LLM Group 2 Business Law Corporate Law 2025-26 Question Paper with Solutions

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.

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.

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.

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.

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.

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.

The concept

Section 241(1)(a) allows any member to apply where the affairs of the company have been or are being conducted in a manner prejudicial to public interest, or prejudicial or oppressive to him or any other member, or prejudicial to the interests of the company; and section 241(1)(b) covers a material change in management, control or ownership, otherwise than in the interests of creditors or any class of shareholders, by reason of which it is likely that the affairs will thereafter be so conducted.

Oppression is conduct against a member; mismanagement is conduct against the company. Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1965 SC 1535, requires conduct that is burdensome, harsh and wrongful, a visible departure from the standards of fair dealing, continuing up to the date of the petition and directed at the member in his character as a member. Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao, AIR 1956 SC 213, is the paradigm of mismanagement: the vice chairman was in sole control, large sums were due from him, the directors were disqualified and the affairs were in complete disorder, and an administrator was appointed.

Section 409 fixes the qualifications, a Judicial Member being or having been a High Court judge for five years, a District Judge for five years or an advocate for ten years, and a Technical Member having the prescribed professional experience. Section 413 fixes a term of five years, renewable once, with retirement at sixty seven for the President and sixty five for other Members. Section 419 requires a Principal Bench at New Delhi and provides that the powers are exercised by Benches of two Members, one Judicial and one Technical.

Section 424 provides that the Tribunal is not bound by the Code of Civil Procedure but is guided by natural justice, may regulate its own procedure, and has the powers of a civil court in respect of summoning, discovery and evidence. Section 430 bars the civil court's jurisdiction in any matter the Tribunal is empowered to determine, and forbids any injunction against action taken under those powers. Appeals lie to the Appellate Tribunal within forty five days under section 421 and to the Supreme Court on a question of law within sixty days under section 423.

The powers of the Tribunal under section 242

Section 242(1) is the source and it is very wide. If, on an application under section 241, the Tribunal is of opinion that the company's affairs have been or are being conducted in a manner prejudicial or oppressive as described, and that to wind up the company would unfairly prejudice the members but that otherwise the facts would justify a winding up order on the just and equitable ground, it may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.

Section 242(2) lists thirteen specific powers in clauses (a) to (m), and taking them one by one is the substance of this answer. The regulation of the conduct of the affairs of the company in future, which is the power under which management structures, board composition and voting arrangements are reordered. The purchase of the shares or interests of any members by other members or by the company, which is the exit remedy and in practice the commonest relief actually granted.

Three further powers complete the picture. Section 242(4) allows the Tribunal to make interim orders for the regulation of the company's affairs, which is what makes the remedy effective while the petition is pending. Section 242(3) requires a certified copy of every order to be filed with the Registrar within thirty days. Section 242(5) to (7) provide that where an order alters the memorandum or articles, the company may not thereafter make any alteration inconsistent with it except with the Tribunal's leave, and that contravention is punishable. Section 243 deals with the consequences of terminating an agreement, providing that a person whose agreement is terminated may not sue for damages or compensation for loss of office, and that he may not, without the Tribunal's leave, be appointed to any office in the company for five years.

Beyond section 242, the Tribunal's other powers in the same field. Section 245, the class action, under which prescribed numbers of members or depositors may restrain the company from an ultra vires act or a breach of the memorandum, articles or the Act, have a resolution obtained by suppression of material facts declared void, and claim damages against the company, its directors, its auditors including the audit firm and its experts, advisers and consultants.

It held that removal from the office of executive chairman is not by itself oppressive or prejudicial conduct within section 241; that the complaint must be of prejudice to the petitioner as a member or to the company; that the words "with a view to bringing to an end the matters complained of" in section 242(1) define the purpose and therefore the limit of the power, so that the Tribunal has no power to reinstate a person in an office from which he was removed; and that winding up cannot be the substantive prayer in a section 241 petition, being only one of the reliefs available under section 242(2).

Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., (1981) 3 SCC 333, supplies the second limit: the jurisdiction is equitable and discretionary, the petitioner must come with clean hands, an isolated act will not ordinarily do, and the Tribunal will mould the relief to do substantive justice, which is why the Court there declined to unscramble an irregular rights issue and ordered a purchase at fair value instead.

