COMPANY LAW, 2013

Difference Between Company Law, 1956 And 2013.

PG-18-18 Arti Gupta

PG-18-19 Kiran Hinduja
PG-18-20 Aayush Jain
PG-18-21 Avisha Jhambale
PG-18-22 Palak Jani
PG-18-56 Vaishnevi Trivedi
 Meaning of Company:
Section 2 (20) of Companies Act, 2013 Company means a company incorporated
under this Act or under any previous company law.

The word company has no strictly technical or legal meaning. A body corporate
or corporation includes a company incorporated inside or outside India, but does
not include a co-operative society registered under the law relating to co-
operative societies, and any body corporate which the Central Government may,
by notification, specify for this purpose.
 Characteristics of Company:

1) Separate Legal Entity- Independent Legal Existence

(Saloman v/s Saloman & Co.)
(Kondoli tea Co. Ltd)
2) Limited Liability
3) Perpetual Succession
4) Transferability of Shares
5) Common Seal
 Foss v/s Harbottle
(Principle of majority rule)

 Lifting of corporate veil

(Dinshaw Maneckjee Petit case)
 What is insider trading ?
Insider trading is the buying or selling of a security by someone who
has access to material nonpublic information about the security.
Insider trading can be illegal or legal depending on when
the insider makes the trade. It is illegal when the material information is
still nonpublic.

 Rebuttable presumption:
Court presumes the person to be insider unless he proves himself.
Memorandum of
Association
Memorandum of Association
 According to Section 2(56) of the Companies Act 2013, the
“Memorandum” refers to the memorandum of the company as
drawn up initially during the formation of the company or as
changed periodically to carry out any action as per any other law of
the Act.

 Memorandum of Association is a document of prime importance for

a company. It depicts the objectives, extent of authority, competency,
liabilities and legal rights of the company. The memorandum acts as
a legal code or constitution for a company and regulates the
relationships between the company and its shareholders, investors,
beneficiaries and other members.
Contents of Memorandum of Association

 Name Clause
 Situation Clause
 Object Clause
 Liability Clause
 Capital Clause
 Association or Subscription Clause
 Alteration, Amendment & Change in
Memorandum of Association under
Companies Act 2013
 A memorandum of association needs to be amended if any of
the following changes occur in the company:

 An alteration in the name of the business.

 A change in the office of registration.
 An alteration in the object clause of the business.
 An alteration in the authorized capital of the business.
 Any adjustments made in the legal liabilities of the members of the
business.
Procedure For Making Any
Amendments In The Memorandum
Of Association As Prescribed Under
Section 13 Of The Companies Act
2013
 FORM OF MEMORANDUM OF
ASSOCIATION

 Section 4(6) of the Companies Act, 2013 provides that the

memorandum of association should be in any one of the Forms
specified in Tables A, B, C, D or E of Schedule I to the Act.
 Form A
 Form B
 Form C
 Form D
 Form E
 Dhaniya Ltd v/s A Ltd
 Dhaniya Ltd., a cotton textile company , enters into a contract
with A Ltd., an adjacent cotton textile mill, to supply
electricity from their power generation plant. After supplies
have been made for 3 months it is discovered that this activity
is beyond the scope of the objects clause in memorandum of
Dhaniya Ltd.
 Shareholders of Dhaniya Ltd. ratified the act in their general
meeting .
 Can A Ltd. refuse to make payment?
 Yes, as the act is ultra vires Dhaniya Ltd. which is void and
cannot be ratified
 Fastway Cable v/s Videocon Dish Tv

A company i.e Fastway cable put up cable connection wires in

Model Town area. There was no power in the Memorandum to put
up wires there.
 Videocon Dish TV workers cut them down.
 Can Fastway cables sue for the damages done to the cable
wires??
 Yes, as no one can prevent companies from protecting their
property even though the act is ultra vires.
Case let 2: Alteration of object clause

A company was started with the object of building ‘hall with shops’.
The building was destroyed by fire and the company wanted to alter
the objects clause in the MoA by substituting the words ‘hall with
shops’ with the words ‘shops, dwelling houses and warehouses for
letting purposes.”
Is this alteration allowed under the companies act,2013?
Yes a the company can change its objects clause and name as well if the
suggested change enlarge the local area of operation of company.
Case let: Alteration in remuneration
pattern
The MoA of a company formed to improve and encourage the
breeding of poultry contained a provision that no remuneration
should be paid to the members of the governing body of the
company.
But the company owing to increase in the business passed a special
resolution providing for equitable remuneration to such members for
services rendered.
Is this alteration in MoA allowed by the companies act,2013?
 Yes as the alteration intends to carry on the business more
economically and efficiently.
Micky Ltd v/s Minni Ltd

