Writ of mandamus and Indian Constitution

Writ of mandamus is an order by the superior court commanding a person or a public authority to do or forbear to do something in the nature of public duty. In other words, it is a judicial remedy which is in the form of an order from a superior court to any government, court, corporation, or any public authority to do or to forbear from doing some specific act which that body is obliged under law to do or refrain from doing as the case may be and which is in the nature of a public duty and certain cases of a statutory duty ((AT Markose, Judicial Control of Administrative Action in India, p. 364)).

Writ of mandamus is a writ of most extensive remedial nature and is in form, a command issuing from the High Court of Justice, directed to any person, corporation, or an inferior tribunal requiring him or them to do some particular thing therein specified which appertains to his or their office and is in the nature of a public duty. Purpose of Writ of mandamus is to remedy defects of justice; and accordingly it will issue, to the end that justice may be done, where all cases where there is a specific legal right and no specific legal remedy for enforcing that right; and it may issue in cases where although there is an alternative legal remedy, yet the mode of redress is less convenient beneficial and effectual ((Halsbury’s Laws of England, 4th Edition, Vol. I Para 89)). However, a Writ of mandamus cannot be issued to compel an authority to do something against the statutory provision ((Hope Textiles Ltd. v. Union of India, 1995 Supp (3) SCC 199)).

No one can ask for a mandamus without a legal right. There must be a judicially enforceable as well as legally protected right before one suffering a legal grievance can ask for a mandamus. A person can be said to be aggrieved only when he is denied a legal right by someone who has a legal duty to do something and abstains from doing it ((Mani Subrat Jain v. State of Haryana, AIR 1977 SC 276)).

An applicant praying for a Writ of mandamus must show that, he has a legal right to compel the opponent to refrain from doing something. In other words, there must be in the applicant a right to compel the performance of some duty cast on the opponent ((Union of India v. Orient Enterprises, (1998) 3 SCC 501)).

The duty sought to be enforced must have three qualities, viz.

  1. It must be a duty of public nature. A duty will be of a public nature if it is created by the provisions of the Constitution ((Rashid Ahmed v. Municipal Board, AIR 1950 SC 610))OR of a statute ((State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610))OR some rule of common law ((Sharif Ahmed v. Regional Transport Authority, AIR 1978 SC 209)). A public duty need not, however be always statutory ((Andi Mukta Sadguru Shree SMVSJMS Trust v. VR Rudani, AIR 1989 SC 1607)). A duty corresponding to a private right is not a duty which can be enforced by mandamus.
  2. The duty must be imperative and not discretionary one. In other words, mandamus lie to compel the performance of an absolute duty. The office of a mandamus is to compel the performance of a plain and positive duty. It is issued upon the application of one who has a clear right to demand such performance, and who has no other adequate remedy ((Robert L. Cutting, Re, 94 US 14)).
  3. No mandamus will lie where the duty is of a discretionary in nature. It is issued to enforce the performance of ministerial functions and it must be issued when, there is no alternative remedy available to enforce such functions ((Sharif Ahmed v. Regional Transport Authority, AIR 1978 SC 209)).

An application of mandamus will not lie for an order of reinstatement to an office which is essentially of a private character, nor can such application be maintained to secure performance of obligations owed by a company registered under the Companies Act towards its workmen or to resolve any private dispute ((Praga Tools Corporation v. CA Imanual, (1969) 1 SCC 585)).

It is not necessary that, the person or authority on whom the statutory duty is imposed need be a public authority. A mandamus can issue, for instance to an official of a society to compel him to carry out the terms of the statute under or by which their organisation is constituted or governed or to carry out the duties placed on them by the statutes authorising their undertakings. Writ of mandamus will also lie against companies constituted for the purpose of fulfilling public responsibilities ((Praga Tools Corporation v. CA Imanual, (1969) 1 SCC 589)).

Writ of mandamus lies to secure the performance of a public or statutory duty in the performance of which the one who applies for it has a right or sufficient legal interest ((Praga Tools Corporation v. CA Imanual, (1969) 1 SCC 1306)), or whose rights are directly and substantially invaded and are in imminent danger of being invaded ((State of Kerala v. Lakshmikutty, AIR 1987 SC 331)).

However, Writ of mandamus cannot be issued to the State Government to prevent it from considering a bill which is alleged to have been in violation of Constitution. Similarly, no court can issue a mandate to any Legislature to enact any specific law ((Chote Lal v. State of Uttarpradesh, AIR 1951 All 228)).

Cabinet clears changes to Companies Act

Adyasree Prakriti Sivakumar

With the introduction of the new Companies Act and its incorporation with effect from 1st April 2014 has brought much criticism and appreciation from connoisseurs and masses alike. The act which consists of 14 better and new principles and policies was put forth before the cabinet on Tuesday for the purpose of “making it easier for corporates to do business in India” and “to ensure severe punishment for raising illegal deposits from the public” by clearing a slew of changes to this law.

This would be among the first major initiatives by the government to make changes in the country’s regulatory framework to improve its global ranking for ease of doing business, where in India is ranked at a low 142nd position as per the World Bank report.

The following amendments consist of 14 propositions, which have been approved by the Union Cabinet on Tuesday evening, include a provision to ensure that frauds beyond a certain threshold would need to be mandatorily reported by the auditors to the government. A provision had also been included that prescribes specific punishment for deposits accepted under the new Act. This isn’t that strict and enforceable in the present scenario.

In lieu of the above decisions made, certain issues were raised by the corporates themselves to which the government sent their “friend request” by agreeing to relax a number of norms. Adding on, two more incentives were offered wherein resolution passed by the companies’ boards would not subjected to public inspection and a provision is now included for writing off past losses/depreciation before declaring dividend for the year.

This new law put into place has replaced nearly six-decade-old Companies Act, 1956. The Companies (Amendment) Bill 2014, cleared by the Union Cabinet, chaired by Prime Minister Narendra Modi, would now go to Parliament to bring into effect necessary amendments to the existing Act.

The initiative taken by our government is appreciable and commendable and could be a revolution in the corporate sector.

