Historical Development of Concept of Corporate Law in India - Introduction, Company Law | Company Law - B Com PDF Download

Introduction

The idea of company law is ancient, dating back to the 4th century B.C. Over time, this concept has evolved significantly. The Companies Act was introduced in India by the British Parliament, despite initial resistance from Indians who feared it would harm their economy. However, due to British rule, it was implemented.

India was primarily an agrarian economy then, and to a large extent, it still is. However, the rapid growth of corporate governance in recent decades is noteworthy. Currently, corporate governance in India is governed by the Companies Act of 2013, a comprehensive law that regulates nearly all aspects of company law in the country.

Historical Context

• The Companies Act of 2013 has its origins in the colonial era when the British introduced various acts governing companies in India.
• After India gained independence, the Indian Parliament continued to shape and modify these laws, leading to the present framework.
• The evolution from British-era laws to the current Companies Act reflects the changing economic and social landscape of India.

Definition of a “Company”

• According to the Indian Companies Act of 2013, a “Company” is defined as a legal entity with specific features outlined in the law.
• Companies are crucial for meeting the state’s economic objectives and are considered social, economic, and legal entities within the framework of the state.
• In today’s Indian economy, companies play a vital role and are integral to its functioning.

Early History of Company Law in India

The idea of good governance has deep roots in India, dating back to the third century B.C.E. Chanakya, the chief advisor in the kingdom of Pataliputra, outlined the four-fold duties of a king: raksha, palana, vridhhi, and yogakshema. These duties closely resemble key aspects of modern corporate governance:

• Raksha refers to protecting the wealth of a company’s shareholders.
• Palana involves maintaining a company’s wealth through profitable ventures.
• Vridhhi means utilizing assets properly to enhance wealth.
• Yogakshema is about safeguarding the interests of shareholders.

This ancient system of governance contributed to the prosperity of various kingdoms in India, as kings implemented measures to ensure good governance. Chanakya’s works, Arthashastra and Neetishastra, offer valuable insights into early management practices and concepts akin to Corporate Social Responsibility (CSR).

During this period, the agrarian economy was organized around units of familial ties, known as Hindu Undivided Families (HUFs). These units typically comprised two patrilineal generations living together and cooperating for mutual economic benefit. Wealth generated within the family was collected and divided according to each member’s share. This system, which still exists in certain families today, is regulated by Hindu personal laws.

Evolution of Company Law in India

Company Law in India During British Rule

• The East India Company, established after the Battles of Plassey (1757) and Buxar (1764), was a trading company that received a Royal Charter, allowing trade between the UK and India. The first charter was granted in 1600, but it was not until 1844 that the British Parliament passed the Joint Stock Companies Act, allowing organizations to be incorporated without a charter and establishing the Joint Stock Companies office.
• Initial acts did not provide limited liability to company members. Company Law faced amendments between 1852 and 1883 due to conflicts in its implementation in India, stemming from differing views and the Indian society's then-current state compared to England.
• The Limited Liability Act of 1855 and the Companies Act of 1856, which replaced the Act of 1844, marked significant developments in company law. The 1856 Act, which introduced limited liability and other provisions, laid the groundwork for company law in England and facilitated economic development.
• In India, after the Revolt of 1857, British Acts were adapted to the local socio-economic context. The Companies Act of 1866 introduced incorporation and winding-up provisions, and the 1913 Act became a precursor to later legislations. The concept of private companies emerged in the 1980s, with significant Acts passed in 1908 and 1929, introducing the exempt private company concept.

Company Law in India Post-Independence Period

• The Companies Act of 1913 remained in force post-independence until a need for revision was recognized. A committee led by Sh. H. C. Bhabha recommended changes, leading to the Companies Act of 1956, which came into effect on April 1, 1956, repealing previous laws.
• The 1956 Act aimed to consolidate and amend existing laws and was the lengthiest legislation in Indian parliament at the time, initially comprising 13 parts, 658 sections, and 15 schedules. It was amended multiple times to keep pace with the corporate sector’s growth.
• Subsequent amendments introduced provisions like shelf prospectus, audit committee, and postal ballot, and established the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT).
• In 2006, provisions for Director Identification Number (DIN) and online filing of documents were implemented, further modernizing the legal framework for companies in India.

Initially, the aim was to liberalize the law and make it more user-friendly by removing unnecessary clauses from the previous Act. However, after the Satyam Scam in 2009, the focus shifted to making the laws stricter to prevent misuse. The J. J. Irani Committee made recommendations that led to the Companies Act of 2013, which is currently the law governing corporate governance in India.

The Companies Act of 2013 is rule-based, meaning the Ministry of Corporate Affairs retains certain powers and can make rules regarding specific provisions mentioned in the Act. These powers are administered by the Regional Director and the Registrar of Companies.

The Act is divided into 19 chapters and consists of 470 sections and 7 schedules. Compared to the Companies Act of 1956, the provisions have been significantly reduced, making the Act more reader-friendly.

Some important changes introduced in the Companies Act of 2013 include:

• Increase in Members: The number of members in a private company as shareholders was increased from fifty to two hundred.
• Introduction of One Person Company: This concept allows for the incorporation of a company by a single person, who also acts as the nominee for the company.

Conclusion

In conclusion, the concept of company law, which has its origins in ancient times and was introduced by the English Parliament, has undergone significant transformation since its introduction to India. The Indian lawmakers have adapted and modified this legal framework to ensure it serves the interests of everyone working in a company or firm. The ongoing amendments to company law in India reflect its dynamic nature and the need to keep pace with changing circumstances. This evolution demonstrates the commitment to create a legal environment that protects the rights and interests of all stakeholders involved in a company.