Companies Act, 1956 along with Commentary
The Companies Act, 1956
[Act, No. 1 of 1956]1
[18th January, 1956]
Preamble
An Act to consolidate and amend the law relating to companies and certain other associations.
Commentary
This is the basic law which governs the creation, continuation, the winding up of companies and also the relationships between the shareholders, the company, the public and the government. Coupled with other statutes dealing with corporate entities, this is an extremely important piece of legislation.
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be it enacted by Parliament in the Sixth Year of the Republic of India as follows:-
Footnote:
1. This Act has been extended to Goa, Daman and Diu by Regulation 12 of 1962 (with modifications); Section 3 and Schedule to Dadar and Nagar Haveli by Regulation 6 of 1963, Section 2 and Schedule I and to Pondicherry by Regulation 7 of 1963, Section 3 and Schedule I.
The Provisions of this Act shall apply to Goa, Daman and Diu, subject to the exceptions, modifications and adaptations contained in the Schedule to G.S.R. 615, dated 24th April, 1965 [Gazette of India, Pt. II, Section 3 (i), p. 670]. Amended in its application to Goa, Daman and Diu by Regulation 11 of 1963, Section 9.
Part: 1 - Preliminary
Section 1 - Short title, commencement and extent
(1) This Act may be called the Companies Act, 1956.
(2) It shall come into force on such date1 as the Central Government may, by notification in the Official Gazette, appoint.
2[(3) It extends to the whole of India:]
3[***]
4[Provided 5[***] that it shall apply to the State of Nagaland subject to such modifications, if any, as the Central Government may, by notification in the Official Gazette, specify.]
Commentary
The Act received the President''s assent on 18-1-1956. The Act has been created amongst others, the snow-balling of finances as also formation of bubbles and the consequent effect thereof upon the economy of a Welfare State.
As has been observed in the case of Bhagirath Chandradas vs. Emperor AIR 1948 Cal 42 the provisions of the Companies Act has been deliberately enacted to protect shareholders and, in some cases, to protect the general public and they impose a definite duty upon directors.
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Footnotes:-
1. Came into force on 1-4-1956 vide S.R.O. 612, dated 8th March, 1956, published in the Gazette to India of India, Extra. 1956, Part II., Section 3, Page 473.
2. Substituted by Act 62 of 1956, Section 2 and Schedule, for sub-section (3) (w.e.f. 1-11-1956).
3. First proviso omitted by Act 25 of 1968, Section 2 and Schedule (w.e.f. 15-8-1968).
4. Inserted by Act 31 of 1965, Section 2 (w.e.f. 15-10-1965).
5. The word "further" omitted by Act 25 of 1968, Section 2 and Schedule (w.e.f. 15-8-1968).
Section 2 - Definitions
In this Act, unless the context otherwise requires, -
1[(1)] "abridged prospectus" means a memorandum containing such salient features of a prospectus as may be prescribed;]
2[(1A)] "alter" and "alteration" shall include the making of additions and omissions;
Commentary
It has been held in Reserve Bank of India, Union of India, State of W.B. and another vs. Peerless General Finance and Investment Co. Ltd., and others (1987) 1 SCC 424 that legislatures resort to inclusive definitions (i) to enlarge the meaning of words or phrases so as to take in the ordinary, popular and natural sense of the words and also the sense in which the statute wishes to attribute to it: (ii) to include meanings about which thee might to some dispute; or (iii) to bring under one nomenclature, all transactions possessing certain similar features but going under different names. Depending upon the context, in the process of enlarging, the definition may even become exhaustive.
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3[(1B) "Appellate Tribunal" means the National Company Law Appellate Tribunal constituted under sub-section (1) of section 10FR;]
(2) "articles" means the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this Act, including, so far as they apply to the company, the regulations contained, as the case may be, in the Table B in the Schedule annexed to Act No.19 of 1857 or in Table A in the First Schedule annexed to the Indian Companies Act, 1882 (6 of 1882), or in Table A in the First Schedule annexed to the Indian Companies Act, 1913 (7 of 1913), or in Table A in Schedule I annexed to this Act;
Commenatry
In S.S. Rajakumar v. Perfect Castings Pvt. Ltd. (1968) 38 CompCas 187, (1968) 1 CompLJ 41 (Mad), the Court has observed that the Articles of association of a company is its Magna Carta. Each shareholder is irrefutably attributed with notice of the purport and content of such articles. Even if disputed, the shareholder concerned is presumed to have constructive knowledge of the same. Articles of association of a company being a business document, has to be interpreted strictly, unless there are compelling circumstances to import into it a meaning other than normal. The articles thus regulating the domestic management of a company and particularly a private limited company creates certain rights and obligations between its members and the company.
