Evolution of Corporate Law PDF

THE EVOLUTION OF CORPORATE LAW IN
POST-COLONIAL INDIA: FROM

TRANSPLANT TO AUTOCHTHONY
UMAKANTH VAROTTIL *
I. INTRODUCTION ........................................................................ 254

II. HISTORICAL EVOLUTION OF CORPORATE LAW IN
INDIA ........................................................................................ 262
A. CORPORATE LAW DURING THE COLONIAL ERA (1850-
1947) .................................................................................... 262
1. Developments in the Nineteenth Century........................ 263
2. Developments in the Twentieth Century ......................... 265
3. The Impact of Corporate Lawmaking in the Colonial
Era .................................................................................. 266
4. Evolution of the Managing Agency System .................... 269
B. THE EFFECT OF DECOLONIZATION ON INDIAN CORPORATE
LAW (1947-1960) ................................................................. 272
1. Economic Policy Shift Following Independence ............ 272
2. The First Companies’ Legislation in Post-Colonial
India ............................................................................... 274
C. THE APOGEE OF SOCIALISM IN INDIAN CORPORATE LAW
(1960-1991) ......................................................................... 277
D. CORPORATE LAW FOLLOWING INDIA’S ECONOMIC
LIBERALIZATION (1991-2013) .............................................. 281
1. Amendments to the Companies Act, 1956 ...................... 282
* Associate Professor, Faculty of Law, National University of Singapore. I

thank (i) Rohit De, Arif Jamal, and Arun Thiruvengadam for helpful conversations
on the subject matter of this paper, (ii) Priya Gupta, Anil Kalhan, and other
participants at the Law and South Asia Studies section entitled “The Postcolonial
Lives of Colonial Law in South Asia” at the 2015 Annual Meeting of the
Association of American Law Schools in Washington, D.C. on January 3, 2015 for
comments, and (iii) Shreya Prakash and Upamanyu Talukdar for research
assistance. I acknowledge the financial support of the Centre for Asian Legal
Studies, Faculty of Law, National University of Singapore. Errors or omissions
remain mine alone.
253
254 AM. U. INT’L L. REV. [31:2
2. Reforms in Securities Regulation .................................... 283

3. Corporate Governance Measures..................................... 285
E. CURRENT STATE OF PLAY: THE COMPANIES ACT, 2013 ........ 287
III. COMPARATIVE ANALYSIS OF CORPORATE LAW:
IMPACT OF DECOLONIZATION .......................................... 293
A. CORPORATE PERSONALITY AND STRUCTURE ......................... 294
B. CORPORATE FINANCE AND CAPITAL STRUCTURING............... 298
C. CORPORATE GOVERNANCE .................................................... 304
1. Controlling the Managers ................................................ 307
2. Protecting the Minority.................................................... 308
3. Enabling Other Stakeholders ........................................... 312
D. CORPORATE LAW ENFORCEMENT MACHINERY ..................... 317
IV. LESSONS AND CONCLUDING REMARKS ........................ 322
I. INTRODUCTION
Contemporary scholarship in comparative corporate law places
emphasis on the influence of “legal families” or “legal origins,” in
that the source of corporate law in any legal system plays a
significant role in the evolution of such law and its relative success in
protecting the interests of shareholders or other stakeholders. In
doing so, contemporary scholarship divides legal systems into the
common law family and the civil law family. One strand of this
scholarship posits that if a jurisdiction provides better legal
protection to investors (both in terms of the law and its enforcement),
it will lead to capital markets, which are broader and better valued as
compared to systems with lower protection. 1 A comparison of the
common law system to various civil law systems concludes that
common law provides better protection to equity finance than civil
1. Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer & Robert

Vishny, Legal Determinants of External Finance, 42 J. FIN. 1131 (1997); Rafael
La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer & Robert Vishny, Law and
Finance, 106 J. POL. ECON. 1113 (1998); Rafael La Porta, Florencio Lopez-de-
Silanes & Andrei Shleifer, Corporate Ownership Around the World, 54 J. FIN. 471
(1999); and Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer &
Robert Vishny, Investor Protection and Corporate Governance, 58 J. FIN. ECON. 3
(2000) (attributing the scope of the capital market to the type of legal system used
in a country and the level of legal protection for investors: common law countries
have the strongest legal protections of investors, while civil law countries have the
weakest protections).
2016] FROM TRANSPLANT TO AUTOCHTHONY 255
law. 2 Although this theory has come under severe criticism, 3 the
bifurcation of legal systems into common law and civil law and its
influence in the evolution of corporate law has demonstrated
persistence. Further work in this area has suggested that such a
categorization cannot be viewed in absolute terms and must be
subjected to nuanced analysis, as there could be considerable
variation in corporate law in systems within each type of legal
family. 4
The diffusion of corporate law on the lines of legal families can be
attributed to the phenomenon of “legal transplants,” particularly
during the colonial times in the eighteenth and nineteenth centuries
where entire systems of law migrated from the empires to the
2. La Porta et. al., Legal Determinants of External Finance, supra note 1, at

