UNIT I

Administrative law is the law that governs the administrative actions. As per Ivory
Jennings- the Administrative law is the law relating to administration. It
determines the organization, powers and duties of administrative authorities. It
includes law relating to the rule-making power of the administrative bodies, the
quasi-judicial function of administrative agencies, legal liabilities of public
authorities and power of the ordinary courts to supervise administrative authorities.
It governs the executive and ensures that the executive treats the public fairly.

Administrative law is a branch of public law. It deals with the relationship of

individuals with the government. It determines the organisation and power
structure of administrative and quasi-judicial authorities to enforce the law. It is
primarily concerned with official actions and procedures and puts in place a
control mechanism by which administrative agencies stay within bounds.

INDIA

It was with the coming of the British that Administrative law in India went through
a few changes. Legislations regulating administrative actions were passed in
British India.

After independence, India adopted to become a welfare state, which henceforth

increased the state activities. As the activities and powers of the Government and
administrative authorities increased so did the need for ‘Rule of Law’ and ‘Judicial
Review of State actions’.

Henceforth, if rules, regulations and orders passed by the administrative authorities

were found to be beyond the authorities legislative powers then such orders, rules
and regulations were to be declared ultra-vires, unconstitutional, illegal and void.

Reasons for growth of Administrative law

The concept of a welfare state

As the States changed their nature from laissez-faire to that of a welfare state,
government activities increased and thus the need to regulate the same. Thus, this
branch of law developed.

The inadequacy of legislature

The legislature has no time to legislate upon the day-to-day ever-changing needs of
the society. Even if it does, the lengthy and time-taking legislating procedure
would render the rule so legislated of no use as the needs would have changed by
the time the rule is implemented.

Thus, the executive is given the power to legislate and use its discretionary powers.
Consequently, when powers are given their arises a need to regulate the same.

The inefficiency of Judiciary

The judicial procedure of adjudicating matters is very slow, costly complex and
formal. Furthermore, there are so many cases already lined up that speedy disposal
of suites is not possible. Hence, the need for tribunals arose.

Scope for the experiment

As administrative law is not a codified law there is a scope of modifying it as per
the requirement of the State machinery. Hence, it is more flexible. The rigid
legislating procedures need not be followed again and again.

Administrative Law in India

Administrative law in India attempts to regulate administrative actions by

controlling delegated legislation and subjecting administrative discretionary
actions to judicial review. It also provides for the constitution of tribunals and their
composition.

 Delegated Legislation

When the functions of Legislature are entrusted to organs other than the legislature
by the legislature itself, the legislation made up by such organ is called Delegated
Legislation. Such a power is delegated to the executives/administrators to resolve
the practical issues which they face on a day-to-day basis.

The practice of delegated legislation is not bad however the risk of abuse of power
is incidental and hence safeguards are necessary.

There are three measures of controlling abuse of power through delegated

legislation (as adopted in India)-

 Parliamentary Control
Parliamentary control is considered as a normal constitutional function because the
Executive is responsible to the Parliament.

In the initial stage of parliamentary control, it is made sure that the law provides
the extent of delegated power. The second stage of such control involves laying of
the Bill before the Parliament.

There are three types of laying -

Simple laying

In this, the rules and regulations made come into effect as soon as they are laid
before the Parliament. It is done to inform the Parliament, the consent of the
Parliament with respect to its approval of the rules and regulations made are not
required.

Negative laying

The rules come into force as soon as they are placed before the Parliament but
cease to have effect if disapproved by the Parliament.

Affirmative laying

The rules made shall no effect unless approved by both the Houses of the
Parliament.
2. Concept of Administrative Law:

Administrative law is a branch of public law that is concerned with the procedures,
rules, and regulations of a number of governmental agencies. Administrative law
specifically deals with such federal legislatures.
administrative
passed
An example
by state
ofand
agencies’
administrative
decision-making
law is the regulation
capabilities,
andasoperation
they carry
of the
outSocial
laws
Security Administration, and the administration of benefits to the people.

Administrative law is that body of law which applies for hearings before quasi-
judicial bodies, boards, commissions or administrative tribunals supplement the
rules of natural justice with their own detailed rules of procedure.

