The Companies Act, 2013

What it does

The Act creates the company as a person distinct from the people who own it, and then spends most of its length on the consequences of that separation. Who may act for the company. What the board owes it. What has to be recorded, audited and filed. What happens when any of that is not done.

Four of its registers of obligation account for most of the work a company actually feels: incorporation and capital, the board and its meetings, accounts and audit, and the related party and interested director provisions. The last of those is where a group structure most often comes unstuck, because an arrangement that is commercially obvious inside a group is a transaction between two legal persons with separate duties.

Section 166 states the duties of a director in terms, which is a change from the 1956 Act, where they were drawn from judgments. The duty in sub-section (2) is owed to the company and is not discharged by the approval of whoever appointed the director.

Who it binds

Companies registered in India and the people who run them, including directors, key managerial personnel and auditors. Parts of it reach a foreign company that has a place of business in India. A limited liability partnership is outside it and under the Limited Liability Partnership Act, 2008, although several of the same filing habits apply.

What moved out of it

Winding up on the ground of inability to pay debts went to the Insolvency and Bankruptcy Code, 2016. What is left in this Act is voluntary winding up and winding up by the Tribunal on the other grounds, so a creditor pressing a solvent-looking company and a creditor pressing an insolvent one are in two different statutes and two different forums.

Oppression and mismanagement stayed, and sit before the National Company Law Tribunal alongside insolvency. The same bench, a different jurisdiction, and the two are regularly confused in the pleading.

What has changed, and when

• The 2013 Act replaced the Companies Act, 1956 in stages between 2013 and 2016, so an older judgment may be construing a provision that no longer reads that way.
• The Companies (Amendment) Acts of 2019 and 2020 moved a large number of compoundable defaults out of the criminal register and into civil penalties decided by the adjudicating officer. For a company dealing with historic non-compliance the question is now which regime its default falls in.
• Corporate social responsibility under section 135 stopped being an explain-why obligation and became a spending one, with unspent amounts to be dealt with as the section and the rules under it require.

What turns on it in practice

The recurring question is not whether a provision applies. It is which register the default sits in. The same lapse may be a civil penalty before the adjudicating officer, a compoundable offence, or neither, depending on when it happened and which amendment was in force at the time. For a company dealing with historic non-compliance that dating exercise comes before any view on the merits.

The second recurring question is forum. Insolvency, oppression and mismanagement, and a scheme of arrangement all reach the National Company Law Tribunal, and the jurisdiction invoked decides what the Tribunal may do about the facts pleaded. A petition framed under the wrong head is not rescued by the strength of the facts in it.