KNOW YOUR LAW #1 - INTRODUCTION – LAW THAT LEGISLATES COMPANIES UNDER INDIAN LANDSCAPE

PROVISION COVERED	Section 1
CONCEPT COVERED	Historical perspective, nature and extent of application of the Companies Act, 2013

HISTORICAL BACKGROUND:

Our history would contemplate that companies were just viewed as a mechanical structure to undertake trade and other business activities. India witnessed her first comprehensive enactment with respect to regulation of companies in the year 1866 based on the English Companies Act of 1862. Successively in the year 1913, Companies Act was recast and deployed thereafter to include several provisions for governance of companies in India which was also based out of English laws, which was amended several times thereafter and was finally repealed by the Companies Act enacted in 1956.

The Companies Act, 1956 however failed to prosper as there were so many questions unanswered by the way the Act was even drafted. The Bombay High Court within months from the enactment of the Companies Act, 1956 in the case of “Ramaben A. Thanawala vs. Jyoti Ltd. and Ors. (1956)” while remarking on the construction of the Companies Act, 1956 held that “It seems to us unfortunate that a law which is intended to help in the development of companies in our country and also to put down abuses which were noticed in the working of companies and especially in the institution of the managing agency which is peculiar to our country, should have been couched in clear and more precise language.” The Companies Act, 1956 was amended several times in line with the other laws and finally India witnessed her law governing companies which could be called as complete when Companies Act, 2013 was promulgated. The Companies Act, 2013 was passed by the Lok Sabha and the Rajya Sabha on December 18, 2012 and August 08, 2013 respectively, received the assent of the Hon’ble President of India on August 29, 2013 and was enacted as a statute on August 30, 2013.

WHERE IT WENT WRONG?

The biggest issue faced under Companies Act, 1956 was the fact that the erstwhile law was just merely conceived as a statute to govern a specific kind of economic institution known as a company but whereas the law failed to foresee economic prospects, futuristic growth and address the problems faced by its stakeholders. The erstwhile law did not serve to be investor centric as the legislation prompted the judiciary every time to interpret the position of the Companies Act. The erstwhile law in many ways stimulated unfair practices resonated in various companies.

KEY OBSERVATIONS - OUTLINING THE RATIONALE:

Below elucidated are the observations made in the legislature to highlight the rationale behind introduction of Companies Act, 2013:

The Lok Sabha debate (December 18, 2012):

The Companies Bill (which became Companies Act, 2013) has brought in elements of law that work well with other markets such as accepting the changes related to the digital age by allowing the use of video conferencing for Board meetings, electronic voting in general meetings, electronic filings, shelf registrations, exit options of minority shareholders as well as a few elements that make it contextual for India. The new legislation seeks to replace the half a century old Companies Act, 1956 and modernize corporate practice in line with developments taking place across the globe.

The Lok Sabha debate (July 27, 2017):

The Companies Act, 1956 was existing and in 2013, when this Act was brought, it was to amend and correct many of the anomalies in the then existing Act.  The 2013 Act was brought in a context when we had a large number of scams like the Sahara scam, the Saradha scam. In order to prevent such scams in future, this 2013 Act was enacted. The government itself has accepted in the Statement of Objects and Reasons of 2013 Act that the Act introduced significant changes related to disclosures to stakeholders, accountability of directors, auditors and key managerial personnel, investor protection and corporate governance.

NATURE OF THE STATUTE:

The Companies Act, 2013 is both a consolidating statute and amending statute that has repealed and replaced the former statute namely the erstwhile Companies Act, 1956 and has been presented in a distinctive and definite structure.

STRUCTURE OF THE COMPANIES ACT, 2013:

At present, there are 438 Sections under Companies Act, 2013 divided into 29 chapters along with seven schedules. Majority of the provisions under Companies Act, 2013 are notified by the Ministry of Corporate Affairs and are in force till date. The Companies Act, 2013 also has embedded, various rules to supplement the sections conceptually and procedurally under Companies Act, 2013.

TERRITORIAL OPERATION:

The operation and jurisdiction of the Companies Act, 2013 extends to whole of India. The Companies Act, 2013 is also applicable to foreign companies as well thereby signifying its extra-territorial jurisdiction.

EXTENT OF APPLICATION:

Section 1 of the Companies Act, 2013 stipulates that the Companies Act, 2013 would be applicable to every company established and governed under Companies Act, 1956. In addition to the same, the section also outlines the fact that the Companies Act, 2013 shall be also applicable to the companies domiciled and governed under the following laws to the extent that the Companies Act, 2013 is not inconsistent with such laws:

·         Insurance Regulatory and Development Authority Act, 1999 as amended from time to time

·         Banking Regulation Act, 1949 as amended from time to time

·         Electricity Act, 2003 as amended from time to time

·         Any other special act

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