Through jurisprudence, common law or case law, these principles have each been
expanded and refined beyond their original simplistic design to form distinct
bodies of law forming together what the legal system refers to as administrative
law.

3. Definition of Administrative Law:

Administrative law deals with the legal control of government and related
administrative powers. In other words, we can define administrative law as the
body of rules and regulations and orders and decisions created by administrative
agencies of government.
Administrative law consists of complaints respecting government action that
adversely affects an individual. Thus, administrative law involves determining the
legality of government actions.
There is a two-fold analysis: the legality of the specific law itself and the legality
of particular acts purportedly authorized by the specific law.

4. Nature of Administrative Law:

Administrative Law is a new branch of law that deals with the powers of the
Administrative authorities, the manner in which powers are exercised and the
remedies which are available to the aggrieved persons, when those powers are
abused by administrative authorities.
The Administrative process has come to stay and it has to be accepted as a
necessary evil in all progressive societies. Particularly in welfare state, where many
schemes for the progress of the society are prepared and administered by the
government. The execution and implementation of these programmers may
adversely affect the rights of the citizens. The actual problem is to reconcile
social welfare with rights of the individual subjects. The main object of the study
of Administrative law is to unravel the way in which these Administrative
authorities could be kept within their limits so that the discretionary powers may
not be turned into arbitrary powers.

5. Scope of Administrative Law:

Administrative Law as a law is limited to concerning powers and procedures of
administrative agencies. It is limited to the powers of adjudication or rule-making
power of the authorities.


Objectives
Justice of Administrative
Establishment,
Delegated
Judicial
Remedies
Government
Public
Procedural
corporations
functions
available
legislation
guarantees
liability Law
organization
ofsuch
administrative
in
- the
tort
such
asRule-making
Writs,
and
as powers
the
Injunction
agencies
application
power
of various
such
etc.
of the
as
of
administrative
tribunals
authorities
principles ofbodies
Natural
Over the past decade it appears that administrative law, which is the body of law
governing the activities of administrative agencies of government, has been
minimized, allowing a number of governmental agencies to run ineffectually.

Ultimately this has resulted in numerous economic and environmental calamities

within the United States, i.e.; British Petroleum, Enron, Wall Street, and the auto
industry. The majority of governmental agencies within the United States are
underneath the executive branch, with few being a part of the judicial and
legislative branches.

Company Act 1956

The Companies Act 1956 is administered by the Government of India through the
Ministry of Corporate Affairs and the Offices of Registrar of Companies, Official
Liquidators, Public Trustee, Company Law Board, Director of Inspection, etc. The
Act is 658 sections long. The Act contains provisions about Companies, directors
of the companies, memorandum and articles of associations, etc. This act states and
discusses every single provision requires or may need to govern a company. It
mentions what type on companies their differences, constitution , management,
members , capital, how should the shares should be issues, debentures, registration
of charge, at the end of the act it concludes the about winding up of a company,
discussing the situations a company needs to be winded up. The ways it should be
done by volunteer or through courts.
Provisions of the Act
 Article 3 of the act describes the definition of a company, the types of companies
that can be formed e.g. public, private, holding, subsidiary, limited by shares,
unlimited etc. Further on in Article 10 E it explains about the constitution of board
of company, it explains the companies’ name, the jurisdictions, tribunals,
memorandums and the changes that can be made. Article 26 and further on
explains about the article of association of the company which a very important
part when forming a company and various amendments that can be made. Article
53 to 123,it explains about the shares, the share holders their rights, it explains
about debentures, share capital, their procedure and powers within the company.
Article 146 to 251 it explains about the management and administration of the
company and the provisions registered office and name. Article 252 to 323
elaborates on the provisions of duties, powers responsibility and liability of the
directors in the company which is a very integral part of the company when it is
formed. Article 391 to 409 explains about the arbitration, the prevention and
obsession of the company Article 425 to 560 it explains the procedure of winding
up of a company, the preventions the rights of shareholders, creditors, methods of
liquidations, compensation provided and ways of winding up the company. Article
591 and further on explains about setting up companies outside India and their fees
and registration procedure and all.
Company objective and legal procedure based on the Act
The basic objectives underlying the law are:
 A minimum standard of good behaviour and business honesty in company
promotion and management.
 Due recognition of the legitimate interest of shareholders and creditors and of the
duty of managements not to prejudice to jeopardize those interests.
 Provision for greater and effective control over and voice in the management for
shareholders.
 A fair and true disclosure of the affairs of companies in their annual published
balance sheet and profit and loss accounts.
 Proper standard of accounting and auditing.
 Recognition of the rights of shareholders to receive reasonable information and
facilities for exercising an intelligent judgment with reference to the management.
 A ceiling on the share of profits payable to managements as remuneration for
services rendered.
 A check on their transactions where there was a possibility of conflict of duty and
interest.
 A provision for investigation into the affairs of any company managed in a manner
oppressive to minority of the shareholders or prejudicial to the interest of the
company as a whole.
 Enforcement of the performance of their duties by those engaged in the
management of public companies or of private companies which are subsidiaries of
public companies by providing sanctions in the case of breach and subjecting the
latter also to the more restrictive provisions of law applicable to public companies.

