COMPANY LAW & ADMINISTRATION 3rd Sem B.

Com ISBR COLLEGE

MODULE NO. 1: INDIAN COMPANIES ACT 2013

Introduction to Company Law, Evolution, Nature of Joint Stock

Company, Overview of Companies Act 2013 – Objectives,

Significance of Companies Act 2013. Body Corporate -Meaning,

Features, Classification of Companies, Distinction between

Private Company and Public Company, Doctrine of Lifting the

veil of corporate entity CSR- Meaning, Scope, Provisions for CSR

Activities under Schedule VII of the Companies Act 2013.

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INTRODUCTION
The concept of the company has been there for quite a while. The highlights and attributes
of it have advanced over the timeframe as per the cultural changes that the nation has
experienced. The company has certain preferences over the type of systematic ownership
and association in view of the highlights like a constrained obligation, interminable
progression and so on. The present set up dealing with Company Law Administration, directly
or indirectly, at various stages and providing for various administrative authorities is as
follows:
 The Central Government
 The Company Law Board
 National Advisory Committee on Accounting Standards
 Securities and Exchange Board of India
 Official Liquidator
 Advisory Committee
 Courts.

EVOLUTION OF COMPANY LAW IN INDIA

India has received several enactments from England. Company law is one such enactment
which was embraced from England. In 1850 the first Company enactment was presented in
India for the registration of a joint company which was based on the English Company Act
1844. The idea of limited liability was presented in the English Company Act of 1856 which
was later presented in India in the year 1857. The Companies Act was altered a few times
between 1850 and 1852 and the Act in 1852 repealed all other Act and stayed till 1912. The
Indian Companies Act of 1913 was based on the British Companies Act of 1908. This Act
experienced a few amendments. After independence it was discovered that the Companies
Act must be changed to fit into the Indian situation, subsequently Companies Act 1956 was
passed. This Act is currently replaced by the Companies Act 2013 which got the assent from
the President on 29 August 2013.

COMPANY MEANING
A company means an association of individual formed for some common purpose. But it is a
voluntary association of persons. It has capital divisible into parts, known as shares, an
artificial person created by a process of law and it has a perpetual succession and a common
seal.
DEFINITION
According to Prof. Lindley, company is defined as, “An association of many persons who
contribute money or money’s worth to a common stock, and employ it in some common trade
or business (i.e., for a common purpose), and who share the profit or loss (as the case may
be) arising therefore.
A company can be defined as an incorporated voluntary association of persons formed by law
for a definite purpose, as an artificial person with a separate legal existence.
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CHARACTERISTICS OF A COMPANY

o Membership: To form a private company, minimum two members are required, whereas
a public company can be formed if there are at least seven members. Further, the
maximum number of members in case of a private company can be 200 only, whereas
there is no limit on the maximum number of members in the case of a public company.
o Incorporated Association: It can be formed only by the operation of law. So, it must be
registered under the Company’s Act, which makes it an artificial legal person.
o Separate Legal Existence: It is distinct from its members and, any changes in the
membership of the company will not affect it. Hence, it can sue and be sued, come into a
contract and conduct business in its own name.
o Artificial person: Although a company is regarded as a person in the eyes of law, it cannot
enjoy the rights and duties, as are enjoyed by natural citizens.
o Perpetual Succession: It is formed with an intention that it is going to last forever,
irrespective of the changes in membership, insolvency/death/lunacy of any member.
Therefore, nothing can affect the life of the company, and it can only be dissolved by law.
o Common Seal: As a natural person, a company is not able to sign its documents and so for
this purpose a common seal acts as a tool to sign the official documents. In other words,
the common seal indicates the official signature of the company. The officer authorised
to affix the seal, has to sign the documents for and on behalf of the company.
o Limited liability: One of its most important features is the limited liability of the
shareholders. This means each shareholder is liable to the extent of the unpaid amount
on the shares held by him/her. In addition to this, in case of fully paid up shares, there is
no such liability.
o Share transfer: Shares of a public limited company are freely transferable by the
shareholders. As against, a private limited company has some restrictions on the transfer
of shares.
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o Maintenance of Account books: A company has to prepare and keep books of accounts
and necessary documents, for each financial year, at their registered office or else they
have to pay the penalty if they fail to comply with the same.
o Audit of accounts: On the recommendation of the board of directors, the shareholders
appoint a chartered accountant, for auditing company’s account at periodic intervals.

