Origin and Development of Company Law in India

This article revolves around the Origin, History, and Development of Company Law. How the Act came into effect in India. Definition of Company Law which is defined under Section 2(20) of the Act. This article also gives an overview on the history when the Modern Company Law started, main features of the Companies Act like- Full and fair disclosure of various matters in the prospectus, Detailed particulars of the financial affairs of the company to be disclosed in its account, Limitation on the powers of managerial personnel, etc. and all the related Amendments which were made under the Companies Act, 1956.


In terms of the Companies Act, 2013 (Act No. 18 of 2013) a “company” means a company incorporated under this Act or any previous company law Section 2(20).

The word ‘company’ is derived from the Latin word (Com is with or together; panis is bread), and it originally regarded to an association of persons who took their meals together.

The company is a form of organization of greater importance. In popular language, a company signifies an association of likeminded persons formed to carry on some business or undertaking. A company is a corporate body and a legal person having status and personality distinct and separate from the members constituting it. It is called a body corporate because the persons composing it are made into one body by incorporating it according to the law and clothing it with legal personality.

The word ‘corporation’ comes from the Latin term ‘corpus’ which implies ‘body’. Accordingly, ‘corporation’ is a legal person created by a process other than natural birth. It is, for this reason, sometimes called an artificial legal person. As a legal person, a company is capable of enjoying many rights and incurring many liabilities of a natural person.


The history of the Modern Company Law in  India in England began in 1844 when the Joint Stock Companies Act was passed. The Act provided for the primary time that an organization might be incorporated by registration without obtaining a charter or sanction by a statute of the Parliament. The office of the registrar of Joint Stock Companies was also created. But the Act denied to the members the power of financial obligation. The English Parliament in 1855 passed the indebtedness Act providing for liability to the members of a registered company. The Act of 1844 for superseded by a comprehensive Act of 1856, which marked the start of a new era in Company Law in England. This Act introduced the modern mode of making companies employing memorandum and articles of associations.

The first enactment up-to-date to the title of Companies Act was the Companies Act 1862. By these Acts, a number of the modern provisions of the corporate were laid down. First of all, two documents, namely: the memorandum of association and articles of an association formed an integral part of the formation of an indebtedness company. Secondly, an organization can be formed with liability limited by guarantee. Thirdly, any alteration within the object clause of the memorandum of association was prohibited. Provisions for winding up was also introduced.

Thus, the fundamental structure of the corporate as we all know had taken shape. Sir Francis Palmer described this Act as the Magna Carta of co-operative enterprises. But the businesses (Memorandum of Association) Act, 1890 made relaxation concerning the change within the object clause under the leave of the court obtained on the grounds of a special resolution passed by the members in the general meeting. The liability of the administrators of the organization was the mandatory audit of the companies account was enforces under the Companies Act, 1990.

The concept of the Private Company was initiated for the first time within the Companies Act, 1908 (the previous ones were called Public Companies). Two successive Acts were passed in 1908 and 1929 to consolidate the initial Acts. The Companies Act 1948, which was the Principal Act operative in England was supported the report of a committee under Lord Cohen. This Act introduced inter alia another new formation of a company known as an exempt private company.

Another feature of the 1948 Act was importance on the general public accountability of the firm. In generally recognized principles of accountancy got statutory force and had to be applied within the preparation of the record and profit and loss account. Furthermore, the legislation of 1948 extended the protection of the majority (sec 210) and therefore the powers of the Board of Trade to order an investigation of the companies affair (sec a64-175) and for the primary time, the shareholders in the general meeting got the ability to remove a director before the expiration of his period of office. The Independence of the auditor’s vis-à-vis the directors was strengthened.


The Companies Act, 1956 was enacted to consolidate and amend the first laws bearing on to companies and certain other associations. The Act came into force on 1st April 1956. This Companies Act was based largely on the recommendations of the Company Law Committee (Bhabha Committee) which submitted its report in March 1952. This Act was the longest piece of legislation ever elapsed by our Parliament. Amendments were made during this Act periodically. The Companies Act, 1956 consisted of 658 Sections and 15 Schedules.

Main Features of the Companies Act, 1956-

  1. Full and fair disclosure of various matters in the prospectus.
  2. Detailed particulars of the financial affairs of the company to be disclosed in its account.
  3. Provision for intervention and inspection by the Government into the affairs of the firm.
  4. Limitation on the powers of managerial personnel
  5. Implementation of the proper performance of their duties by company management, and
  6. Protection of minority shareholders.

