CENTRAL UNIVERSITY OF SOUTH BIHAR
SCHOOL OF LAW &GOVERNANCE.
A Project work on “Historical Development of Company Law in
England and in India: A Study.”
Submitted to: Dr. Pradip Kumar Das
By:
Aarya Sharma
CUSB1613125001
7th Semester (Ba.llb hons.)
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Acknowledgement:
I would like to express my special thanks of gratitude to my professor Dr. Pradip Kumar
Das who gave me the golden opportunity to do this wonderful project on the topic Historical
Development of Company Law in England and in India: A Study which also helped me in
doing a lot of Research and I came to know about so many new things I am really thankful to
them. Secondly, I would also like to thank my parents and friends who helped me a lot in
finalizing this project within the limited time frame.
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Contents:
1. Introduction……………………………………………………………04
2. Development of Company Law in England………………………….05-07
3. Development of Company Law in India……………………………….08-12
4. Conclusion…………………………………………………………….12
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Introduction:
The concept of ‘Company’ or ‘Corporation’ in business is not new, but was dealt with, in 4th
century BC itself, at the time of ‘Arthashastra’. It has evolved over time according to the
needs of society and business dynamics. The word Company is made of two Latin words
“Com” meaning “coming together” and “panis” meaning “bread”. Company originally
referred to group of people who took their meal together. Company Law in India, is the
cherished child of the English parents. Our various Companies Acts have been modelled on
the English Acts. Following the enactment of the Joint Stock Companies Act, 1844 in
England, the first Companies Act was passed in India in 1850. It provided for the registration
of the companies and transferability of shares. The Amending Act of 1857 conferred the right
of registration with or without limited liability. Subsequently this right was granted to
banking and insurance companies by an Act of 1860 following the similar principle in
Britain. The Companies Act of 1856 repealed all the previous Acts. This Act covered aspects
of incorporation, regulation and winding up of companies and other associations. This Act
was recast in 1882, embodying the amendments which were made in the Company Law in
England up to that time. In 1913 a consolidating Act was passed, and major amendments
were made to the consolidated Act in 1936. In the meantime, England passed a
comprehensive Companies Act in 1948. In 1951, the Indian Government promulgated the
Indian Companies (Amendment) Ordinance under which the Central Government and the
Court assumed extensive powers to intervene directly in the affairs of the company and to
take necessary action in the interest of the company. The ordinance was replaced by an
Amending Act of 1951.
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Development of Company Law in England:
In London, the earliest business associations during the 11th to 13th centuries were called the
merchant guilds. These guilds obtained charters from the Crown mainly to secure for their
members, a monopoly in respect of particular trade or commodity. These associations were
either formed a Commenda or Societas. Commenda operated in the form of partnership, the
financier being a sleeping partner with limited liability. The liability was basically borne by
the working partners. In Societas on the other hand, all the members took part in the
management of the trade and had unlimited liability, more in line with the present-day
partnership.
In the 14th century, the word Company was adopted by certain merchants for trading
overseas. This was, more or less an extension of the merchant guilds in foreign trade. By the
end of 16th century Royal Charters granted monopoly of trade to members of the Company
over a certain territory. These companies were called regulated Companies. East India
Company was one of such regulated companies established by a Charter in 1600. It had
monopoly of trade in India; its members could carry on trade individually and had the option
to subscribe to the joint fund or stock of the company. After such voyage, the profits made,
together with the subscribed amount, were divided among the members.
In 1653, however, a permanent subscribed fund was introduced, called joint fund or stock of
the company. Accordingly, the term joint stock came into use. The profits were, however,
shared at the end of each voyage. By the end of 17th century all these companies or merchant
guilds any many regulated companies which the Crown had incorporated, meanwhile had
established permanent fixed capitals represented by shares which were freely saleable and
transferable.
The property with which the companies treated was recognised as being under the exclusive
control of their governors or directors for the purpose of carrying on these undertakings and
was not available for division between members at intervals of time. At this time the only
method of obtaining the incorporation of a company was by Royal Charter or by an Act of
Parliament. These methods of incorporation were quite expensive and time consuming.
Consequently, many companies were formed by agreement without incorporation. As a
result, the first 20 years of 18th Century witnessed a flood of speculative and often fraudulent
schemes of company floatation ‘s of which the notorious schemes of the South Sea Company
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is the best known example. The South Sea Company had a scheme to acquire virtually the
whole of the national debt (approx. £ 31,000,000) by purchasing the holdings or exchanging
the holdings for the stock of the company. The possession of interest- bearing loan owed by
the State was a basis on which the company might raise vast sums to extend its trade.