COMPANIES ACT 2013

The Companies Act 2013 regulates the formation and functioning of corporations or
companies in India. The first Companies Act after independence was passed in 1956, which
governed business entities in the country. The 1956 Act was based on the recommendations
of the Bhabha Committee. This Act was amended multiple times, and in 2013, major changes
were introduced. By Section 135 of the 2013 Act, India became the first country to make
corporate social responsibility (CSR) spending mandatory by law. The Companies Act 2013 has
replaced the 1956 Act.
The Companies Act 2013 is the law covering incorporation, dissolution and the running of
companies in India. The Act came into force across India on 12th September 2013 and has a
few amendments to the previous act of 1956. It has also introduced new concepts like a One
Person Company.
Currently, the Ministry of Corporate Affairs is administering the following Central government
Acts:
1. Companies Act 2013
2. Companies Act 1956 (some provisions of this Act still apply)
3. Competition Act 2002
4. Insolvency & Bankruptcy Code, 2016
5. Chartered Accountant Act 1949
Companies Act 2013 Highlights
 The maximum number of shareholders for a private company is 200 (the previous cap
was at 50).
 The concept of a one-person company.
 Company Law Appellate Tribunal & Company Law Tribunal
 CSR made mandatory

OBJECTIVES OF THE COMPANIES ACT OF 2013

 To protect the interests of the investors by furnishing fair and accurate information in the
prospectus.
 To promote transparency and high standards of corporate governance.
 To put strict restrictions on insider trading activities.
 To ensure full and fair disclosure of the affairs of the companies in their published annual
accounts.
 To enforce proper performance of duties by persons responsible for the management of
Companies.
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 To provide for the establishment of an appropriate authority for the administration of the
Companies Act.
 To make compliance requirements more effective and implement time bound approvals.
 To facilitate ease of doing business.
 To protect and widen the protection given to investors and creditors of the company.
 To prevent misconduct and malpractices on the part of company's management and
abuse of power vested in them.
 To improve the corporate laws standard of our country to global standards.
 To promote use of technology by making mandatory maintenance of books of accounts
in electronic form.
 To enhance the economy of the country by encouraging entrepreneurship.
 To promote corporate social responsibility (CSR) activities undertaken by the Companies.
 To ensure that the activities of the company are carried on not only in the interests of
those directly concerned with them but also in furtherance of the economic and social
policy.

SIGNIFICANCE OF COMPANIES ACT 2013

1. Class action suits for Shareholders: The Companies Act 2013 has introduced new concept
of class action suits with a view of making shareholders and other stakeholders, more
informed and knowledgeable about their rights.
2. More power for Shareholders: The Companies Act 2013 provides for approvals from
shareholders on various significant transactions.
3. Women empowerment in the corporate sector: The Companies Act 2013 stipulates
appointment of at least one woman Director on the Board (for certain class of companies).
4. Corporate Social Responsibility: The Companies Act 2013 stipulates certain class of
Companies to spend a certain amount of money every year on activities/initiatives
reflecting Corporate Social Responsibility.
5. National Company Law Tribunal: The Companies Act 2013 introduced National Company
Law Tribunal and the National Company Law Appellate Tribunal to replace the Company
Law Board and Board for Industrial and Financial Reconstruction. They would relieve the
Courts of their burden while simultaneously providing specialized justice.
6. Fast Track Mergers: The Companies Act 2013 proposes a fast track and simplified
procedure for mergers and amalgamations of certain class of companies such as holding
and subsidiary, and small companies after obtaining approval of the Indian government.
7. Prohibition on forward dealings and insider trading: The Companies Act 2013 prohibits
directors and key managerial personnel from purchasing call and put options of shares of
the company, if such person is reasonably expected to have access to price-sensitive
information.
8. Increase in number of Shareholders: The Companies Act 2013 increased the number of
maximum shareholders in a private company from 50 to 200.
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9. Limit on Maximum Partners: The maximum number of persons/partners in any

association/partnership may be up to such number as may be prescribed but not
exceeding one hundred. This restriction will not apply to an association or partnership,
constituted by professionals like lawyer, chartered accountants, company secretaries, etc.
who are governed by their special laws. Under the Companies Act 1956, there was a limit
of maximum 20 persons/partners and there was no exemption granted to the
professionals.
10. Entrenchment in Articles of Association: The Companies Act 2013 provides for
entrenchment (apply extra legal safeguards) of articles of association have been
introduced.
11. Electronic Mode: The Companies Act 2013 proposed E-Governance for various company
processes like maintenance and inspection of documents in electronic form, option of
keeping of books of accounts in electronic form, financial statements to be placed on
company’s website, etc.
12. Indian Resident as Director: Every company shall have at least one director who has
stayed in India for a total period of not less than 182 days in the previous calendar year.
13. Independent Directors: The Companies Act 2013 provides that all listed companies
should have at least one-third of the Board as independent directors. Such other class or
classes of public companies as may be prescribed by the Central Government shall also be
required to appoint independent directors. No independent director shall hold office for
more than two consecutive terms of five years.
14. Serving Notice of Board Meeting: The Companies Act 2013 requires at least seven days’
notice to call a board meeting. The notice may be sent by electronic means to every
director at his address registered with the company.
15. Rotation of Auditors: The Companies Act 2013 provides for rotation of auditors and audit
firms in case of publicly traded companies.
16. Prohibits Auditors from performing Non-Audit Services: The Companies Act
2013 prohibits Auditors from performing non-audit services to the company where they
are auditor to ensure independence and accountability of auditor.
17. Rehabilitation and Liquidation Process: The entire rehabilitation and liquidation process
of the companies in financial crisis has been made time bound under Companies Act 2013.