1137; La Porta et. al., Law and Finance, supra note 1, at 1116 (finding that
common law countries have a higher percentage average ratio of outsider held
stock market to gross national product as compared to civil law countries, as well
as a higher number of firms).
3. See John Armour & Priya Lele, Law, Finance and Politics: The Case of
India, 43 LAW & SOC’Y REV. 491, 493-95 (2009) (finding that at the same time,
various alternative theories have evolved to explain the differences between
corporate law systems; these explore matters beyond the law, such as history,
politics, interest groups and even anthropology and culture); See MARK J. ROE,
STRONG MANAGERS, WEAK OWNERS: THE POLITICAL ROOTS OF AMERICAN
CORPORATE FINANCE (1994) at xiii-xv [hereinafter Strong Managers]; MARK J.
ROE, POLITICAL DETERMINANTS OF CORPORATE GOVERNANCE: POLITICAL
CONTEXT, CORPORATE IMPACT (2003) [hereinafter Political Determinants];
Raghuram G. Rajan & Luigi Zingales, The Great Reversals: The Politics of
Financial Development in the Twentieth Century, 69 J. FIN. ECON. 5, 5 (2003)
[hereinafter The Great Reverals]; RAGHURAM G. RAJAN & LUIGI ZINGALES,
SAVING CAPITALISM FROM THE CAPITALISTS: UNLEASHING THE POWER OF
FINANCIAL MARKETS TO CREATE WEALTH AND SPREAD OPPORTUNITY (2004);
Amir N. Licht, The Mother of All Path Dependencies: Toward a Cross-Cultural
Theory of Corporate Governance Systems, 26 DEL. J. CORP. L. 147 (2001) (stating
that financial reform through cross-cultural reform of corporate governance
systems can help regulate self-dealing, insider trading, and disclosure).
4. Katharina Pistor et. al., The Evolution of Corporate Law: A Cross-Country
Comparison, 23 U. PA. J. INT’L ECON. L. 791, 791 (2002); see also Holger
Spamann, Contemporary Legal Transplants: Legal Families and the Diffusion of
(Corporate) Law, 2009 BYU L. REV. 1813, 1813 (2009); Mathias M. Siems, Legal
Origins: Reconciling Law & Finance and Comparative Law, 52 MCGILL L.J. 55,
55 (2007) (finding that origin countries in both types of law families have
substantially changed or adapted over time, specifically corporate finance
provisions, while legal transplants have not changed as a result of the diffusion
processes of the law).
256 AM. U. INT’L L. REV. [31:2
colonies. 5 While legal scholarship has affirmed the concept of legal

transplants considerably, it has also viewed this concept with
caution. 6 Mere importation of a legal rule or a statutory code without
proper adaptation to local conditions is susceptible to failure. 7 This is
due to several social, political, and economic factors, that are present
in the legal system of origin, but that may not be present in the host
country or may be present with substantial variations, making the
importation a fairly complex exercise. 8 While legal transplants have
been ubiquitous, their efficacy and stickiness may vary across
jurisdictions as experiences have differed. Despite an evolved
scholarship in this field, it is hard to identify a coherent theory that
explains the utility and impact of legal transplants.
Given the colonial linkages of legal transplants, one potential
avenue to measure their efficacy and acceptability would be to
explore the evolution of the transplanted law in the host country
during the colonial period and following its decolonization. 9 It may
5. Spamann, supra note 4, at 1812-13; Daniel Berkowitz, Katharina Pistor &

Jean-Francois Richard, The Transplant Effect, 51. AM. J. COMP. L. 163, 165 (2003)
(European states brought their laws and judicial structure during the period of
colonization, causing a diffusion of legal models in this time period).
6. A seminal book represents the leading scholarship in the field. ALAN
WATSON, LEGAL TRANSPLANTS: AN APPROACH TO COMPARATIVE LAW (1993).
But see Pierre Legrand, The Impossibility of Legal Transplant, 4 MAASTRICHT J.
EUR. & COMP. L. 111, 112 (1997) (quoting “change in the law is independent from
social, historical, or cultural substratum” and therefore transplanted laws are
isolated from society).
7. See K. ZWEIGERT & H. KOTZ, AN INTRODUCTION TO COMPARATIVE LAW
68-69 (1992) (legal structures are based off of historical, economic, and societal
factors and laws must fit into those structures within a country in order to be
successful).
8. See Berkowitz, Pistor & Richard, supra note 5, at 168 (observing that if
the law was not adapted to local conditions or was imposed via colonization and
the population was not familiar with the law, there would be a weak initial demand
for using these laws. Countries receiving the law in this fashion are subject to the
“transplant effect,” meaning that their legal order would function less effectively
than origins or transplants that either adapted the local law to local conditions
and/or had a population familiar with the transplanted law).
9. Iza Hussin, Circulations of Law: Colonial Precedents, Contemporary
Questions, 2 ONATI SOCIO-LEGAL SERIES 18, 22 (2012); J.N. Matson, The
Common Law Abroad: English and Indigenous Laws in the British
Commonwealth, 42 INT’L & COMP. L.Q. 753, 753 (1993) (using India as an
example: incorporating British law led to numerous conflicts over authority,
legality, and power, resulting in the incorporation of British laws to matters of
economy and order only, leaving the issues of religion, culture, and private law to
be reasonable to hypothesize that if a law that has been transplanted