CSR and the Companies Act 2013

Has it really achieved the objectives or are we still far from achieving a strict compliance with the CSR policies

Sandeep Menon Nandakumar, Assistant Professor (Sr.), VIT Law School, Chennai

It is an undisputed fact that multinational corporations wield more power and wealth than many of the nations across the world ((For example, the annual sales of the Royal Dutch/Shell Group Oil Company are twice New Zealand’s gross domestic product; See Dr. Clarence J. Dias, ‘Corporate Human Rights Accountability and the Human Right to Development: The Relevance and Role of Corporate Social Responsibility’ 4 NUJS L. Rev. 495 (2011).)). Due to the very same reason, they are capable of doing more harm than any other private economic institutions as their activities surpass national boundaries thereby going beyond the control of national jurisdictions in many cases. Multinational corporations do a great deal of service to the society by paying huge taxes, providing employment, contributing to charitable causes and so on. However, at the same time they are also prone to corruption, accused of providing poor and inadequate workplace conditions, causing human rights abuses, consumer disputes and violating environmental values. It is not quite sure whether it is the latter part that the Corporate Social Responsibility (CSR) tries to control but it is surely a mechanism, which balances the latter with that of the former. Corporate social responsibility is based on the premise that most of the companies derive resources from the society and they are expected to return it back. CSR has been defined thus:

“Corporate Social Responsibility is a term used to express that an organization is taking responsibility for the impact of its activities upon its employees, customers, community and the environment. It is usually used in the context of voluntary improvement commitments and performance reporting. Essentially, CSR is the deliberate inclusion of public interest into corporate decision-making, and the honouring of a triple bottom line- People, Planet and Profit. CSR involves a commitment to behave ethically and contribute to economic development, while improving the quality of life of the workforce and their families as well as the local community at large ((Dr. Clarence J. Dias, ‘Corporate Human Rights Accountability and the Human Right to Development: The Relevance and Role of Corporate Social Responsibility’ 4 NUJS L. Rev. 505 (2011).)).

This paper primarily endeavours to find whether above-mentioned concept of CSR is reflected in the Companies Act 2013. The first part of the paper focuses on the requirement of the mandatory CSR policies at the national level. In this part, the extent of responsibility of the states for the activities of corporations is also analysed and some changes have been suggested in this regard. The second part of this paper is on the provisions relating to CSR in the new Companies Act 2013 including its VII Schedule. It also examines whether the UN Global Compact principles are given due recognition in the provisions relating to CSR in the Companies Act. Final part deals with an analysis of Chhattisgarh Corporate Social Responsibility Policy, 2013. Its pros and cons and how it differs from the CSR objectives mentioned in the 2013 Act. This article ends with raising some concerns about the concept of CSR enshrined in the 2013 Act, and that if given proper attention can add new momentum towards the goal of achieving the objectives of CSR.

Inadequacy of State Responsibility: Requirement of mandatory CSR policies at the national level

As one author puts it, “a corporation can recognizably become involved in violations of human rights law either directly as a private actor; as an actor coloured by a connection with a state, state entity, or other public actor; or as a participant in a joint venture or complicitous relation with another human rights violator ((Jordan J. Paust, ‘Human Rights Responsibilities of Private Corporations’ 35 Vanderbilt Journal of Transnational Law 801 (2002).)).” In both international as well as national law, the states are responsible only for the acts of their organs and are generally not made responsible in case of private corporate wrongs. In order to make the state responsible, the legal system looks into whether the acts of the corporations were ‘on behalf of the state’ or ‘under the control of’ the state. However, in most of the cases the situation is different. The corporations are complicit in violating human rights along with the state or vice versa and it should have been a point to include the factor of complicity along with acts ‘on behalf of the state’ or ‘under the control of’ the state.

The Draft Articles on Responsibility of States for Internationally Wrongful Acts, 2001 ((Report of the International Law Commission on the work of its fifty-third session in 2001))attributes the conduct of any organ of the state to the act of state but an organ of the state has been defined to include any person or entity which has that status in accordance with the internal law of the State ((Article 4 of the Draft Articles on Responsibility of States for Internationally Wrongful Acts (2001).)). The 2001 Draft Articles has expanded the ambit of the term organs of the state under articles 5 and 8. According to Article 5, the acts of any organ, which is empowered by the law of that State to exercise elements of the governmental authority, shall be considered an act of the State under international law. The commentary to the Draft Articles state that “since corporate entities, although owned by and in that sense subject to the control of the State, are considered to be separate, prima facie their conduct in carrying out their activities is not attributable to the State unless they are exercising elements of governmental authority within the meaning of article 5”.

The major change should have been brought to article 8, which in its original form states thus:

“The conduct of a person or group of persons shall be considered an act of a State under international law if the person or group of persons is in fact acting on the instructions or under the direction or control of, that State in carrying out the conduct.”

The acts of non-state actors such as TNCs in which the state becomes complicit are not given due attention in the above article. The Draft Articles on responsibility of States for internationally wrongful acts is incapable to fix responsibility on the states involved in human rights abuses carried out by the TNCs ((Daniele Amoroso, ‘Moving Towards Complicity as a Criterion of attribution of private conducts: Imputation to states of corporate abuses in the US Case Law’, 2011 LJIL 989)).

Thus, it is stated that where the state responsibility is highly inadequate to combat the activities of corporations and there is in fact none to be responsible for the activities of the corporation, it is better to have a concrete national policy on corporate responsibilities.

Corporate Social Responsibility under Companies Act 2013

The Companies Act, 2013 has ushered a wave of change by making far-reaching consequences on all companies in India. The talk of the nation, amongst all the new changes brought out by the new legislation, has been the incorporation of provisions relating to Corporate Social Responsibility. The mandate of CSR has been provided under Section 135 of the 2013 Act which ensures that in every financial year, a company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more spends at least two per cent of its average net profits made during the three immediately preceding financial years in pursuance of its Corporate Social Responsibility Policy ((Section 135 of the Indian Companies Act, 2013: The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.)).

The trend that has been seen in India over the years is that most of the companies set up their establishments in an area which results in violating the environmental standards or forced displacement or disturbing the societal set up in that local area. Then they establish cancer research centres or other concerns in an entirely different area that qualify them as companies observing CSR practices. Tata group is one of the best examples. The instance in Singur (popularly known as Tata Nano Singur controversy), where they set up a car manufacturing unit violated several human rights and caused large-scale displacements. This was done without any regard to the land laws of the state. However, they are known to have undertaken many philanthropic activities and have established institutions of higher learning, promoted art and culture of the country and funded scientific research. POSCO steel plant in Odisha is another example, which boasts of initiating educational programmes and scholarships but has caused displacement of several inhabitants and environmental hazards in the local area ((Jaya Srivastava, ‘Social Movements, CSR and Industrial Growth: An Indian Experience, 11 The IUP Journal of Corporate Governance 60 (2012).)). The current Companies Act of 2013 has taken care of this situation by adding a proviso to section 135, which states that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.

