Offices are available for public viewing on payment
of requisite fees. These documents, which are in domain of public documents, include documents relating to
incorporation, charges, annual returns and balance sheets and change in directors. A certified copy of the
documents can also be obtained by any one so interested. For this purpose there is also an option to mention
the number of pages in the document for which a certified copy is required as well as the number of copies
required.

ALL ABOUT FILING AND FILING OF E-FORMS

E-Forms
An e-form is only a re-engineered conventional form notified and represents a document in electronic format
for filing with MCA authorities through the Internet. This may be either a form filed for compliance or information
purpose or an application seeking approval from the MCA. Due to technical updates, these forms updates
regularly, even though their user interface may not change. User always uses latest e-forms from the MCA
Portal.
Filling and filing of forms is an important part of the secretarial function of a Company Secretary. Normally,
where Company appoints a Company Secretary, he is designated as the officer responsible for compliance
under the Companies Act and other allied legislations. Therefore, for any lapse in complying with the various
provisions of the Companies Act or such other legislations, for the compliance of which the Company Secretary
has been made responsible, he becomes liable as “officer in default”.
Filling and filing of forms, returns and applications under various provisions demand intimate knowledge of
substantive as well as procedural law. The Registrar of Companies (RoC) registers the documents filed with
them within the prescribed time, if found in order. Often, a large number of documents filed with the RoC are not
taken on record due to technical lapses which result in avoidable correspondence and frequent visits to the

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office of RoC. In order to avoid such errors, every care should be taken to ensure that the forms are properly
filled and adequate documents are attached to them before filing.
Company Secretaries, under electronic filing system are required to be familiar with computer, internet, MCA-21
electronic filing system, pdf files and using digital signatures.

PREREQUISITES FOR E-FILING ON MCA-21

Digital Signature certificate (DSC) of either Class 2 and Class 3 signing certificate category issued by a licensed
Certifying Authority (CA) needs to be obtained for e-Filing on the MCA Portal.
Digital Signatures are legally admissible in a Court of Law, as provided under the provisions of IT Act,
2000. The Certifying Authorities are authorized to issue a Digital Signature Certificate with a validity of
one or two years.

Hardware and Software Requirements under e-filing

The minimum system requirement for e-filing on MCA-21 are as under:
l Computer System/laptop with Windows 2000 or later installed;
l JRE (Java Runtime Environment) -Java version 8 is suggested;
l Internet connection to access the MCA website;
l Internet Explorer 10 or above / Chrome 49 or above /Firefox 45 or above;
l Adobe Acrobat 11 or above version;
l Scanner for scanning paper attachments;
l Printer for printing bank challan or service fee payment receipt;
l Pop-ups from MCA21 Portal must be enabled in your browser.

Necessity of Pre-certification of E-Forms

Introduction of pre-certification by an independent professional in the e-form aimed at reducing the workload
of the Registrar of Companies. Once an e-form has been pre-certified by a professional towards its authenticity
based on the particulars contained in the books of accounts and records of the company, ROC is entitled
to take on record the e-form. Professionals are responsible for submitting/certifying documents (to be signed
digitally by them) and system would accept most of these documents online without approval by Registrar
of Companies or other officers of the Ministry. If a professional gives a false certificate or omits any material
information knowingly, he is liable to punishment under Section 447 and 448 of the Companies Act, 2013
besides disciplinary action by the Institute which issued the Certificate of Practice.

Fees [Rule 12 of the Companies (Registration Offices and Fees) Rules, 2014]
The documents required to be submitted, filed, registered or recorded or any factor information required or
authorized to be registered under the Act shall be submitted, filed, registered or recorded on payment of the fee
or on payment of the fee or on payment of such additional fee as applicable, as mentioned in Table annexed to
Rule 12 of The Companies (Registration Offices and Fees) Rules, 2014.
For the purpose of filing the documents or applications for which no e-form is prescribed under the various rules
prescribed under the Act, the document or application shall be filled through Form No.GNL.1 or GNL.2 along with
fee as applicable and in case a single form is prescribed for multiple purposes, the fee shall be paid for each of
the purpose contained in the single form.