into a host country during the colonial period does not fit with local
conditions, then the post-colonial free state may start the process of
radically departing from the transplanted law. Similarly, if the
economic and social conditions alter significantly following the
decolonization, one may expect changes to the law. It is only when
there are legal and institutional similarities in the colonial and
postcolonial period that inertia creeps in, resulting in continuity in
the transplanted law. 10 It may also be the case that colonial
continuities may arise from the insistence of the post-colonial state to
rely upon the transplanted laws to advance its own interests, often at
the cost of the rights and liberties of its citizens. 11
In this theoretical backdrop, this article tests these phenomena by
examining the evolution of corporate law 12 in India since its
inception during the colonial period, through India’s emergence as an
independent state, and until the current period where it is growing to
be one of the leading economies in the world. 13 The study of Indian
corporate law is appealing on several counts that are intrinsic to the
aforesaid analysis. India is uncontrovertibly a member of the
“common law” family, given its colonial origins as part of the larger
British Empire. 14 It offers an elegant platform for the study of legal
India itself).
10. See e.g., Moiz Tundawala, On India’s Postcolonial Engagement With the
Rule of Law, 6 NUJS L. REV. 11 (2013)
11. Rohit De, ‘Commodities Must Be Controlled’: Economic Crimes and
Market Discipline in India (1939-1955), 10 INT. J. LAW CONTEXT 277 (2014)
(using Indian economic controls as an example, which were created as an
emergency measure but were unpopular and criticized by various nationalists
groups for negatively affecting the population by creating criminal offences for
trivial actions); Anil Kalhan, et. al., Colonial Continuities: Human Rights,
Terrorism, and Security Laws in India, 20 COLUM. J. ASIAN L. 93 (2006).
12. The use of the expression “corporate law” in this article merits some
explanation. While it essentially refers to companies’ legislation and regulation
and judicial decisions relating to company law, it also includes securities laws and
regulations that deal with investor protection and corporate governance when
relevant.
13. See e.g., Dominic Wilson & Roopa Purushothaman, Global Economics
Paper No. 99, Dreaming With BRICs: The Path to 2050 (Oct. 1 2003),
http://www2.goldmansachs.com/ideas/brics/book/99-dreaming.pdf (showing that
India will have the fastest growth rates by 2050, and additionally India’s economy
could be one of the largest in the world in merely thirty years).
14. M.C. SETALVAD, THE COMMON LAW IN INDIA 3-4 (1960); M.P. JAIN,
OUTLINES OF INDIAN LEGAL & CONSTITUTIONAL HISTORY (6th ed.) 364-67 (2007);
258 AM. U. INT’L L. REV. [31:2
transplants given that the inception of corporate law in India resulted

from the replication of English company law. 15 Finally, given that
India has existed as an independent state following decolonization
for nearly seventy years now, it is an apt test case for determining
whether company law in that jurisdiction continues to demonstrate
strict adherence to its colonial origins or whether it has instead
departed radically from the corporate law of its source country.
The evolution of corporate law in India can be traced back to the
colonial era with several previous companies legislation modeling
with parallel English legislation. 16 The influence of colonial laws
continued even after decolonization in 1947 when the most
significant piece of corporate legislation, the Companies Act, 1956,
was modeled on the English Companies Act of 1948. 17 Although the
Companies Act, 1956 was the result of a classic legal transplant, its
evolution thereafter took on a different trajectory. Constant
amendments to the Act were necessary due to legislative
requirements that arose from local conditions and problems that were
unique to the Indian corporate setting. 18 Moreover, Indian courts also
refused to accept English judgments without adjusting and adapting
the legal principles to suit the conditions of Indian society. 19
The divergence between Indian corporate law and its English
counterpart became clearer with India’s economic liberalization in
1991. With the expansion of foreign investment and the development
of India’s capital markets, the focus of corporate law extended
V.D. KULSHRESHTHA, LANDMARKS IN INDIAN LEGAL HISTORY AND

CONSTITUTIONAL HISTORY ch. XIII (1972); PETER DE CRUZ, COMPARATIVE LAW
IN A CHANGING WORLD 127-29 (2d ed. 1995).
15. See infra Section II (discussing examples of such transplant).
16. Shraddha Verma & Sid J. Gray, Development of Company Law in India:
The Case of the Companies Act 1956 (2006), http://eprints.whiterose.ac.uk/2580/.
17. Robert C. Rosen, The Myth of Self-Regulation or The Dangers of
Securities Regulation Without Administration: The Indian Experience 2 J. COMP.
CORP. L. & SEC. REG. 261, 262 (1979) [hereinafter The Myth of Self-Regulation]
(noting that although the Indian Companies Act of 1956 was modeled after the
United Kingdom’s Companies Act of 1948, many differences are evident).
18. Verma & Gray, supra note 16.
19. Laguna Holdings v. Eden Park Hotels, (2013) 176 Comp. Cas. 118 (Del.)
(noting that in Hind Overseas, the court selected out principles given by English
Courts and found that some provisions must be read together in order to ensure a
just and equitable order, an example being that a court can refuse to order a
“winding up” if another remedy is available).
beyond the Companies Act, 1956 and into securities laws pertaining
to/or promulgated by the securities regulator, the Securities and
Exchange Board of India. 20 In this phase, while some influence of
English laws did subsist, the Indian Parliament and regulators began
to either look to other jurisdictions such as the United States (U.S.) to
draw inspiration for legal reforms or they indulged in soul-searching
to mold customized solutions to India’s unique problems.
The transition from legal transplant to autochthony 21 culminated in
the recent enactment of the Companies Act, 2013 and its
enforcement in parts to replace the Companies Act, 1956. The 2013
legislation is not only the result of nearly two decades of debates and
discussions, but also a reaction to corporate law and governance
problems that have plagued India more recently. 22 The transition
away from English company law is nearly complete as the reforms
are almost entirely tailored to suit local needs.
This article argues that while Indian corporate law began as a legal
transplant from England, it has been progressively decoupled from
its source with subsequent amendments and reforms focusing on
either finding solutions to local problems or borrowing from other
jurisdictions such as the United States. To that extent, decolonization
has had a significant effect of radically altering the course of Indian
corporate law. Although the shift was not evident in the period
immediately following decolonization, it began to take shape about a
decade thereafter. Current Indian corporate law not only represents a
significant departure from its colonial origins, but the divergence
between Indian law and English law as they have developed since
independence has been increasing. In that sense, decolonization can
be metaphorically signified as a “fork in the road” when the Indian
20. Verma & Gray, supra note 16 (finding that in addition to the Companies
Act, 1956, India also implemented the Capital Issues (Control) Act of 1947 to
control securities and the Securities Contracts (Regulation) Act of 1956 to regulate
stock exchange and securities trading, along with numerous other legislation to
regulate securities).
21. See Goh Yihan, Tort Law in the Face of Land Scarcity in Singapore, 26
ARIZ. J. INT’L & COMP. L. 335, 353 (2009); Linda Bosniak, Soil and Citizenship,
82 FORDHAM L. REV. 2069, 2074 (2014) (generally associating autochthony with
something indigenous or “born from the soil” and contrasting autochthony with the
connotation of a transplant).
22. See infra Section IIE.
260 AM. U. INT’L L. REV. [31:2
Parliament, after initial hesitation, sought to move away from the