Micky Limited lends to Minni Ltd. on a mortgage of its assets. The

procedure laid down in the articles is not complied with.
The directors of the two companies are the same.
Is the mortgage binding upon Minni Ltd.
No, as director of Minni Ltd. was aware of the irregularity in the
procedure and under the rule of exception cannot use doctrine of
indoor management.
Doctrine of Ultra vires
Meaning and Effect of Doctrine of Ultra
vires
 Ultra means “beyond” or “in excess of” and vires means “powers”.
Thus Ultra vires means an act or Transaction beyond or in excess of
the powers of the Company.
 An Act or transaction shall be ultra vires if-
-It is not permitted or authorized by the Companies Act 2013
-It falls outside the object Clause of Memorandum and
-It’s Attainment is not incidental or Ancillary to the attainment of
main objects
Effects of Ultra Vires Transactions

 The transaction is Void ab initio

1. An act which is ultra vires the company is void and of no legal
effect.
2. Neither company nor the other contracting party derives any right
under an ultra vires contract
3. Even Ratification of an Ultra vires contract by the whole body of
shareholder’s not make an ultra vires contract Valid enforceable
 No Ratification or Estoppel An ultra vires contract can not become
valid by estoppel or ratification.
Effects of Ultra Vires Transactions(Cont)

 Injunction against the Company Any member may obtain an injunction order from
the court i.e an order of the court restraining the company from proceeding with the
ultra vires contract.
 Personal liability of Directors If funds of the company are misapplied or wasted by
entering into ultra vires transactions the directors shall be personally liable to the
company for Breach of trust.
 Ultra Vires property If the company acquires some property under ultra vires
transaction the company has the right to hold that property and protect it against
damage by the other parties
Effect of Acts Ultra Vires the directors or
articles
 Acts Ultra Vires the Directors and Articles means those acts which
are beyond the powers of the directors or powers given under the
Articles
 Such Acts are not altogether Void and inoperative. Such Acts may be
ratified by the members

 Case Law
Ashbury Railway Carriage & Iron Company Ltd Vs Richie
Ashbury Railway Carriage & Iron
Company Ltd Vs Richie
 Extract of Object Clause
a) To make, sell or lend on hire, railway carriages and wagons.
b) To carry on the business of Mechanical engineers and general
contractors.
c) To purchase, lease, work and sell mine, minerals, land and
Buildings.
 Nature of Contract made by Company The company entered into
Contract with Richie ,for financing of a construction of a Railway line
in Belgium.
Ashbury Railway Carriage & Iron
Company Ltd Vs Richie
Decision of the Court
The Court held that the word General Contractors had to be given a
restricted meaning.
 Only such contracts could be covered in the term General
contractors as are in some way related or connected with
Mechanical Engineering.
 Therefore the company could not finance the construction of a
Railway line by alleging that such a business falls under business of
general contractors.
Doctrine Of Constructive
Notice And Indoor
Management
 Doctrine of Constructive notice
 The Memorandum And Articles Of Association Of Every Company Are
Registered With The Registrar Of Companies. The Office Of The Registrar Is A
Public Office And Consequently The Memorandum And Articles Become Public
Documents. They Are Open And Accessible To All.
 It Is Therefore, The Duty Of Every Person Dealing With A Company To Inspect
Its Public Documents And Make Sure That His Contract Is In Conformity With
Their Provisions. But Whether A Person Actually Reads Them Or Not, He Is To
Be In The Same Position As If He Had Read Them. He Will Be Presumed To
Know The Contents Of Those Documents.
 Oakbank Oil Co. v. Crum
Doctrine of Indoor Management

 The role of the doctrine of indoor management is opposed to that of

the rule of constructive notice. The latter seeks to protect the
company against the outsider; the former operates to protect
outsiders against the company.
 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.
 If the contract is consistent with the public documents, the person
contracting will not be prejudiced by irregularities that may beset the
indoor working of the company.
Exceptions to the Doctrine of Indoor
Management
1.Knowledge of irregularity-

Howard v Patent Ivory

2. Forgery-

Ruben v. Great Fingall Consolidated

Indoor management protects the outsider
against the company. constructive notice
protects the company from the outsider.
 Prospectus
&
Lieu Of Prospectus
 SECTION 23-section 23 states that a public issue will be done only
through prospectus

 SECTION 26-section 26 details the information a prospectus shall

contain
Information that should be mentioned
in prospectus:
1)Date of the opening and closing of the issue
2)details about underwriting of issue
3)consent of the directors, auditors, and bankers to the issue
4)The authority for the issue and the details of the resolution passed for
the issue
5)procedure and time schedule for allotment and issue of securities
6)capital structure of the company
7)Main objects of public offer and terms of the present issue
8)Main objects and present business of the company and schedule of
implementation of the project
9)Particulars relating to the risk factors specific to the project; gestation
period of the project; extent of progress made in the project ; and
deadlines for completion of project
10)Any litigation or legal action pending or taken by a government
department or a statutory body during the last five years against the
promoter of company
11)Minimum subscription and amount payable by way of premium
 Types of prospectus
 Ordinary prospectus: t is the common form of prospectus issued
by any company.
 Deemed prospectus
 Red herring prospectus(sec 32) :To attracts the investors its
shown but number of shares and price of per share is not
mentioned
 Shelf prospectus(sec 31): shelf is validity(life) and it can be use
who is registered under sebi most of the times used by financial
institution .
 Abridged prospectus(sec 33): summery of prospectus so that
before investing investors can read
 Section 26 requires a prospectus to
include the following reports :
1)Reports by the auditor of the company with respect to the profits and
losses and assets and liabilities of the company.
2)Reports relating to the profits and losses of the past five financial years
,including reports of subsidiary companies.
3)Reports by the auditors on the profit and losses of the business and the
assets and liabilities of the company for the preceding five financial years
4)Reports about the business or transaction to which the proceeds of the
securities are to be applied directly or indirectly.
Caution:
 If a prospectus is issued in contravention of the
provisions of section 26, the company shall be
punishable with fine which shall not be less than fifty
thousand rupees but which may extend to three lakh
rupees and every person who is knowingly a party to
the issue of such prospectus shall be punishable with
imprisonment for a term which may extend to three
years or with fine which shall not be less than fifty
thousand rupees but which may extend to three lakh
rupees, or with both.
Case laws :