CHARACTERISTICS OF A COMPANY

The main characteristics of a company are

1. Incorporated association.

A company is created when it is registered under the Companies Act. It

comes into being from the date mentioned in the certificate of incorporation.
It may be noted in this connection that Section 11 provides that an
association of more than ten persons carrying on business in banking or an
association or more than twenty persons carrying on any other type of
business must be registered under the Companies Act and is deemed to be an
illegal association, if it is not so registered. For forming a public company at
least seven persons and for a private company at least two persons are
persons are required.

2. Artificial legal person.

A company is an artificial person. Negatively speaking, it is not a natural

person. It exists in the eyes of the law and cannot act on its own. It has to act
through a board of directors elected by shareholders. It was rightly pointed
out in Bates V Standard Land Co. that : “The board of directors are the
brains and the only brains of the company, which is the body and the
company can and does act only through them”. But for many purposes, a
company is a legal person like a natural person. It has the right to acquire
and dispose of the property, to enter into contract with third parties in its
own name, and can sue and be sued in its own name. However, it is not a
citizen as it cannot enjoy the rights under the Constitution of India or
 Citizenship Act. In State Trading Corporation of India v C.T.O (1963 SCJ
705), it was held that neither the provisions of the Constitution nor the
Citizenship Act apply to it. It should be noted that though a company does
not possess fundamental rights, yet it is person in the eyes of law. It can
enter into contracts with its Directors, its members, and outsiders. Justice
Hidayatullah once remarked that if all the members are citizens of India, the
company does not become a citizen of India.

3. Separate Legal Entity :

A company has a legal distinct entity and is independent of its members.

The creditors of the company can recover their money only from the
company and the property of the company. They cannot sue individual
members. Similarly, the company is not in any way liable for the individual
debts of its members. The property of the company is to be used for the
benefit of the company and nor for the personal benefit of the shareholders.
On the same grounds, a member cannot claim any ownership rights in the
assets of the company either individually or jointly during the existence of
the company or in its winding up. At the same time the members of the
company can enter into contracts with the company in the same manner as
any other individual can. Separate legal entity of the company is also
recognized by the Income Tax Act. Where a company is required to pay
Income-tax on its profits and when these profits are distributed to
shareholders in the form of dividend, the shareholders have to pay income-
tax on their dividend of income. This proves that a company that a company
and its shareholders are two separate entities. Perpetual Existence.
.
4. Common Seal.

As was pointed out earlier, a company being an artificial person has no body
similar to natural person and as such it cannot sign documents for itself. It
acts through natural person who are called its directors. But having a legal
personality, it can be bound by only those documents which bear its
signature. Therefore, the law has provided for the use of common seal, with
the name of the company engraved on it, as a substitute for its signature.
 Any document bearing the common seal of the company will be legally
binding on the company

5. Limited Liability :

A company may be company limited by shares or a company limited by

guarantee. In company limited by shares, the liability of members is limited
to the unpaid value of the shares. For example, if the face value of a share in
a company is Rs. 10 and a member has already paid Rs. 7 per share, he can
be called upon to pay not more than Rs. 3 per share during the lifetime of the
company. In a company limited by guarantee the liability of members is
limited to such amount as the member may undertake to contribute to the
assets of the company in the event of its being wound up.

