Promoters and Corporate Governance Under the Companies Act, 2013 and Allied Acts in India
| Author | Harpreet Kaur |
| DOI | 10.1177/2277401720150105 |
| Published date | 01 August 2015 |
| Date | 01 August 2015 |
PROMOTERS AND CORPORATE
GOVERNANCE UNDER THE COMPANIES
ACT, 2013 AND ALLIED ACTS IN INDIA
Harpreet Kaur*
The term ‘promoter’ has been a term of frequent occurrence
in company matters in India. The Indian Companies Act, 1956
used the term to fix liability on promoters but did not define
it and accepted their established position under the Common
law principles. The Securities and Exchange Board of India,
however, defined the term ‘promoter’ in its Regulations. The
Indian Companies Act, 2013 has defined the term for the first time.
The author has proposed this study to know how the definition
of the term ‘promoter’ has evolved, what is the role of promoters
in corporate governance, how duties of promoters have been
enlarged from time to time and how obligations have been placed
on them in order to increase their accountability. The author
will trace the evolution of the term from the period when it was
said that the term ‘promoter’ has no definite meaning1 or has
never been clearly defined either judicially or legislatively2 or was
defined in terms of duties performed by them or the definition was
kept flexible to bring only those under strict duties who will fulfil
the functional concept of the definition.3
I. Introduction
The financial and securities markets in India have grown at a very fast
pace in the last decade. The fact that Indian companies are mostly family
owned and closely held companies gives a stronghold to promoters in their
companies. Increasing complexity in the nature of business transactions
* Professor of Law at National Law University, Delhi. The author had presented the draft
paper under the title ‘Promoters, Corporate Governance and the Companies Act, 2013’
at CLTA Annual Conference 2015 organised by Melbourne Law School, University of
Melbourne under the theme ‘Corporate Law: Local and Global dimensions’, Feb 1-3,
2015.
1Emma Silver Mining Co v Lewis (1879)4 CPD 396 (Lindley J).
2 Joseph H Gross, ‘Who is company promoter’ (1970) 86 LQR 493.
3Jacobus Marler Estates Ltd v Marler (1913) 85 LJPC 167.
Journal of National Law University, Delhi[Vol. 354
relating to companies and securities market, the promoters’ involvement in
such transactions makes the company and other shareholders vulnerable.
Therefore, it is necessary to understand the need to define the t erm ‘promoter’
and the role played by him in the company promoted by him. Promoter’s
obligations towards the company, statutory duties and liabilities imposed
upon him from time to time will be explored in the study in order to analyse
his importance in corporate governance.
II. ‘Promoter’: who he is?
Th e qu est io n ra is ed b y Na th an I sa acs 4 in his paper in 1924, “can or should
anything be done by statute to clarify the exact legal status of the promoter”
has been answered by the Indian Companies Act in 2013 by defining the
term ‘promoter’.5 The question which now arises is why it took years in
defining the term and why no need was felt to define the term earlier? In
order to find an answer to the question we have to trace the evolution of the
term ‘promoter’ first.
In 1877, Cockburn, C.J observed in the case of Twycross v. Grant,6
“a promoter, I apprehend, is one who undertakes to form a company with
reference to a certain project, and takes certain steps to accomplish that
purpose.”
Bowen, J said as early as 1879 in the case of Whaley Bridge Priniting
Company v. Green7 that the ‘term promoter is a term not of law but of
business, usefully summing up in a single word a number of business
operations familiar to the commercial world by which a company is generally
brought into existence.’
Lindley J in Emma Silver Mining Co v Lewis observed that the term
‘promoter’ has no definite meaning. “As used in connection with the
companies, the term ‘promoter’ involves the idea of exertion for the purpose
of setting up and starting a company, and also the idea of some duty towards
the company imposed by it arising from the position which the so-called
promoter assumes towards it.”8
It was pointed out in Jacobus Marler Estates Ltd v Marler that it is
advantageous to keep the definition flexible in terms of duties performed by
4 The Promoter: A Legislative Problem, 38 Harv L Rev 887 1924-1925
5 Companies Act 2013, s 2(69).
6 2 CPD 469 (1877) 541.
7 5 QBD109 (1879).
8Lindley (n 1).
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