 DERRY vs. PEEK

Derry (chairman of tram company)-steam or
mechanical power in place of the typical horse
drawn power.)
 R. vs kylsant
 Order in the matter of M/s Sahara India
Commercial Corporation Limited
 . Name and address of the company
1

 2. Objects of the company

 3. Full particulars of the signatories to the Memorandum and number of shares
taken by them.
 4. The names, addresses and occupations of the directors, managing directors
or managers etc.
 5. The number and classes of shares.
 6. The minimum subscription.
 7. The qualification shares of a director and the remuneration of the directors.
 8. The amount payable on application, on allotment and on calls.
 9. The names of the underwriters.
 10. The estimated amount of preliminary expenses.
 11. The names and addresses of the auditors of the company.
 12. Particulars about reserves and surpluses.
 13. Voting rights of the different classes of shares.
 14. Reports of the auditors regarding profits and losses of the company.
 15. A similar report by the Chartered Accountant regarding the Profits and Losses
and Assets and Liabilities of the Company.
Statement in Lieu of prospectus
 The Statement in Lieu of Prospectus is a document filed
with the Registrar of the Companies (ROC) when the
company has not issued prospectus to the public for
inviting them to subscribe for shares.
 statement in lieu of Prospectus: A public company, which
does not raise its capital by public issue, need not issue a
prospectus. In such a case a statement in lieu of
prospectus must be filed with the Registrar 3 days before
the allotment of shares or debentures is made. It should
be dated and signed by each director or proposed
director and should contain the same particulars as are
required in case of prospectus proper.
Basis of comparison prospectus Statement in Lieu of
prospectus
meaning Prospectus refers to a legal Statement in lieu of prospectus
document published by the is a document issued by the
company to invite general company when it does not
public for subscribing its offer its securities for public
shared and debentures subscription.
Objective To encourage public To be filed with the registrar
subscription
Used when Capital is raised from general Capital is raised from known
public sources
Content It contains details prescribed It contains information similar
by the Indian Companies Act. to a prospectus but in brief.

Minimum subscription Required to be stated Not required to be stated

 Points Of Comparison
Between Companies Act
1956 and 2013
Points of Comparison Companies Act,2013
Formation of Company: One Person can form a One
Person Company. Minimum 2 for
a private company other than
1. Minimum No. of persons OPC. Minimum 7 for a public co.
required to form a company
15 Types of Companies. In
addition to the 10 types that could
2. Types of Company that can be formed under the 1956 Act as
be formed per Col. (3), following 5 new
types of Cos. can be formed under
2013 Act: • One Person company
(OPC) limited by shares • OPC
limited by guarantee & having
share capital • OPC limited by
guarantee having no share capital
• OPC Unlimited Company
having share capital
Companies Act,1956
One Person can’t form a company.
Minimum 2 for a private
company. Minimum 7 for a public
co
10 Types as under:Public
company limited by shares •
Public company limited by
guarantee & having share capital •
Public company limited by
guarantee & having share capital
& having no share capital • Public
Unlimited company having share
capital • Private Company limited
by shares
Points Of Comparison Companies Act,2013
Objects clause of Objects of the Company to be
Memorandum classified and stated in MOA as
: (i) the objects for which the
company is proposed to be
incorporated and (ii) any matter
considered necessary in
furtherance thereof.
Availability of name Section 4(4) and 4(5)(i) of the
2013 Act incorporate the
procedural aspects of
application for availability of
name of proposed company or
proposed new name for
existing company.
Companies Act,1956
Objects of the Company should
be classified and stated in
MOA as : (i) the main objects
of the company; (ii) Objects
incidental or ancillary to the
attainment of the main objects
and (iii) other objects of the
company.
Procedural aspects of
application for availability of
name find no place in the 1956
Act.
Points Of Comparison Companies Act,2013 Companies Act,1956

In every financial year, CSR No provisions regarding CSR

spends of at least 2% of the in the 1956 Act.
average net profits the
company made during the 3
immediately preceding
financial year is mandatory for
every company satisfying any
Corporate Social of the following criteria:
Responsibility • Having net worth of Rs.500
crores or more, or
• Having turnover of Rs.1,000
crores or more, or
• Having net profit of Rs.5
crores or more, or - CBC