The Companies Act of 2013 has given due care to the interests of the community and environment and not just in business/profit affairs of the company. As per Section 166 of 2013 Act, the director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. This is in tune with the provisions of similar legislation in UK. Section 172 of the UK Companies Act 2006 states that the director of a company must act in good faith to promote the success of the company for the benefit of its members as a whole, and in doing so have regard to the impact of the company’s operations on the community and the environment ((Section 172 of the UK Companies Act, 2006: Duty to promote the success of the company: (1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— (a) the likely consequences of any decision in the long term, (b) the interests of the company’s employees, (c) the need to foster the company’s business relationships with suppliers, customers and others, (d) the impact of the company’s operations on the community and the environment, (e) the desirability of the company maintaining a reputation for high standards of business conduct, and (f) the need to act fairly as between members of the company.)).

The amendments made to Schedule VII of the Companies Act, 2013 has in fact widened the scope of CSR activities ((In Schedule VII, for items (i) to (x) and the entries relating thereto, the following items and entries shall be substitutes, namely:-“(i) eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water;(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and differently abled and livelihood enhancements projects;(iii) promoting gender equality, empowering women, setting up homes, and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro forestry, conservation of natural resources, and maintaining quality of soil, air and water;(v) protection of national heritage, art and culture including restoration of buildings and sites for historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts;(vi) measures for the benefit of armed forces veterans, war widows and their dependants;(vii) training to promote rural sports, nationally recognized sports, paralympic sports and Olympic sports;(viii) contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;(ix) contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government; (x) rural development projects))and the much criticized clause (x) in Schedule VII before the amendment that stated “such other matters as may be prescribed” has been removed in the newly framed version. At the same time, the new amendment has made the list exhaustive and it has to be seen whether all the essential CSR activities have come under the schedule ((It has been mentioned in the Companies (Corporate Social Responsibility Policy) Rules 2014 that “Corporate Social Responsibility (CSR) means and includes but is not limited to (i) Projects or programs relating to activities specified in Schedule VII to the Act”, but it is silent as to what all the other activities could be)). It would have been better if the ten fundamental principles of UN Global Compact were given more attention in the VII Schedule and in the overall framework of the provisions relating to CSR in the Companies Act 2013.

UN Global Compact and the 2013 CSR mandate

The UN Global Compact was launched in July 2000 as a framework for the companies worldwide for responsible business practices. The UN Global Compact consists of principles set for the companies to follow in their activities in the areas of human rights, environment, labour standards and anti corruption. These principles enjoy universal consensus and has been derived from UDHR, ILO’s Declaration on Fundamental Principles and Rights at Work, Rio Declaration on Environment and Development and the United Nations Convention against Corruption ((Available at http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html last accessed on July 24, 2014 at 7:59 AM)). The UN Global Compact also ensures that the companies undertake due diligence to comply with its national laws and work to identify any violations of human rights and prevent it. It is doubtful whether Schedule VII encompasses all the human rights principles that were thought about in the Global Compact. Moreover it seems that the Companies Act of 2013 has given a lot more preference to CSR polices by remaining silent on ethical business practices or in other words called ‘responsible business practices’ ((Available at http://www.nfi.org.in/sites/default/files/nfi_files/Comments%20on%20draft%20CSR%20rules.pdf Last accessed on July 24, 2014 at 8:01 AM)). For example, the first principle of UN Global Compact states, “businesses should support and respect the protection of internationally proclaimed human rights.” This principle reiterates the fact that like the government, individuals and other organisations, companies also do have a responsibility in ensuring protection of human rights. By ensuring protection of human rights it should be understood that the business community should not infringe human rights. This has been stressed by the UN Human Rights Council that the corporate responsibility to respect human rights is a requirement of business everywhere ((Available at http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html Last accessed on July 24, 2014 at 8:11 AM)). This principle encompasses within its ambit promotion of rule of law, addressing consumer concerns, increase in worker production and retention and building good community relationships. Schedule VII only deals with the steps that the companies have to undertake towards CSR policies. Due regard has to be given to respect the human rights and not to violate them during set up of the company’s activities as well.  For example, the activities of the corporations such as POSCO in Odisha and Tata Nano in Singur have created massive violations of human rights, land and environmental laws ((Tata Nano project in Singur (West Bengal) had caused severe displacement of farmers and deprived many of land and homes due to the takeover of 997 acres of farmland by the State Government for Tata to build its factory.Though the law authorized the takeover only for public improvement projects, the project was in blatant violation of this)). It is better not to forget the corporate human right abuses that have taken place at the national and international level too. Activities of Barclay’s Bank, in South Africa, Wal-Mart in failing to discontinue dealers from committing labor misuses ((Doug Cassel, ‘Corporate Aiding and Abetting of Human Rights Violations: Confusion in the Courts’ (2007) 6 Nw. U. J. Int’l Hum. Rts. 304)), TNCs as well as Coca Cola in Sudan, the incident of release of toxic gas from Trafigura in Abidjan affecting more than a lakh of people, the environmental degradation and poisoning caused by operations of Rio Tinto in Papua New Guinea, Texaco in Ecuado, Shell in Ogoniland, Nigeria, Union Carbide in Bhopal, issues in Bano v. Union Carbide Corporation ((273 F.3d 120 (2d Cir 2001).)), Exxon’s Valdez oil-spills off Alaska are all examples of environment and human rights abuses by multinationals. Asking the multinationals to invest on CSR after violating human rights and environmental standards by not following ethical/responsible business practices seems to be unrewarding.

The VII Schedule has incorporated the labour and the environmental principles/activities in a comprehensive manner and this is something, which is commendable. On the other hand it seems to have missed the anti corruption principle of the UN Global Compact. Principle no.10 of the UN Global Compact states, “Businesses should work against corruption in all its forms, including extortion and bribery.”

However, the effectiveness of UN Global Compact has always been in question as they are purely voluntary commitments. The companies or the participants are required to communicate their progress in implementing the ten principles annually to all the stakeholders and if they don’t they will be listed as “non-communicating” on the website and the company will be delisted after the expiration of one year from the initial deadline. Though the company has to follow the Global Compact principles once it becomes a part of the commitment, the basic issue is whether a company voluntarily joins the commitment and strives to protect human rights and other related rights. It is true that the companies like Royal Dutch Shell, Novo Nordisk, and BP Amoco have publicly proclaimed their cooperation with the UN to safeguard human rights, but it is still to be seen whether they will be really following what they have proclaimed in the light of future events. If the facts alleged in the recent case of Esther Kiobel v. Royal Dutch Petroleum Co. ((133 S.Ct. 1659 (2013).))are assumed to be true, it can be concluded that nothing has changed much even after the advent of the UN Global Compact and that it is not a very effective step towards making companies follow responsible business practices.