JOINT-STOCK COMPANY (JSC)

A company whose stock is owned jointly by the shareholders
A joint-stock company is a business owned by its investors, with each investor owning a share
based on the amount of stock purchased.
A joint stock company is an organisation which is owned jointly by all its shareholders. Here,
all the stakeholders have a specific portion of stock owned, usually displayed as a share.
Types of Joint Stock Company
 Chartered Company – A firm incorporated by the king or the head of the state is
known as a chartered company.
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 Statutory Company – A company which is formed by a particular act of parliament is

known as a statutory company. Here, all the power, object, right, and responsibility
are all defined by the act.
 Registered Company – An organisation that is formed by registering under the law of
the company comes under a registered company.
Few examples are mentioned below.
 Indian Oil Corporation Ltd.
 Tata Motors Ltd.
 Steel Authority of India Limited (SAIL)
 State Bank of India (SBI)
 National Thermal Power Corporation (NTPC)
 Grasim Industries Limited (GIL)
 Reliance Industries Limited (RIL)
 Tata Steel Limited
FEATURES OF JOINT STOCK COMPANY

Created by law: A company is created by law. There is no alternative way to form a

company without law. It is operated and maintained according to Companies act-1994.
Corporate artificial personality: A company is an artificial being invisible, intangible, and
existing only in contemplation of law. It can make a legal claim to others in its own name
and vice versa.
The number of shareholders: In the case of a public limited company, the number of
shares of that company restricts the maximum number of shareholders and the minimum
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number is seven. But in the case of a private limited company, the maximum number of
shareholders is fifty and a minimum two.
Perpetual succession: The joint-stock company has perpetual existence. A joint-stock
company survives, even if all members are willing to shut down the company or if all
members die in natural calamities.
Own seal: Company has its own common seal which is to be used in preparing documents
of the Company.
Features of Joint-stock Company
Limited liability: The liability of a shareholder is limited to the face value of the shares he
holds. He has no further liability if he has paid the full value of the shares that he has
subscribed to.
Tax payment: In the case of a company, there are two systems of tax payment. First, on
the basis of profit earned by the company. Second, on the basis of dividend earn by the
shareholders.
Transferability of shares: A public limited company can enjoy the benefits of the
transferability of shares. However, a private limited company cannot do it.
Enough capital: Company has the opportunity to raise more capital than other forms of
business because the number of shareholders is huge. And if a company needs money it
can sell its shares to the public.
Separation of ownership from management and administration: Partners in a firm are
not only the owners but they also take part in the management and administration of the
business. But this is not possible in a joint-stock company where the number of owners is
huge.
ADVANTAGES OF JOINT STOCK COMPANY
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 Adequacy of capital: Generally a Joint Stock Company has the opportunity to raise huge
capital than other types of business. If the company needs money it can sell its shares to
the public.
 Limited liability: The liability of a shareholder is limited to the face value of the shares he
holds. He has no further liability if he has paid the full value of the shares that he has
agreed to pay.
 Perpetual succession: Perpetual succession is another important advantage of joint Stock
Company. A joint-stock company survives, even if all members are willing to shut down
the company or if all members die in natural calamities.
 Transferability of shares: Shareholders have the right to sell the shares of a joint-stock
company to those who are interested to buy. This right to sell shares of joint Stock
Company gives scope to attract a large number of shareholders.
 Managerial efficiency: A company can secure the services of highly qualified persons who
are experts in different fields of business management. It is through the company that the
capital and business ability can be linked together for the benefit of both the individual
investor and the community as a whole.
 Tax relief: A company enjoys greater tax relief as compared to other forms of business
organizations. The company pays lower taxes on a higher income as it pays tax on a flat
rate. Moreover, a company gets some tax concessions, if it establishes operations in a
backward area. Some tax incentives are available for export promotion also.
 Advantages of large-scale business: Since a joint-stock company has huge capital and a
large number of shareholders; it can invest in large-scale production in order to meet the
requirements of people at large.
 Stability: Stability is none of the most important advantages of company Shareholders
death, retirement, or sale of stock do not lead to the dissolution of the business.
DISADVANTAGES OF JOINT STOCK COMPANY
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 Complexity information: There are a lot of legal requirements to start a company since a
company is created under the law, its formations a complex task.
 Lack of control: The buying and selling of shares of a company is the only real control an
owner has. Since the number of shareholders is determined by the number of shares of a
company, control by the board of directors is difficult.
 Double taxation: In the case of a company, there are two systems of tax payment. First,
on the basis of profit earned by the company. Second, on the basis of dividend earn by
the shareholders. So the shareholders suffer from double taxation.
 Lack of secrecy: A company must provide each shareholder with an annual report. When
a large number of reports are issued, the reports become public. These reports present
data on sales volume, profit, total assets, and other financial matters. Public disclosure of
these data enables competitors and other outsiders to see the company’s financial
condition.
 Lack of personal interest: In most corporations, except the small ones, management and
ownership are separate. This separation can result in a lack of personal interest in the
success of the company.
 Credit limitations: Bank and financial institutions have to consider the fact of limited
liability of shareholders of a company. If a company fails, its creditors can look only to the
assets of the business to satisfy claims.