That is the third time the constitution of company tribunals has been before the Court, after Union of India v. R. Gandhi, (2010) 11 SCC 1, and Madras Bar Association v. Union of India, (2015) 8 SCC 583, which upheld sections 408 to 423 while correcting the qualifications of technical members and the composition of the selection committee. The recurring complaints, of vacancies, of delay and of executive influence over appointments, are the honest limitation on the Tribunal's role in preventing oppression, because a remedy that takes years is a remedy the stronger party can outlast.

The leading Indian authority on the commonest form of oppression is Dale and Carrington Invt. (P) Ltd. v. P.K. Prathapan, (2005) 1 SCC 212, decided on 13 September 2004. A hotel company was formed in 1986 in which the respondent was the principal shareholder; the managing director then allotted 6,865 equity shares of Rs. 100 each to himself, without the respondent's knowledge and without any real need for funds, converting the majority shareholder into a minority.

The National Company Law Tribunal, constituted under section 408 with effect from 1 June 2016, is the forum, and its powers under section 242(2) run from regulating the future conduct of the company's affairs, through the purchase of shares with a consequent reduction of capital, restrictions on transfer and allotment, the termination of agreements, the setting aside of preferential transfers of the preceding three months and the removal of directors, to the recovery of undue gains, with interim orders under section 242(4) and a class action under section 245 alongside. Tata Consultancy Services fixes the limit, that the Tribunal may bring the matters complained of to an end but may not reinstate a person in office, and Shailja Krishna fixes the reach, that it may decide questions of fraud and coercion where they are central to the complaint.

What a share is not is the point Bacha F. Guzdar v. Commissioner of Income Tax, Bombay, AIR 1955 SC 74, settled. A shareholder in tea companies argued that sixty per cent of her dividend was exempt as agricultural income because sixty per cent of the companies' income was. The Supreme Court rejected the claim: a shareholder has no interest, legal or equitable, in the property of the company; the company is the owner of its assets and the shareholder merely has the right to participate in the profits when a dividend is declared; and the income changes its character in his hands. Macaura v. Northern Assurance Co. Ltd., [1925] AC 619, is the English counterpart, where the transferor of timber to his own company recovered nothing on a policy in his own name because he had no insurable interest.

Equity share capital, defined by the Explanation as all share capital that is not preference share capital, and issued either with voting rights or with differential rights as to dividend, voting or otherwise. Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014 caps shares with differential rights at seventy four per cent of the total post-issue paid-up capital, requires authorisation by the articles and an ordinary resolution, and requires that the company has not defaulted in filing financial statements and annual returns or in the repayment of deposits, debentures or dividend.

Preference share capital, which carries a preferential right to a dividend at a fixed amount or rate and to repayment of capital on a winding up. The Explanation adds that capital remains preference capital even if it also carries a right to participate in surplus dividend or in surplus assets, which is the definition of participating preference shares.

Four further species of issue. Sweat equity under section 54, to directors or employees for know-how, intellectual property or value additions, at a discount or for consideration other than cash, requiring a special resolution. Employee stock options under section 62(1)(b), requiring a special resolution. Bonus shares under section 63, only out of free reserves, the securities premium account or the capital redemption reserve, not out of a revaluation reserve, and not by a company that has defaulted in payment of statutory dues to employees.

Rights shares under section 62(1)(a), offered first to existing equity shareholders in proportion to their holdings, on notice giving between fifteen and thirty days, with a right of renunciation. Section 53 forbids the issue of shares at a discount other than sweat equity, subject to the exception added in 2017 for shares issued to creditors on conversion of debt under a statutory resolution plan or debt restructuring scheme.

Section 129 requires the financial statements to give a true and fair view, to comply with the accounting standards notified under section 133 and to be in the form in Schedule III, with insurance, banking and electricity companies excepted; and section 129(3) requires consolidated financial statements where there is a subsidiary, associate or joint venture, with a statement in Form AOC-1 of the salient features of each. Section 2(40) defines the financial statement as the balance sheet, the profit and loss account, the cash flow statement, the statement of changes in equity if applicable, and the explanatory notes, with the cash flow statement excused for a One Person Company, a small company and a dormant company.

