2. Company [Section 3(1) of Companies
Act, 1956]
The definition of “Company” in sub-section (1)(1) of section 3 of the 1956
Act, is subject to the other definitions given in other provisions of the
1956 Act for the limited purposes stated therein. In Telesound India
Ltd., it was held that though the word companies is generally defined
in section 3 of the 1956 Act, the definition cannot be used to cut down
the scope of the word companies as defined in other sections for their
own different purposes. For Example, Section 390(a) of the 1956 Act
defines the companies for the purposes of the section
“as a company liable to be wound up under this Act”. The court said
that if the word companies were to be restricted to the definition of
section 3 of the 1956 Act, a large number of companies, such as,
unregistered companies and foreign companies would be outside the
preview of the provisions contained in Chapter 5 of the 1956 Act with
regard to compromise, arrangement, reconstruction etc., even though
these categories would be within the winding up sweep of the Act.
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4. For the purposes of Industries Development
and Regulations Act, 1951 which permits the
take-over of the company’s management, it
has been held that a word “Company” does
not include a partnership firm. A
banking company registered under the
Sikkim Registration of Companies Act, 1961
has been held to be a company within the
meaning of section 5(d) of the Banking
Regulation Act, 1949 and section 3 of the 1956
Act. Note that the word “Company” as
defined in section 3 of the 1956 Act does not
include a foreign company. But the word
when used with “holding” and “subsidiary”
is wider in scope and includes also a foreign
body corporate.[Section 4(5) of the 1956 Act].
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5. Existing Company
The definition necessarily implies the actual
existence of the company. A company which
has become defunct and whose name has
been struck off the register under section 560
of the 1956 Act, will not come within the
definition of existing company. A business
registered under the Sikkim registration of
Companies Act, 1956, is not a company
within the meaning of section 3(1) (2) of the
1956 Act nor an existing company within the
meaning of section 3(1)(2) of the 1956 Act.
The provisions of the 1956 Act do not extend
to the state of Sikkim.
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7. Section 3 of the Companies Act,
1956 – Foreign company
The term “company” as defined in section 3 of
the 1956 Act. It denotes a group of persons and
the effect of registration under the Act is that
such a group becomes a corporate body having
perpetual succession and a common seal. The
1956 Act, in its several provisions, has given
effect to a democratic set-up to the association
called the “Company“, the management vesting
in its Board of Directors and the ultimate control
remaining with the organisation in general
meeting. The legal fiction created by sub-section
(2) of section 591 of the 1956 Act does confer on
a foreign companies any exalted state so as to be
treated as a business incorporated in India.
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8. Company and Partnership
The points of difference between a company and
a partnership as noted in PALMER. ” The
principle that, apart from exceptional cases, the
business is a body corporate, distinct from its
members, lies at the root of many of the most
perplexing questions, that beset company’s Law.
It is a fundamental or cardinal distinction-a
distinction which must be firmly grasped. The
principle is thrown into clear relief by contrasting
an incorporated companies with a partnership,
for under English Law (though not the Scottish
law or that of most Continental systems) a firm or
partnership is not a separate entity from its
members.
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10. In case of a partnership the property of the firm belongs
to the individual members. They are collectively entitled
to it , whereas, in the case of a business, it belongs to the
company’s and not to the members.
Creditors of a firm are creditors of the members of the
firm, and on obtaining judgement against the firm can
levy execution on the property of the partners in the firm,
whereas, in the case of a business, “the creditor has no
debtor but that impalpable thing, the corporation,” and
the judgement against the companies normally gives no
right to levy execution against the members.
A member of a firm can on behalf of the firm dispose of
property and incur liabilities , within the scope of the
business, to any extend, whereas a member of
a company, as such, has no power.
A partner cannot contract with the firm, whereas a
member of the companies can contract with the
organisation.
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11. COMPANY AS PARTNER
The 1956 Act recognizes that a company can be a partner in
a partnership firm. Under Schedule 6 of the 1956 Act, under
the Sub-head ‘loans and advances’, advances and loans to a
partnership firm in which the companies or any of its
subsidiaries is partner, has to be disclosed separately.
Thus,it is possible for companies to be a partner in a firm, as
the business is a legal person. The object clause of the
memorandum of association must contain the power
enabling the companies to enter into partnership with any
person or company. There was not be any operational
difficulty in case of a organisation/business becoming a
partner in a firm . Such partner-company could act through
its officers duly authorized in this behalf. “Nationally and
juristically if two incorporated companies under the Indian
Companies Act enter into a partnership , then each
organisation becomes the agent for the other and agrees to
share the profits.
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13. This will create many problems for the two incorporated
companies. Both the companies will have to be, therefore,
the agents for each other in a manner which may not be
permissible at all by their own articles and
memorandum. It would be difficult to apply the very
specific rights and obligations as between partners in the
case of companies as partners, such as Chapter 3 ,and
Chapter 4 and Chapter 6 of the Partnership Act, 1932.
Then there is need also for the registration of firms and
the companies as such partners in a partnership will have
to, therefore, obey the two masters, the Registrar of Firms
and Registrar of Companies.” It is not only the
individuals who can be partners in a firm, an
incorporated companies may form a partnership with an
individual. Company’s may also enter into a joint
venture with any person or firm or any other form of
association. A company may also become partner in
a limited liability partnership (LLP). In short, a
business being a juristic person is to entitled to almost all
of the rights of association conferred on natural persons.
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14. Where a company can enter into partnership or not is no
longer open to doubt. The Department of Company’s
affairs has in its circular no. 1-81, dated 14-09-1981. The
1956 Act itself recognizes the legality of a business being
partner in a partnership firm. A business being a juristic
person can do all that a natural person can, add there is
nothing in the principles of partnership which excludes
a business from being a partner. A business which is
authorized to carry on a business is by implication
authorized to carry the same business in partnership
or as the joint venture. The position of companies as a
partner is thus stated: ” A company may be a partner in
a partnership, indeed all the partners in the partnership
may be companies. These Companies, like all partners
(except limited partners of a limited partnerships), are
liable for all the departments of the partnership without
limitation, that the liability of the incorporators that is
members of those partnerships, is limited is irrelevant
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