TYPES OF COMPANY
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I. On the basis of members

1. One person Company: OPC or one Person Company is a new category of company
introduced to encourage start-ups and young entrepreneurs wherein a single
person can incorporate the entity. It also promotes the concept of corporatization
of the business. It should be noted that it is not the same as a sole proprietorship
firm, in a way that OPC has separate legal existence with limited liability.
2. Private Company: A private company is one in which two or more persons get the
company registered under the Companies Act. The securities of such a company
are not listed on a recognised stock exchange, and they cannot invite the public to
subscribe for the shares/debentures. The members of a private company are
restricted from transferring the shares. The maximum number of members in a
private company is 200.
3. Public Company: A company which is formed by a minimum number of seven
members with a lawful object is termed as a public company. Its securities are
listed on a recognized stock exchange, and its shares are freely transferable.
Further, there is no limit on the maximum number of members in such a company.
The subsidiary of the public company is also considered as a public company.
II. On the basis of liability
1. Company limited by shares: Company limited by shares is one in
which memorandum of association of the company specifies that the liabilities of
the shareholders are limited to the amount unpaid on shares which they own.
Hence, the shareholders are liable only to the extent of the amount that is not paid
on their holdings.
2. Company limited by guarantee: A company in which the liability of members is
limited to a definite sum stated in the memorandum of association of the
company. Meaning that the liability of the members is confined by the MoA to a
stipulated sum, as they have guaranteed to contribute to the company’s assets, in
the event of winding up of the company.
3. Unlimited Company: An unlimited company is a company whose liability does not
have any limit. In this type of company, the liability of the member ends when
he/she ceases to be a member of that company.
III. Special companies
1. Government Company: The company whose at least 51% paid up share capital is
owned by Central Government/State Government, or partly by central and partly
by the state government. Further, it also covers a company whose holding
company is a government company.
2. Foreign Company: Any company registered outside the country that has a
business place in India or by way of an agent traditionally or electronically and
undertakes business operations in the country in any manner.
3. Section 8 Company: A company formed for a charitable object, i.e. to encourage
commerce, science, sports, art, research, education, social welfare, environment
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protection religion, etc. comes under the category of Section 8 company. These
companies are given special license by the Central Government. Further, they use
the money earned as profit for the promotion of the object and thus, dividend to
members is not paid.
4. Public Financial Institution: The companies, which are engaged in financial and
investment business and whose 51% or more paid up share capital is held by
Central Government and are established under any act are termed as public
financial institutions. It includes LIC, ICICI, IDFC, IDBI, UTI etc.
IV. On the basis of the control
1. Holding Company: A parent company that owns and controls the management
and composition of the Board of Directors of another company (i.e. subsidiary
company) is termed as a holding company.
2. Subsidiary Company: A company whose more than 51% of its total share
capital is owned by another company, i.e. a holding company either itself or
together with its subsidiaries, as well as the holding company also governs the
composition of Board of Directors is called the subsidiary company.
3. Associate Company: A company in which another company possess
a considerable influence over the company, then the latter is called as an
associate company. The term considerable influence implies controls a minimum
20% of total share capital, or business decisions, as per an agreement.
Apart from the list given above, there are many other companies such as listed company,
unlisted company, dormant company and Nidhi Company.

SEC 2(11): BODY CORPORATE:

Generally, the term body corporate or corporate means an association of people.
Corporations are commonly referred to as bodies corporate under the Indian Companies Act
of 2013. It also states that companies may be incorporated inside or outside their jurisdiction.
Body corporate excludes:
 Cooperative societies
 Sole corporations
 Corporations that notify the central government’s official gazette of the formation
This can include but is not limited to:
 Private companies
 A single personal company
 Small companies
 Limited liability partnerships
 Foreign companies
Corporations are businesses that maintain a separate legal identity from their owners. If a
corporation is sued in its own name, the members of that corporation will be subject to
limited liability for the legal action being pursued against them. Corporations are also subject
to a corporate tax under the Income Tax Act of 1961.
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Whether a company is formed in India or outside of it, a corporation is a body corporate. The
following are not included in a body corporate:
 Cooperative societies registered under any laws that pertain to their specific type of
business structure
 Other companies that are not defined by the Companies Act of 2013 that the central
government chooses to specify
CHARACTERISTICS OF BODY CORPORATE
 It is incorporated under any law for the time being in force.
 It has separate legal identity.
 It has perpetual succession.
 It has a common seal.
 It has a capacity to sue and can be sued in own property in its own name
As Per Companies Act, 2013 A body corporate is defined under Section 2 (11) of the
Companies Act, 2013 as (11) "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; So generally speaking Company means a Company which is registered under
the Companies Act, 2013 in INDIA and having Registered office in INDIA and WHEREAS Body
Corporate includes all companies including companies incorporated outside India as well as
incorporated in India, except for a Co-operative Society. Body corporate is a wider term than
a company as Body Corporate or Corporates include all the entities registered in India or
Outside India whereas a company is narrower than body corporates because it includes only
entities registered in India. E.g. of Company: Reliance Industries Limited, Tata Steel Limited,
Infosys Limited etc. E.g. of Body Corporate: Alphabet Inc, Microsoft corporation, Facebook Inc
etc. a foreign companies which are not incorporated in India. However, a subsidiary of such
companies (body corporate) if incorporated in India, will be called as Company as per
Companies Act. E.g. Google India Private Limited, Pepsico India Private Limited etc.