colonial origins and develop the law in a trajectory that is
substantially different from the developments in the United Kingdom
(U.K.). While the Indian lawmaking process indulged in close cross-
referencing of English legal provisions during the colonial period
and immediately thereafter, the more contemporary legislative
reforms pay scant regard to corporate law in the origin country that
initially shaped Indian corporate law.
The evolution of corporate law in post-colonial India offers
valuable lessons. First, even though India is considered to be part of
the “common law” family, corporate law in India has evolved
somewhat differently from the origin country, England. In that sense,
it casts significant doubt on the assumption that all countries within a
legal family bear similarities. On the contrary, each host country may
follow a different trajectory for corporate law than what the origin
country follows. This necessitates a more involved understanding of
corporate law in the legal families. Second, the evolution of
corporate law in post-colonial India supports the proposition that
handling legal transplants can be challenging unless the local
conditions in the host country are similar to that in the origin
country. Variations in economic, social, political and cultural factors
may bring about dissonance in the operation of a transplanted legal
system. Third, a comparison of the historical colonial experience in
the functioning of the transplanted legal system and the more
contemporary experience in the post-colonial period indicates
fragility in the foundations of the transplant. This article seeks to
demonstrate that the radical shift in the trajectory of corporate law in
the post-colonial period suggests that the transplant of English
corporate law in colonial India was perhaps not consistent with the
desires of the local populace, thereby indicating problems of
reception.
While there exists a burgeoning body of scholarship in the field of
post-colonial theory specifically referenced to India, 23 the focus on
23. See generally Kalhan et. al, supra note 11; De, supra note 11; Tundawala,
supra note 10; Elizabeth Kolsky, Codification and the Rule of Colonial Difference:
Criminal Procedure in British India, 23 LAW & HIS. REV. 631 (2005); Marc
Galanter, The Aborted Restoration of ‘Indigenous’ Law in India, 14 COMP. STUD.
SOC’Y & HIST. 53 (1972); Rina Verma Williams, Postcolonial Politics and
Personal Laws: Colonial Legal Legacies and the Indian State 2-4 (2006).
corporate and commercial laws is scanty despite the prominence of

these laws in the contemporary period. This article attempts to fill
this gap. The article also intended to supplement the growing body of
research that seeks to determine the influence of colonial corporate
laws in the post-colonial era, both in former colonies of the British
Empire 24 as well as other jurisdictions. 25 The historical and
comparative analysis herein might provide a better understanding of
contemporary corporate law in India. 26
Section II contains a detailed historical discussion of the evolution
of Indian corporate law from the colonial period to its current
position. This will identify trends that can be gleaned from the
impact that decolonization had on shaping corporate law in India.
Section III analyzes the changes that Indian corporate law
experienced in the post-colonial period across several key aspects
such as corporate personality and structure, corporate finance and
capital structuring, and corporate governance and the corporate law
enforcement machinery. This analysis also demonstrates the
increasing divergence between English and Indian corporate law
over time. Section IV concludes by correlating these findings with
24. ROB MCQUEEN, A SOCIAL HISTORY OF COMPANY LAW: GREAT BRITAIN

AND THE AUSTRALIAN COLONIES 1854-1920 8-9 (2009); Rob McQueen, Company
Law as Imperialism, 5 AUST. J. CORP. L. 46 (1995) [hereinafter Company Law as
Imperialism]; Phillip Lipton, A History of Company Law in Colonial Australia:
Economic Development and Legal Evolution, 31 MELB. UNIV. L. REV. 805, 805
(2007); L.C.B. Gower, Company Law Reform, 4 MAL. L. REV. 36, 36 (1962);
Walter Woon, Regionalization of Corporate and Securities Law: The Singapore
and Malaysia Experience, 5 AUST. J. CORP. L. 356 (1995); Petra Mahy & Ian
Ramsay, Legal Transplants and Adaptation in a Colonial Setting: Company Law
in British Malaya, 2014 SING. J.L.S. 123 (2014); Ron Harris & Michael Crystal,
Some Reflections on Transplantation of British Company Law in Post-Ottoman
Palestine, 10 THEORETICAL INQUIRIES L. 561, 561 (2009). See Christopher Chen,
Measuring the Transplantation of English Commercial Law in a Small
Jurisdiction: An Empirical Study of Singapore’s Insurance Judgments Between
1965 and 2012, 49 TEX. INT’L L.J. 469 (2014) (detailing examples of colonies in
Australia, Afro-Asian countries, British Malaya, Palestine, and Singapore).
25. Petra Mahy, The Evolution of Company Law in Indonesia: An Exploration
of Legal Innovation and Stagnation, 61 AM. J. COMP. L. 377, 377 (2013); Mariana
Pargendler, Politics in the Origins: The Making of Corporate Law in Nineteenth-
Century Brazil, 60 AM. J. COMP. L. 805, 805 (2012); Pistor, et. al. supra note 4;
Spamann, supra note 4 (referencing Indonesia, Brazil, Chile, Colombia, Israel,
Japan, Malaysia, Spain, and France as examples).
26. See JOHN W. HEAD, GREAT LEGAL TRADITIONS 22 (2011) (referring in
similar vein to comparative law as a “reflective exercise”).
262 AM. U. INT’L L. REV. [31:2
existing theoretical debates across different planes including

comparative corporate law and post-colonial theory.
II. HISTORICAL EVOLUTION OF CORPORATE