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4[***]
(5) "banking company" has the same meaning as in the Banking Companies Act, 1949 (10 of 1949)5;
Commentary
The definition of a "banking company" is the same as in the Banking Companies Act, 1949. There under, S. 5(1) (c), "banking company" has been defined to be a company which transacts business of banking in India. In this connection it may be useful to refer to the definition of "banking" given in S.5(1)(b) of that Act. Under that provision, "banking" has been defined to mean "the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise". A banking company may also carry on, along with the banking business, any other ancillary business enumerated in section 6 of that Act.
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(6) "Board of directors" or "Board", in relation to a company, means the Board of directors of the company;
Commentary
It has been held in (1987) 2 CompLJ 138 (Del)., that the board of directors of a company is to exercise such powers and to do all such acts and things as the company is authorized to exercise and do. The general management and conduct of the affairs of the company are vested in the board of directors. This board is collectively responsible for the management and conduct of the business of the company. Each and every act which a company is required to do under the provisions of the Act including the maintenance of books of account, minute book, etc. are the collective responsibility of the board of directors as the general administration of the company vests in the board. Board of directors is duty bound in the management of the affairs of the company to ensure that statutory records or other records of the company are maintained in accordance with the provisions of law.
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(7) "body corporate" or "corporation" includes a company incorporated outside India but 6 [does not include -
(a) a corporation sole;
(b) a co-operative society registered under any law relating to co-operative societies; and
(c) any other body corporate (not being a company as defined in this Act) which the Central Government may, by notification in the Official Gazette, specify in this behalf;]
Commentary
In AIR 1964 SC 458, it has been observed that the expression "body corporate" defined in S.2(7) does not mean that a corporation sole cannot be a shareholder under the Companies Act or cannot execute a proxy.
If it is a corporation sole, all that is required is that the proxy shall be in writing and shall be signed by the appointer or his attorney duly authorized in writing. The entry of the Official Trustee by that name in the register of members does not constitute notice of Trust. There is absolutely no conflict between S. 153 of the Companies Act and S. 14 of Official Trustees Act. 1913.
The expression ''body corporate'' is used in legal parlance to mean ''a public or private corporation''. Merely because the expression ''body corporate has been used in elation to the nationalized banks in S.3(4) of the Public Premises Act or the Banks Nationalisation Act and the expression ''corporation'' has not been used, does not mean that the nationalized bank is not a corporation. Ashoka Marketing Ltd. and another v. Punjab National Bank and others (1990) 4 SCC 406.
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(8) "book and paper" and "book or paper" include accounts, deeds, 7[vouchers,] writings and documents;
Commentary
In the expression "books of account and other books and papers" occurring in section 209(4)(a), the words "other books and papers" are more general, whereas the words "books of account" are less general. But the more general words take their colour from the less general and become restrictive in meaning. Thus, the expression "other books and papers of the same kind as the books of accounts. Therefore, the expression "other books and papers" does not extend to the nomination papers filed by candidates for election to the board of directors.
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8[(9) "branch office" in relation to a company means -
(a) any establishment described as a branch by the company; or
(b) any establishment carrying on either the same or substantially the same activity as that carried on by the head office of the company; or
(c) any establishment engaged in any production, processing or manufacture, but does not include any establishment specified in any order made by the Central Government under section 8;]
(10) "company" means a company as defined in section 3;
9[(10A) "Company Law Board" means the Board of Company Law Administration constituted under section 10E;]
Commentary
The word "company" apart from special definition in a particular statute, has no strictly technical meaning. It involves the ideas: (1) an association of persons too numerous to be described as a firm; (2) power of a member to transfer his...
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