DOCTRINE OF LIFTING THE VEIL OF CORPORATE ENTITY

The company, once incorporated, holds a separate legal entity in the eyes of law. The
company can act under its own name, have a seal of its own, can enter into contracts,
purchase or sell property, have a bank account and sue or get sued in the same manner as an
individual. Thus, a company is a juristic person different from the persons who constitute it.
The Corporate Veil is a shield that protects the members from the action of the company.
In simple terms, if a company violates any law or incurs any liability, then the members
cannot be held liable. Thus, shareholders enjoy protection from the acts of the company.
Company is a legal person distinct from its members. This principle may be referred to as ‘the
veil of incorporation’. The effect of this principle is that there is a veil between the company
and its members i.e., the company has a corporate personality which is distinct from its
members.
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A legal principle of corporate veil distinguishes the conduct of corporations and companies
from the actions of shareholders. It safeguards the stockholders from liability for the
company’s conduct. It is not an absolute right; the court might decide whether the
shareholder is responsible or not based upon the facts and circumstances of the case.

“Shareholders may shelter behind the principle of corporate veil, certain that their obligation
does not extend beyond the value of their shares,” according to the Cambridge Dictionary.
STATUTORY PROVISIONS RELATING TO LIFTING OF CORPORATE VEIL

a) Misstatement in Prospectus of the Company – Companies offer securities for sale by

publishing prospectuses. The prospectus produced u/s 26 provides essential notes about
the firm, like facts about shares and debentures, the names of directors, the company’s
principal goals and current activity. If someone attempts to provide misleading or untrue/
inaccurate representations in a prospectus of the Co., he is liable to the penalty,
imprisonment, or both stipulated u/s 26 (9), 34, and 35 of the Act, depending on the
circumstances.
b) Reduction of No. of members below the statutory minimum – If the minimum number
no. of members of a company falls below 2 (for private companies), or below 7 (for public
companies), the company can continue to operate for a period of 6 months while the
number is so reduced, and every person who is a member of the company during that
time, knowing that the minimum number of members has been reduced. If the grace
period of 6 months has expired, the corporation and its members will be held accountable
and can claim for the sum they earned during those 6 months, or the firm may be sued
severally.
c) Failure to refund application fees – According to Section 39 (3) of the Act, if the directors
of the company fail to repay the application money (without interest) within 120 days
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when the Co. fails to allot shares, they will be jointly and severally accountable to pay back
the money along with interest of 6% p.a. from the date of expiry of 130 days.
d) Misperception of the name of the company – According to section 12, an officer of an
corporation which signs any bill of trade, hundi, promissory note, or check where the
name of the organisation is not referenced in the recommended way could be held
personally accountable to the holder of the bill of trade, hundi, etc. unless it is
appropriately paid by the company.
e) Fraudulent trading – Section 339 of the Companies Act, 2013 If, during the course of a
company’s winding-up, it seems that any business of the company was conducted with
the intension of defrauding the company’s creditors or any other persons, or for any illegal
purpose, the Tribunal, on the application of the Official Liquidator, the Company
Liquidator, or any creditor or contributory of the company believes it is appropriate, may
proclaim that any individual who is or has been a company’s director, manager, or officer,
or any individuals who were intentionally parties to the carrying on of the business in the
manner aforesaid will be responsible personally, with no limitation of liability, for all or all
of the company’s debts or other liabilities, as directed by the Tribunal. Every individual
having knowledge of that fraud shall be punished with imprisonment for period upto 2
years or fine of upto Rs. 50,000/-, or both.
f) For investing ownership of the company – According to Section 216 of the Act, the
Central Government may appoint Inspectors to examine and report on the company’s
membership in order to determine the real persons who are financially engaged in the
firm and who influence its policies. As a result, the Central Government might ignore the
corporate veil.
g) Inducing persons to invest funds in the company – According to Section 36 of the Act,
anyone who makes false, fraudulent, misleading, or inaccurate representations or
promises to another person or hides relevant material from another person in order to
induce him in doing any of the following:-
 An agreement to acquire, disposes of, subscribe to, or underwrite securities.
 An agreement to guarantee gains to any of the parties based on the return of
securities or on changes in the value of securities.
 An agreement to receive credit from any bank or financial organisation.
In certain cases, the corporate personality might be neglected in order to identify the
actual guilty party and hold him solely accountable.
h) To furnish false statements – Under Section 448 of the Act, if any person makes false or
untrue representations in any necessary return, report, certificate, financial statement,
prospectus, statement, or other document, or hides any relevant or material truth, he is
responsible u/s 447 of the Act. The corporate veil must be lifted in order to find the true
guilty individual who authorised such documents to be disclosed in the name of the firm.
i) Repeated defaults – According to Section 449 of the Act, if a company or an officer of a
company commits an offence shall be punished by fine or imprisonment and commits the
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same offence within three years, the company and officer must pay twice the penalty in
addition to any custodial sentence imposed for such offence.
j) In case of Ultra-Virus Acts – Every company is required to operate in accordance with its
AoA, MoA, and the Companies Act, 2013. Any activity performed outside jurisdiction of
either is considered to be “ultra-virus” or inappropriate or beyond the certified scope.
Penalties may be imposed if the company’s operations are found to be illegal. Directors
and other officers of a corporation will be personally liable for all acts performed on its
behalf if they are ultra-virus the corporation.
k) In case where companies internationally avoiding legal obligations – Wherever it is
discovered that an incorporated company is attempting to escape legal responsibilities,
or that the incorporation of a company is being exploited to avoid the force of law, the
courts have the right to reject the business’s legal identity and continue as if it never
existed. Liabilities might be imposed on the people involved.
JUDICIAL GROUNDS OF LIFTING OF CORPORATE VEIL

