CMA INTER AUDIT JANUARY 2021 EDITION CS RAMANDEEP SINGH

INTRODUCTION OF COMPANIES ACT, 2013 (PART- A)
BACKGROUND – Companies bill, 2012 was passed by the Lok Sabha on 18th December 2012 and by the Rajya Sabha on 8th August, 2013. On receiving the assent of the Hon’ble President of India on August 29, 2013 it was notified on August 30, 2013 as the Companies Act, 2013.
It may be noted that only section 1 of the Companies Act 2013 came into force with effect from 30th August, 2013. As far as remaining provision of this Act is concerned, they shall come into force on such date as central government (MCA) may, by notification in the Official Gazette, appoint and different dates may be appointed for brining into force different provision of companies Act, 2013 for instance central government has made 98 section and part thereof of the companies Act 2013, effective from 12th September 2013. As on 1st April 2014 282 sections, including earlier notified sections, have come into operation out of total 470 sections. the remaining section of companies Act 2013 , mostly pertaining to areas involving the role of national company law tribunal has now come into force.
Thus, Companies act 2013 is has replaced the existing 56 years old law, i.e., Companies Act 1956. It moves from regime of control to that of liberalization or self – regulation.
STRUCTURE OF THE ACT
The Companies Act, 2013 has 470 sections (covered in 29 chapters) and 7 schedules as against 658 sections (covered in 13 parts) and 15 schedules of the companies act, 1956.
It may be noted that the number of sections has been drastically reduced, but at the same time the central government has been empowered, in number of sections to prescribe various aspects in the form of rules, there by recognizing the more importance of delegated legislation. It can be said companies Act, 2013 has been structured on skeleton approach. This has been done for ensuring that the law remains relevant at all times in the changing economic environment.
Applicability of the Act
Section 1 provides that the companies act, 2013 applies on whole of India.
Companies Act, 1956 also applies on whole of India. However, proviso to section 1(3) of the Companies Act 1956 empowers the central government to modify the provision of the act, while applying this Act on the state of Nagaland. Similarly, sections 620b and 620c of the Companies act 1956 empowers the cg to, modify, or exempt from, the provisions of the Act, while applying this act on the states of Goa, Daman, Diu and Jammu and Kashmir respectively. These kind powers of the central government has been taken away by companies act 2013
Thus the 2013 Act puts an end to the power of the central government under the 1956 Act to exempt companies from provisions of companies act based on Regional considerations.
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The provisions of the Act shall apply to-
 Companies incorporated under this Act or under any previous company law.
 Insurance companies (except where the provisions of the said Act are inconsistent with the provisions of the Insurance Act, 1938 or the IRDA Act, 1999)
 Banking companies (except where the provisions of the said Act are inconsistent with the provisions of the Banking Regulation Act, 1949)
 Companies engaged in the generation or supply of electricity (except where the provisions of the above Act are inconsistent with the provisions of the Electricity Act, 2003)
 Any other company governed by any special Act for the time being in force.
 Such body corporate which are incorporated by any Act for time being in force, and as the Central Government may by notification specify in this behalf.
ADMINISTRATION OF COMPANIES LAW
The companies Act, 2013 is administered by ministry of Corporate Affairs and it has the jurisdiction over the entire country further under the MCA there are seven regional directors, one for each region i.e. north, east , west ,South, North-east ,North-West and South-east located in New Delhi, Kolkata , Mumbai, Chennai, Shillong, Ahmadabad and Hyderabad respectively . All the states lying in one particular region come under the jurisdiction of regional director of that region. Hence, all the registrar of companies of all the states falling under one particular region of India Act as sub-ordinate to the regional director of that region.
In addition to aforesaid structure NCLT is also one quasi judicial authority with regard to the companies Act, 2013 it may be noted that the provision of NCLT and all the aspects of companies Act, 2013 (such as corporate restructuring, winding up, sick companies , etc) involving the role of NCLT has now come into force with effect from 1st June,2016..