The Companies Act, 1956 was enacted with the purpose to amend and consolidate the law relating to companies. This Act provided the legal framework for corporate entities in India and was mammoth legislation. As a when Corporate Sector grew in numbers and size of operations, the need for the necessity of this Act was felt and as many as 24 amendments had taken place since then.

The Companies Act, 1956 had undergone following changes by amendments in-

1960, 1962, 1963, 1964, 1965, 1966, 1967, 1969, 1971, 1977, 1985, 1988, 1996, 1999, 2000, 2002 (Amendment), 2002 (Second Amendment), and 2006. The Companies Act, 1956 was also amended consistent with the enactment of the Depositories Act, 1996. There were some unsuccessful attempts made in 1993 and 1997 to replace the present Act with a new law. Companies (Amendment) Bill, 2003 containing important provisions relating to Corporate Governance and aimed at achieving competitive advantage was also established.

  • (a) Based on the recommendations of the Shastri Committee, the Companies (Amendment) Act, 1960 introduced several new provisions regarding various aspects of company management which were overlooked within the 1956 Act.
  • (b) The Companies (Amendment) Act, 1963 provided for the appointment of a Company’s Tribunal and constitution of the Board of Company Law Administration. It also empowered the Central Government to disconnect with managerial personnel involved in cases of fraud, etc.
  • (c) Based on the recommendations of the Vivian Bose Commission, the Companies (Amendment) Act,1965 introduced some major changes, like the clear definition of the foremost and subsidiary objects of a corporation in its Memorandum of Association; Strengthening the provisions referring to the investigation into the affairs of the company, etc. The Companies Act was further amended twice in 1966.
  • (d) Two important changes were introduced by the Companies (Amendment) Act, 1969. Firstly, the institutions of managing agents and secretaries and treasurers were abolished with effect from April 3, 1970. Secondly, contributions by the firm to any political party or for any political purpose were prohibited.
  • (e) The Companies (Amendment) Act, 1974 which came into force from February 1, 1975, had introduced some important and major changes within the Companies Act, 1956. The purpose of the Amendment Act was to inject an element of public interest in the working of the corporate sector.

The Companies (Amendment) Act of 1977 led certain changes in Sections 58A, 220,293, 620, and 634A of Companies Act 1956.

  • (a) The Companies (Amendment) Act, 1985: The Amending Act substituted Section 293A  of Companies Act, 1956 with a new section permitting Non-Government companies to form political contributions, directly or indirectly.
  • (b) With a view that legitimate dues of workers at an equal rate with secured creditors within the event of closure of the firm and rank above even the dues to Government, Sections 529 and 530 of the Companies Act, 1956, were amended and a new Section 529A was introduced.

The Companies (Amendment) Act, 1988: It is based on the recommendations followed by the Expert Committee (Sachar Committee), the Companies (Amendment) Act, 1988 substantially amended the Companies Act, 1956 to streamline some of the existing provisions of the Companies Act, 1956 and to ensure efficient working and administration of the Act. Some of the important changes introduced by the Amendment Act of 1988 were:

  • (a)  Definition of Secretary brought in line with the definition of ‘Company Secretary’ within the Company Secretaries Act, 1980, and includes an individual possessing the prescribed qualifications.
  • (b)  The concept of company secretary in practice was introduced for the primary time within the Companies Act. The Amended Act, among other things, also organize an independent Company Law Board to exercise such judicial and quasi-judicial functions, earlier being exercised either by the Court or the Central Government.

The Depositories Act, 1996 made the subsequent major amendments to the Companies Act, 1956:-

  • (a) Each person holding equity share capital of a company and in whose name it is entered as beneficial owner within the records of the depository shall be deemed to be a member of the concerned company.
  • (b) Stamping of transfer instruments isn’t required where both the transferor and transferee are entered as beneficial owners within the records of a depository.
  • (c) The securities of a company aside from a private company are made freely transferable. The transfer has to be effected immediately by the company/depository.
  • (d) The register of members shall indicate the shares held by a member in De-mat mode but such shares need not be distinguished by a distinctive number.
  • (e)  Company to offer within the offer document to choose that the investor has to ask for the issue of securities in De-mat mode.

The Companies (Amendment) Act, 1999 made the subsequent major changes to the Companies Act, 1956-

  • (a) Companies allowed to issue Sweat Equity shares and to buy-back their securities.
  • (b) Facility for nomination provided for the advantage of share/debenture/deposit holders.
  • (c) An Investor Education and Protection Fund to be established.
  • (d) National Advisory Committee on Accounting Standards for companies to be set-up.
  • (e)  Prior approval of the Central Government not required for inter-corporate investment/lending proposals subject to certain conditions.