a) Sham Company (Fraud): It comes as no surprise that no company can conduct fraud on
its own. To conduct such crimes, there must be a human agent engaged with it. As a result,
measures can be made to avoid future fraudulent practices.
b) The courts also have the authority to remove the corporate veil if they believe the
businesses are a hoax or a “Sham”. Companies like these are only cloaks, and their
characteristics may be overlooked in order to find the true offender.
c) Invocation of the Principal of agency: The principle of corporate veil may be disregarded
when it is necessary to identify the principle and agent in connection with an
inappropriate activity undertaken by the agency.
d) Against Public Policy: When a company’s actions are in violation of public policy or the
public interest, courts have the authority to pierce the veil and hold those who
are personally accountable. The right basis for piercing the corporate personality is to
safeguard public policy.
 COMPANY LAW & ADMINISTRATION 3rd Sem [Link] ISBR COLLEGE

e) Determining the True (enemy) Character of the Company / Avoid Welfare Legislation:
Where the goal of forming a business is to solely make profits. A corporation will not
intentionally try to do good for society. It may, although, choose to inflict harm instead.
f) Tax Evasion (Protection of Revenue): It is the responsibility of every earner to pay their
fair share of taxes. In the perspective of the law, a corporation is no different from a
person. Anyone who tries to escape this responsibility in an illegal manner is considered
to be committing an offence.
g) Negligent Activities: Every corporate entity establishes a distinction between holding and
subsidiary companies. Under Indian company law, holding companies are the ones that
have a say in the constitution of the Board of Directors or own more than half of the entire
share capital of a subsidiary company. For instance, Tata Sons is the holding company,
with Tata Motors, TCS, and Tata Steel as subsidiaries

DISTINCTION BETWEEN PRIVATE COMPANY AND PUBLIC COMPANY

COMPARISON PRIVATE COMPANY PUBLIC COMPANY

Private Limited Company refers to Public Limited Company implies a

the company which is not listed company that is listed on a
Meaning on a stock exchange and the recognized stock exchange and
shares are held privately by the whose shares are traded openly by
members concerned. the public.

Minimum number
2 7
of members

Maximum number 200, except in case of one person

Unlimited
of members company

Minimum number
2 3
of directors

Articles of It must frame its own articles of It can frame its own articles of
Association association. association or adopt Table F.

The shares of a private company The shares of a public company

are not freely transferable, as are freely transferable, i.e. freely
Transfer of Shares
there are restrictions in Articles of traded in an open market called a
Association. stock exchange.

Public Issue of shares or debentures to It can invite the public to subscribe

Subscription the public is prohibited. to its shares or debentures.

Issue of Prohibited from issuing a It can issue a prospectus or it can

prospectus prospectus. also opt for private placement.
 COMPANY LAW & ADMINISTRATION 3rd Sem [Link] ISBR COLLEGE

COMPARISON PRIVATE COMPANY PUBLIC COMPANY

The company can allot shares, The company cannot allot shares
Minimum amount
without obtaining minimum unless the minimum subscription
of allotment
subscription. stated in the prospectus is obtained.

It can start a business just after It requires a certificate of

Commencement
receiving a certificate of commencement of business after it
of Business
incorporation. is incorporated.

Appointment of Two or more directors can be One Director can be appointed by a

Director appointed by a single resolution. single resolution.

Directors need not require the Directors must file their consent to
Filing of Consent
filing of their consent to act as a act as a director, within 30 days of
to act as Director
director. appointment with the Registrar.

Retirement of The directors are not required to

2/3rd of the total number of
Directors by retire by rotation. The directors
directors must retire by rotation.
rotation can be permanent.

