Hidayatullah National Law University

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1 Hidayatullah National Law University COURSE OUTLINE CORPORATE LAW - I SEMESTER V B.A.LL.B. (HONS.)

2 INTRODUCTION ACADEMIC YEAR Corporate form of ownership is the most important form of ownership of business in the contemporary times. Its significance is due to many distinct advantages it has over other forms of ownership of business. In order to regulate various aspects of functioning of companies, the Company Act was enacted in the year It had been the lengthiest piece of legislation ever passed by the Indian Parliament. But now we have an entire new piece of legislation in front of us in the form of Companies Act To make it more contemporary and relevant to the present corporate regime, regulators and other stakeholders in India were trying to make few changes in the 1956 Act. As a result of that, the Companies Bill, 2009 was introduced in the Lok Sabha, one of the two Houses of Parliament of India, on 3 August This Companies Bill, 2009 was referred to the Parliamentary Standing Committee on Finance, which submitted its report on 31 August 2010 and was withdrawn after the introduction of the Companies Bill, The Companies Bill, 2011 was also considered by the Parliamentary Standing Committee on Finance which submitted its report on 26 June Subsequently, the Bill was considered and approved by the Lok Sabha on 18 December 2012 as the Companies Bill, 2012 (the Bill). The Bill was then considered and approved by the Rajya Sabha too on 8 August It received the President s assent on 29 August 2013 and has now become the Companies Act, The changes in the 2013 Act have far-reaching implications that are set to significantly change the manner in which corporate operate in India. The new Act is more concise, relevant and more responsive to the current scenario. The emphasis in this course is on the fundamental principles of law relating to basics of Corporate Law covering topics right from the pre-incorporation to the establishment and management of a company. DETAILS OF THE COURSE OUTLINE MODULE I. COMPANY AS A MEDIUM OF BUSINESS

3 Company, as a form of ownership, developed in order to address the requirement of business at that time. It is a statutory creation and it has different forms to suit different requirements of business and trade. Law recognize veil by dissociating members from company and also the grounds on which corporate veil may be lifted. History of Company Legislation - UK and India Corporate personality Concept Nature and Features of a Corporate Body Theories of corporate personality. Lifting of corporate veil Classification of company Company as distinguished from other forms of business MODULE II. PRE-INCORPORATION PHASE Being statutory creations, companies are created by promoters. Promoters play a very strategic role. It is through their expertise and efforts that a company is born. In cotemporary times, task of promotion has professionalized. Law has the task of balancing the protection of their interests on the one hand and on the other hand to protect the interest of the company. Further it maintains sanctity of contracts entered into by promoters. Promoters: Promotion of company Promoters: Concept and relevance Promoters: Legal Position of a Promoter Promoters: Duties and Liabilities MODULE III. INCORPORATION OF A COMPANY A company is incorporated upon its registration. Registration confers many advantages on the company. Both MoA (constitution of the company) and AoA (rules for internal functioning) are necessary for getting a company registered. Moa contains the fundamental

4 conditions upon which the company is allowed to be incorporated. The three common law doctrine protects the interest of different stakeholders involved. Memorandum of Association Doctrine of Ultra Vires Articles of Associations Doctrine of Indoor Management Doctrine of Constructive Notice Incorporation and its consequences on Corporate Transactions o Certificate of Incorporation o Certificate of Commencement MODULE IV. PROSPECTUS A company is bound to raise finances for its sustenance and growth. Therefore, in finance a prospectus is a disclosure document that describes a financial security for potential buyers. A prospectus commonly provides investors with material information about different securities, mutual funds, stocks, bonds and other investments. It also provides with information like description of the company's business, financial statements, biographies of officers and directors, detailed information about their compensation, any litigation that is taking place, a list of material properties and any other material information. Prospectus Meaning, Issue and Contents. Kinds of Prospectus Abridge Prospectus, Statement in lieu of Prospectus; Shelf Prospectus, Deemed Prospectus. Mis-statements in a Prospectus, Scope of Untrue Statement Liability of Mis-statements in Prospectus MODULE V. RAISING OF CAPITAL In order to finance its activities the company needs capital. Capital of a company is of different kinds. Capital can be raised at the time of formation of the company for starting a business or later on, for expansion and diversification. But once raised it becomes the