Section 134 requires approval and signature by the Board before submission to the auditor, and requires the Board's report, containing among other things the Directors' Responsibility Statement, which is a formal assurance that applicable accounting standards were followed, that the accounting policies were applied consistently and judgments made prudently, that proper and sufficient care was taken for the maintenance of adequate accounting records, that the accounts were prepared on a going concern basis, that in a listed company internal financial controls were laid down and were adequate and operating effectively, and that proper systems were devised to ensure compliance with all applicable laws.

Section 141 fixes the disqualifications and section 144 forbids specified non-audit services to the company, its holding and its subsidiary, namely accounting and book keeping, internal audit, design and implementation of financial information systems, actuarial services, investment advisory, investment banking, outsourced financial services and management services. Section 140 makes removal before expiry dependent on a special resolution and the previous approval of the Central Government, requires a resigning auditor to file a statement in Form ADT-3 within thirty days, and empowers the Tribunal to direct a change of auditor who has acted fraudulently or colluded in a fraud.

Section 147 imposes fine, and imprisonment up to one year where the contravention is knowing or wilful and made with intent to deceive, together with the refund of remuneration and damages; section 245 allows a class action against the auditor and the audit firm; and section 132 places listed and large companies' auditors under the National Financial Reporting Authority, whose validity was upheld by the Delhi High Court on 7 February 2025, though a batch of show cause notices was quashed for want of separation between its review and disciplinary functions, and the appeal is pending in the Supreme Court. The classic standard, that an auditor is a watchdog and not a bloodhound, comes from In re Kingston Cotton Mill Co. (No. 2), [1896] 2 Ch 279, and has been substantially raised by section 143(12) and by the internal financial controls requirement.

(b) Dividend

Section 2(35) says only that dividend includes any interim dividend. The substance is in section 123, and its first principle is that dividend is paid out of profits and never out of capital, because the capital is the creditors' security.

Section 123(3) permits the Board to declare an interim dividend out of the surplus in the profit and loss account and out of profits of the financial year in which it is declared, with the restriction that where the company has incurred a loss in the current year up to the end of the quarter preceding the declaration, the interim dividend may not be declared at a rate higher than the average dividend of the three immediately preceding financial years.

Sections 123(4) and (5) fix the mechanics: the amount must be deposited in a separate bank account within five days of declaration, and the dividend must be paid only to the registered shareholder, his order or his banker, and only in cash, though payment may be by cheque, warrant or electronic mode, and capitalisation of profits for bonus shares or for paying up unpaid amounts on shares is not prohibited.

Sections 124 and 125 deal with what is not collected. Dividend unpaid or unclaimed within thirty days must be transferred within seven days to the Unpaid Dividend Account, with details on the website within ninety days, and interest at twelve per cent for default; after seven years the money, and under section 124(6) the shares themselves, go to the Investor Education and Protection Fund, from which the owner may claim under section 125(9).

Accounts under sections 128 to 137 must give a true and fair view on accrual and double entry, follow Schedule III and the accounting standards, and be certified by the Directors' Responsibility Statement; audit under sections 139 to 148 tests them independently, with rotation, prohibited services and the fraud reporting duty in section 143(12); and dividend under sections 123 to 127 may be paid only out of the profits those statements show, must be deposited within five days, paid within thirty, and surrendered to the Investor Education and Protection Fund after seven.

The most important single fact about the modern law is a subtraction. Until 15 November 2016 the commonest ground of compulsory winding up was that the company was unable to pay its debts. On that date the Insolvency and Bankruptcy Code, by section 255 read with the Eleventh Schedule, substituted section 271 and removed that ground. A creditor of a company that cannot pay now applies under section 7 or section 9 of the Code, and the same Tribunal hears it as the Adjudicating Authority under a different statute and a different procedure. Any answer that lists inability to pay debts among the grounds of winding up under the Companies Act is a decade out of date.

The five grounds, with authority

Ground one, section 271(a): the company has by special resolution resolved that it be wound up by the Tribunal. Even here the Tribunal has a discretion; section 273(1) allows it to dismiss the petition, make an interim order, appoint a provisional liquidator, make the order or pass any other order it thinks fit, and it will refuse where the resolution is a device, for example to defeat a pending proceeding.