AGM is held at the registered office

Place of Holding
AGM can be held anywhere. or any other place where the
AGM
registered office is situated.

Statutory Meeting Optional Compulsory

5 members are required to present

in person when the number of
members as on the date of the
meeting is 1000 or less.

15 members are required to present

2 members who are personally
in person when the number of
present at the meeting, constitute
Quorum members as on the date of the
a quorum, irrespective of the
meeting is more than 1000 but less
number of members.
than 5000.

30 members are required to present

in person when the number of
members as on the date of the
meeting is more than 5000.

Enjoys many privileges and

Exemptions No such privileges and exemptions.
exemptions.
COMPANY LAW & ADMINISTRATION 3rd Sem [Link] ISBR COLLEGE

CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility Under Section 135 of Companies Act 2013: CSR is a concept
whereby companies not only to consider their profitability and growth, but also interests of
society and the environment by taking responsibility for the impact of their activities on the
society, environment and communities in which they operate.

Definition of CSR As per rule 2(d) of the CSR Rules as amended “Corporate Social
Responsibility” means the activities undertaken by a company in pursuance of its statutory
obligation laid down in section 135 of the Act in accordance with the provisions contained in
CSR Rules.
Corporate Social Responsibility (CSR) implies a concept, whereby companies decide
voluntarily to contribute to a better society and a cleaner environment – a concept, whereby
the companies integrate social and other useful concerns in their business operations for the
betterment of their stakeholders and society in general in a voluntary way.
Basically, “Corporate Social Responsibility” means and includes but is not limited to:
 Projects or programs relating to activities specified in Schedule VII to The Act.
 Projects or programs relating to those activities which are undertaken by the Board of
directors of a company in ensuring the recommendation of the CSR Committee of the
Board as per declared CSR Policy of the Company along with the conditions that such
policy will cover subjects specified in Schedule VII of the Act.
CSR Applicability in India
 Every company
 Its holding company
 Its subsidiary company
 Foreign company
Having in the preceding financial year:
 Net worth > 500 crore
 Turnover > 1000 crore
 Net profit > 5 crore

Examples of CSR in India

o Tata Group: The Tata Group conglomerate in India carries out various CSR projects, most
of which are community improvement and poverty alleviation programs. Through self-
help groups, it has engaged in women empowerment activities, income generation, rural
community development, and other social welfare programs. In the field of education,
the Tata Group provides scholarships and endowments for numerous institutions. The
group also engages in healthcare projects, such as the facilitation of child education,
immunization, and creation of awareness of AIDS. Other areas include economic
empowerment through agriculture programs, environment protection, providing sports
scholarships, and infrastructure development, such as hospitals, research centres,
educational institutions, sports academy, and cultural centres.
COMPANY LAW & ADMINISTRATION 3rd Sem [Link] ISBR COLLEGE

o Ultratech Cement: Ultratech Cement, India’s biggest cement company is involved in social
work across 407 villages in the country aiming to create sustainability and self-reliance.
Its CSR activities focus on healthcare and family welfare programs, education,
infrastructure, environment, social welfare, and sustainable livelihood.
o The company has organized medical camps, immunization programs, sanitization
programs, school enrolment, plantation drives, water conservation programs, industrial
training, and organic farming programs.
o Mahindra & Mahindra: Indian automobile manufacturer Mahindra & Mahindra (M&M)
established the K. C. Mahindra Education Trust in 1954, followed by Mahindra Foundation
in 1969 with the purpose of promoting education. The company primarily focuses on
education programs to assist economically and socially disadvantaged communities. Its
CSR programs invest in scholarships and grants, livelihood training, healthcare for remote
areas, water conservation, and disaster relief programs. M&M runs programs such as
Nanhi Kali focusing on education for girls, Mahindra Pride Schools for industrial training,
and Lifeline Express for healthcare services in remote areas.
o ITC Group: ITC Group, a conglomerate with business interests across hotels, FMCG,
agriculture, IT, and packaging sectors has been focusing on creating sustainable livelihood
and environment protection programs. The company has been able to generate
sustainable livelihood opportunities for six million people through its CSR activities. Their
e-Choupal program, which aims to connect rural farmers through the internet for
procuring agriculture products, covers 40,000 villages and over four million farmers. It’s
social and farm forestry program assists farmers in converting wasteland to pulpwood
plantations. Social empowerment programs through micro-enterprises or loans have
created sustainable livelihoods for over 40,000 rural women.

