This article is written by Ms Kamakshi, a 4th year BBALLB student from REVA university.
The Companies Act 1956 sets out the rules for the formation of both public and private companies. The most common type of company is the limited liability company, which is relatively rare. A company is incorporated by registering a Memorandum and Articles of Incorporation with the State Registry of the state in which its principal place of business is located. Foreign companies engaged in manufacturing and trading activities abroad are permitted by the Reserve Bank of India to open branches in India to engage in the following activities in India:
To represent parent companies or other foreign companies in various matters in India, such as buying and selling agents in India.
Carrying out investigative work involving the parent company. provided, however, that the results of the investigation work are provided to Indian companies carrying out import and export trading activities.
Facilitate possible technical and financial cooperation between Indian and foreign companies. Application for permission to open a branch office, project office or liaison office is made through the Reserve Bank of India by submitting Form FNC-5 to the Manager, Foreign Investment and Technology Transfer Department, Reserve Bank of India. .
The word “company” is a portmanteau of the Latin words “com” meaning “together” and “pains” meaning “bread”. It originally referred to a group of people eating a meal together. A company is nothing more than a group of people who have joined together or donated money to the public and are incorporated into another legal entity in the form of a company for this purpose. Under the English Halsbury Acts, the term society is a group of bodies bound together under special domination into one body, artificially possessed of indefinite succession, and empowered by legal policy to act in more than one way. defined as a collection of many individuals Creation of individuals, especially those who acquire and rent property, assume obligations, sue and sue, enjoy collective privileges and immunities, and exercise a variety of political rights, more or less widespread depending on the composition of the organization Power on at or after creation. However, the Supreme Court of India has ruled in State Trading Corporation of India v. CTO that a company cannot have citizenship under the Indian Constitution.
On 22nd October 1999, a Commission was set up under Judge V. Balakrishna Eradi to review existing laws relating to liquidation of companies, restructuring of distressed businesses and debt recovery laws, securities contracts, corporate insolvency, Proposed corrective actions to ailing companies. Corporate sector these topics
National Company law tribunal: The bill proposes the establishment of a Corporation Law Commission, an Industrial and Financial Recovery Commission, an Appellate Body for Industrial and Financial Consolidation, and the National Corporation Law Tribunal (NCLT), which exercises the powers and jurisdiction of the High Court. I’m here. Includes corporate law issues. Actions pending in the Company Law Chamber and liquidation actions pending in various High Courts will be transferred to the proposed NCLT. Matters pending in the BIFR/AAIFR will be quiesced, but such firms will file reinquiries with his NCLT. The NCLT is headquartered in Delhi and has at least 10 special chambers at the High Court headquarters. The NCLT will consist of the Chairman and his 62 or fewer legal and technical members. The Delhi Court of Appeals has also been proposed and an appeal against the NCLT must be filed within 45 days of receipt of the NCLT’s order. Appeals against the Court of Appeal order go to the Supreme Court.
Trouble at the time of dissolution of the company: Problems highlighted in the company’s liquidation in the Eradi Commission’s report included delays in filing tax returns, delays in handing over updated books and records, delays in completing lists of creditors and debtors, and inadequate It is related to authority and staff. Public bankruptcy practitioner (OL), unavailability of funds, etc. The proposed bill takes steps to resolve and minimize these problems. Section 493(1) of the proposed law provides that any company must file a declaration at the time of filing an application for liquidation or during an opposition to an application for liquidation. The declaration shall be filed with the names and addresses of the directors, creditors and debtors of the company, the location of the assets and their value and such other information as the court may order. This provision reduces the delays previously incurred in explaining company affairs. Section 457 C(a) of the proposed law gave the official liquidator broad powers. B. A chartered surveyor and a chartered accountant may be appointed to value the company’s assets. The bill repealed OL’s previous provision that required court approval for even minor decisions. For example, you can now appoint security guards to protect company assets and other necessary support personnel.
Fund establishment: To address the funding shortfall, the proposed law would establish a resuscitation and rehabilitation fund funded by a surcharge levied at a rate of 0.005% to 1% on the company’s annual turnover or gross income. I stipulate. This proposed fund will handle temporary wage payments to workers to protect property and other cleaning operations. The bill has not freed the fund from government control as the bill proposes to transfer the amount raised to the Indian Consolidation Fund. Congress, by delegation, may from time to time establish an agency to fund the courts. This procedure can lead to avoidable delays, as the court must work with the agency created to manage the funds. Another weakness of this clause is that the levy is levied on the company’s annual turnover, not on the company’s profits. H. Companies that suffer losses must also pay to the fund.
Inspection agency: In the new arbitration, NCLT has been given unique powers to review its own decisions set forth in Section 10 FN of the proposed bill. The establishment of NCLT could be of great help to the business community as it will have a dedicated bench at the High Court Headquarters and companies will not have to come to Delhi every time for revitalization and rehabilitation. Additionally, as the definition of a sick company changes, more companies are likely to fall within the scope of a sick company, thereby receiving the attention they need in a timely manner. With the establishment of the fund and the change in the definition of the sick community and the change in the dissolution procedure, the period of reinstatement and dissolution will be shortened. The Central Government is making every effort to achieve the objectives proposed through this bill. H. Avoid numerous lawsuits, protect workers’ rights, and shorten deadlines for liquidating sick companies. It is now necessary to ensure that the provisions of this bill are strictly implemented and that the purpose of this bill is achieved.
Revitalization of a sick company: Under proposed Section 2 (46 AA) of the bill, a “sick company” is defined as a company whose cumulative losses in any given fiscal year equals at least 50% of its average net assets in the fiscal year immediately preceding that fiscal year. Defined. A company in debt fails to pay on demand for three consecutive quarters due to repayment by one or more creditors. This is a significant change from the provisions of Section 3(1)(o) of the Sick Enterprises (Special Provisions) Act 1985 (SICA), which provides that a troubled operating company may, at the end of its financial year, You have suffered a cumulative loss of the same amount or more. Registered for at least 5 years with less than total net worth. This change in definition will bring distressed companies to the spotlight sooner, thereby improving their chances of recovery. Due to the company’s three consecutive quarters of delinquency provisions, not only the company’s board of directors, but also banks and financial institutions can refer the company to the court to rehabilitate the company, even if it has been less than five years since the company was registered. Under this provision, companies that have been registered for less than five years are also subject to the “sick society”.
The Companies Act, 2013 has taken a major initiative to establish good corporate governance in India. Various changes have been introduced by the aforementioned legislation to establish transparency, accountability and independence in the operations of companies.
Refrence: State Trading Corporation of India v. CTO