6. Transferable Shares.

In a public company, the shares are freely transferable. The right to transfer
shares is a statutory right and it cannot be taken away by a provision (9) in
the articles. However, the articles shall prescribe the manner in which such
transfer of shares will be made and it may also contain bona fide and
reasonable restrictions on the right of members to transfer their shares. But
absolute restrictions on the rights of members to transfer their shares shall be
ultra vires. However, in the case of a private company, the articles shall
restrict the right of member to transfer their shares in companies with its
statutory definition. In order to make the right to transfer shares more
effective, the shareholder can apply to the Central Government in case of
refusal by the company to register a transfer of shares.

7. Separate Property :

As a company is a legal person distinct from its members, it is capable of

owning, enjoying and disposing of property in its own name. Although its
capital and assets are contributed by its shareholders, they are not the private
and joint owners of its property. The company is the real person in which all
its property is vested and by which it is controlled, managed and disposed of.
 8. Delegated Management :

A joint stock company is an autonomous, selfgoverning and self-controlling

organization. Since it has a large number of members, all of them cannot
take part in the management of the affairs of the company. Actual control
and management is, therefore, delegated by the shareholders to their elected
representatives, know as directors. They look after the day-to-day working
of the company. Moreover, since shareholders, by majority of votes, decide
the general policy of the company, the management of the company is
carried on democratic lines. Majority decision and centralized management
compulsorily bring about unity of action.

TYPES OF COMPANY

1. Joint stock company

there are three classes of joint stock companies.

A. Chartered companies.

These are incorporated under a special charter by a monarch. The East India
Company and The Bank of England are examples of chartered incorporated in
England. The powers and nature of business of a chartered company are defined
by the charter which incorporates it. A chartered company has wide powers. It
can deal with its property and bind itself to any contracts that any ordinary
person can. In case the company deviates from its business as prescribed by the
charted, the Sovereign can annul the latter and close the company. Such
companies do not exist in India.

B. Statutory Companies.

These companies are incorporated by a Special Act passed by the Central or

State legislature. Reserve Bank of India, State Bank of India, Industrial Finance
Corporation, Unit Trust of India, State Trading corporation and Life Insurance
Corporation are some of the examples of statutory companies. Such companies
do not have any memorandum or articles of association. They derive their
powers from the Acts constituting them and enjoy certain powers that
companies incorporated under the Companies Act have. Alternations in the
powers of such companies can be brought about by legislative amendments.
(13) The provisions of the Companies Act shall apply to these companies also
except in so far as provisions of the Act are inconsistent with those of such
Special Acts [Sec 616 (d)] These companies are generally formed to meet social
needs and not for the purpose of earning profits.

C. Registered or incorporated companies.

These are formed under the Companies Act, 1956 or under the Companies Act
passed earlier to this. Such companies come into existence only when they are
registered under the Act and a certificate of incorporation has been issued by
the Registrar of Companies. This is the most popular mode of incorporating a
company. Registered companies may further be divided into three categories of
the following.