LAW IN INDIA
A discussion of the historical trends in corporate law beginning
with the colonial period through India’s independence and during the
post-colonial era will illuminate our understanding of the trajectory
adopted. A longitudinal study will help tease out the extent of
colonial law’s influence during the post-colonial period. This
analysis, while primarily dealing with developments in the legal
sphere, also takes into account the economic and social
circumstances prevailing at the relevant time.
In this section, greater emphasis is placed on analyzing the
legislative developments pertaining to corporate law in India, and to
a lesser extent on case law. Particularly during the colonial period,
the diffusion of English law to the colonies occurred through
legislation. 27 The interpretation of transplanted legislation and its
parallels with English legislation gives rise to the relevance of
English case law. 28
A. CORPORATE LAW DURING THE COLONIAL ERA (1850-1947)

Business organizations are not recent phenomena in India. They
existed in some form or the other in ancient India. Although they
were essentially guilds or groups of businesspersons or artisans
engaged in a similar activity, they displayed some of the features of a
modern corporation, at least in a rudimentary form. 29 However, these
business forms faded out during the series of invasions and other
disturbances that preceded the advent of European traders in India at
the end of the fifteenth century. 30
27. B.H. MCPHERSON, THE RECEPTION OF ENGLISH LAW ABROAD 256, 258
(2007).
28. Id. at 363.
29. Vikramaditya Khanna, The Economic History of the Corporate Form in
Ancient India, 1 (2005) (unpublished working paper),
http://www.law.yale.edu/documents/pdf/cbl/Khanna_Ancient_India_informal.pdf
(stating that one study of the corporate form referred to as Sreni suggests it was
prevalent in India “from at least 800 B.C., and perhaps even earlier. . .”).
30. Id. at 1; RADHE SHYAM RUNGTA, THE RISE OF BUSINESS CORPORATIONS IN
The emergence of the modern business corporation in India can be

attributed to the establishment of the English East India Company
(“EIC”) in 1600, which was granted a royal charter that effectively
created a monopoly to trade in India. 31 Since then, other English
companies received similar privileges and commenced activities in
India. 32 It appears that for nearly two-and-a-half centuries,
companies were established and carried on business in India without
the existence of a specific body of law regulating companies. The
establishment of companies in India, particularly banking companies,
was nearly impossible given the “relentless opposition” of the EIC
towards granting any charters for companies in India. 33
1. Developments in the Nineteenth Century

Specific company legislation made a debut only in the year 1850
when India passed the Act for Registration of Joint Stock
Companies. 34 India passed this legislation along the lines of
England’s Companies Act, 1844, which marked the beginning of an
era when legislative developments in the corporate field in India
merely kept up with developments in England. 35 In other words,
Indian corporate law functioned as a continuum of transplants from
English law, and this phenomenon continued for a period of over a
century. The oddity about the Act of 1850 was that registration was
only optional as it conferred certain privileges. 36 Limited liability
was not one such privilege, which is unsurprising given that the
INDIA 1851-1900 1 (1970) (showing that Indian business people used the corporate
form, from around 800 B.C. until the Islamic invasions around 1000 A.D.).
31. RON HARRIS, THE ENGLISH EAST INDIA COMPANY AND THE HISTORY OF
COMPANY LAW 219 (2005) (stating that direct authorization by the Crown was the
only method of incorporation).
32. Rosen, supra note 17 (referencing the European sterling companies, which
had a wide berth of powers due to distance and lack of efficient communication).
33. RUNGTA, supra note 30, at 36.
34. C.R. DATTA, DATTA ON THE COMPANY LAW 29 (2008); Government of
India, Report of the Company Law Committee 16 (1952) [hereinafter Bhabha
Committee Report]. See also S.M. Shah, SM Shah’s Company Law Lectures
(1990).
35. P.M. Vasudev, Capital Stock, Its Shares & Their Holdings – A
Comparison of India and Delaware at 17 (2007) (unpublished conference paper),
http://ssrn.com/abstract=913282 (noting that the Joint Stock Companies Act
provided for the application of capital and provided automatic incorporation
instead of relying on charters).
264 AM. U. INT’L L. REV. [31:2
concept had not yet made inroads in England either. Although the
Act of 1850 signified an important milestone in Indian corporate law
history as the maiden legislation in the field because it enacted key
legislative provisions for the management of joint stock companies
for the first time, 37 it was rather ineffective given its optionality and
the lack of protection for shareholders through limited liability. 38
Limited liability was first introduced in England by way of the
Joint Stock Companies Act, 1856, 39 although this protection was not
available to banks and insurance companies. 40 This legislation
underwent amendment in 1857. 41 In the same year, India enacted
legislation conferring limited liability protection to companies other
than banking and insurance companies. 42 Thereafter, following the
English legislation of 1858, the Act of 1860 extended the privilege of
limited liability to banking companies in India, although the Act did
not extend that same privilege to insurance companies. 43
The pattern of mimicking English legislation continued even
shortly thereafter. Following the enactment of the Companies Act of
1862 in England, India passed a new legislation in 1866 for
consolidating and amending the “laws relating to incorporation,
regulation and winding up of Trading Companies and other
Associations” 44 This legislation also made the benefit of limited
liability available to insurance companies. 45 This consolidation
exercise was meant to keep pace with the English Act. 46 Yet India
undertook another consolidation effort through the Companies Act of
1882 by incorporating the amendments in the English legislation
from the early 1860s so as to make them applicable in the Indian
context. 47
37. Bhabha Committee Report, supra note 34, at 16 (stating that the Act of
1850 was the nucleus around which subsequent Companies Acts developed,
although strictly speaking they were all enacted on the lines of the English
Companies Acts).
38. Id. at 45.
39. DATTA, supra note 34, at 28.
40. Id. at 68. See also Vasudev, supra note 35, at 17.
43. Id. at 70.
44. Id. at 212.
45. Id.
47. RUNGTA, supra note 30, at 212; RITU BIRLA, STAGES OF CAPITAL: LAW,
2. Developments in the Twentieth Century