The authority to use here is the bubble company line. In In re London and County Coal Co., (1866) LR 3 Eq 355, and in the Indian cases following it, a company formed to carry on a business that never existed, or whose object was to defraud subscribers, was wound up as a bubble. Delhi Development Authority v. Skipper Construction Co. (P) Ltd., (1996) 4 SCC 622, is the modern Indian illustration of the conduct the ground contemplates: money was collected from purchasers for space the company did not own, and the Supreme Court held that the corporate personality could be disregarded where it was used to evade legal obligations or to perpetrate fraud.

Ground four, section 271(d): default in filing financial statements or annual returns for the immediately preceding five consecutive financial years. This ground is new in the 2013 Act. Its practical overlap is with section 248, under which the Registrar removes the name of a company that has not carried on business for two immediately preceding financial years, and in practice a defunct non-filer is struck off rather than wound up, because there is nothing to distribute.

Ground five, section 271(e): the Tribunal is of opinion that it is just and equitable that the company should be wound up. This is the ground with the case law and it should take a third of the answer.

Loss of confidence in management, founded on the conduct of the affairs. Loch v. John Blackwood Ltd., [1924] AC 783, where the directors withheld accounts, held no general meetings and kept the shareholders in ignorance so as to buy their shares cheaply, and the Privy Council ordered winding up, holding that a lack of confidence resting on the conduct of the directors in relation to the company's business justifies the order.

Exclusion from management in a quasi-partnership. Ebrahimi v. Westbourne Galleries Ltd., [1973] AC 360, is the modern foundation. Ebrahimi and Nazar had traded as partners in carpets, incorporated the business, each holding shares and being a director, and later took in Nazar's son. The two Nazars then removed Ebrahimi from the Board by an ordinary resolution which was perfectly lawful under the Act and the articles, leaving him with neither salary nor dividend, since the profits were distributed as directors' remuneration.

Who may petition, and what the Tribunal may do

Section 272(1) lists six petitioners: the company; any contributory or contributories; the company and contributories together; the Registrar, on any ground except the special resolution ground, with the previous sanction of the Central Government which may not be given without hearing the company; any person authorised by the Central Government; and the Central or a State Government on the sovereignty ground.

Section 272(2) preserves the contributory's standing even though he holds fully paid shares and even though the company has no assets at all or no surplus left for distribution among shareholders, provided the shares were originally allotted to him, or have been registered in his name for at least six months during the eighteen months before the commencement of the winding up, or devolved on him through the death of a former holder. Section 272(4) requires a petition by the company, a contributory or the Registrar to be accompanied by a statement of affairs.

On the members, they become contributories, and section 285 requires the Tribunal to settle the list in the A class of present members and the B class of those who were members within the year before the commencement, the B list being liable only for debts contracted before they ceased to be members and only if the A list cannot satisfy the contributions.

On the creditors, section 326 gives overriding preference to workmen's dues and to the unsatisfied portion of secured debts, and section 327 lists the preferential payments that follow; section 327(7) makes both inapplicable to a liquidation under the Insolvency and Bankruptcy Code, where the waterfall in section 53 of that Code governs.

On past transactions, section 328 allows a fraudulent preference within six months to be set aside, and section 329 avoids a transfer of property, otherwise than in the ordinary course of business or to a good faith purchaser for value, made within a year before the presentation of the petition.

The case law is concentrated on the last ground: Yenidje Tobacco for deadlock, German Date Coffee for loss of substratum, Loch v. John Blackwood for loss of confidence founded on the conduct of the directors, and Ebrahimi for exclusion from management in a company that is in substance a partnership, subject always to section 273(2), which permits the Tribunal to refuse relief where another remedy is available and the petitioner is acting unreasonably.

Agents of the company. Ferguson v. Wilson, (1866) LR 2 Ch App 77, put it exactly: the company has no person and no hands, it acts only through directors, and the case is the ordinary one of principal and agent. Three consequences follow. A contract made by a director within his authority binds the company and not him personally. The company is bound by acts within the director's ostensible authority, which is why the rule in Royal British Bank v. Turquand, (1856) 6 E and B 327, protects an outsider who cannot know the company's internal proceedings.