This theory was indeed a logical extension of the principle upon which the Bank of England,
and the South Sea Company itself, had been originally formed but unfortunately, the
Company had very little trade to expand. It had paid a huge sum of money for obtaining the
charter in competition with the Bank of England. Ultimately, the company failed. In 1720, the
British Parliament came down heavily on such companies in order to check the orgy of
speculation in shares and securities which had reached its heights.
Consequently, the Bubble Act, 1720 was passed. The Act prohibited generally the use of the
form of corporations unless a corporation was authorised to act as such by an Act of
Parliament or Royal Charter. However, it exempted all undertakings operative especially
before June 24, 1978. With the passing of the Act companies disappeared like the bursting of
the bubble. Although the Bubble Act held up the development of capital market for a century,
it did not destroy the unincorporated company. To avoid the rigours of the Act, large
partnerships were formed. The parties to the deed agreed to be associated with a joint fund or
stock divided into number of transferable shares and agreed to alteration of the provisions of
the deed by a specified majority. They delegated the management to the directors. The
property was vested in a body of trustees which was also given powers to sue or be sued on
behalf of the company. In 1825, the Bubble Act was repealed. In 1834, the Trading
Companies Act, 1834 was passed empowering the Crown to confer by Letters Patent any of
the privileges of incorporation except limited liability, without actually granting a Charter.
The Chartered Companies Act, 1837 re-enacted the Act of 1834 providing for the first time
that personal liability of members might be expressly limited by the Letters Patent to a
specified amount per share. In 1844, the Joint Stock Companies Act was passed for the first
time. This Act provided for the registration of Companies with more than 25 members or
with shares transferable without the consent of all the members. It also provided for
incorporation by registration. The Act for the first time created the office of the ―Registrar
of Companies‖ and required particulars of the Company’s constitution, changes therein and
annual returns to be filed with the Registrar so that there would be full record retained
officially. Limited liability, however, was still excluded. Although the company became
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incorporated, the personally liability of the members was preserved, but their liability was to
cease three years after they had transferred their shares by registered transfer and creditors
had to proceed first against the assets of the company.
Members could only escape personal liability by providing in its contracts, as unincorporated
companies had formerly done, that only the Company’s property and the amount unpaid on
its members shares should be answerable in default. Such a provision was effective if inserted
in the contract on which the plaintiff sued, but not, if it was merely contained in the
Company’s deed of settlement, even if the plaintiff knew of it when he contracted with the
Company.
In 1855, however, an Act of Parliament was passed called Limited Liability Act, 1855 by
which any company registered under the Act of 1844 might limit the liability of its members
for its debts and obligations generally to the amount unpaid of their shares. The Act was
repealed within a few months. In fact, the English Companies Act, 1856 known as the Joint
Stock Companies Act, 1856 replaced both the Acts of 1844 and 1855. Under this Act, the
company legislation assumed for the first time a form which has been broadly handed down
almost to the present day, subject to various amendments which were made from time to time
to suit various exigencies. Under this Act seven or more persons could form themselves into
an incorporated company with or without limited liability by signing a memorandum of
association and complying with the requirements of the Act.
The Act of 1856, in its turn, was repealed by the Companies Act, 1862 which followed the
same pattern but contained a number of improvements. The Companies Act, 1862 was
amended by 17 later Acts, the most important of which enabled Companies to reduce their
share capital to alter the objects which they were formed to carry out, imposed liability on
promoters and directors for false statements inviting public subscription to shares and
debentures, and introduced the concept of private company, which could be incorporated with
only two members. In 1908, the whole of the existing statute law was consolidated and after
further amending statutes, in 1929 and 1948, the Companies Act of those years repealed the
existing law and enacted new consolidated legislation. The Companies Act, 1948 was itself
amended and supplemented by the Companies Acts of 1967, 1976, 1980, 1981 and 1983. In
1985, the whole of the existing statute law relating exclusively to companies was
consolidated in the Companies Act, 1985 which is the present statute governing companies in
England
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Development of Company Law in India:
The Company Legislation in India has closely followed the Company Legislation in England.
The first legislative enactment for registration of Joint Stock Companies was passed in the
year 1850 which was based on the English Companies Act, 1844. This Act recognised
companies as distinct legal entities but did not introduce the concept of limited liability. The
concept of limited liability, in India, was recognised for the first time by the Companies Act,
1857 closely following the English Companies Act, 1856 in this regard.
The Act of 1857, however, kept the liability of the members of banking companies unlimited.
It was only in 1858 that the limited liability concept was extended to banking companies also.
Thereafter in 1866, the Companies Act, 1866 was passed for consolidating and amending the
law relating to incorporation, regulation and winding-up of trading companies and other
associations. This Act was based on the English Companies Act, 1862.
