LAW AND ETHICS CMA INTER MAY 2021 EDITION

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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.
LAW BY CS RAMANDEEP SINGH (CYBER LAWYER)
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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
LAW BY CS RAMANDEEP SINGH (CYBER LAWYER)
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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,
LAW BY CS RAMANDEEP SINGH (CYBER LAWYER)
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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

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