And a director who contracts for a company not yet incorporated contracts personally, subject to sections 15(h) and 19(e) of the Specific Relief Act, 1963, which permit specific enforcement by or against the company if it has adopted the contract and communicated its acceptance. Where the analogy breaks down is that a director is not the agent of the shareholders individually, and unlike an ordinary agent he cannot be instructed by his principal on how to exercise his own discretion.

Organs, or the directing mind and will. Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd., [1915] AC 705, 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, whose state of mind is the state of mind of the company. This is how a company acquires knowledge and intention, and the Supreme Court applied it in Iridium India Telecom Ltd. v. Motorola Incorporated, (2011) 1 SCC 74, holding that a corporation may be prosecuted for offences requiring mens rea, and in Standard Chartered Bank v. Directorate of Enforcement, (2005) 4 SCC 530, holding that a company may be convicted and fined even where the provision prescribes imprisonment as well.

Employees, only where there is a contract of service. A director as such is not an employee; a managing or whole-time director under a service contract is both, which matters for remuneration under section 197, for terminal benefits and for the labour statutes.

The limit of the position, drawn in 2021. Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., (2021) 9 SCC 449, held that no one has a right to be or to remain a director; that removal from the office of executive chairman is not oppression of the person as a member; and that the Tribunal has no power under sections 241 and 242 to reinstate a person in office. A director's protection lies in the procedure of section 169, which requires special notice and a reasonable opportunity of being heard, and in having his dissent recorded, not in a right to remain.

The powers of the Board

Section 179(1) is the general grant: the Board is entitled to exercise all such powers and to do all such acts and things as the company is authorised to exercise and do. It is subject to two limits: the Board may not do anything the Act or the memorandum or articles require the company in general meeting to do, and it must observe any regulation made by the company in general meeting, though no regulation made afterwards invalidates an act already done.

Section 179(3) lists the powers exercisable only by a resolution passed at a Board meeting, that is, not by circulation and not by a committee unless delegated where delegation is permitted: to make calls on shareholders in respect of money unpaid on their shares; to authorise buy-back under section 68; to issue securities including debentures within or outside India; to borrow monies; to invest the funds of the company; to grant loans or give guarantees or provide security in respect of loans; to approve the financial statements and the Board's report; to diversify the business of the company; to approve amalgamation, merger or reconstruction; to take over a company or acquire a controlling or substantial stake in another company; and such other matters as may be prescribed.

The proviso permits the Board to delegate the powers of borrowing, investing and granting loans to a committee, the managing director, the manager or a principal officer, by a resolution specifying the total amount.

Other members' powers that the Board cannot exercise complete the division: alteration of the memorandum and articles under sections 13 and 14; a reduction of capital under section 66; the appointment and removal of directors under sections 152 and 169 and of auditors under sections 139 and 140; the declaration of a final dividend, which the Board only recommends under section 123; a scheme of compromise or arrangement, which requires the class meetings under section 230; and voluntary liquidation, which requires a special resolution under section 59 of the Insolvency and Bankruptcy Code, 2016.

The functions of the Board, and the modern constraints

The functions divide into four. Strategic: to determine the business, to approve the budget and the diversification of the business under section 179(3)(h), and to approve amalgamations and acquisitions. Financial: to approve the financial statements under section 134, to recommend dividend under section 123(1), to make calls, to authorise buy-back, to borrow and to invest.

Section 186 caps loans, guarantees, securities and investments at sixty per cent of paid-up capital, free reserves and securities premium or one hundred per cent of free reserves and securities premium, whichever is higher, requiring a special resolution beyond that, and forbids investment through more than two layers of investment companies. Section 188 requires Board approval, and above prescribed thresholds a resolution of the members, for related party transactions, with the interested member not voting.

Section 173 governs how the Board acts: the first meeting within thirty days of incorporation and thereafter at least four meetings a year with not more than one hundred and twenty days between consecutive meetings, reduced to two for a One Person Company, small company and dormant company; not less than seven days' notice, with a shorter notice meeting valid if an independent director is present or ratifies it; and participation by video conferencing except for the matters in Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014. Section 174 fixes the quorum at one third of the total strength or two directors, whichever is higher. Section 175 permits a resolution by circulation except where the matter must be dealt with at a meeting.