The Act of 1866 was recast in 1882 to bring the Indian Company Law in conformity with the
various amendments made to the English Companies Act of 1862. This Act continued till
1913 when it was replaced by the Companies Act, 1913. The Act of 1913 had been passed
following the English Companies Consolidation Act, 1908. It may be noted that since the
Indian Companies Acts closely followed the English Acts, the decisions of the English
Courts under the English Company Law were also closely followed by the Indian Courts.
Till 1956, the business companies in India were regulated by this Act of 1913. Certain
amendments were, however, made in the years 1914, 1915, 1920, 1926, 1930 and 1932. The
Act was extensively amended in 1936 on the lines of the English Companies Act, 1929.
Minor amendments were made a number of times thereafter.
At the end of 1950, the Government of independent India appointed a Committee under the
Chairmanship of H.C. Bhaba to go into the entire question of the revision of the Indian
Companies Act, with particular reference to its bearing on the development of Indian trade
and industry. This Committee examined a large number of witnesses in different part of the
country and submitted its report in March 1952. Based largely on the recommendations of the
Company Law Committee, a Bill to enact the present legislation, namely, the Companies Act,
1956 was introduced in Parliament. This Act, once again largely followed the English
Companies Act, 1948. The major changes that the Indian Companies Act, 1956 introduced
over and above the Act of 1913 related to: (a) the promotion and formation of companies;(b)
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capital structure of companies;(c) company meetings and procedures; (d) the presentation of
company accounts, their audit, and the powers and duties of auditors; (e) the inspection and
investigation of the affairs of the company; (f) the constitution of Board of Directors and the
powers and duties of Directors, Managing Directors and Managers, and (h) the administration
of Company Law. The Companies Act, 1956 has been amended several times since then. The
major amendments were introduced in the years 1960, 1962, 1963, 1964, 1965, 1966, 1967,
1969, 1974, 1977, 1985, 1988 and 1991.
In the wake of economic reforms processes initiated from July, 1991 onwards, the
Government recognized the many provisions of the Companies Act had become
anachronistic and were not conducive to the growth of the Indian corporate sector in the
changing environment. Consequently, an attempt was made to recast the Act, which was
reflected in the Companies Bill, 1993. The said Bill, however, was subsequently withdrawn.
As part of continuing reforms process and in the wake of enactment of the Depositories Act,
1996, certain amendments were, however, incorporated by the Companies (Amendment) Act,
1996. In the year 1996, a Working Group was constituted to rewrite the Companies Act,
following an announcement made by then Union Minister for Finance in his Budget Speech
to this effect. The main objective of the Group was to re-write the Act of facilitate healthy
growth of Indian corporate sector under a liberalized, fast changing and highly competitive
business environment.
Based on the report prepared by the Working Group and taking into account the
developments that had taken place in structure, administration and the regulatory framework
the world over, the Companies Bill, 1997 was introduced in Rajya Sabha on August 14, 1997
to replace by repealing the Companies Act, 1956. In the meantime, as part of the reforms
process and in view of the urgency felt by the Government, the President of India
promulgated the Companies (Amendment) Ordinance, 1998 on October 31, 1998 which was
later replaced by the Companies (Amendment) Act, 1999 to surge the capital market by
boosting morale of national business houses besides encouraging FIIs as well as FDI in the
country.
The amendments brought about number of important changes in the Companies Act. These
were in consonance with the then prevailing economic environment and to further
Government policy of deregulation and globalisation of the economy. The corporate sector
was given the facility to buy-back company’s own shares, provisions relating to the
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investments and loans were rationalized and liberalized besides the requirements of prior
approval of the Central Government on investment decisions was dispensed with, and
companies were allowed to issue sweat equity in lieu of intellectual property. In order to
make accounts of Indian Companies compatible with international practices, the compliance
of Indian Accounting Standards was made mandatory and provisions for setting up of
National Committee on Accounting Standards was incorporated in the Act. For the benefit of
investors, provisions were made for setting up of Investor Education and Protection Fund
besides introduction of facility of nomination to shareholders debenture holders etc.1
The First Amendment of 2002 provides for producer companies. The Second Amendment of
2002 replaces the Company Law Board with National Company Law Tribunal and also
creates an Appellate Tribunal. Apart from taking over the jurisdiction of the Company Law
Board, the National Company Law Tribunal has been vested with the jurisdiction of the High
Courts under the Companies Act. The result is that the jurisdiction of the High Courts has
also become reduced to a very few points. Since this amendment has not been enforced, the
original Act holds good.
