Page 31 - DCOM106_COMPANY_LAW

Company Law

Notes Books of accounts and other documents of the companies are inspected by the officers of
the Directorate of Inspection and Investigation authorised for this purpose under Section
209A of the Companies Act and the Registrars of Companies.
These inspections are designed to find out whether the companies conduct their affairs in
accordance with the provisions of the Companies Act, to see whether any unfair practices
prejudicial to the public interest are being resorted to by any company or a group of
companies and to examine whether there is any mismanagement which may adversely
affect interest of the shareholders, creditors, employees and others.
Wherever inspection reports disclose any information that may be of interest to other
Departments or agencies like the Ministry of Commerce, Central Board of Direct Taxes,
Enforcement Directorate, State Government or Provident Fund Authorities, such
information is passed on to them and suitable corrective action is initiated.
When contraventions of the provisions of the Companies Act are detected, action is taken
for filing prosecution for such violations of the provisions of the Companies Act.

2.6 Keywords

Audit: The audit of the accounts of a firm is not compulsory, whereas the audit of accounts of a
company is mandatory.

Company: The Companies Act, 1956 defines the word ‘company’ as a company formed and
registered under the Act or an existing company formed and registered under any of the previous
company laws (s.3).

Mutual Agency: A partnership is founded on the idea of mutual agency – every partner is an
agent of the rest of the partners.
Partnership: Partnership as ‘the relation between persons who have agreed to share the profits
of a business carried on by all or any of them acting for all’.

2.7 Review Questions

1. What are the statutory exceptions to the decision in Salomon’s case?
2. “The legal personality of a company is distinct from its members individually and
collectively”. Comment and point out the circumstances when the separate entity of a
company is disregarded by the courts.
3. Explain the meaning of ‘Perpetual Succession’ and ‘Common Seal’ in the case of a company.
4. Enumerate the advantages that a business organisation enjoys through incorporation
under the Companies Act, 1956.
5. What do you understand by the concept of corporate personality?
6. Explain clearly the meaning of ‘lifting of the corporate veil’ of a company. Under what
circumstances may the court lift the veil of a company?
7. Explain the merits and demerits of incorporation of a company.
8. What is the significance of the concept of limited liability?
9. What do you understand by ‘Corporate Veil’? When is this said to be lifted?
10. Distinguish between a company and a partnership firm.

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