The Board holds, under section 179(1), every power of the company that is not reserved to the members, exercises the twelve most important of them only at a meeting under section 179(3), and must go to the members by special resolution for the four decisions in section 180. Its functions are strategic, financial, supervisory and compliance, constrained by sections 184 to 188 and by the meeting requirements of sections 173 to 175, and Automatic Self-Cleansing Filter Syndicate remains the authority for the proposition that where the articles give the Board a power, the general meeting cannot take it back except by altering the articles or changing the directors.

Step one, the name. Section 4(4) permits an application to the Registrar for reservation, valid for twenty days from approval under section 4(5)(i). Section 4(2) forbids a name identical with or too nearly resembling that of an existing company, a name that is undesirable in the opinion of the Central Government, or one that constitutes an offence or is contrary to law. Section 4(5)(ii) cancels a reservation obtained by wrong or false information and imposes a penalty of up to one lakh rupees.

Step two, the constitutional documents. The memorandum under section 4, in the form of the appropriate Table in Schedule I, stating the name, the State of the registered office, the objects, the liability, the capital and the subscription, with the nominee named in the case of a One Person Company. The articles under section 5, which may contain provisions for entrenchment under section 5(3), requiring conditions more restrictive than a special resolution for the alteration of specified provisions; entrenchment may be made on formation or, afterwards, by agreement of all members in a private company and by special resolution in a public company, and notice must be given to the Registrar.

Step four, filing and the certificate. The application is made to the Registrar of the jurisdiction in which the registered office is to be situated. It is now a single integrated electronic form, SPICe+, which combines name reservation, incorporation, allotment of Director Identification Numbers, the mandatory issue of PAN and TAN, registration under the Employees Provident Fund and Employees State Insurance legislation, professional tax registration in Maharashtra, the opening of a bank account and, at the applicant's option, registration under the goods and services tax. Section 7(2) requires the Registrar, on being satisfied, to register the documents and issue the certificate of incorporation, and section 7(3) requires the allotment of a Corporate Identity Number.

Step six, the two obligations that follow within fixed periods. Section 12(1) requires a registered office capable of receiving communications within thirty days, verified under section 12(2), with power in the Registrar under section 12(9) to conduct a physical verification and, if the office is not found capable of receiving communications, to initiate removal of the name. Section 10A requires a declaration of commencement of business within one hundred and eighty days, by a director, that every subscriber has paid the value of the shares agreed to be taken, and forbids the company to commence business or exercise borrowing powers until that and the section 12(2) verification are filed; default attracts a penalty of fifty thousand rupees on the company and one thousand rupees a day on each officer up to one lakh, and permits removal of the name under Chapter XVIII.

(b) The Serious Fraud Investigation Office

Section 211(1) requires the Central Government to establish, by notification, an office to be called the Serious Fraud Investigation Office to investigate frauds relating to a company. The office existed before the Act: it was set up by a Government of India Resolution of 2 July 2003, on the recommendation of the Naresh Chandra Committee after the Enron and other collapses, and the proviso to section 211(1) deemed that office to be the statutory office until one was established under the section. It acquired statutory status with the coming into force of section 211 on 21 August 2013.

Section 211(2) requires it to be headed by a Director and to consist of experts in banking, corporate affairs, taxation, forensic audit, capital market, information technology, law and such other fields as may be prescribed, which is what makes it a multidisciplinary investigating agency rather than a police body. Section 211(3) requires the Director to be an officer not below the rank of Joint Secretary to the Government of India with knowledge and experience of corporate affairs.

Powers. Section 212(4) gives the Investigating Officer the powers of an inspector under section 217, which include the powers of a civil court in respect of the discovery and production of books and documents, summoning and enforcing attendance and examining on oath. Section 212(5) obliges the company, its officers and its employees, present and former, to provide all information, explanation, documents and assistance.

Section 212(8) confers a power of arrest: where the Director, Additional Director or Assistant Director has, on the basis of material in his possession, reason to believe that a person has been guilty of an offence punishable under the sections referred to in section 212(6), he may arrest him, recording the reasons in writing and informing him of the grounds. The person arrested must be produced before a Judicial Magistrate or Metropolitan Magistrate within twenty four hours.