The proviso to Section 135 clearly stipulates the requirement of specifying the reasons for not spending the required CSR amount but it is unclear about the penal consequences that the particular company need to face for not spending the amount towards CSR. The after effect of not mentioning the reasons for not spending the amount is also unclear from the said provisions. It is in this regard that the Chhattisgarh Corporate Social Responsibility Policy 2013 assumes significance.

Chhattisgarh Corporate Social Responsibility Policy 2013

Chhattisgarh Corporate Social Responsibility Policy 2013, published in the Gazette of Chhattisgarh on May 3, 2013, mandates that public and private companies with net profits in the previous year of less than Rs 500 crore will contribute 3% of their annual profits towards CSR to the Chief Minister Community Development Fund, and those with net profits above Rs. 500 crore will contribute 2% of their annual profits towards CSR with a minimum threshold of Rs. 15 crore.

This 2013 state policy goes against the central legislation in many respects and may be held to be invalid as it is doubtful whether the state can assume such kind of power when the central legislation is in force. Moreover, the fact that the amount has to go to the CM’s community development fund may act as a hindrance for companies from earning the goodwill of the local area/community through developmental projects as part of CSR. Nevertheless, the state policy has to be appreciated for reasons manifold. Firstly, the cut off of a net profit of Rs. 500 crore for CSR initiatives fixed by Companies Act 2013 has been removed. As per this policy, even companies whose net profits in the previous year is less than Rs 500 crore have to contribute 3% of their annual profits towards CSR to the Chief Minister Community Development Fund. This is one important aspect, which has been completely missed out in the Companies Act 2013.

The 2013 state policy also provides for punishment for non-compliance. According to the policy, industrial units that are obtaining facilities or grant from various departments of State of Chhattisgarh or according to the prevailing industrial policy will have to mandatorily deposit the money for CSR initiatives in the Chief Minister Community Development Fund. Non-compliance of this will result in taking back of grant or facilities that have been provided by the administration. The state government cannot be blamed for taking such a bold step in this regard, as many of the huge corporate houses like Jindal Steel Power Limited, JSW Steel Ltd, Bhushan Power & Steel, Vandana Group, DB Power Ltd etc are in Chhattisgarh.

One major criticism to the Chhattisgarh CSR policy would be that the amount deposited in the CM Community Development Fund could be used for many purposes other than CSR objectives and there are no adequate safeguards against the same. However, a perusal of Schedule VII of the Companies Act 2013 shows that one of the CSR activities stipulated under it is “contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women”. If the corporate can be asked to contribute to the PM’s National Relief Fund or any other Central Government, then requiring them to contribute to the CM’s fund should not provoke much criticism. It is also to be noted that as per the 2009 decision of the Central Information Commission in Shri A. K. Goel v. Prime Minister’s Office, ((Available at  http://indiankanoon.org/doc/1459130/ last accessed on July 25, 2014 at 01:07 AM))although the Prime Minister’s National Relief Fund can be treated as public authority, it cannot be treated as a government Department and for the same reason, information on both those making contribution to this fund and those receiving benefits from it is to be treated as personal information held in confidence by the Prime Minister’s National Relief Fund and therefore exempt from disclosure u/s 8(1) (j) of the Right to Information Act ((Section 8(1) (j) of the RTI Act: Exemption from disclosure of information. – Notwithstanding anything contained in this Act, there shall be no obligation to give any citizen,— information which relates to personal information the disclosure of which has no relationship to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual unless the Central Public Information Officer or the State Public Information Officer or the appellate authority, as the case may be, is satisfied that the larger public interest justifies the disclosure of such information)).

This policy may seem to be a compelling measure by the government on the companies and against the concept of CSR as envisaged under the Companies Act 2013 whereby corporate are entitled to perform welfare schemes in their neighbourhood for the benefit of the society. But, it should be admitted that the 2013 state policy has taken care of one major situation. CSR, if left entirely to corporates, will become an extremely distrustful activity in the future due to lack of adequate monitoring/verification by the state.

Conclusion

By incorporating the provisions relating to CSR and CSR reporting procedures, the new Companies Act of 2013 has in fact corrected a historic wrong of making CSR a matter of discretion of companies. It is certainly a new step towards transforming the voluntary CSR initiatives to binding principles but there is still a long way to go for achieving a strict compliance with the CSR policies. In the subsequent amendments, it is worthwhile if the following concerns are given adequate focus.

Main Concern: The definition of Corporate Social Responsibility in the present Indian scenario could be seen from the Companies (Corporate Social Responsibility Policy) Rules 2014 where it has been defined thus,

“Corporate Social Responsibility (CSR) means and includes but is not limited to (i) Projects or programs relating to activities specified in Schedule VII to the Act; or
(ii) Projects or programs relating to activities undertaken by the board of directors of a company (Board) in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company subject to the condition that such policy will cover subjects enumerated in Schedule VII of the Act.”

Other concernsIt is true that the concept of CSR is not limited to the activities laid down under Schedule VII of the 2013 Act. However, keeping in mind the meaning and the essence of the concept of CSR (as mentioned in the introduction), it is quite doubtful whether the essence of CSR is reflected in the definition. Moreover, if the true meaning of CSR was embedded in the definition, then there is no reason why discrimination has been shown between companies whose net profit is above Rs. 500 crore and others for CSR initiatives. The essential elements of CSR as enunciated in the above definition which includes responsibility for the impact of its activities upon the company’s employees, customers, community and the environment; voluntary improvement commitments and performance reporting, the deliberate inclusion of public interest into corporate decision-making, honouring of a triple bottom line- People, Planet and Profit are equally applicable to all companies irrespective of their net profit or annual turnover. In the alternative, the 2013 legislation could have at least opted for a bottom down approach (employee-centered CSR approach) for companies with less net profits or annual turnover than top down approach mentioned for companies coming under the ambit of Section 135 ((For more information, See Walter R. Nord & Sally Riggs Fuller, ‘Increasing Corporate Social Responsibility Through an Employee-centered Approach’ 21 Employ Respons Rights J 279 (2009).)). The employee-centered approach is where CSR initiatives come from the part of the bottom level employees. The famous story of one of the largest fashion retailers, Nordstrom that refunded the customer’s money who tried to return a set of tires despite the fact that Nordstrom does not sell tires is a great example of high level of customer service and employee-centered CSR approach.

