The Companies Act, 1956 constitutes the Company Law in India. It came into force with effect from 1st April, 1956. It is a consolidating Act which presents the whole body of the company law in a complete form and repeals earlier Companies Act and subsequent amendments. It contains 658 sections and XV schedules and numerous forms. Company Law is fast developing in order to protect joint stock companies. Company Law is not a field of legislation in which finality is to be expected, as the law falls to be applied to a growing and changing subject matter and growing uses of the company system as an instrument of business and finance and the possibilities of abuse inherent in that system.
The latest amendment in Companies Act came into force in 2006 and the Act was renamed as “The Companies (Amendment) Act, 2006. This Amendment Act received the assent of the President of India on 29th May, 2006 and was notified in the Gazette of India Extraordinary dated 30th May, 2006. The amending Act is being brought into effect by stages. The provisions of newly inserted sections 610B to 610E relating to filling of various returns and statutory documents through electronic mode have been made effective from 16th September, 2006. The provisions of newly inserted sections 266A to 266G relating to Director’s identification Number (DIN) have been made effective from 1st November, 2006.
The Company Bill, 2011 has been introduced in Parliament on 14th December, 2011. The Bill seeks to replace the present Companies Act, 1956. It proposes comprehensive revision of the existing Act with a view to make it simpler, clearer, and leaner and user friendly by reducing number of sections. The main emphasis of Bill is on adequate disclosures and accountability to ensure that management and auditors do not take shareholders and other investors for a ride. The bill provides for greater shareholder democracy and less government intervention in the affairs of a company by removing controls and approvals.
Main objectives of Company law are:
1. To protect the interest of shareholders.
2. To safeguard interest of creditors.
3. To help the development of companies in India on healthy lines.
4. To help the attainment of ultimate ends of the social and economic policy of the government.
5. To equip the government with necessary powers to intervene directly into affairs of a company in public interest.
Special features of Companies Act are:
1. It provides more stringent provisions relating to the company promoters and company management.
2. It provides elaborate provisions relating to the form and contents of a prospectus, maintenance of accounts by companies, reduction of share capital, etc.
3. This Act recognizes the institution of ‘Government Companies’ (in which government holds at least 51% share capital) and makes special provisions for them.
4. The Act also provides measures calculated to disintegrate the concentration of economic power and wealth which affect the public interest adversely.
5. It gives extensive powers to the Central Government and the Company Law Board to intervene directly in affairs of a company in public interest, in recognition of the fact that a public company should be regarded as a national asset and not as something of exclusive concern to the shareholders or the directors.
Company Law Board (CLB)
With a view to ensuring greater efficiency, cohesion and despatch in the day-to-day administration of the Companies Act, an administrative authority, namely, the Board of Company Law Administration (popularly known as the Company Law Board) was set up in February 1964, by Central Government, in accordance with Section 10F. The CLB is to exercise and discharge such powers and functions of the Central Government under this Act or any other law as may be conferred on it by the Central Government, by notification in the Official Gazette under the provisions of this Act or that other law.
Under the provision of Companies (Amendment) Act, 1988, the powers and functions of CLB have been enlarged. The new Board is quasi-judicial body. It has been vested with considerable powers and functions. Some of these are judicial while others are administrative in nature. The Board has the power to regulate its own procedure and act in its own discretion. The Board would be guided by the principles of natural justice in the conduct of its business.
The new CLB, as reconstituted on 31st May, 1991, has framed the CLB Regulations, 1991, for regulating the proceedings before it. The government has also prescribed the fee making an application to the Company Law Board vide CLB (Fees on Application and Petitions) Rules, 1991.
The CLB is to consist of such number of members, not exceeding 9, as the Central Government may appoint by notification in the Official Gazette, and one of such member shall be appointed as its Chairman. The members of the CLB shall possess such qualifications and experience as may be prescribed. They may be appointed for such period, not exceeding 3 years, as may be specified in the notification.
Appeal against the orders of the CLB
Section 10F, provides that an aggrieved person may file an appeal against any decision or order of the CLB before the High Court, within 60 days from the date of communication thereof, on any question of law. The said period of 60 days may be extended by the Court to a further period upto 60 days on justifiable grounds. The order or decision of the Board on any question of fact will be final and will not be appealable. The High Court to which an appeal against the decision of CLB would lie.
Contributed by: Sonal Nagpal (A Student of ICAI)