Section 212(6) is the bail provision and it is severe. Notwithstanding the Code of Criminal Procedure, an offence covered under section 447 is cognizable, and no person accused of it shall be released on bail or on his own bond unless the Public Prosecutor has been given an opportunity to oppose the application and, where he opposes it, the court is satisfied that there are reasonable grounds for believing that the accused is not guilty and is not likely to commit any offence while on bail.

Section 212(15) provides that the investigation report filed with the Special Court for framing charges is deemed to be a report filed by a police officer under section 173 of the Code of Criminal Procedure, 1973, which is what makes the prosecution work. Section 435 requires the Central Government to establish Special Courts, and section 436 provides for the trial of offences by them.

Section 447 supplies the offence the Office chiefly investigates. It defines fraud in relation to the affairs of a company as any act, omission, concealment of a fact or abuse of position committed by any person with intent to deceive, to gain undue advantage from, or to injure the interests of the company, its shareholders, its creditors or any other person, whether or not there is any wrongful gain or wrongful loss. The punishment is imprisonment of six months to ten years and a fine of one to three times the amount involved, with a minimum of three years where the fraud involves the public interest; and where the amount involved is less than ten lakh rupees or one per cent of turnover, whichever is lower, and does not involve public interest, the punishment is up to five years or a fine up to fifty lakh rupees or both.

Conclusion. Registration under sections 3, 4, 5, 7, 9, 10A and 12 is a sequence with fixed periods at every stage, twenty days for the name, thirty days for the registered office and one hundred and eighty days for the declaration of commencement, and it ends in the corporate personality section 9 confers and Salomon explains; if it was obtained by fraud, section 7(6) makes it an offence under section 447 and section 7(7) allows the Tribunal to unmake it.

The Serious Fraud Investigation Office, statutory since 2013 under section 211 and multidisciplinary by design, investigates company frauds on assignment by the Central Government under section 212, to the exclusion of every other agency, with the powers of an inspector, a power of arrest, restrictive bail conditions, a report that counts as a police report, and a power to seek disgorgement and unlimited personal liability under section 212(14A).

Name clause. A change requires a special resolution and the approval of the Central Government, under section 13(2). No approval is needed where the change is only the addition or deletion of the word "Private" consequent on a conversion. Section 13(3) requires the Registrar to enter the new name in the register and issue a fresh certificate of incorporation, and the change is not complete until then. Section 16 empowers the Central Government, where a name is identical to or too nearly resembles the name of an existing company, to direct a change within three months, and where it resembles a registered trade mark, to direct a change on the proprietor's application made within three years of registration.

Registered office clause. Three cases. A shift within the same city, town or village requires only a Board resolution and no alteration of the memorandum at all, because the memorandum names only the State. A shift from one city to another within the same State requires a special resolution, and where it is from the jurisdiction of one Registrar to another, the confirmation of the Regional Director.

Liability clause. It may be altered on conversion of the company from one class to another under section 18, but section 13 does not permit an alteration increasing the liability of an existing member to contribute more than he undertook, without his written consent, and section 61 governs the alteration of the capital clause separately.

Capital clause. Section 61 permits a limited company having a share capital, if so authorised by its articles, in general meeting, to increase the authorised capital, to consolidate and divide its capital into shares of larger amount, to convert fully paid shares into stock and reconvert, to sub-divide shares so that the proportion of paid to unpaid remains the same, and to cancel shares not taken or agreed to be taken, which is not a reduction of capital. A consolidation and division which results in a change in the voting percentage of shareholders requires the approval of the Tribunal. A reduction of capital is governed by section 66 and requires a special resolution and the confirmation of the Tribunal, with notice to the Central Government, the Registrar, the Securities and Exchange Board in the case of a listed company and the creditors.

Erlanger v. New Sombrero Phosphate Co., (1878) 3 App Cas 1218, is the leading case on disclosure. A syndicate headed by Erlanger bought a lease of an island in the West Indies said to contain phosphate for £55,000 and sold it, through a nominee, to a company it had formed, for £110,000. The Board of the new company consisted of the syndicate's own men. The House of Lords held that the promoters stood in a fiduciary position, that disclosure to a Board they controlled was no disclosure at all, and allowed the company to rescind the contract.

