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Introduction to Company Law – Exam Notes

Poster with essential company law exam notes on types of companies, legal personality, formation, directors' duties, share capital, and liability

Lesson 1: Introduction to Company Law – Exam Notes
1. Introduction to Company Law
  • Company Law in India is largely based on English Company Law.
  • First Companies Act in India: 1850.
  • Present law: Companies Act, 2013.
  • Companies Act, 2013 received Presidential assent on 29 August 2013 and was notified on 30 August 2013.
2. Evolution of Company Law in India
ActKey Feature
Joint Stock Companies Act, 1850Registration of companies
Act, 1857Introduced Limited Liability Companies
Act, 1860Banking & Insurance companies allowed limited liability
Act, 1866Comprehensive law for incorporation and winding up
Companies Act, 1913Introduced Private Companies
Companies Act, 1956Based on Bhabha Committee Report
Companies Act, 2013Transparency, accountability, corporate governance
3. Features of Companies Act, 2013

New Concepts Introduced

  • One Person Company (OPC)
  • Small Company
  • Dormant Company
  • Independent Director
  • Woman Director
  • Secretarial Audit
  • Class Action Suits
  • Registered Valuers
  • Vigil Mechanism
  • CSR (Corporate Social Responsibility)
  • E-Voting
4. Doctrine of Ultra Vires

Meaning

“Ultra Vires” means Beyond Powers.

Any act beyond:

  • Companies Act
  • Memorandum of Association (MOA)
  • Articles of Association (AOA)

is Ultra Vires.

Types of Ultra Vires

A. Ultra Vires the Companies Act

Acts contrary to Companies Act.
Example:

  • Illegal reduction of share capital.
  • Dividend paid out of capital.

B. Ultra Vires the Memorandum (MOA)

Acts beyond Objects Clause.

C. Ultra Vires the Articles (AOA)

Acts beyond Articles but within MOA.

These may be ratified after altering Articles by Special Resolution.

Important Case Laws

Ashbury Railway Carriage Co. Ltd. v. Riche (1878)

  • Landmark case on Ultra Vires.
  • Contract beyond object clause held void.
  • Shareholders cannot ratify such acts.

A. Lakshmanaswami Mudaliar v. LIC

  • Donations must have connection with company’s business.
  • Pure charitable spending beyond company objects is ultra vires.
Effects of Ultra Vires Acts
  1. Void ab initio.
  2. Members can seek injunction.
  3. Directors may become personally liable.
  4. Company can recover property acquired through ultra vires acts.
  5. Ultra vires borrowing creates no debtor-creditor relationship.
5. Doctrine of Indoor Management

Meaning

Protects outsiders dealing with the company.

Outsiders may assume:

  • Internal procedures have been properly followed.
  • Necessary approvals have been obtained.

Known as Turquand Rule.

Landmark Case

Royal British Bank v. Turquand

Outsider was entitled to assume that company resolutions were properly passed.

Principle: Outsiders need not investigate internal management.

Exceptions to Indoor Management
  1. Knowledge of irregularity.
  2. No knowledge of MOA & AOA.
  3. Forgery.
  4. Negligence.
  5. No actual agency exists.
  6. Act is ultra vires the company itself.
6. Doctrine of Constructive Notice

Meaning

Everyone dealing with a company is presumed to know:

  • Memorandum of Association
  • Articles of Association

because these are public documents.

Effect

A person cannot claim ignorance of restrictions contained in MOA or AOA.

Important Case

Kotla Venkataswamy v. Rammurthy

Mortgage deed was invalid because articles required additional signatures.

Outsider deemed to know articles.

7. Doctrine of Alter Ego

Meaning

“Alter Ego” = “Other Self”

Court may treat:

  • Company
  • Directors
  • Shareholders

as one entity where fraud or misuse exists.

Important Case

Sunil Bharti Mittal v. CBI

Supreme Court clarified that directors cannot automatically be made criminally liable merely because they control the company.

8. Lifting / Piercing the Corporate Veil

Meaning

Court ignores separate legal personality of company and identifies real persons behind it.

When Veil is Lifted?

  1. Fraud
  2. Tax Evasion
  3. Agency Relationship
  4. Public Policy
  5. Avoidance of Welfare Laws
  6. Criminal Activities
  7. Improper Conduct
Important Cases

Jones v. Lipman

Company used to avoid contractual liability → Veil lifted.

Re Sir Dinshaw Maneckjee Petit

Company formed only to avoid tax → Veil lifted.

Vodafone International Holdings v. Union of India

Supreme Court refused to lift veil as transaction was genuine.

Kapila Hingorani v. State of Bihar

State held responsible despite PSU’s separate personality.

9. Applicability of Companies Act, 2013

Applies to:

  • Companies incorporated under this Act.
  • Banking companies.
  • Insurance companies.
  • Electricity companies.
  • Government companies.
  • Other statutory corporations.

Does not apply to unincorporated associations.

10. Types of Definitions

Restrictive Definition

Uses word “Means”

  • Exhaustive definition.

Extensive Definition

Uses word “Includes”

  • Enlarges meaning.
11. Important Definitions under Companies Act, 2013

Company

Company incorporated under Companies Act.

Company Limited by Shares

Liability limited to unpaid amount on shares.

Company Limited by Guarantee

Liability limited to guaranteed amount.

Holding Company

Company controlling subsidiary company.

Subsidiary Company

Holding company:

  • Controls Board OR
  • Controls more than 50% voting power.

Public Company

Not a private company.

Private Company

  • Restricts share transfer.
  • Maximum 200 members.
  • Cannot invite public to subscribe.

One Person Company (OPC)

Company having only one member.

Small Company

Paid-up capital ≤ ₹4 crore and turnover ≤ ₹40 crore.

Government Company

At least 51% capital held by Government.

Foreign Company

Company incorporated outside India but doing business in India.

Dormant Company

Inactive company formed for future project/asset holding.

Nidhi Company

Promotes savings and lending among members.

Listed Company

Company whose securities are listed on recognized stock exchange.

12. Key Managerial Personnel (KMP)

Includes:

  1. CEO / MD / Manager
  2. Company Secretary
  3. Whole-Time Director
  4. CFO
  5. Other officers designated by Board
Quick Revision (Most Important Exam Topics)

✅ Ultra Vires Doctrine
✅ Indoor Management (Turquand Rule)
✅ Constructive Notice
✅ Alter Ego Doctrine
✅ Lifting of Corporate Veil
✅ OPC, Small Company, Government Company
✅ Holding & Subsidiary Company
✅ Important Case Laws:

  • Ashbury Railway v. Riche
  • Royal British Bank v. Turquand
  • Jones v. Lipman
  • Vodafone Case
  • Sunil Bharti Mittal v. CBI

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