Indian company law

Indian company law regulates the corporations formed under the Indian Companies Act 2013.


Further information: History of company law


Companies can be incorporated through the rules of the Indian Companies Act 2013.

Types of companies

Corporate governance

Governance of the board

Under CA 2013 section 169, the basic rule is that any company director may be removed by the general meeting with a simple majority vote, after giving "special notice" of 28 days. In companies which elect the board by proportional representation according to section 163, there is an exception so that directors appointed by one particular group of members cannot be ousted by the majority. Those directors can only be removed by the members that appointed them, so as to protect the system of proportional voting.

Employee rights

It was the view of many in the Indian Independence Movement, including Mahatma Gandhi, that workers had as much of a right to participate in management of firms as shareholders or other property owners.[1] Article 43A of the Constitution, inserted by the Forty-second Amendment of the Constitution of India in 1976,[2] created a right to codetermination by requiring the state to legislate to "secure the participation of workers in the management of undertakings". However, like other rights in Part IV, this article is not directly enforceable but instead creates a duty upon state organs to implement its principles through legislation (and potentially through court cases). In 1978 the Sachar Report recommended legislation for inclusion of workers on boards, however this had not yet been implemented.[3]

The Industrial Disputes Act 1947 section 3 created a right of participation in joint work councils to "provide measures for securing amity and good relations between the employer and workmen and, to that end to comment upon matters of their common interest or concern and endeavour to compose any material difference of opinion in respect of such matters". However, trade unions had not taken up these options on a large scale. In National Textile Workers Union v Ramakrishnan[4] the Supreme Court, Bhagwati J giving the leading judgment, held that employees had a right to be heard in a winding up petition of a company because their interests were directly affected and their standing was not excluded by the wording of the Companies Act 1956 section 398.

Directors' duties

Duties of directors.

166. (1) Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company.
(2) A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.
(3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
(4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
(5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
(6) A director of a company shall not assign his office and any assignment so made shall be void.
(7) If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Companies Act 2013 section 166

Directors' owe a range of duties to the company, which primarily involve acting within the constitution, avoiding conflicts of interest and performing their role to a desired standard of competence. The Companies Act 2013 section 166 lists directors' duties in seven simple sections, which reflect the existing principles developed by the case law in the courts around most Commonwealth countries, in common law and equity. Part of the reason for codification of directors' duties was to provide a transparent statement of the duties directors owe, and therefore to publicise principles of best practice. However, because of their generality, the case of law of the courts matters to interpret how duties will apply in specific situations.

Corporate social responsibility

In a new with the Companies Act 2013, section 135 requires companies to spend 2% of their net profit on socially responsible projects, if they have a net worth of over rupees 500 crore, or a turnover of over rupees 1,000 crore, or a net profit over rupees 5 crore. Socially responsible projects are defined in Schedule VIII, and mainly involve community development.[5]


See also


  1. As Gandhi said, "my advice to the employers would be that they should willingly regard the workers as the real owners of the concerns which they fancy they have created" in 'Harijan' (31 March 1946) reproduced in R Iyer (ed), The Moral and Political Writing of Mahatma Gandhi (1987) vol 3, 197-199
  2. See Constitution (Forty-second Amendment) Act 1976 s 9
  3. Ministry of Law, Justice and Company Affairs, Report of the High-Powered Expert Committee on Companies and Maintenance of Restrictive Trade Practices Acts (1978)
  4. 1983 AIR 75, 1983 SCR (1) 9. Noted by J Cottrell, 'Indian Judicial Activism, the Company and the Worker: A Note on National Textile Workers Union v Ramakrishnan' (1990) 39(2) The International and Comparative Law Quarterly 433
  5. "Companies bill would require firms to spend 2 percent profits on poor". 2013-08-13. Retrieved 2014-05-06.


External links

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