The Role of the Board of Directors in CSR

The significant role of the board of directors of a company plays a crucial role in the CSR
activities of the company. The role of the Board includes:
 Approval of the Corporate Social Responsibility policy.
 Ensuring that the CSR plan gets implemented in its entirety.
 Full disclosure of the spends and plan of CSR policies which are related to its report.
 Displaying the same on the company website.
 Making sure that specified amount allotted is being spent by the company in CSR
activities.
 Though there is no penalty if the entire amount is not spent on CSR activities in India,
the CSR committee and the board’s report should include the reason for the short
spending.
PRINCIPLES OF CSR
Principle 1: Businesses should conduct and govern themselves with integrity, and in a
manner that is ethical, transparent, and accountable.
COMPANY LAW & ADMINISTRATION 3rd Sem [Link] ISBR COLLEGE

Principle 2: Businesses should provide goods and services in a manner that is sustainable
and safe.
Principle 3: Businesses should respect and promote the well-being of all employees,
including those in their value chains.
Principle 4: Businesses should respect the interests of and be responsive to all its
stakeholders.
Principle 5: Businesses should respect and promote human rights.
Principle 6: Businesses should respect and make efforts to protect and restore the
environment.
Principle 7: Businesses, when engaging in influencing public and regulatory policy, should
do so in a manner that is responsible and transparent.
Principle 8: Businesses should promote inclusive growth and equitable development.
Principle 9: Businesses should engage with and provide value to their consumers in a
responsible manner

LIST OF PERMITTED ACTIVITIES TO BE INCLUDED IN ACCORDANCE WITH SCHEDULE VII OF

THE COMPANIES ACT, 2013

[Link] CSR Activities

Eradicating poverty, hunger and malnutrition, promoting health care which includes
sanitation and preventive health care, contribution to the Swach Bharat Kosh set-up
1
by the Central Government for the promotion of sanitation and making available safe
drinking water.

Improvement in education which includes special education and employment

2 strengthening vocation skills among children, women, elderly and the differently-
abled and livelihood enhancement projects.
COMPANY LAW & ADMINISTRATION 3rd Sem [Link] ISBR COLLEGE

Improving gender equality, setting up homes and hostels for women and orphans,
setting up old age homes, day care centres and such other facilities for senior citizens
3
and measures for reducing inequalities faced by socially and economically backward
groups.

Safeguarding environmental sustainability, ecological balance, protection of flora and

fauna, animal welfare, agroforestry, conservation of natural resources and
4
maintaining a quality of soil, air and water which also includes a contribution for
rejuvenation of river Ganga.

Protection of national heritage, art and culture including restoration of buildings and
5 sites of historical importance and works of art; setting up public libraries; promotion
and development of traditional arts and handicrafts.

Measures for the benefit of armed forces veterans, war widows and their
6 dependents, Central Armed Police Forces (CAPF) and Central Para Military Forces
(CPMF) veterans, and their dependents including widows.

Training to stimulate rural sports, nationally recognized sports, Paralympic sports and
7
Olympic sports.

Contribution to the Prime Minister’s National Relief Fund, Contribution to the Prime
Minister’s National Relief Fund (PM-CARES) or any other fund set up by the Central
8
Government for socio-economic development providing relief and welfare of the
Scheduled Castes, the Scheduled and backward classes, minorities and women.

Contribution to incubators or research and development projects in the field of

science, technology, engineering and medicine, funded by the Central Government,
9
State Government, Public Sector Undertaking or any agency of the Central
Government or State Government.

Contributions to public funded Universities, IITs, National Laboratories and

autonomous bodies established under DAE, DBT, DST, Department of
Pharmaceuticals, Ministry of AYUSH, Ministry of Electronics and Information
10
Technology and other bodies, namely DRDO, ICAR, ICMR and CSIR, engaged in
conducting research in science, technology, engineering and medicine aimed at
promoting Sustainable Development Goals (SDGs).

11 Rural development projects.

12 Slum area development.

13 Disaster management, including relief, rehabilitation and reconstruction activities.

COMPANY LAW & ADMINISTRATION 3rd Sem [Link] ISBR COLLEGE

IMPORTANCE/BENEFITS OF CORPORATE SOCIAL RESPONSIBILITY

 Improved public image. This is crucial, as consumers assess your public image when
deciding whether to buy from you. Something simple, like staff members volunteering an
hour a week at a charity, shows that you’re a brand committed to helping others. As a
result, you’ll appear much more favourable to consumers.
 Increased brand awareness and recognition. If you’re committed to ethical practices, this
news will spread. More people will therefore hear about your brand, which creates an
increased brand awareness.
 Cost savings. Many simple changes in favour of sustainability, such as using less
packaging, will help to decrease your production costs.
 An advantage over competitors. By embracing CSR, you stand out from competitors in
your industry. You establish yourself as a company committed to going one step further
by considering social and environmental factors.
 Increased customer engagement. If you’re using sustainable systems, you should shout it
from the rooftops. Post it on your social media channels and create a story out of your
efforts. Furthermore, you should show your efforts to local media outlets in the hope
they’ll give it some coverage. Customers will follow this and engage with your brand and
operations.
 Greater employee engagement. Similar to customer engagement, you also need to
ensure that your employees know your CSR strategies. It’s proven that employees enjoy
working more for a company that has a good public image than one that doesn’t.
Furthermore, by showing that you’re committed to things like human rights, you’re much
more likely to attract and retain the top candidates.
 More benefits for employees. There are also a range of benefits for your employees when
you embrace CSR. Your workplace will be a more positive and productive place to work,
and by promoting things like volunteering, you encourage personal and professional
growth.