MEANING OF COMPANY
The word ‘company’ is derived from Latin word com= with or together, and panis=bread or meal; and originally referred to an association of persons who took their meals together.
An association may be an incorporated association or an unincorporated association an incorporated association is a single person distinct from individual constituting it, where as unincorporated association is mere collection or aggregation of individuals.
The incorporated association owes its existence either to a special act of parliament or to a Company legislation. The public corporation like life insurance corporation of India and Damodar Valley Corporation have been brought in to existence through special acts of parliament (usually referred to as statutory corporation /body/company) , whereas companies like Tata Iron Steel co. ltd Hindustan lever ltd , etc have been formed
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under the companies act. The trading partnership which is governed by partnership act is example of an unincorporated association.
Definition of company
The term company has been defined under Section 2(20) of Companies Act 2013. As per this company means a company incorporated under Companies Act, 2013 or under any of the previous laws relating to companies.
It may be noted the term company shall be used in the sense as defined above for entire companies Act, 2013 unless the context otherwise requires.
CHARACTERISTICS OF COMPANY
Following are the characteristics of the company:-
Separate legal entity
A company is an artificial person having a personality which is distinct from the members constituting it. Thus, a company has got an entity which is separate from its member. And since this separate entity concept is conferred by law, it is said that a company has got a separate legal entity.
Salomon case: the case of Salomon v. Salomon & co. ltd. has clearly established the principle of separate legal entity. Salomon had, for some years, carried on a prosperous business as a Leather merchant and boot manufacturer. He formed a limited company consisting of himself, his wife and a daughter, and his four sons as the shareholders, all of whom subscribed for one share of 1 pound each. Salomon was the managing director and two of his sons were other directors.
Salomon sold his business (which was perfectly solvent at that time) to the company for the sum of 38782 pounds. He got the following payments;-
10000 secured debentures of 1 pound each 10000 pounds
20000 fully paid shares of 1 pound each 20000 pounds
Cash 8782 pounds
The company soon ran into difficulties and the debentures holders appointed a receiver and the company went in to liquidation. The total assets of the company amounted to 6050 Pounds, its liabilities were 10000 pounds secured debentures and 8000 pounds of unsecured debentures owing to unsecured trade creditors. The unsecured trade creditors claims the whole of the company’s assets VIZ 6050 pounds on the ground that as the company was a mere agent for Salomon and thus they were entitled to payment of their debts in priority to debentures held by one person .
The House of Lords rejected these contentions and held that a company, on registration, has its own existence or personality and distinct from its members and, as a result, a shareholder cannot be equated with a company,
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even if he holds virtually the entire share capital of the company. Hence priority shall be given to the secured creditors instead of unsecured creditors.
One Man Company:- One Man Company is a company in which almost the entire share capital of a company is held by one person . The case of Salomon v Salomon and company Ltd. Has clearly established this concept.
Further in the case of T.R. Pratt (Bombay) Ltd. v. E.D. Sasson and co. Ltd it was held that under the law , an incorporated company is a distinct entity , and although all the shares may be practically controlled by one person , in law a company is distinct entity and it is not permissible or relevant to enquire whether the directors belong to the same family or whether it is as compendiously described a one – man company”
It may be noted that concept of one man company is different from a new concept called One Person Company (OPC).
Experience of a shareholder as experience of a company: NEW HORIZONS LTD V. UNION OF INDIA is the legendary case in regard to whether experience of a shareholder can be regarded as experience of a company
In general, the experience of a shareholder cannot be regarded as experience of a company. However, in the case of joint venture companies the experience of the company can only mean the experience of the constituent of the joint venture. This is so because a joint venture company is in the nature of a partnership between the two or more constituent companies and each constituent company undertakes to contribute towards the resources of joint venture Company in the form of machines, equipments, expertise, etc.
Limited liability
A company limited by shares is a registered company having the liability of its members limited to the amount, if any, unpaid on the shares respectively held by them. If his shares are fully paid up, he has nothing more to pay.
