Corporate Law I (Compulsory paper)

Course Outline
Semester VII

Maximum Marks: 100

Faculty: BRIJNATH
INTRODUCTION

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, companies
act was enacted in the year 1956. It was the lengthiest piece of legislation ever passed by the Indian
Parliament. However in last six decades the Company Act 1956 had lived its utility. Many
amendments were made by the parliament to suit the needs of the changing requirements of
business. Nonetheless, it finally became apparent that this tweaking of age old legislation through
amendments is not feasible any more. Hence after many consultations a new Act was passed in
2013 and thus emerged Companies Act 2013. This Act added significant number of provisions
along with various provisions from the old Act. Many recent amendments have also been made in
the present Act.
The course outline for the present semester will mainly emphasize on the fundamental principles
of law relating to basic concepts of Corporate Law covering topics such as jurisprudential concept,
pre-incorporation contracts, establishment and management of company and finances of a
company.
SCHEME OF THE COURSE
Module
I
II
III

IV
V
VI
VII
VIII
IX
X

Title
Company as a medium of business
Pre incorporation phase of company
Incorporation stage of a company
SURPRISE TEST ( First 3 Modules)
Corporate finances (Part 1)
Corporate finances (Part 2)
MID TERM EXAMINATION (First 5 Modules)
Accounting and Auditing
Corporate management (Part 1)
Corporate management (Part 2)
Meetings
Corporate abuses and remedies
END TERM EXAMINATION ( All 10 Modules)

Class hours
06
03
10

03
08
04
12
04
05
05

Total no. of class hours: 60

EVALUATION
i)
Attendance
ii)
Research projects
iii)
Surprise Test
iv)
Mid Semester Examination
v)
End Semester Examination

:
:
:
:
:

TOTAL

: 100

05
20
10
10
55

DETAILS OF THE COURSE OUTLINE

MODULE 1. COMPANY AS A MEDIUM OF BUSINESS
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 needs of trade and business.
Law recognize the veil by dissociating members from company and also the grounds on which
corporate veil may be lifted. There are various theories in that respect which traces the evolution
and development of company as a mode of business form. This chapter thus stresses on historical,
theoretical and conceptual aspect of a company.
1.1. History of company legislation in UK and India
1.2. Concept of corporate personality
1.3. Nature and features of a body incorporate
1.4. Theories of corporate personality
1.5. Lifting of corporate veil
1.6. Company as distinguished from other forms of business
1.7. Classification of company
MODULE 2. PRE INCORPORATION PHASE OF COMPANY
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
contemporary times, task of promotion has been 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. The balancing
of mutual interests of promoters and companies they promote has been a tedious task for the law
and has thus led to emergence of whole lot of judicial decisions on this aspect. This chapter will
discuss the position of promoter Vis a Vis company and their duty, liability and other actions.
2.1. Promoters : promotion of companies
2.2. Promoters: position, duty and liability
2.3. Pre-incorporation contracts
1) By promoters
2) By company

MODULE 3. INCORPORATION STAGE 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 conditions upon which the company is allowed to be incorporated. The three
common law doctrine protects the interest of different stakeholders involved.
3.1. Formation of a company
3.2. Memorandum of association and its alteration
3.3. Articles of association and its alteration
3.4. Doctrines under MOA and AOA.
3.5. Incorporation and its effect on the corporate transactions
3.6. Certificate of incorporation and commencement of business
MODULE 4. CORPORATE FINANCES (PART 1)
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
permanent liability or the asset of the company depending on the nature of capital raised.
The capital may be raised in various ways by the company such as by way of loan through banks
or financial institutions or through other means of direct credit. However the best way to raise
capital for longer terms and without much burden to pay interest is to raise capital by means of
public issue i.e. prospectus or private placement. The whole process is governed in combination
of company Act and different regulations made by SEBI in this direction. This chapter will deal
with ways of raising the capital.
4.1. Prospectus
4.2. Meaning, issue and content of prospectus
4.3. Kinds of prospectus
4.4. Liability for misstatements in prospectus
4.5. Private placement

MODULE 5. CORPORATE FINANCES (PART 2)

The capital of company may be raised by issue of securities such as shares, debentures, bonds and
other forms of securities which may be issued under the law for the time being in force. However
the most common form of security is the shares and debentures. Shares generally form the asset of
the company and has various forms. Debentures are in form of credit to the company by the
debenture holders for which company pay certain interest as agreed upon by the company and the
holder of such debentures. On the other hand the shareholders generally receive a share out of the
profit of the company in the form of dividends. This chapter deals in detail about nature of such
securities and sharing of profit.