Further the Companies (Amendment) Act, 2000 made the subsequent major Amendments:

  • (a) Private Companies and Public Companies possess a minimum paid-up capital of Rupees 1 lakh and 5 lakh respectively.
  • (b) Change of place of registered office from the jurisdiction of one Registrar of Companies to another Registrar of Companies within the same state requires confirmation from the Regional Director.
  • (c) Provisions regarding deemed public companies became inoperative and a new provision relating to the conversion of a public company to a private company inserted in the Companies Act, 1956.
  • (d) SEBI has given powers regarding the issue and transfer of securities and non-payment of dividend by listed public companies.
  • (e) Certain measures included for safeguarding the interest of small deposit holders in a company.
  • (f) Preferential offer/Private placement of securities to 50 persons or more are treated as a public issue. This shall not apply to a preferential offer made by public financial institutions and NBFCs.
  • (g) Provisions regarding shelf-prospectus and details of the memorandum, issue of equity share capital with differential rights on dividend, voting or otherwise included.
  • (h) Every listed company making an initial public offer of any security for a sum of Rupees 10 crores or more will have to issue the same only in a dematerialized form.

The subsequent changes to the Companies Act, 1956:-

Companies (Amendment) Act, 2002 and Companies (Second Amendment) Act, 2002 made the-

  • (a) New Part IXA consisting of Section 581A to 581ZT regarding Producer Companies inserted
  • (b) The prevailing  Company Law Board is proposed to be dissolved and in its place a National Company Law Tribunal (Tribunal) is to be constituted.
  • (c) Appeals against the orders of the Tribunal can be filed with the Appellate Tribunal. A further appeal against the orders of the Appellate Tribunal would misinform to the Supreme Court.
  • (d) The Board for Industrial and Financial Reconstruction is to be abolished and SICA is going to be repealed.
  • (e) Transfer of all the powers from the BIFR to the Tribunal.
  • (f) Transfer of certain powers of the High Court to the Tribunal.
  • (g) A greater role for professionals within the administration of Company Law.
  • (h) Transfer of powers referring to winding up, mergers and amalgamations from Court to the Tribunal.

 The Companies (Amendment) Act, 2006 inserted new Sections 610B, 610C, 610D, and 610E and also certain sections regarding Director Identification Number (DIN).

Salient features of the provisions of Companies (Amendment) Act, 2006 are as follows:

  • (a) DIN to be obtained by all existing directors and each person, aspiring to become a director.
  • (b) The applications, balance sheet, prospectus, return, declaration, memorandum and articles of association, particulars of charges or other particulars or document required to be filed or delivered, are to be filed in electronic form.
  •  (c) The document, notice, any communication or intimation, required to be served or delivered under the Act to the Registrar of Companies, should be served or delivered through electronic form.
  •  (d) Applications, balance sheet, prospectus, return, register, MOA and AOA, particulars of charges or other document and return filed shall be maintained by Registrar in electronic form.
  • (e) Central Government may provide such value-added services through the electronic form.
  • (f) All the provisions of the Information Technology Act, 2000 regarding the electronic records, in so far as they’re inconsistent with the Companies Act, shall apply to the records in electronic form.


To conclude how it benefitted the Company Law Act, the subsequent reasons are-

  1. To decriminalize some provisions of the Act, based on their gravity;
  2. To amend various provisions of the Act to decriminalize minor procedural or technical lapses under the provisions of the said Act, wrongful conduct
  3. To constant Endeavour of the Government to facilitate Greater Ease of Living of Law-abiding corporates.
  4. To provide greater ease of living to corporates through certain other amendments to the Act.

Frequently Asked Questions (FAQs)

Ques 1- What do you mean by Company in Companies Act?

Ans 1- A company is a legal entity formed by a group of individuals to engage in and operate a business, commercial or industrial enterprise. The line of business the company is in will generally determine which business structure it chooses such as a partnership, proprietorship, or corporation.

Ques 2- Under which Section “Company” is defined under the Companies Act?

Ans 2- “Company”  is defined under Section 2(20) of the Companies Act, 2013

Ques 3- Can a company be incorporated without a registered office?

Ans 3- As per the Companies Act 2013, a Company shall have its registered office within 30 days of its incorporation.

Ques 4- Is it mandatory for the name of the company to be indicative of the nature of its business?

Ans 4- No, the name doesn’t need to be indicative of the nature of its business

Ques 5- Is it mandatory for a company to have a common seal?

Ans 5- No, as per the Companies (Amendment) Act 2015, the companies are not mandatorily required to have a common seal. Further, the existing companies may amend their Articles of Association to this effect.


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