i) Companies limited by Shares : These types of companies have a share

capital and the liability of each member or the company is limited by the
Memorandum to the extent of face value of share subscribed by him. In
other words, during the existence of the company or in the event of
winding up, a member can be called upon to pay the amount remaining
unpaid on the shares subscribed by him. Such a company is called
company limited by shares. A company limited by shares may be a
public company or a private company. These are the most popular types
of companies.
ii) ii) Companies Limited by Guarantee : These types of companies may or
may not have a share capital. Each member promises to pay a fixed sum
of money specified in the Memorandum in the event of liquidation of the
company for payment of the debts and liabilities of the company [Sec
13(3)] This amount promised by him is called (14) ‘Guarantee’. The
Articles of Association of the company state the number of member with
which the company is to be registered [Sec 27 (2)]. Such a company is
called a company limited by guarantee. Such companies depend for their
existence on entrance and subscription fees. They may or may not have a
share capital. The liability of the member is limited to the extent of the
guarantee and the face value of the shares subscribed by them, if the
 company has a share capital. If it has a share capital, it may be a public
company or a private company. The amount of guarantee of each
member is in the nature of reserve capital. This amount cannot be called
upon except in the event of winding up of a company. Nontrading or
non-profit companies formed to promote culture, art, science, religion,
commerce, charity, sports etc. are generally formed as companies limited
by guarantee.
iii) Unlimited Companies : Section 12 gives choice to the promoters to form
a company with or without limited liability. A company not having any
limit on the liability of its members is called an ‘unlimited company’
[Sec 12(c)]. An unlimited company may or may not have a share capital.
If it has a share capital it may be a public company or a private company.
If the company has a share capital, the article shall state the amount of
share capital with which the company is to be registered [Sec 27 (1)] The
articles of an unlimited company shall state the number of member with
which the company is to be registered.
On the Basis of Number of Members On the basis of number of
members, a company may be :
(1) Private Company, and (2) Public Company.
(15) A. Private Company According to Sec. 3(1) (iii) of the Indian
Companies Act, 1956, a private company is that company which by its
articles of association : i) limits the number of its members to fifty,
excluding employees who are members or ex-employees who were and
continue to be members; ii) restricts the right of transfer of shares, if any;
iii) prohibits any invitation to the public to subscribe for any shares or
debentures of the company. Where two or more persons hold share
jointly, they are treated as a single member. According to Sec 12 of the
Companies Act, the minimum number of members to form a private
company is two. A private company must use the word “Pvt” after its
name.
“A public company which is not a Private Company”, If we explain the
definition of Indian Companies Act. 1956 in regard to the public
company, we note the following :
i) The articles do not restrict the transfer of shares of the company
ii) It imposes no restriction no restriction on the maximum number of
the members on the company.

iii) It invites the general public to purchase the shares and debentures of
the companies (Differences between a Public Company and a Private
company)

1. Minimum number : The minimum number of persons required to form

a public company is 7. It is 2 in case of a private company.
2. Maximum number : There is no restriction on maximum number of
members in a public company, whereas the maximum number cannot
exceed 50 in a private company. (17)
3. Number of directors. A public company must have at least 3 directors
whereas a private company must have at least 2 directors (Sec. 252)
4. Restriction on appointment of directors. In the case of a public
company, the directors must file with the Register a consent to act as
directors or sign an undertaking for their qualification shares. The
directors or a private company need not do so (Sec 266)
5. Restriction on invitation to subscribe for shares. A public company
invites the general public to subscribe for shares. A public company
invites the general public to subscribe for the shares or the debentures of
the company. A private company by its Articles prohibits invitation to
public to subscribe for its shares.
6. Name of the Company : In a private company, the words “Private
Limited” shall be added at the end of its name.
7. Public subscription : A private company cannot invite the public to
purchase its shares or debentures. A public company may do so.
8. Issue of prospectus : Unlike a public company a private company is
not expected to issue a prospectus or file a statement in lieu of prospectus
with the Registrar before allotting shares.
9. Transferability of Shares. In a public company, the shares are freely
transferable (Sec. 82). In a private company the right to transfer shares is
restricted by Articles.
10. Special Privileges. A private company enjoys some special
privileges. A public company enjoys no such privileges.
 11. Quorum. If the Articles of a company do not provide for a larger
quorum. 5 members personally present in the case of a public company
are quorum for a meeting of the company. It is 2 in the case of a private
company (Sec. 174) (18)
12. Managerial remuneration. Total managerial remuneration in a public
company cannot exceed 11 per cent of the net profits (Sec. 198). No such
restriction applies to a private company.
13. Commencement of business. A private company may commence its
business immediately after obtaining a certificate of incorporation. A
public company cannot commence its business until it is granted a
“Certificate of Commencement of business”.

Company Act 2013

A company is a legal entity formed by a group of individuals in order to work
towards a common objective. The Act was introduced with the objective of
meeting the changed national, international and economic environment and to
accelerate the expansion and growth of the economy in India. A company can be a
commercial or an industrial enterprise. An identity of a company is separate from
the individuals who own, manage and support its operations. Each company has its
vision, mission, values, appraisal system, corporate structures and hierarchy.

