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Corporate Law
Previous Year Question Paper with Solution
LLM · Group 2 Business Law
2025-26 Examination
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First published on munotes.in on 12 August 2026.
Published by munotes.in, Mumbai.
Model answers written and edited by the munotes.in editorial desk.
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The University does not publish an official answer key for this paper. The answers in this volume are model answers, written to show how a full-mark answer is built. They are a study aid, not an authority on what an examiner marked.
The question paper reproduced here is the paper as set by the University of Mumbai at the 2025-26 examination.
Four changes date most textbooks on this subject. Inability to pay debts ceased to be a ground of winding up on 15 November 2016, when the Insolvency and Bankruptcy Code substituted section 271, and voluntary winding up went with it: sections 304 to 323 were omitted and section 59 of the Code took over. The Company Law Board was dissolved on 1 June 2016 on the constitution of the National Company Law Tribunal. The certificate of commencement of business is gone: section 11 was omitted on 29 May 2015 and replaced from 2 November 2018 by the declaration in section 10A. And the statement in lieu of prospectus, section 70 of the Act of 1956, has no counterpart in the Act of 2013; section 42 on private placement does its work.
Contents
The questions below are the paper as the University of Mumbai set it at the 2025-26 examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2025-26 examination, reproduced as the University of Mumbai set them, in the order it set them. Nothing has been reworded, added or left out. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 7 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
SECTION I
Form 16446. Answer any four questions, all questions carry equal marks
any four of seven · 100 Marks
1.Discuss in detail various theories of Corporate Personality[25]
Answer
For full marks, cover: this is a jurisprudence question set in a company law paper, and the marks are in the theories themselves, stated with the jurist who propounded each and the criticism each attracted, followed by the legal consequences that actually turn on the choice between them. Give five theories, then Salomon as the positive law, then the two places where the choice of theory decides a real question, criminal liability and the lifting of the veil. Do not turn it into an essay on the advantages of incorporation.
The problem the theories answer
Law attaches rights and duties to persons, and only a human being is a person in nature. Yet a company owns property, makes contracts, sues, is sued, commits wrongs and is taxed. The question the theories answer is whether the personality so attributed is a fiction created by law for convenience, or a real thing that the law recognises rather than creates. The answer is not academic: it decides whether the State may withdraw the personality at will, whether the company can have a mind capable of criminal intent, and whether a court may look behind it.
Fiction theory
Savigny, with Salmond and Holland in the same tradition, held that a corporation is an artificial person created by the law, having no existence apart from its members. Personality is a fiction, extended by the law to an entity that is not a person in fact, so that legal relations may be simplified. The consequence is that the corporation has only such rights and capacities as the law confers, and its will is not a real will but an attributed one.
The criticism is that a fiction cannot commit a crime or a tort, yet corporations are convicted and held liable in tort every day; and that the theory offers no explanation for the corporation's ability to act at all, since a fiction has no mind. Its strength is that it explains why the objects clause limits the company, why an act ultra vires the memorandum is a nullity as in Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) LR 7 HL 653, and why registration is constitutive.
Concession theory
Closely allied to the fiction theory, this holds that juristic personality is a concession of the sovereign, so that no association can be a legal person unless the State so declares. Its historical setting is the struggle between the State and the church, the guilds and the corporations, and its political consequence is that what the State grants it may qualify or withdraw.
In Indian company law the concession theory has real statutory expression. Section 7(2) makes personality flow from the Registrar's certificate; section 7(7) allows the Tribunal to remove the name or direct that the liability of members be unlimited where incorporation was obtained by fraud; section 248 allows the Registrar to strike a company off; and section 8(6) allows the Central Government to revoke the licence of a charitable company. The criticism is that it explains the State's power and not the entity's nature, and that it cannot account for the many associations that act as units in social fact before the law recognises them.
Purpose theory
Brinz and Bekker held that only human beings can be persons, and that so-called juristic persons are not persons at all but subjectless properties, that is, masses of property dedicated to a purpose and protected by the law for that purpose. The theory was developed to explain the German Stiftung or foundation, and it fits an endowment or a charitable fund better than a trading company.
Its Indian analogue is instructive. The idol of a Hindu temple is a juristic person in Indian law, holding property for a religious purpose, and the Supreme Court applied that reasoning in Yogendra Nath Naskar v. Commissioner of Income Tax, (1969) 1 SCC 555, treating an idol as a juristic person capable of holding property and of being taxed, and in the Ayodhya judgment of 9 November 2019 the Court held that the deity was a juristic person while declining to extend that status to the land itself. The criticism of the purpose theory as an account of a company is that a trading company has no single purpose beyond the profit of its members, and that rights without a subject are a contradiction.
Bracket or symbolist theory
Ihering held that only the members of a corporation are persons in the true sense, and that the corporate name is merely a bracket placed around them for convenience. The law puts the members in a bracket and gives the bracket a name so that dealings may be simplified; when the convenience ceases, the bracket may be removed and the members looked at directly.