Following the Companies Act of 1882, India made five different
sets of amendments up to the first decade of the twentieth century.
Then, following the English Companies (Consolidation) Act, 1908,
India enacted a new legislation in the form of the Companies Act,
1913. 48 This was, like previous acts, “a close reproduction of the
English Act §§ in its comparable provisions,” although “in certain
particulars, the Indian Act differed from the English Act.” 49
Subsequently, following the enactment of the English Companies
Act of 1929, Indian law made significant amendments through the
Companies (Amendment) Act, 1936. A unique aspect of this
legislative effort is that the Indian legislature decided to embark upon
an amendment process rather than a reenactment similar to 1929
English legislation, indicating for the first time a hesitation in a
wholesale transplant. The Statement of Objects and reasons of the
1936 amendments suggests that India decided not to adopt the
wholesale English legislation due to some unfavorable criticism it
attracted and also because of India’s recognition of dealing with
problems peculiar to India, especially those relating to the managing
agency system. 50 This trend began emanating from the judiciary as
well. Although it was common during the colonial period for courts
to refer to English decisions, 51 they began recognizing the fact that
“where there is a positive enactment of the Indian legislature, the
proper course is to examine the language of that statute and to
ascertain its proper meaning uninfluenced by any considerations
derived from the previous state of the law – or of the English law
upon which it may have been founded.” 52
Since 1936 until Indian independence, the Indian Companies Act,
1913 underwent several further amendments principally to address
certain defects in the legislation and to account for constitutional
CULTURE, AND MARKET GOVERNANCE IN LATE COLONIAL INDIA 40 (2009)

[hereinafter BIRLA, STAGES OF CAPITAL].
48. Bhabha Committee Report, supra note 34, at 17.
49. Id.
50. Id. at 18.
51. GURU PRASANNA SINGH, PRINCIPLES OF STATUTORY INTERPRETATION 225
(1999).
52. Ramanandi Kuer v. Kalawati Kuer, (1928) 30 Bom. L.R. 227 § 9 (1927)
(India).
266 AM. U. INT’L L. REV. [31:2
developments such as the enactment of the Government of India Act,

1935. This position ensued until India’s independence, which
necessitated a further round of reforms. 53
The following table tracks the chronology of legislative
developments in England and India, which clearly demonstrates that
the Indian legislature was simply following the lead from English
law through an ongoing transplantation process.
Table 1: Key Legislative Developments in Corporate Law in
England and India 54
England India
Companies Act, 1844 Act for Registration of Joint

Stock Companies, 1850
Limited Liability Act, 1855 Companies Act, 1857

Joint Stock Companies Act, 1856 Companies Act, 1860
Companies Act, 1862 Companies Act, 1866
Amendments to the Companies Companies Act, 1882

Act, 1862
Companies (Consolidation) Act, Companies Act, 1913
1908
Companies Act, 1929 Companies (Amendment) Act,
1936
3. The Impact of Corporate Lawmaking in the Colonial Era

A chronological analysis of legislative developments by itself is
unsatisfactory because it does not reveal the motives for introducing
the legislation (primarily through continual legal transplants) and the
53. See infra Section IIB2 (referencing the Bhabha Committee Report, which
was drafted by an Indian Government appointed committee).
54. See also Mahy & Ramsay, supra note 24, at 128-29 (discussing the
development of company law, based on English law, in the Straits Settlements and
the Federated Malay States and its diffusion through India).
prevailing context in India accounting for the economic and social

factors. 55 This sub-section incorporates these factors and analyzes the
impact that corporate legislation had on Indian businesses in the
colonial period and the motives behind the introduction of such
legislation. 56 Two trends are quite evident in the colonial period.
First, the purpose of transplanting English corporate law into India
was to serve British business interests, rather than to modernize
Indian corporate law more generally. Second, transplanted English
company law in India operated as an instrument of market
regulation, as a sort of “colonial laissez faire.” 57
The motive behind transplanting English company law into India
was to facilitate better trade between England and India, which could
be accomplished if there was symmetry in the corporate legislation
between the two countries. 58 In other words, the British thought their
businesses’ familiarity with Indian corporate law would minimize
their risk in trading with that colony. 59 The Statement of Objects and
Reasons of the Joint Stock Companies Act, 1856 60 and the
Companies Act, 1882 clearly showed motivation for having law in
England and India be the same. 61 Rungta was unequivocal in his
analysis:
If there is any underlying theme running through the company legislation
of a full half century in India, with the Act of 1850 somewhat excepted, it
is a steadfast adherence to the policy that what was good for Britain must
also be good for India. It was not that the legislators responsible for these
Acts were not able men, some of them were well qualified and
experienced in company affairs in India . . . . What they seemed to lack
55. MCQUEEN, supra note 24, at 7 (noting that many of the features of modern
company law are based on certain objectives and techniques which are created by
political forces; therefore, when the political forces are removed, the modern
companies trend toward failing in operation).
56. RUNGTA, supra note 30; BIRLA, STAGES OF CAPITAL, supra note 47. See
also Ritu Birla, Capitalist Subjects in Transition, From the Colonial to the
Postcolonial: India and Pakistan in Transition (Dipesh Chakrabarta et al. eds.,
2007) [hereinafter Birla, Capitalist Subjects]; MCQUEEN, supra note 24, at 279;
Mahy & Ramsay, supra note 24.
57. Birla, Capitalist Subjects, supra note 56, at 243.
58. RUNGTA, supra note 30, at 68; MCQUEEN, supra note 24, at 10.
60. Id.
61. BIRLA, STAGES OF CAPITAL, supra note 47, at 40.
268 AM. U. INT’L L. REV. [31:2
the most was the will, rather than the wisdom, to change. 62
The impact of transplanting English law into India to favor British