Definition of a company Under Companies Act 2013

A company is a registered association denoting an artificial legal person. It has an

independent legal entity with perpetual succession, a common capital composed of
transferable shares, a common seal for its signatures, and carrying limited liability.

Q1. What is Companies Act 2013?

Ans. The Companies Act 2013 is an Act of the Parliament of India which regulates
the incorporation, formulation and functioning of companies India. The Companies
Act 2013 is the replacement of Indian Companies Act, 1956. The Act makes
comprehensive provisions to govern all the listed and unlisted companies of the
country. The Companies Act 2013 empowers shareholders and highlights higher
value for corporate Governance.

Q2. How many sections are there in Companies Act 2013?

Ans. The Companies Act 2013 contains 29 chapters and has fewer sections (470)
in comparison to companies Act 1956 (658). It has 7 schedules.

Q3. What kind of changes is done in Companies Act 2013?

Ans. With the enactment of Companies Act 2013, the financial year ends on
31st March, schedule 3 of format of financial statements is followed, concept of one
person company has been introduced which was missing in previous Companies
Act.

Q4. Why was the Companies Act 2013 introduced?

Ans. The Companies Act 2013 was introduced to ease the process of doing
business in India and improving corporate governance. Another factor behind the
introduction of Companies Act 2013 was to make companies more accountable.

Q5. How to form or register a company under Companies Act 2013?

Ans. Here are the steps to form or register a company under Companies Act
2013:

Step #1: Application for allotment of Director Identification Number in DIR-

3: Apply for the Directors identification number by attaching documents -
resistance proof, ID proof, copy of verification by the Applicant in DIR - 4 and
specimen signature.

Step #2: Applicability of name: The name of a company can be reserved by

making an application to the registrar. An application for reservation of name is to
be filed through Form No. INC-1 alongwith the fees as provided under the
Companies (Registration offices and fees) Rules, 2014.

Step #3: Application of incorporation of company: Filing of application with the

Registrar of companies alongwith relevant documents - Memorandum of
Association, Articles of Association, Declaration of accepting Table A, Affidavit
from each subscriber in INC - 9 and specimen signature in INC - 10.

#Step 4: Notice of location of registered office of Company under

Incorporation INC-22: Proof of registered office addresses (Lease
deed/Conveyance/Rent Agreement with the rent receipts).
#Step 5: Intimation regarding its first directors DIR - 12: e-Form DIR - 12
needs to be filed with the registrar within 30 days from the date of
appointment/resignation taking place.

#Step 6: Declaration prior to commencement of business INC-21: Declaration

has to be filled by director within a period of 180 days from the date of
incorporation.

Q6. What are the features of Companies Act 2013?

Ans. Companies Act 2013 has introduced new features as given below:

1. Democracy of shareholders: The Companies Act 2013 has introduced new

concept of class action suits to make shareholders more knowledgeable and
informed about their rights.

2. More power to shareholders: The Companies Act 2013 has given an eminent
importance to shareholders. The Act provides approvals from shareholders on
various important transactions. They have been vested with the power to sanction
the limit.

3. Corporate social responsibility: The Companies Act 2013 stipulates the class
of companies to spend a certain amount on various activities and initiatives to
contribute towards corporate social responsibility.

4. Women empowerment: The Companies Act 2013 emphasizes on appointing

atleast one woman Director (on certain class of companies). This feature is enacted
in order to widen the talent pool enabling big corporation to seek benefits from
diversified backgrounds having different opinions.

5. National Company Law Tribunal: The Act has introduced National Company
Law Tribunal and the National Company Law Appellate Tribunal for replacing the
Company Law Board and Board for Industrial and Financial Reconstruction. Now,
the courts are relieved of their burden, while simultaneously providing specialized
justice.

6. Fast track mergers: The Companies Act 2013 simplifies the procedure of
mergers and amalgamations in certain class of companies like - small companies
and holding & subsidiary in order to obtain approval of the Indian Government.
7. Cross borders mergers: The Companies Act 2013 now permits cross border
mergers in both ways; a foreign company merging with an India Company and
vice versa. But it can only be done with the prior permission of RBI.