This theory is the jurisprudential foundation of the lifting of the corporate veil, which is the strongest reason to know it. When a court removes the bracket in Gilford Motor Co. Ltd. v. Horne, [1933] Ch 935, or in Delhi Development Authority v. Skipper Construction Co. (P) Ltd., (1996) 4 SCC 622, it is doing precisely what Ihering described. Its weakness is that it gives no test for when the bracket may be removed, which is exactly the criticism modern courts make of veil-piercing itself, and it cannot explain the company's continued existence when every member has changed.
Realist or organic theory
Gierke, with Maitland as his English translator and advocate, held that a group has a real will and a real personality of its own, existing independently of the State's recognition, which merely declares what already exists in social fact. The group is an organism: its members are its organs, its general meeting and its board are its brain, and its will is a group will and not a mere sum of individual wills.
The organic theory has become the operative law in one important field. In Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd., [1915] AC 705, Viscount Haldane held that a corporation has no mind of its own any more than it has a body, and that its active and directing will must be sought in the person who is really the directing mind and will of the corporation, whose state of mind is the state of mind of the company. That is how a company acquires knowledge, intention and mens rea. The criticism is that a group will is a metaphor, and that the theory proves too much, since it would make every association a person whether the law recognised it or not.
The positive law: Salomon
English and Indian law adopted no theory expressly; they adopted a rule. Salomon v. A. Salomon and Co. Ltd., [1897] AC 22, held that once the memorandum is duly signed and registered, the company is at law a different person altogether from the subscribers, and that the motives of those who form it are irrelevant provided the Act is complied with, so that Salomon's own debentures ranked ahead of the trade creditors of the business he had transferred to the company.
Indian law has applied that rule in three well-known cases and each shows a different consequence. Bacha F. Guzdar v. Commissioner of Income Tax, Bombay, AIR 1955 SC 74, held that a shareholder has no interest, legal or equitable, in the property of the company, so agricultural income of a tea company is not agricultural income of the shareholder.
State Trading Corporation of India v. Commercial Tax Officer, AIR 1963 SC 1811, held that a company is not a citizen and cannot claim rights guaranteed only to citizens, though it may claim those guaranteed to persons; Bennett Coleman and Co. v. Union of India, (1972) 2 SCC 788, later allowed the shareholders and editors to assert their own rights where State action affected them through the company. Tata Engineering and Locomotive Co. Ltd. v. State of Bihar, AIR 1965 SC 40, refused to lift the veil at the company's own request, holding that a company that chooses the corporate form must accept its consequences.
Where the choice of theory decides a real question
First, criminal liability. If the company is a fiction with no mind, it cannot be convicted of an offence requiring intention, and until recently it could not be convicted of an offence carrying mandatory imprisonment, because it cannot be imprisoned.
The Supreme Court resolved the second point in Standard Chartered Bank v. Directorate of Enforcement, (2005) 4 SCC 530, a Constitution Bench of five judges deciding on 5 May 2005 that a company may be prosecuted even for an offence carrying mandatory imprisonment, the court imposing a fine in lieu, and overruling Assistant Commissioner v. Velliappa Textiles Ltd., (2003) 11 SCC 405, which had held the opposite, the court imposing the fine alone; and in Iridium India Telecom Ltd. v. Motorola Incorporated, (2011) 1 SCC 74, it held that a corporation is virtually in the same position as any individual and may be convicted of offences requiring mens rea, the mental state of those who control it being attributed to it on the Lennard's principle.
That is the organic theory doing legal work. The Companies Act itself assumes it: section 447 defines fraud and punishes it, and section 212(6) makes an offence under section 447 cognizable with restrictive bail conditions.
Second, the lifting of the veil. If personality is a real thing the veil should never be lifted; if it is a bracket it may be removed whenever convenience requires. The law takes neither extreme. It lifts the veil where a statute says so, in sections 3A, 7(7)(b), 35(3), 75, 251 and 339, and where the judges have found the form to be a facade, but Balwant Rai Saluja v. Air India Ltd., (2014) 9 SCC 407, holds that the veil is pierced only where the corporate form is a mere facade concealing the true state of affairs, and not merely because of common control. The modern position is therefore closest to the fiction theory in its foundation and to the bracket theory in its exceptions.
Third, and most modern, group liability. Because Indian law recognises the personality of each company in a group separately, the parent is not liable for the subsidiary, which is the unsolved problem of the multinational enterprise. The Indian answer has come not from company law but from tort: M.C. Mehta v. Union of India, (1987) 1 SCC 395, arising from the oleum leak at Shriram Foods and Fertiliser Industries in Delhi in December 1985, laid down absolute liability for an enterprise engaged in a hazardous activity, with damages correlated to the magnitude and capacity of the enterprise, precisely because the ordinary rules of corporate personality would have left the victims with a defendant that had nothing.
Conclusion. The theories are five: fiction, which explains why the company's capacity is bounded by its memorandum; concession, which explains why the State may create and extinguish it; purpose, which explains the endowment and the idol rather than the trading company; bracket, which explains the lifting of the veil; and realist, which explains how a company can have knowledge and intention. Positive law in India follows Salomon and adopts no theory expressly, but it behaves like the fiction theory when it insists on registration and on the objects clause, like the organic theory when it convicts a company of an offence requiring mens rea in Iridium India Telecom, and like the bracket theory when it lifts the veil under section 339 or in Skipper Construction. The theories are worth knowing because each of those three results is a choice between them.
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