businesses was consequential because it often ran counter to local
business interests. 63 The transplant of English law into India paid
scant regard to the needs of local business forms such as the Hindu
Undivided Family (HUF) and other kinship based indigenous
business structures. 64 For example, it was unclear whether the
Companies Act, 1882 operated to ensnare these local business forms
when it required all “partnerships” that carried on trading with more
than twenty persons to register as a company. 65 In that sense, not
only did the transplanted corporate legislation in India fail to account
for the needs of vernacular business forms, but it also acted counter
to their interests often.
Since the transplanted law was intended to benefit British traders
and free business “from the binds of tradition and ancient customary
codes,” 66 it adopted a largely free-market ideology. This was
consistent with developments within England at the time. 67 During
the colonial period, law was used as an instrument to facilitate trade.
As Birla notes:
I would like to reconsider the performance of colonial sovereignty, this
time as a staging of market actors and as an implementation of a certain
kind of colonial laissez-faire, manifest in legal frameworks standardizing
the ‘free circulation’ of credit and commodities, most especially in the
institutionalization of the law of contract as operative mode for market
exchange. 68
In sum, the need to facilitate British businesses to trade with India

motivated the continuous transplantation of English law into India,
beginning in 1850 and ongoing until decolonization, where it
62. RUNGTA, supra note 30, at 214 (whose observations that pertain to the
second half of the nineteenth century largely hold good for the remainder of the
colonial period spanning the first half of the twentieth century).
63. MCQUEEN, supra note 24, at 10 (extrapolating Rungta’s conclusions).
64. BIRLA, STAGES OF CAPITAL, supra note 47, at 51-52 (referring to the local
forms as “vernacular” commercial organizations).
65. Id. at 51.
66. Id. at 5.
67. Id. at 35.
68. Birla, Capitalist Subjects, supra note 56, at 243.
adopted a free-market approach. The adverse effect impacted local

business forms in one way or the other.
Yet, the colonial period in India witnessed the emergence of a
rather unique form of management technique involving the use of
managing agents to manage companies. Despite the close cross-
referencing of Indian developments (both in the business and
legislative spheres) with England, the evolution of the managing
agency in India bears little connection to England and emerged from
specific local requirements. 69 Any historical account of corporate law
in India would be incomplete without an analysis of the concept of
managing agency, which also garnered significant attention of
legislators during the initial years of the postcolonial period.
4. Evolution of the Managing Agency System

In nineteenth century India, the somewhat unique managing
agency system emerged due to the necessities of “[h]istory,
geography and economics.” 70 As previously seen, Indian business
history is replete with informal business structures based on family
relations and kinship. 71 However, where businesspersons who did not
have familial or kinship ties came together to contribute capital to a
new idea and where only a few of them had the capabilities and
interest in commercializing the idea through managing the
operations, it became necessary to place the management of the
business in the hands of capable and willing businesspersons. 72 The
passive investors had neither the time nor the intention to participate
in the day-to-day management of the business. Hence, a system
evolved whereby some of the investors would take responsibility for
the management of the business. A process that began informally due
to the trust capital and reputation available with those managing the
business eventually took on a more formal structure. 73 Managing
agencies were created in the form of partnerships or small
corporations, which then entered into management contracts with
69. Rosen, supra note 17, at 262 .

71. See supra note 63-65 and accompanying text.
72. RUNGTA, supra note 30, at 227; TIRTHANKAR ROY, COMPANY OF
KINSMEN: ENTERPRISE AND COMMUNITY IN SOUTH ASIAN HISTORY 1700-1940 at
121 (2010).
73. Id.
270 AM. U. INT’L L. REV. [31:2
businesses to manage them. 74

Managing agencies soon became a dominant force in the colonial
Indian corporate sphere. They began exercising control over several
industries such as cotton, jute, and tea, particularly in the Eastern part
of the country. 75 British firms, rather than domestic firms, dominated
the managing agency system. 76 The British firms’ strong presence in
Indian business also made them a dominant member of the colonial
community. 77
Although the managing agency system arose out of necessity and
was inherently intended to induce efficiency, its functioning soon
became mired in a great deal of controversy. It gave rise to the
possibility of grave abuse. 78 The managing agents began to enrich
themselves at the cost of passive investors, 79 who were unable to
monitor the managing agents due to the problem of information
asymmetry. The managing agents who already enjoyed enormous
autonomy in their functioning were further buttressed through the
passivity of investors and their grant of proxies. 80 In all, managing
agencies had limited financial investment in businesses, but obtained
a disproportionately high amount of control over businesses, which
not only made them powerful actors in the economy but they also
74. Rosen, supra note 17, at 263 (companies having managing agents tended
to coordinate with each other, resulting in lower administrative costs and
expanding the reach of their products).
75. RUNGTA, supra note 30, at 227; Omkar Goswami, Sahibs, Babus, and
Banias: Changes in Industrial Control In Eastern India, 1918-50, 48 THE
JOURNAL OF ASIAN STUDIES 289, 289 (1989) (stating that European companies had
influence, power, and prestige in the Indian industry).
76. MARIA MISRA, BUSINESS, RACE, AND POLITICS IN BRITISH INDIA, C. 1850-
1960 4 (1999) (noting “Most British private direct investment in India in the
colonial period was represented by the managing agencies, and by 1914 they
controlled capital of over £ 200 million in India.”); See also Goswami, supra note
75, at 292 (commenting that the British mercantile presence in eastern India on the
eve of World War I was truly staggering. Of 849 tea plantations, 729 (86%) were
managed by Britons); RUNGTA, supra note 30, at 227 (finding “. . . the number of
European firms holding managing agencies was larger than the number of Indian
firms.”).
77. MISRA, supra note 76, at 4.
78. Rosen, supra note 17, at 264 (abusing the system was inherent despite its
ability to aid in the development of India’s economy).
79. ROY, supra note 72, at 122.
80. MISRA, supra note 76, at 6-7; Goswami, supra note 75, at 294.
became susceptible to abusing their powers. 81 That leads to the