1)      The uncertainty when companies do not give preference to local area where it operates. Are we talking about a legal framework that does not completely prohibit the corporate/multinationals to disturb environmental safety, promote forced displacement and upset the societal set up in the local area where the company is situated but satisfies the mandate of CSR by setting up a cancer research institute or like establishments in an entirely different area?

2)      The after effects/sanctions meted out to those corporations who fail to comply with Section 135 of the 2013 Act are not clear despite the introduction of mandatory CSR

3)      It is yet to ascertain what would be the so called “social responsibilities” of companies whose net profits fall below Rs. 500 Crore or who do not satisfy the criteria laid down under Section 135(1) of the Companies Act 2013.

4)      The effectiveness of the CSR activities when it comes to its implementation due to lack of adequate verification/monitoring by the state.

5)      The reflection of UN Global Compact principles in the Schedule VII and generally in the CSR provisions in the 2013 legislation.

6)      The failure to give importance to the concept of ethical/responsible business practices in the scheme of the Act.

One Person Company: Indian Corporate World Setting New Milestones

Abhinav Gaur, Research Associate

Existing Companies Act, 1956 has been amended on August 29, 2013 through new Companies Act. Old bill was too complex and many representations were made to the Govt. to simplify it and incorporate present days requirements.    In this new Bill, in addition to number of amendments new law of ONE PERSON COMPANY has also been made. However, this Person Company (OPC) provision is already in practice in other countries like Singapore, China and USA.

ONE PERSON COMPANY

One-person company means a company, which has only one member. According to clause 2(62) of the Companies Act, 2013 it is such a corporate entity which has only one share holder. In this company legal and financial liabilities are limited to the company only.

Important features of OPC are as under:

  • It is formed as a private limited company and has only one person as a member.
  • Such company must bear “ONE PERSON COMPANY” under it’s name.
  • OPC should be formed for lawful purposes and should have minimum 1 director.
  • The annual return of such company must be signed by a Company Secretary. In case, there is no Company Secretary, it can be done by one director
  • One Person Company, small company and dormant company shall be deemed to have complied with the provisions if at least one meeting of the board of directors has been conducted once in six months and gap between the two meetings must not be less than 90 days.
  • Whenever one person company enters into a contract with the member of the company who is a director also, shall inform the registrar about every such contract within 15 days of approval of the board.
  • The financial statements shall be approved by the board and signed by the only one director, for submission to the auditor for their report.

FORMATION

To form an OPC, person has to give a name and legal identity to the proposed company under which business is to be carried on. Nominate has to be made with written consent as a nominee to the OPC. Nominee will be the default and ad hoc member in case of the existing sole member’s death or disability. This provision ensures perpetuity and continuity to the life of the Company. The golden rule of “members may come and go, but the Company must live on” holds good. Finally, OPC should bear the letters “OPC” in brackets after its registered name, wherever it may be printed, affixed or engraved.

RELAXATIONS IN COMPLIANCE REQUIREMENTS

The act contains certain relaxations in the case of an OPC which are more in the nature of the form of the organization like:

  • Minimum number of directors for an OPC is one and the maximum is 15.
  • There is no requirement of the appointment of first director as the sole member shall be deemed to be the first director.
  • Provisions relating to AGM and EJM are not applicable to OPC.
  • Only one director needs to sign the annual returns to be submitted to the registrar of companies.

DIFFERENTIAITNG PARAMETRES FROM A SOLEPROPRIETORSHIP

  • OPC is a separate legal entity from the owner whereas in the case of proprietorship organization both these merge into one.
  • In case of OPC, liability of the owner is limited, whereas in a proprietorship owner is liable for all the liabilities of the business entity he creates.
  • In case of sole proprietorship, Financial ratings and debt obligations are determined by the standing of the owner individual. However, In case of OPC this will be different as it is a separate legal entity.
  • OPC will have a separate legal entity for tax purposes different from the owner which is not the case with sole proprietorship form of business.

 

OPC IN OTHER COUNTRIES

Number of countries permits“One Person Company” kind of a corporate entity. In October 2005, China introduced it in which the promoting individual is both the director and the shareholder. Pakistan permits one person to form a single-member company by filing with registrar, at the time of incorporation, a nomination in the prescribed form indicating at least two individuals to act as nominee director and alternate nominee director. In US, several states permit the formation and operation of a single-member Limited Liability Company (LLC). In China also one person is allowed to apply for opening a limited company with a minimum capital of 1 Lac Yuan. Chinese Act prescribes that owner should pay the investment capital at one time and bars him from opening a second similar company. In several  countries, the law governing companies enables a single-member company to have more than one director and grants exemptions to such companies from holding AGMs, though records and documents are to be maintained. The concept is also very popular in Singapore.

ADVATANGES

OPC concept will bring the un-organized sector of proprietorship into the organized version of a private limited company. The organized version of OPC will open the avenues for more favorable banking facilities. Proprietors always have unlimited liability. If such a proprietor does business through an OPC, then liability of the member is limited. This will open all options for Indian entrepreneurs, with pros and cons, and leave it in the hands of such promoters to decide the best options. It will help many foreign companies, which just need to appoint nominees for the sake of a minimum two members, when in India they form a wholly-owned subsidiary. Various small and medium enterprises, doing business as sole proprietors, might enter into the corporate domain. The concept will boost the flow of foreign funds into India, as the requirement for a nominee shareholder would be done away with. However, the mandatory clause that a resident Indian director should be on the board could act a bottleneck.

SHORTCOMINGS AND AMBIGUITIES

Formation of OPC appears to be easy but one person will still have to ensure statutory compliances like filing of returns, auditing of accounts. OPC’s in the field of finance may also face issue like to meet the minimum capital requirement which in a way has nothing to do with the companies act.   Other issues which could confront may include taxation related issues like tax on capital gains on conversion of proprietorship to OPC, remuneration to director, deemed dividends and stamp duty on transfer of business to OPC. The issues will get clear when the concepts evolve more and the required rules are prescribed.  We have to wait for clarity in cases like a reverse process of converting an OPC in  proprietorship. So a lot of issues have to be kept in mind which can be analyzed only after the growth of this concept in our nation.

CONCLUSION

OPC will give greater flexibility to an individual or a professional to manage his business and enjoy the benefits of a company. Company law experts see a rise in registrations of one-person companies once the Bill is enacted into law. The concept of OPC will also help many foreign companies, which need to appoint a minimum of two nominees now when they form a wholly-owned subsidiary. OPC will open the avenues for more favorable banking facilities, particularly loans, to such proprietors. In addition to it, this concept will boost flow of foreign funds in India as the requirement of nominee shareholder would be done away with.