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For the purpose of filing information to sub- clause (60) of Section 2 of the Act, such information shall be filed in
Form No. GNL.3 along with fee as applicable.

Mode of Payment [Rule 13 of the Companies (Registration Offices and Fees) Rules, 2014]
The fees, charges or other sums payable for filing any application, form, return or any other document in
pursuance of the Act or any rule made there under shall be paid by means of credit card; or internet banking; or
remittance at the counter of the authorized banks or any other mode as approved by the Central Government.

Lesson Round-up

l The Companies Act, 2013 received the assent of the President on August 29, 2013 and was notified in
the Gazette of India on August 30, 2013. It empowers the Central Government to bring into force various
sections from such date(s) as may be notified in the Official Gazette.
l Major Developments in the Company Law in India.
l The objective of the Companies Act, 2013 is to provide business friendly corporate regulation/ pro-
business initiatives; e-Governance Initiatives; good corporate governance and CSR; enhanced
disclosure norms and enhanced accountability of management.
l There are various agencies under the Ministry of Corporate Affairs such as ROC, RD, OL, SFIO, NFRA
and NCLT/NCLAT.
l Any activity done in contrary to or in excess of the scope of activity of the Companies Act, Memorandum
of Association or Articles of Association will be ultra vires.
l Doctrine of “constructive notice” seeks to protect the company against the outsiders, the principal of
“indoor management operates” to protect the outsiders against the company.
l Where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be
allowed to take shelter behind the corporate personality. The Court may break through the corporate
shell and apply the principle of what is known as “lifting of or piercing the corporate veil”.

Glossary

Jurisprudence : The study of law and the principles on which law is based.
Bill : A bill is proposed legislation under consideration by a legislature. A bill does not become law until it
is passed by the legislature. Once a bill has been enacted into law, it is called an act of the legislature, or
a statute.
Indoor Management : It operates to protect outsiders against the company. It protects innocent parties who
are doing business with the Company and are not in a position to know if some internal rule or procedural
requirement has not been complied with.
Rule of Constructive Notice : To protect the company against outsiders. The rule of constructive notice is
confined to the external position of the company and, therefore, it follows that there is no notice as to how the
company’s internal machinery is handled by its officers. It is a presumption in favour of the company which
mean that an outsider has a knowledge of the Memorandum and Articles of Association of the company with
which he/ she is about to entering into the contract.
E Form : Is a computer program of a paper form.
Incorporation : The formation.

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TEST YOURSELF

(These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation).
1. What do you understand by corporate veil and when is it disregarded?
2. The Ministry of Corporate Affairs (MCA) is primarily concerned with administration of the Companies
Act 2013, the Limited Liability Partnership Act, 2008 & other allied Acts, in view of the same elucidate
the agencies fall under the purview of MCA.
3. Discuss e-Governance and MCA-21.
4. What are the modes of payment under filing of forms under the Companies Act, 2013?
5. Any activity done in contrary to or in excess of the scope of activity of the Companies Act, Memorandum
of Association or Articles of Association will be ultra vires. Discuss.
6. The Articles of Association of M/s ZXY Limited states that all the company documents needs to be
signed by the managing director, Company secretary and the executive director on behalf of the
company. A mortgage deed was executed by the secretary and the executive director. Choose the
correct answer:
a) Such mortgage is valid
b) Such mortgage is invalid
c) It can be valid by passing Board Resolution
d) It is valid if the funds are utilized for the purpose of company.
7. M/s SFPL Pvt. Ltd. has issued NCDs for Rs. 20 Crores on private placement basis in terms of SEBI
(Issue and Listing of Debt Securities) Regulations, 2008 and got them registered on stock exchange.
Suggest the correct option:
a) M/s SFPL Pvt. Ltd. is listed company b) It will be treated as unlisted company
c) M/s SFPL Pvt. Ltd. is government company d) None of the above

LIST OF FURTHER READINGS

Bare Act- The Companies Act, 2013

Company Law Procedures by CS K.V. Shanbhogue-Bharat’s Publication
Company Law by Dr. G.K. Kapoor

OTHER REFERENCES (INCLUDING WEBSITES/VIDEO LINKS)

https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks.html

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