Gluckstein v. Barnes, [1900] AC 240, went further. A syndicate bought Olympia, made a profit of £20,000 by buying up charges at a discount, disclosed the profit on the resale but not the profit on the charges, and then sold to a company it promoted. The House of Lords held that the undisclosed profit had to be accounted for, and that a disclosure to themselves as the only directors was worthless.

Remuneration and pre-incorporation contracts complete the note. A promoter has no right to recover his preliminary expenses or remuneration from the company as of right, because there was no contract with him when the expenses were incurred; he is paid only if the company, after incorporation, agrees to pay, and section 26 requires the prospectus to disclose the amount paid or payable to a promoter. A pre-incorporation contract does not bind the company at common law and cannot be ratified, but sections 15(h) and 19(e) of the Specific Relief Act, 1963 allow specific performance by or against the company where the contract was warranted by the terms of the incorporation and the company has accepted it and communicated the acceptance.

(c) The importance of corporate social responsibility

India was the first country in the world to make corporate social responsibility spending a statutory obligation for large companies, and section 135 of the Companies Act, 2013 is the provision. Its importance is best explained in three registers, the theoretical, the statutory and the practical.

Section 135(3) requires the committee to formulate and recommend the policy indicating the activities in the areas specified in Schedule VII, to recommend the expenditure and to monitor the policy. Section 135(5) requires the Board to ensure that the company spends, in every financial year, at least two per cent of the average net profits of the three immediately preceding financial years, with a preference for the local area, and, if it fails, to specify the reasons in the Board's report.

The provisions that turned it from comply-or-explain into a real obligation came with the Companies (Amendment) Acts of 2019 and 2020. An unspent amount relating to an ongoing project must be transferred within thirty days of the end of the financial year to a special account called the Unspent Corporate Social Responsibility Account, to be spent within three financial years, failing which it goes to a fund specified in Schedule VII within thirty days; any other unspent amount must be transferred to a Schedule VII fund within six months of the end of the financial year.

The criticisms are equally real and should be stated: that a mandatory two per cent converts a moral duty into a compliance cost and may crowd out genuine engagement; that spending is concentrated in a few States and a few Schedule VII heads; that the obligation is on profitable companies, so it falls away in the years when social need is greatest; and that it is, in substance, a hypothecated tax collected and spent by companies. The Corporate Laws (Amendment) Bill, 2026 proposes to raise the net profit threshold in section 135(1) from five crore to ten crore rupees and to extend the transfer window for ongoing projects from thirty to ninety days; it was introduced on 23 March 2026 and referred to a Joint Parliamentary Committee, and it is not law.

(d) Payment of liabilities in the event of winding up

The whole of this note is one question: in what order is the money paid out. Two different orders now exist, and which applies depends on the statute under which the company is being wound up.

Then section 327 lists the preferential payments which rank next and among themselves equally, abating rateably if the assets are insufficient: revenues, taxes and cesses due to the Government within the twelve months preceding; wages or salary of an employee for a period not exceeding four months within the twelve preceding months, subject to a prescribed limit; accrued holiday remuneration; contributions payable under the employees state insurance legislation; compensation under the Workmen's Compensation Act; sums due from a provident fund, pension fund, gratuity fund or other welfare fund; and the expenses of an investigation under sections 213 and 216. After them come the unsecured creditors, sharing rateably. Then, if anything remains, the preference shareholders, and finally the equity shareholders, who are paid last because they took the risk.

The secured creditor stands outside all of this at his own election. He may stand outside the winding up and realise his security, proving for any balance as an unsecured creditor; or relinquish it and prove for the whole debt; or value it and prove for the difference. Section 326 is what modifies that position in favour of workmen, by making the workmen's portion of the security rank pari passu with the secured creditor.

Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531, held that the commercial wisdom of the committee of creditors in distributing among classes is not justiciable, and Ghanashyam Mishra and Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657, held that on approval of a resolution plan all claims not forming part of it stand extinguished, so that the successful applicant takes the company on a clean slate.

Conclusion. The memorandum is altered clause by clause, the name and an inter-State shift of the office requiring Central Government approval, the objects requiring an exit offer to dissenting shareholders where public money is unutilised, and the capital clause being governed by sections 61 and 66. The promoter is in a fiduciary position before the company exists, must not make a secret profit and must disclose to an independent Board, as Erlanger and Gluckstein establish.