The main issue thus remains that this is completely new concept and not just an extension of the existing concept of sole proprietorship form of business

Companies Act 2013 – A Milestone in Indian Corporate Regime

Abhinav Gaur, Research Associate

The Companies Bill, 2009 for the first time was introduced on August 3rd 2009.  On August 31, 2010 the Standing Committee presented its report on the Bill. Later, in the winter session of 2011, the central
government withdrew this Bill. Thus, on December 2, 2011, the Bill was re-introduced. The Bill was finally after few Amendments was passed in the Lok Sabha on 18 December 2012. The Companies Bill 2012
was passed in Rajya Sabha on 8 August 2013 (during the monsoon session of the parliament).  With the President’s assent, the Companies Bill 2012 became the Companies Act, 2013.

The Companies Act 2013 although craved its existence for too long years, but better late than never, this Act has been amended several times after extensive debates on its applicability. This Act has given a new hope to the Indian Corporate sector to revive with ever-growing challenges, both domestic and international.

To throw some light, on its few extensively important provisions, under mentioned is a brief of the same.

  • Definition of a Private Company has been changed as the maximum numberof members in a Private Company has been increased from 50 to 200.
  • Small company has been defined as a company other than a public company:-
    • having a paid-up share capital of which does not exceed fifty lakhrupees or such higher amount as may be prescribed notexceedingRs.5crore or
    • having turnover of which does not exceed two crore rupees or suchhigher amount as may be prescribed not exceeding twenty crore rupees.[section 2(85)].
    • Furthermore, various relaxations in terms of reporting requirement, board meetings and procedure for mergers/ amalgamations have been introduced.
    • Substantial additional information, like principal business activities, remuneration of directors and key managerial personnel, etc is required to be given in the Annual Return of a company. Also, in case of a listed company, even if the Annual Return is signed by the Company Secretary in employment of the Company, it is further required to be signed by the Company Secretary in Whole time in practice.
    • A listed company shall not appoint:-
      • An individual as auditor for more than one term of five consecutive years.
      • Hire a law firm to audit for more than two terms of five consecutive years.
      • Auditor appointed shall continue to hold office up till the conclusion
        of 6th meeting.
      • Financial Year of any Company shall end on March 31 and only exceptionis for companies, which are holding / subsidiary of a foreign entity,which require consolidation outside India, they can have a differentfinancial year, but with the approval of Tribunal.
      • The bill provides for establishment of a National Company Law Tribunal and National Company Law Appellate Tribunal consisting of body of technical and judicial members from various fields.
      • The provision relating to the mandatory transfer of profits to reserves for dividend declaration out of profits has been ruled out.
      • Concept of fast track merger without the requirement of a Court Process introduced to facilitate merger between 2 or more “Small Companies” or between holding Company and its wholly owned subsidiary.
      • The declaration of interim dividend can be out of surplus profits or out of current year’s profits. However, if in case the Company has incurred loss up to preceding quarter during the year, the interim dividend cannot be declared out at a rate higher than the average dividend declared by the Company during immediately preceding 3 financial years.
      • Minimum rate of Interest on inter corporate loans to be prevailing rate of interest on dated government securities. Private Companies maynot be able to grant interest free loans.
      • There has to be a minimum of 1 year gap between 2 buy-backs of an unlisted company, whether approved by board of directors or shareholders.
      • Merger and Amalgamation between two small companies have been simplified without requiring the Court process. Also, Merger and Acquisition between an Indian Company and Foreign Company or vice versa has been possible with the permission of RBI. Until now, merger of listed company with unlisted company entailed listing of the unlisted company. However, under the present Act (2013), the unlisted company has an option to continue as unlisted company subject to payment of cash to existing shareholders of listed
        transferor company in accordance with determined valuation.
      • Concept of fast track merger without the requirement of a Court Process introduced to facilitate merger between 2 or more “Small Companies” or between holding Company and its wholly owned subsidiary.
      • Board has to ensure to spend 2% of average profits of last 3 years on CSR. Applicable to Companies having net-worth of INR 500 crore or more or Turnover of INR 1,000 crore or more or net profit of INR 5 crore or more. Company also required constituting CSR committee.

Thus, with changing times and also the needs, it is hoped that the new Companies Act opens up new avenues to success and prosperity for Indian Companies as well as boost up Indian Economy.

Comparative Analysis of Companies Act, 1956 and Companies Act, 2013

Sibani Panda, Research Associate

The new Companies Bill has received the President’s assent on August 29, 2013 and the Companies Act, 1956 which was replaced by the recent companies act has brought about some drastic changes in several areas of company administration and management.

OVERVIEW OF THE COMPANIES ACT, 1956 AND THE COMPANIES ACT, 2013

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HIGHLIGHTS OF THE COMPANIES ACT, 2013

  • The Act, of 2013 has 470 sections as against 658 Sections in the Companies Act, 1956.
  • The entire Act has been divided into 29 chapters.
  • Many new chapters have been introduced such as Registered Valuers (ch.17); Government companies (ch. 23); Companies to furnish information or statistics (ch. 25); Nidhis (ch. 26); National Company Law Tribunal & Appellate Tribunal (ch. 27); Special Courts (ch. 28).
  • The Act is forward looking in its approach which empowers the Central Government to make rules, etc. through delegated legislation (section 469 and others).
  • The Companies Act, 2013 is the result of detailed consultative process adopted by the Government.

COMPARATIVE ANALYSIS

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Private Company: What it is?

Author: Abhinav Gaur, Research Associate

What is a Private Company?

Section 3(1) (iii), as amended by the Companies (Amendment) Act, 2000, provides that a private company means a company which has paid-up capital of Rs. 1 lakh or such higher paid-up capital as may be prescribed, and by its articles of association:

  • restricts the right of members to transfer shares, if any;
  • limits the number of its members to 50, excluding members who are or were in the employment of company;
  • prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company; and
  • Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

Where two or more persons hold one or more shares jointly in the company, they shall be treated as a single member for the purpose of this definition ((Section 3(1) (iii) of The Companies Act, 1956)).

In a private company without share capital, the articles need not contain the provisions restricting the rights of members to transfer shares ((Section 27 (3) of The Companies Act, 1956)).

The minimum number required to form a private company is 2. It is noteworthy that while calculating the number of members, not only present employee-members but also persons who were previously employees and who during their employment became members, are to be excluded.

