• Aryan Mohanty

Famous cases under Company Law

Updated: Oct 3

#CompanyLaw #LandmarkCases #FamousJudgements

#corporatecases

By: Arryan Mohanty

Introduction

The corporate sector has seen tremendous expansion all across the world. The business sector is the backbone of many countries economies, particularly India.

It accounts for over 53% of the Indian economy. Individuals in this field have numerous options to advance.

As a result of this expansion, a proper and well-formed corporate law was established, which includes monitoring all legal and external affairs problems such as investigations, litigation, mergers and acquisitions, international trade issues, and so on.

Hence, to ensure the legitimacy of economic transactions, employees are advised of their rights and responsibilities, and firms are represented. This also focuses on the corporate governance that is required for a company's smooth operation.

Landmark Cases under Company Law

Salomon v Salomon & Co. Ltd[1]

Facts of the Case

Aaron Salomon's business was organized into a company in 1892, with his wife, daughter, four sons, and himself as shareholders.

Mr. Salomon, the company's managing director, sold the company for £39,000 and took a £10,000 debt out of it.

Edmund Broderip paid Mr. Salomon a £5000 advance on the security of the debentures.

Soon after, there was a drop in sales, followed by strike action, resulting in a business downturn.

Because of his position and duty in the company, Mr. Edmund sued Mr. Salomon to enforce security.

Judgment

In this case, Mr. Salomon, the company's founder, is protected from the personal obligation to creditors because the company is a separate legal entity from its members.

The notion of corporate personhood established by the Companies Act of 1862 was upheld by the court.

Thus, creditors of a bankrupt firm cannot sue the company's shareholders for payment of outstanding debts.

Royal British Bank v Turquand[2]

Facts of the Case

Mr. Turquand was the insolvent Cameron's Coalbrook Steam, Coal, and Swansea and Loughor Railway Company's official manager (liquidator).

It was established in 1844 under the Joint Stock Companies Act.

The company had issued a £2000 bond to the Royal British Bank, which guaranteed the company's current account draws.

The bond was signed by two directors and the secretary and was under the company's seal. For non-payment of the same, the claimants, the Royal British Bank, sued him.

The company stated that the directors had only the ability to borrow the company's resolution had allowed what under its registered deed of settlement (the articles of association).

The defendants also claimed that no resolution authorizing the issuance of the bond had been passed and that no bond was issued without the approval and consent of the company's shareholders.

Judgment

Sir Jervis was of the opinion that the Court of Queen's Bench's decision should be affirmed. He was inclined to believe that the issue, which had been raised primarily in this case and in that Court, did not always arise and did not require a decision.

His impression is that the replication's resolution goes far enough to satisfy the deed of settlement's criteria.

According to Sir Jervis, the deed allows directors to borrow on a bond the sum or sums of money that may be borrowed from time to time by a resolution passed at the Company's General Meeting, and the replication of the resolution, adopted at the General Meeting, authorizes the directors to borrow such sums on bonds for such periods and at such interest rates as they may deem expedient, in accordance with the act of settlement and the Act of Parliament; however, the resolution authorizes the directors to borrow such sum.

It seemed to me to be enough, said Sir John Jervis CJ.

If this is the case, the other point does not arise, and we do not need to determine; for it appears to us that the plea, whether we regard it as a confession and rejection or a unique non-est factum, does not create any obstacle to the Company's advance.

He went on to say that - we can now assume that dealings with these firms are not the same as dealing with other partnerships and that the parties involved must read the statute and the settlement act. But they're not obligated to go any further.

And the party here would discover permission to do so under specified conditions in the settlement statute rather than a prohibition on borrowing.

It would have the right to infer the fact of a resolution allowing what appears to have been adequately done in the face of the document if it found that the authority might be accomplished by a resolution.

Cyrus Investments Pvt. Ltd. & Anr. v. Tata Sons Ltd.& Ors[3]

Facts of the Case

The National Company Law Tribunal, Mumbai Bench ("NCLT") handed down a significant ruling in the case of Cyrus Investments Private Limited & Others ("Petitioners") v. Tata Sons Limited & Others1 ("Respondents") on oppression and mismanagement under the company law regime. Hon'ble Mr. B.S.V. Prakash Kumar, Member (Judicial), and Hon'ble Mr. V. Nallasenapathy, Member (Judicial), delivered the decision (Technical).

In this case, Cyril Mistry joined the Shapoorji Pallonji group's board and became TATA and Sons' largest stakeholder in 1991.

In 1994, he was named a director of the company. His firm owns around 80% of the shares in TATA Sons.

Cyrus Mistry joined the Tata Sons Board of Directors in September 2006, following his father's retirement from the TATA Group in November 2011.

Following Ratan Tata's retirement, Cyrus Mistry was named Deputy Chairman; in December 2012, Cyrus Mistry was named Chairman of Tata Sons.

N. Chandrasekhar, CEO of Tata Consultancy Services Limited, was chosen as Chairman of Tata and Sons in January 2017.