8. Strict prohibition on forward dealings and insider trading: The Companies

Act 2013 prohibits key managerial personnel and directors from purchasing call
and put options of shares of the company. Earlier these regulations were framed by
SEBI as the capital market regulator.

Q7. What are the provisions of Companies Act 2013?

Ans. Provisions of Companies Act 2013

The Ministry of Corporate Affairs has notified 12th September 2013 as effective
date for 98 sections of Companies Act 2013. Certain important provisions are
given below to ensure timely compliance by the companies:

1. Special resolution for borrowing in excess paid - up capital and free

reserve:

Section 180 of the Companies Act 2013 requires that company cannot borrow in
excess of its paid up capital and free reserves, unless approved by the special
resolution. A private company is also required to pass special resolution of its
proposed borrowing with its existing borrowing exceeds the paid – up capital and
free reserves.

2. Provisions on free reserves: Section 2 (43) defines the free reserve as amount
available for distribution according to the latest audited balance sheet. However, it
excludes the revaluation reserve and change due to change in carrying value of its
assets/liability routed through profit & loss or otherwise.

3. Limit on maximum partners: The maximum number of persons/partners in

any association or partnership cannot exceed 100. This restriction is not applicable
on a company formed by professionals like – CAs, CSs, lawyers etc.
4. Net - Worth: According to Section 2(57) of Companies Act 2013 includes
securities premium account; however it excludes write back of depreciation in Net
- Worth.

5. One Person Company: The Indian Companies Act 2013 provides new form of
private company, i.e. one person company is introduced. It includes only one
director and one shareholder. In case of a private company, minimum 2
shareholders and 2 directors were included.

6. Restriction on composition: Every company will have minimum one director

who stays in India for atleast 182 days in the previous calendar year.

7. Rotation of Auditors: The Act provides rotation of auditors in case of publicly

traded companies. The Act also prohibits auditors from performing non - audit
services.

Q8. What are the objectives of Companies Act 2013?

1. To protect the interests of investors by drafting accurate information in the

prospectus.

2. To promote corporate social activities undertaken by the companies.

3. To promote the use of technology by making mandatory maintenance of books

of accounts in electronic form.

4. To ensure full disclosure of affairs of the companies in their published annual

accounts.

5. To enhance the economy the company by encouraging entrepreneurship.

6. To curtail insider trading activities.

7. To prevent malpractices on the part of company’s management.

8. To protect the rights of investors and creditors of the company.

9. To enforce proper performance of duties by the people responsible for the

management of companies.

10. To enhance the economy of the country by enhancing entrepreneurship.

Q9. What is the difference between Companies Act 2013 and 1956?

Point of
Companies Act 2013 Companies Act 1956
Difference
Earlier there was
Financial year ending
no fixed date for
Ends on 31st March on a date was used to
Financial Year ending a financial
every year be finalized by the
year, now the date
company
is fixed
The maximum
number of partners
Maximum Maximum 100
Maximum 50 partners in private
number of partners in private
in private companies. companies is
partners companies.
increased from 50
to 100.
The number of
Maximum 200 excluding past
50 excluding past and shareholders has
number of and present
present employees been increased
shareholders employees
from 50 to 200.
Memorandum of The object for which Objects of the Earlier the object
Association company is Company were clause was a bit
incorporated is classified as the main extensive in
(Object Clause) included and any objects of the comparison to
matter considered company, objects current Companies
 necessary. incidental or ancillary Act.
to the attainment of
the main objects and
other objects of the
company.
(Availability of Procedural aspects of Earlier there was
name) application for no procedural
Section 4(4) and availability of name aspect of
4(5)(i) of the 2013 find no place in the application, now it
Act incorporate the 1956 Act. is there.
procedural aspects of
application for
availability of name of
proposed company or
proposed new name
for existing company.