A company limited by guarantee or a “guarantee company” is a company having the liability of its members limited to such an amount as the members may respectively thereby undertake, by the memorandum of association of the company, to contribute to the assets of the company. A special feature of this type of company is that the liability of members to pay their guaranteed amount arises only when the company has gone into liquidation and not when it is a going concern. Clubs, trade association and societies for promoting different objects are examples of companies limited by guarantee.
A guarantee company without share capital does not obtain its initial and working funds, from its members, but from some other source or sources e.g. Bank Loans, grants, endowments, fees, subscriptions, and the like. But a guarantee company having a share capital raises its initial capital from its members, while the normal working funds would be provided from other source, such as fees, charge, subscriptions.
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If a guarantee company has share capital, the shareholders has two-fold liability; to pay the amount which remains unpaid on their share whenever called upon to pay, and secondly, to pay the amount payable under the guarantee when the company goes into liquidation. The voting power of a guarantee company having a share capital is determined by shareholding and not by the guarantee.
However in the case of an unlimited company, there is no limit on the limit on the liability of its members. Thus, the maximum liability of the members of such a company could extend to their entire personal property to meet the debts and obligations of the company.
The members of an unlimited company are not liable directly to the creditors of the company, unlike in the case of partners of a firm. The liability of the members is only towards the company, so long it is a going concern; and in the event if it being wound up, only the liquidator can ask the members to contribute to the assets of the company.
Perpetual succession
An incorporated company never dies. Perpetual succession, therefore, means that the membership of a company may keep changing from time to time but does not affect its continuity. Members may come and members may go but the company can go forever.
The company will remain the same entity, despite total change in the membership. Thus, perpetual succession denotes the ability of a company to maintain its existence by the constant succession of new individuals who step into the shoes of those who cease to be members of the company.
Separate property
No member can claim himself to be the owner of the company’s properties either during its existence or in its winding up. A member does not have an insurable interest in the property of the company. A person, for example, for the holder of nearly all the shares except one of timber company and he was also a substantial creditor, he insured the company’s timber in his own name. The timber having been destroyed by fire, the insurance company was held not liable to him [Macaura v. Northern Assurance Company ltd.] Shareholder are not in the eye of the law, part owners of the undertaking. The undertaking in something different from the totality of shareholder.[ Short v. Treasury Commissioners] Transferability of shares
The capital of a company is divided into parts called shares. The shares are said to be movable property and subject to certain condition, freely transferable for that. No shareholder is permanently or necessarily wedded to a company. It may be noted that this right of shareholder is restricted in the case of a private company.
Section 44 of the companies Act. 2013 provides that the shares held by manners are movable property and can be transferred from one person to another in the manner provided by the articles of association of a company.
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If articles do not provide anything for transfer of share and the regulation contained in table f are also expressly excluded, the transfer of shares will be governed by the general law relating to transfer of moveable property.
Common seal
Since a company has no existence, it must act through its agents. All the important documents must be under the common seal, if any. of the company. The common seal, thus, acts as the official signature of a company.
As per the companies Act, 2013, only certain important documents such as share certificate and authorization to any person to act as attorney of the company for the purpose of the execution of any deeds on behalf of the company shall issued under the common seal, if any, of the company. Apart from this, articles of a company may also requires for certain other documents to be under the common seal. Thus, all documents need not be under the common seal of a company.
It may be noted that Companies (Amendment) Act, 2015 has made it optional for the companies to have the common seal.
Capacity to Sue and to be Sued
A company, being a body corporate, can sue and be sued in its own name.
Contractual rights
A company, being a legal entity different from its members, can enter into contracts for the conduct of the business in its own name. A member of a company cannot sue in respect of torts committed against it, nor can he be sued for torts committed by the company.
Limitation of action
A company cannot go beyond the powers of its charter – the memorandum of association. The action and objects of the company are limited within the scope of its memorandum of association.
Separate Management
The members of a company may derive profits without being burdened with the management