5 permanent liability of the company. And such capital is raised by issuing prospectus in the market which arouses interest of the investors in the company and it induces them to invest in the company. It may be generated through different means from various sources (e.g. public and private). Shares / Share Capital o Meaning and Nature o Kinds of Shares o Issue of shares IPO, Rights issue, Bonus Issue o Allotment, Transfer, Forfeiture, Surrender of shares o Membership of company: modes of acquisition, eligibility; liability; Rights; Cessation of Membership; o Alteration & Reduction of share capital. Debenture / Debt Capital o Concept, Meaning & Characteristics o Shareholder vis-à-vis Debenture holder o Kinds of Debentures o Debenture Trustees, Debenture Trust Deed Dividend o Meaning o Sources of declaration o Interim Dividend MODULE VI. CORPORATE MANAGEMENT (MEETINGS) Protection of the investors is one of the primary objectives of Corporate Law. One of the forum through which such an objective is fulfilled are the meetings of a company and the business is also transacted through these different kinds of meeting. Their procedure is well regulated through law. It is at the meeting that majority and minority friction comes out in the open. Meetings - Meaning and Need Requisites of a Valid meeting Kinds of Meeting o General Body Meetings

6 o Board Meetings Voting SUGGESTED BOOKS: Ramaiyya, Guide to Companies Act, 2013 Charlesworth & Morse, Company Law Gower & Davies, Principles of Modern Company Law K. Majumdar, Dr. G. K. Kapoor Company Law & Practice, Taxman T P Gosh, Companies Act 2013, Taxman Pennington, Company Law Palmer, Company Law Taxman s Master Guide to Companies Act 2013 Nicholas Bourne, Principles of Company Law Avtar Singh, Company Law, 2013 STATUTES & SEBI REGULATIONS TO BE REFERRED Companies Act 2013 Securities and Exchange Board of India Act, 1992 (Issue of Capital and Disclosure Requirements) Regulations, 2009 Depositories Act, 1996 Securities Contract Regulation Act, 1956 CASES TO BE REFERRED Saloman v. Saloman & Co. Ltd.( )AllER Rep.33 Lee v. Lee;s Air Farming Ltd.(1960)3 AllER 420 Dhulia Amalner Motor Transport Ltd v. R.R. Dharamsi AIR 1952 Bom. 337: Daimler Co. Ltd. v. Continental Tyre & Rubber Co. Ltd. ( ) AllER Rep. 191 Bacha F. Guzadar v. CIT Bombay AIR 1955 SC 74

7 Gilford Motor Co. Ltd. v. Horne (1933) AllER 109 Workman v. Associates Rubber Industry Ltd. (1985) 4 SCC 114 Pratap Singh v. Bank of America (1976)46 Com. Cases 532 Babulal Chaukhani v. Caltex (India) Ltd. AIR 1967 Cal 205 Macaura v. Northern Assurance Co. Ltd, 1925 AC 619 HL Minerva Mills Ltd. v. Govt. of Maharashtra (1975) 45 Com. Cases 1 Orient Paper Mills Ltd. v. State of Orissa AIR 1957 Orissa 232 Rank Film Distributors v. ROC AIR 1967 Cal 32 In re, Machinon Macknize & Co. (1967) ComLJ 200 Bell Houses Ltd. v. Citywall Properties Ltd. (1966) 2 AllER 674 A.L. Mudaliar v. LIC AIR 1963 SC 1185 Royal British Bank v. Turquand ( ) AllER Rep.435 Freeman v. Buckhurst Park Properties (1964)1AllER 630 Regal (Hasting) Ltd. v. Gulliver (1942) 1 AllER 378 Percival v. Wright (1902) 2 CH 421 Industrial Development Consultants Ltd. v. Cooley (1972) 2 AllER 162 Note: 1. The Company Act,2013 is required to be studied with latest amendment and relevant SEBI guidelines. 2. Apart from the cases that have been mentioned above, the students are also advised to take note of the other cases mentioned in the books and discussed in the class.

LL.B. III Term LB 303 : COMPANY LAW (New Syllabus w.e.f. 2015) Prescribed Legislation: The Companies Act,

LL.B. III Term LB 303 : COMPANY LAW (New Syllabus w.e.f. 2015) Prescribed Legislation: The Companies Act, LL.B. III Term 2015 LB 303 : COMPANY LAW (New Syllabus w.e.f. 2015) Prescribed Legislation: The Companies Act, 2013 5 Prescribed Readings: 1. Paul L. Davies, Gower and Davies Principles of Modern Company