Articles of Articles contain such Earlier there was

No as such provisions
Association provisions no entrenchment
were there
(Entrenchment provision, now the
Provisions) new provision is
made under
Companies Act
2013

Provisions were There has been a

A declaration has to
provided according to shift from issue of
be filed by a director
Commencement the 2 conditions - If a prospectus to
or with the registrar.
of Business company has issued a registering the
There issue of
prospectus or not business with the
prospectus.
issued a prospectus registrar.
In the absence of a In the absence of a
The rate of interest
clause in the Articles clause in the Articles
on calls – in –
Interest in Calls of Association, the of Association,
arrears is
in Arrears maximum interest maximum interest
increased from 5%
chargeable on Calls- chargeable on Calls-
to 10% p.a.
in-arrears is 10% p.a. in-arrears was 5% p.a.
Interest in Calls In the absence of a In the absence of a The rate of interest
in Advance clause in the Articles clause in the Articles on calls - in -
of Association, the of Association, the advance is
maximum interest maximum interest increased from 6%
payable on Calls-in- payable on Calls-in- to 12% p.a.
advance is 12% p.a. advance was 6% p.a.

Q 10. What is the procedure of conducting Annual General Meeting as per

Companies Act 201?

Ans. All the companies except ‘One Person Company’ have to hold an AGM after
the end of every financial year. Within a period of six months from the end of
financial year, AGM must be held. The company must give a clear notice of 21
days before calling for the AGM. The place, the date and day of the meeting
should be specifically mentioned. According to Section 96(2) of the Companies
Act 2013, an annual general meeting can only be held during business hours, that
is, in between 9 A.M. and 6 P.M. on any day and not on a National Holiday.

Quorum for an AGM

 If number of members is within 1000, then 5 members have to be present on

the meeting day.

 If number of members is more than 1000 but within 5000, then 15 members
have to be present on the meeting day.

 If number of members is more than 5000, then 30 members have to be

present on the meeting day.

Matters of discussion in an AGM

  Consideration of the Director’s report and Auditor’s report.
 Consideration and adoption of the Audited Financial Statements.
 Appointment of Directors or replacement of retiring Directors.
 Appointment of Auditors and deciding their remuneration.
 Dividend declaration to shareholders.
 Apart from ordinary business, any other special business may be conducted.

Other important sections of Companies Act 2013

Section 185 of Companies Act 2013

Limits the prohibition on loans, advances etc. to the directors of the company or its
holding company or any partner of such director or any firm in which such a
director or relative is a partner.

Section 186 of Companies Act 2013

Section 186 covers three kinds of specified transactions entered into by a company
directly or indirectly:

a) Loans given to any person or other body corporate.

b) Guarantee or security given in connection with a loan to any other body

corporate or person; and

c) Acquisition by way of subscription, purchase or otherwise, the securities of any

other body corporate.

Section 188 of Companies Act 2013

This section increases the transparency to keep vigilance upon all the transactions,
and to have enhanced accountability for key management of related party
transaction. It is really important to consider all the aspects before entering into
any related party transactions and what all approvals are required.

Section 135 of Companies Act 2013

Every company having net worth of rupees five hundred crore or more, or turnover
of rupees one thousand crore or more or a net profit of rupees five crore or more
during the immediately preceding financial year shall constitute a Corporate Social
Responsibility.
What is Corporate Veil ?
A company is composed of its members and is managed by its Board of Directors
and its employees. When the company is incorporated, it is accorded the status of
being a separate legal entity which demarcates the status of the company and the
members or shareholders that it is composed of. This concept of differentiation is
called a Corporate Veil which is also referred to as the ‘Veil of Incorporation’.

Meaning of Lifting of Corporate Veil

The advantages of incorporation of a Company like Perpetual Succession,
Transferable Shares, Capacity to Sue, Flexibility, Limited Liability and lastly the
company being accorded the status of a Separate Legal Entity are by no means
inconsiderable, under no circumstance can these advantages be overlooked and, as
compared with them, the disadvantages are, indeed very few.

Yet some of them, which are immensely complicated deserve to be pointed out.
The corporate veil protects the members and the shareholders from the ill-effects
of the acts done in the name of the company. Let’s say a director of a company
defaults in the name of the company, the liability will be incurred by the company
and not a member of the company who had defaulted. If the company incurs any
debts or contravenes any laws, the concept of Corporate Veil implies that the
members of the company should not be held liable for these errors.