It is furthermore mandatory for the private company to add the words ‘private limited’ at the end of its name, and it may commence its business immediately after obtaining a certificate of incorporation. It is conventional that the private companies are usually family concerns, since shares are generally held by members of the family. The basic point of private company is that shareholders have the advantage of limited liability and its affairs remain secret to a considerable extent.

ADVANTAGES OF A PRIVATE LIMITED COMPANY OVER A PUBLIC LIMITED COMPANY

A private company enjoys innumerable advantages or relaxations under the Act as compared to a public limited company, such exemptions and privileges enjoyed by a private company, as provided in the Companies Act, 1956, are stated below:

  • A private company may be formed with only two (2) persons as members ((Section 12(1) of The Companies Act, 1956)).
  • It may commence allotment of shares even before the minimum subscription is subscribed for or paid ((Section 69 of The Companies Act, 1956)).
  • It is not required either issue a prospectus to the public or file a statement in lieu of a prospectus ((Section 70 (3) of The Companies Act, 1956)).
  • A Private Company including subsidiary of a Public Company can issue its further shares to any person in any manner as it thinks best in its own interest. Restrictions imposed on public companies regarding further issue of capital do not apply on private companies ((Section 81 (3) of The Companies Act, 1956)).
  • Provisions of Sections 114 and 115 relating to share warrants shall not apply to it ((Section 114 of The Companies Act, 1956)).
  • It need not keep an index of members ((Section 151 of The Companies Act, 1956)).
  • It can commence its business after obtaining a certificate of incorporation. A certificate of commencement of business is not required ((Section 149 (7) of The Companies Act, 1956)).
  • It need not hold statutory meeting or file a statutory report ((Section 165 (10) of The Companies Act, 1956)).
  • Unless the articles provide for a larger number, only two persons personally present shall form the quorum in case of a private company, while at least 5 members personally present form the quorum in case of a public company ((Section 174 of The Companies Act, 1956)).
  • In case of a private company, poll can be demanded by 1 member if not more than 7 members at present and by 2 members if more than 7 members are present ((Section 179 of The Companies Act, 1956)).
  • It need not have more than 2 directors while public company must have at least 3 directors ((Section 252 of The Companies Act, 1956)).
  • A director is not required to file his consent to act a s such with the registrar ((Section 266 (5) (b) of The Companies Act, 1956)).
  • Provisions in section 284, regarding removal of director by the company in general meeting shall not apply to a life director appointed by a private company on or before 1st April 1952 ((Section 284 (1) of The Companies Act, 1956)).
  • A private company is not prohibited from giving financial assistance directly or indirectly for purchase or subscription of its own shares ((Section 77 (2) of The Companies Act, 1956)).
  • No person other than a member of the private company is entitled to inspect or obtain copies of the profit and loss account and the balance sheet filed with the Registrar ((Section 220 (1) of The Companies Act, 1956)).
  • The right of appeal to the Company Law Board against rejection of a transfer of shares is not available as long as the Private Company is only enforcing the provisions of its articles in rejecting a particular transfer. It appears from this section that a right of appeal will be available where the rejection is outside the provisions of the Private Company’s Articles. The right of appeal is also available where there is transmission by court sale or sale by other public authority ((Section 111 (13) and Section 111 (11) of The Companies Act, 1956)).
  • Passing of resolution by Postal Ballot is not relevant for Private Company ((Section 192 A of The Companies Act, 1956)).
  • The provision requiring giving 14 day notice by new candidates seeking election as directors and depositing of certain amount (Rs. 500) are not mandatory for Private Company which is not a subsidiary of Public Company ((Section 257 of The Companies Act, 1956)).
  • It is exempted from many provisions of the Act relating to directors, managing director, or manager, as given below:

(a) All its directors can be permanent life directors and the provisions relating to retirement of directors by rotation (1/3rd every year) shall not apply to it ((Section 255 and 256 of The Companies Act, 1956)).

(b) Two or more directors may be appointed by a single resolution ((Section 263 of The Companies Act, 1956)).

(c) Provisions requiring sanction of the central government for increasing the number of directors beyond the limit fixed by the articles shall not apply to a private company ((Section 259 of The Companies Act, 1956)).

(d) Provision prohibiting the appointment of managing director or manager for more than 5 years at a time shall not apply to it ((section 317 of The Companies Act, 1956)).

(e) No government approval is required for appointment or re-appointment of managing or whole time director or manager ((section 268 and 269 of The Companies Act, 1956)).

(f) A private company may provide additional disqualifications in its articles for the appointment of director ((Section 274 of The Companies Act, 1956)).

Classification of Companies

Author: Nayantara Narayan

Industrial has revolution led to the emergence of large-scale business organizations. These organizations require big investments and the risk involved is very high. Limited resources and unlimited liability of partners are two important limitations of partnerships of partnerships in undertaking big business. Joint Stock Company form of business organization has become extremely popular as it provides a solution to overcome the limitations of partnership business. The Multinational companies like Coca-Cola and, General Motors have their investors and customers spread throughout the world. The giant Indian Companies may include the names like Reliance, Talco Bajaj Auto, Infosys Technologies, Coromandel International Ltd., Hindustan Lever Ltd., Ranbaxy Laboratories Ltd., and Larsen and Tubro etc.

Section 3 (1) (i) of the Companies Act, 1956 defines a company as “a company formed and registered under this Act or an existing company”. Section 3(1) (ii) of the act states that “an existing company means a company formed and registered under any of the previous companies laws”. This definition does not reveal the distinctive characteristics of a company. According to Chief Justice Marshall of USA, “A company is a person, artificial, invisible, intangible, and existing only in the contemplation of the law. Being a mere creature of law, it possesses only those properties which the character of its creation of its creation confers upon it either expressly or as incidental to its very existence”.

Classification of Companies

As of now, the Companies Act, 1956 provides for various types of companies of which may be registered under the Act. The most common among these are :-

  1. Private Company ((Section 3 (1) (iii) as amended by /the Companies (Amendment) Act, 2000)).
  2. Public Company ((Section 3 (1) (iv) as amended by /the Companies (Amendment) Act, 2000)).
  3. Government Companies ((Section 617)).

A. Private Company

According to Sec. 3(1) (iii) of the Indian Companies Act, 1956, a private company is that company which by its articles of association:

i) limits the number of its members to fifty, excluding employees who are members or ex-employees who were and continue to be members;

ii) restricts the right of transfer of shares, if any;

iii) prohibits any invitation to the public to subscribe for any shares or debentures of the company.

Where two or more persons hold share jointly, they are treated as a single member. According to Sec 12 of the Companies Act, the minimum number of members to form a private company is two. A private company must use the word “Pvt” after its name.

