Introduction to Company Law
Company Law governs the formation, regulation, and dissolution of companies. The Companies Act, 2013, is the primary legislation governing corporate entities in India. It ensures transparency, accountability, and efficiency in business operations.
Landmark Cases on Company Law
1. Salomon v. Salomon & Co. Ltd. (1897)
Facts: Mr. Salomon formed a company, transferring his sole proprietorship business to it. When the company went into liquidation, creditors claimed his personal assets.
Judgment: The House of Lords upheld the principle of separate legal personality, ruling that a company is distinct from its shareholders.
Conclusion: This case established the fundamental principle that a company has its own legal identity, separate from its owners.
2. Foss v. Harbottle (1843)
Facts: Shareholders sued the company’s directors for mismanagement.
Judgment: The court held that the company itself must bring the lawsuit, not individual shareholders.
Conclusion: This case established the “majority rule” principle, limiting shareholders’ direct litigation rights.
3. Ashbury Railway Carriage & Iron Co. v. Riche (1875)
Facts: The company entered into a contract beyond its stated objectives in the memorandum of association.
Judgment: The contract was declared ultra vires (beyond the company’s powers) and unenforceable.
Conclusion: Established the doctrine of ultra vires, restricting companies from engaging in activities beyond their stated objectives.
4. Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965)
Facts: Minority shareholders alleged oppression by the majority.
Judgment: The Supreme Court ruled in favor of the petitioners, defining “oppression” under Section 397 of the Companies Act.
Conclusion: This case clarified the legal remedy for minority shareholders against oppressive management practices.
5. Bajaj Auto Ltd. v. N.K. Firodia (1971)
Facts: The case involved the rejection of a share transfer request without valid reasons.
Judgment: The Supreme Court ruled that refusal to transfer shares must be justified and not arbitrary.
Conclusion: Strengthened shareholder rights in transfer-related disputes.
MCQs on Company Law
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Which case established the principle of separate legal personality?
a) Foss v. Harbottle
b) Salomon v. Salomon
c) Ashbury Railway Co. v. Riche
d) Bajaj Auto Ltd. v. N.K. Firodia
Answer: b) Salomon v. Salomon -
The doctrine of ultra vires was established in which case?
a) Shanti Prasad Jain v. Kalinga Tubes Ltd.
b) Bajaj Auto Ltd. v. N.K. Firodia
c) Ashbury Railway Carriage & Iron Co. v. Riche
d) Foss v. Harbottle
Answer: c) Ashbury Railway Carriage & Iron Co. v. Riche -
Which section of the Companies Act, 2013, deals with oppression and mismanagement?
a) Section 2
b) Section 66
c) Section 397
d) Section 241
Answer: d) Section 241 -
Which case introduced the majority rule principle in corporate law?
a) Foss v. Harbottle
b) Salomon v. Salomon
c) Bajaj Auto Ltd. v. N.K. Firodia
d) Shanti Prasad Jain v. Kalinga Tubes Ltd.
Answer: a) Foss v. Harbottle -
In which case did the Supreme Court rule that share transfer refusals must be justified?
a) Bajaj Auto Ltd. v. N.K. Firodia
b) Salomon v. Salomon
c) Ashbury Railway Carriage & Iron Co. v. Riche
d) Foss v. Harbottle
Answer: a) Bajaj Auto Ltd. v. N.K. Firodia