5.1. Meaning and nature of shares/kinds of shares

5.2. Difference between shares and stocks
5.3. Difference between share and share certificates
5.4. Kinds of capital
5.5. Issue of shares, IPO, RIGHTS ISSUE, BONUS ISSUE,
5.6. Allotment, transfer, forfeiture, surrender of shares
5.7. Alteration and reduction of share capital
5.8. Buy back of shares
5.9. Debentures: meaning and characteristics
5.10. Kinds of debentures
5.11. Debenture trusties, debenture trust deed, debenture stock
5.12. Dividend, declaration and payment
MODULE 6. ACCOUNTING AND AUDITING
The corpus collected by the company once acquired becomes the asset and liability of the company
as per the acquisition of corpus. However, they are the hard earned money of the investors of the
company and hence they must be duly accounted and audited for by the concerned authorities to
prevent any misuse of those funds. Here comes the role of proper accounting and its auditing.
While accounting is the internal work of the company management, auditing is an external inquiry
in those accounts by the representatives of the investors in the form of statutory auditors.
6.1. Accounts of companies
6.2. Audit
6.3. Auditors: Eligibility, qualification and disqualification, removal, resignation.
6.4. Powers and duties of auditors and auditing standards

MODULE 7. CORPORATE MANAGEMENT (PART 1)

The institution of the company is composed of two organs, the general body of
members and the board of directors. The board in other words can be described as the
managerial body and it is constituted by the general body. Directors perform multitude of
functions in a company. They make policies and execute them. It is their duty to ensure
compliance with all laws. In fact their role is the principal component of emerging
structures of corporate governance. Their liability continues to be the highly contentious
issue
7.1. Membership of company: modes of acquisition, eligibility, liability, rights,
7.2. Cessation of membership
7.3. Directors : Concept, Meaning, Definition, Nature
7.4. Kinds of directors
7.5. Power and duties of directors
7.6. Appointment, qualification, removal, resignation, vacation
7.7. Board of directors
7.8. Power and restriction on board powers

7.9. Independent directors

MODULE 8. CORPORATE MANAGEMENT (PART 2)
The board of directors are the main body of management which looks after the interest of the
company. However, since same director can be director in many companies at the same time hence
it is not possible for them to act 24x7 for the company. To avoid this situation some directors are
fulltime director and some managerial persons are also appointed to manage the affairs of the
company in a proper manner. They are duly paid remuneration as per their position and function
in the company.
8.1. Appointment of managing directors, whole time director, or manager
8.2. Remuneration of managerial personal
8.3. Appointment of key managerial persons
8.4. Compensation
MODULE 9. MEETINGS/RESOLUTIONS
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 open. Meetings are conducted by both company as well as by board.
9.1. Meaning
9.2. Kinds of Company Meetings
9.3. Voting/Polling
9.4. Resolutions
9.5. Board meetings
MODULE 10. CORPORATE ABUSES AND REMEDIES
In any company there are some major investors and some minor investors. It is the major investors
who actually run the affairs of the company. However, many a times the majority misuses its power
in the management of the company to the detriment of the minority investors. To avoid these
certain protection measures have been developed as against the general concept of rule by majority.
The companies Act 2013 has also incorporated such measures in the present Company Act
10.1. Majority power and minority rights
10.2. Principle of non-interference (Rule established in Foss v. Harbottle)
10.3. Protection against oppression
10.4. Protection against mismanagement
10.5. Power of tribunal

BOOKS TO BE REFERRED
Ramaiyya, Guide to Companies Act, 1956
Charlesworth & Morse, Company Law
Gower & Davies, Principles of Modern Company Law
K. Majumdar, Dr. G. K. Kapoor Company Law & Practice, Taxman
Pennington, Company Law
Palmer, Company Law
K. Majumdar, Dr. G. K. Kapoor Company Law & Practice, Taxman
Avtar Singh, Company Law
Nicholas Bourne, Principles of Company Law
STATUTES & SEBIREGULATIONS 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.(1895-99)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. (1916-17) AllER Rep. 191
Bacha F. Guzadar v. CIT Bombay AIR 1955 SC 74
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 (1943-60) 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: 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.