The main features of a private company are as follows:

i) A private company restricts the right of transfer of its shares. The shares of a private company are not as freely transferable as those of public companies. The articles generally state that whenever a shareholder of a Private Company wants to transfer his shares, he must first offer them to the existing members of the existing members of the company. The directors determine the price of the shares. It is done to preserve the family nature of the company’s shareholders.

ii) It limits the number of its members to fifty excluding members who are employees or ex-employees who were and continue to be the member. Where two or more persons hold share jointly they are treated as a single member. The minimum number of members to form a private company is two.

iii) A private company cannot invite the public to subscribe for its capital or shares of debentures. It has to make its own private arrangement.

B. Public company

According to Section 3 (1) (iv) of Indian Companies Act. 1956 a public company is “one which is not a Private Company”, If we explain the definition of Indian Companies Act, 1956 in regard to the public company, we note the following:

i) The articles do not restrict the transfer of shares of the company

ii) It imposes no restriction no restriction on the maximum number of the members on the company.

iii) It invites the general public to purchase the shares and debentures of the companies

Differences between a Public Company and a Private company

1. Minimum number: The minimum number of persons required to form a public company is seven. It is two in case of a private company.

2. Maximum number: There is no restriction on maximum number of members in a public company, whereas the maximum number cannot exceed 50 in a private company.

3. Number of directors: A public company must have at least three directors whereas a private company must have at least two directors (Sec. 252)

4. Restriction on appointment of directors: In the case of a public company, the directors must file with the Register consent to act as directors or sign an undertaking for their qualification shares. The directors or a private company need not do so (Sec 266)

5. Restriction on invitation to subscribe for shares: A public company invites the public to subscribe for shares. A public company invites the public to subscribe for the shares or the debentures of the company. A private company by its Articles prohibits invitation to public to subscribe for its shares.

6. Name of the Company: In a private company, the words “Private Limited” shall be added at the end of its name.

7. Public subscription: A private company cannot invite the public to purchase its shares or debentures. A public company may do so.

8. Issue of prospectus: Unlike a public company, a private company is not expected to issue a prospectus or file a statement in lieu of prospectus with the Registrar before allotting shares.

9. Transferability of Shares: In a public company, the shares are freely transferable (Sec. 82). In a private company, the right to transfer shares is restricted by Articles.

10. Special Privileges: A private company enjoys some special privileges. A public company enjoys no such privileges.

11. Quorum: If the Articles of a company do not provide for a larger quorum, five members personally present in the case of a public company are quorum for a meeting of the company. It is two in the case of a private company (Sec. 174)

C.      Government Companies.

A Company of which the Central Government of by State Government or Government holds not less than 51% of the paid up capital singly or jointly is known as a Government Company. It includes a company subsidiary to a government company.

The share capital of a government company may be wholly or partly owned by the government, but it would not make it the agent of the government. The government on the advice of the Comptroller and Auditor General of India appoints the auditors of the government company. The Annual Report along with the auditor’s report is placed before both the House of the parliament. Some of the examples of government companies are – Mahanagar Telephone Corporation Ltd., National Thermal Power Corporation Ltd., and State Trading Corporation Ltd. Hydroelectric Power Corporation Ltd. Bharat Heavy Electricals Ltd. Hindustan Machine Tools Ltd. etc.

The following are the features of the Government Company

1. Incorporation -: The Government Company is registered under Companies Act, 1956. The provisions of Indian companies Act, 1956 are applicable in respect of conduct of meetings, rising of capital, appointment of directors, auditors, etc. It enjoys the status of a legal entity and therefore it can use or be sued by others.

2. Annual Accounts-: The annual accounts of a Government Company are placed before the parliament or state government for review.

3. Management-: It is managed by a Board of Directors, most of who are appointed by the government.

4. Exemption from Companies Act-: The Government reserves the right exempt such a company from certain provisions of the Indian Companies Act.

5. Objective –: It operates on commercial principles, and as such it, aim is to make profit apart from other objectives.

6. Need for Privatization -: There is growing move to privatize a good number of government Companies so as to improve their efficiency.

7. Capital Contribution -: Its Capital is contributed by Central/State Governments and public. The government contributes 51% or more of its paid up capital. The public hold minority shareholding in Government Companies.

8. Staff -: This type of organization can recruit its own employees and they are not government servants. Their terms of service are not governed by the civil service rules. However, the employees of departmental undertakings are Government servants, and are governed by Civil Service Rules.

The Companies Bill, 2012 (Bill) was passed by the Lok Sabha on December 18, 2012, replacing 56-year-old Companies Act, 1956. The Bill seeks to consolidate and amend the law relating to the companies and intends to improve corporate governance and to further strengthen regulations for Corporate. On its enactment, this new Companies law will allow the country to have a modern legislation for growth and regulation of corporate sector in India. The existing statute for regulation of companies in the country, viz. the Companies Act, 1956 had been under consideration for quite long for comprehensive revision in view of the changing economic and commercial environment nationally as well as internationally.

The new concept of One Person Company has been introduced. It is considered as revolutionary step taken by government to encourage unorganized proprietorship business to enter in to organized corporate world.

The concept “one person company” is widely accepted in developed countries and neighbor country – China. Minimum two members are required to form a private company and minimum seven members required for public company under prevalent law.

This is looked as barrier in forming private limited company by businessmen who do not want any participant in business. To remove this difficulty it was practice adopted to allot minimum share to someone in family or friend. But with introduction of OPC it will be possible to form a company with only one member. OPC provides benefit of both form of business- Proprietorship and Company. With OPC business can be run same way as proprietorship, of course by complying with law, and keeping liability of the member limited by share or guarantee, as the case may be. At the same time it has casted responsibility on the society and market players to recognize OPC as company and not another form of proprietorship business. Because much public interest not involved in OPC, many relaxations have been granted to OPC in compliances and procedural aspects. It will enable them to attain natural growth.

A One Person Company is still an idea in its infancy and is best for small enterprises looking at testing the waters, as an alternative to a proprietorship.

Companies can be classified into five categories according to the mode of incorporation based on number of members, based on control, based on ownership and based on nationality of the company. This article has discussed the three major types of companies i.e. Private, public and Government companies. It has discussed the new concept of ‘One Person Company’ introduced via the Companies bill 2012. Company may be defined as group of persons associated together to achieve some common objective. A company formed and registered under the Companies Act has certain special features, which reveal the nature of a company. These characteristics are also called the advantages of a company because as compared with other business organizations, these are in fact, beneficial for a company.