A Committee was constituted on 2nd December, 2004 under the Chairmanship of Dr. J J
Irani, the then Director, Tata Sons, with the task of advising the Government on the proposed
revisions to the Companies Act, 1956 with the objective to have a simplified compact law
that will be able to address the changes taking place in the national and international scenario,
enable the adoption of internationally accepted best practices as well as provide adequate
flexibility for timely evolution of new arrangements in response to the requirements of ever-
changing business models. The Committee submitted its report to the Government on 31st
May 2005. Dr. J J Irani Expert Committee on Company Law had submitted its report charting
out the road map for a flexible, dynamic and user-friendly new company law. The Committee
had taken a pragmatic approach keeping in view the ground realities, and had sought to
address the concerns of all the stakeholders to enable adoption of internationally accepted
best practices. As one wades through the report, one finds an arduous zeal to ensure that
flexibility is coupled with accountability and transparency. Be it the role of directors in the
management of the company or the role of promoters at the time of incorporation or the
responsibility of professionals in ensuring better governance, the report had made very
dynamic and balanced recommendations. The Report of the Committee had also sought to
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Company Law and Practice by A. K. Majumdar and Dr. G.K. Kapoor Taxmann ‘s Publication 21st Edition pg.
1 to 5.
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bring in multifarious progressive and visionary concepts and endeavoured to recommend a
significant shift from the “Government Approval Regime” to a “Shareholder Approval and
Disclosure Regime”. The Expert Committee had recommended that private and small
companies need to be given flexibilities and freedom of operations and compliance at a low
cost. Companies with higher public interest should be subject to a stricter regime of
Corporate Governance. Further, Government companies and public financial institutions
should be subject to similar parameters with respect to disclosures and Corporate Governance
as other companies are subjected to. To attune the Indian Company Law with the global
reforms taking place in the arena, the Report of the Committee had sought to bring in
multifarious visionary concepts, which if accepted and acted upon would really simplify the
voluminous and cumbersome Companies Act in the country
The Government considered the recommendations of Irani Committee and also had detailed
discussions and liberations with various stakeholders viz Industry Chambers, Professional
Institutes, Government Departments, Legal Experts and Professionals etc. Thereafter, the
Companies Bill, 2009 was introduced in the Lok Sabha on 3rd August, 2009, The Bill laid
greater emphasis on self-regulation and minimization of regulatory approvals in managing
the affairs of the company. The Bill promised greater shareholder democracy, vesting the
shareholders with greater powers, containing stricter corporate governance norms and
requiring greater disclosures.
The Companies Bill, 2009 after introduction in Parliament was referred to the Parliamentary
Standing Committee on Finance for examination which submitted its report to Parliament on
31st August, 2010. Certain amendments were introduced in the Bill in the light of the report
of the Committee and a revised Companies Bill, 2011 was introduced. This version was also
referred to the Hon’ble Committee, which suggested certain further amendments. The
amended Bill was passed by the Lok Sabha on 18th December, 2012 and by the Rajya Sabha
on 8th August, 2013. The Bill was retitled as Companies Bill, 2012.
The Companies Bill, 2012 finally became the Companies Act, 2013. It received the assent of
the President on August 29, 2013 and was notified in the Gazette of India on 30.08.2013.
Companies Act, 2013 has undergone amendments four times so far. Companies
(Amendment) Act, 2015 and Companies (Amendment) Act, 2017 aimed at enhancing
efficiency and promoting ease of doing business. The Act was also amended by The
Insolvency and Bankruptcy Code, 2016 and Finance Act, 2017. The Insolvency and
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Bankruptcy Code, 2016 led to omission of various sections i.e. section 253 to section 269,
section 289, section 304 to section 323 and section 325. The Finance Act, 2017 amended
section 182 with regard to prohibitions and restrictions regarding political contributions. So
far Ministry has come out with several circulars, notifications, Orders and various
amendment rules to facilitate better and smooth implementation of the Act.
The Companies Act 2013 introduced new concepts supporting enhanced disclosure,
accountability, better board governance, better facilitation of business and so on. It includes
associate company, one-person company, small company, dormant company, independent
director, women director, resident director, special court, secretarial standards, secretarial
audit, class action, registered valuers, rotation of auditors, vigil mechanism, corporate social
responsibility, E-voting etc.
Conclusion:
Company law has been one of the dynamic legislations in India as the amendments are
coming every year and new provisions are added, thus this legislation has been one of the
guardian legislations through which various other legislations like Banking Regulations Act
has emanated from this. These experiences are believed to be helpful and vital for numerous
companies in India. Though the Companies Act 2013 was enacted by the Government as a
bold step for the betterment of the Corporate Sector and ultimately for the development of the
economy but very limited guidance was available from the regulators for its easy
understanding and implementation. The knowledge gap towards implementation was tried to
be bridged through certain training programs organized by certain institutions and financial
organizations, which aimed at providing deep insights and understanding into several aspects
of implementation challenges under the Companies Act 2013.
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