question as to what role the law played in regulating their conduct
during the colonial period.
In the initial years of the managing agency system’s operation, no
legislative or regulatory fiat directly obstructed its way. This
illustrates the inefficiencies of transplanted legislation when it does
not consider the prevailing local circumstances. Since the abuse of
the managing agency system was predominantly a local Indian
problem and did not capture the attention of lawmakers in England,
the transplanted law paid short shrift to those problems and did not
offer any protection to shareholders of companies that were
subjected to mismanagement under the managing agency system. It
is also possible that due to the predominance of British firms as
managing agents, the necessary political will was absent in India to
rein them in. 82 It was only at the very end of the colonial era that the
managing agency system received legislative recognition. The
Companies (Amendment) Act, 1936, which was the first legislation
to make at least some departure from English corporate law, 83
recognized the abuses of the managing agency system and
introduced some checks and balances by limiting the duration of the
managing agency contract and permitted the removal of the
managing agent for cause. 84
The managing agency system is characteristic of the legislative
phenomenon that occurred in colonial India where legal transplants
failed to take into account local social and economic circumstances
through legislative instruments. The motive of transplants, which
indirectly preferred British interests over local interests, exacerbated
the failure to account for local and social circumstances. This
phenomenon continued for nearly a century until some signs of
change began emanating in 1936.
81. See infra Section IIIC1 (viewing the emanating problems of the managing
agency system from the lens of corporate law and governance).
82. MISRA, supra note 76, at 7-8 (demonstrating that aspects of race and
politics may have had an influential role to play in the persistence of the managing
agency system that was untouched by regulation despite strong criticism by
shareholders who were predominantly Indian businesspersons).
83. See also supra notes 49-50 and accompanying text.
84. Rosen, supra note 17, at 264 (allowing agents to be limited to 20 years and
removed for fraud, insolvency, or breach of trust).
272 AM. U. INT’L L. REV. [31:2
After exploring the phenomenon of transplants during the colonial

period, it is now necessary to examine the implication of
decolonization that occurred through India’s independence from the
British in 1947.
B. THE EFFECT OF DECOLONIZATION ON INDIAN CORPORATE LAW

(1947-1960)
This sub-section considers whether India’s independence had any
significant effect on the evolution of its corporate law. It is important
to examine the developments around the first decade following
independence, i.e. until the late 1950s. Any discussion of corporate
law during this period must necessarily be set in the context of
India’s economic policies and political imperatives that held sway at
the time. Despite a radical shift in economic policies of the Indian
Government immediately following independence, there was no
significant change in the legislative process for corporate law as the
preexisting phenomenon of legal transplant from England to India
continued unabated.
1. Economic Policy Shift Following Independence

Although the Indian Government obtained the freedom to
determine its own economic policies after decolonization, it also
inherited an economy that was riddled with poverty, low levels of
life expectancy, and high rates of illiteracy. 85 Economic
policymaking became a challenging exercise given widespread
distrust for a wholly capitalistic order following centuries of colonial
dispensation using laissez faire policies, which were believed to have
impoverished Indian businesses and the local economy. 86 Even the
preeminent policy makers of free India were divided regarding which
appropriate economic policies to adopt. Jawaharlal Nehru, the
eventual first Prime Minister of India, advocated the model of
“Fabian socialism” which embraced principles of “state ownership,
regulation, and control over key sectors of the economy in order to
85. Nirmalya Kumar, India Unleashed, 20 BUSINESS STRATEGY REVIEW 4, 7

(2006) (inheriting one of the world’s poorest economies, suffering low life
expectancies, and a highly illiterate population were all issues facing India when
colonial rule ended).
86. DWIJENDRA TRIPATHI & JYOTI JUMANI, THE OXFORD HISTORY OF INDIAN
BUSINESS 19 (2007).
improve productivity and at the same time curb economic

concentration.” 87 Certain members of Nehru’s Congress party
adopted a different view, such as Vallabhbhai Patel, India’s eventual
Home Minister, who argued for pursuing “liberal economic policies
and incentives to private investment that were justified in terms of
the sole criterion of achieving maximum increases in production.” 88
The tensions arising from obvious opposing economic policies ran
through the initial years of Indian independence.
Given this background, the Indian government effectively pursued
the policy for a “mixed economy,” a fact that became evident with
the first Industrial Policy Resolution of 1948. 89 While people
recognized the importance of private capital, and several Indian
business groups continued to thrive during this era, 90 the bulk of the
focus during this period was the direct participation of the state in the
process of industrialization. Certain capital-intensive industries were
reserved for the government. 91 It was found that “these measures
brought about a sea change in the nation’s business environment.” 92
Moreover, “[i]ndependent India did not abandon the free enterprise
system altogether, but what these policies together sought to
introduce was a system very different from the one that had operated
under colonialism.” 93
Even though the stated policy did not display any aversion towards
private capital and entrepreneurialism, certain legislative measures
introduced that effect. Principal among them was the enactment of
the Industries (Development and Regulation) Act, 1952, under which
87. FRANCINE R. FRANKEL, INDIA’S POLITICAL ECONOMY 1947-2004: A

GRADUAL REVOLUTION __ (2005). See also B.R. TOMLINSON , THE ECONOMY OF
MODERN INDIA, 1860-1970 168 (1993); TRIPATHI & JUMANI, supra note 86, at 20.
88. FRANKEL, supra note 87, at 71. See also TOMLINSON, supra note 87, at 168
89. TOMLINSON, supra note 87, at 169; TRIPATHI & JUMANI, supra note 86, at
20.
90. TRIPATHI & JUMANI, supra note 86.
91. TIRTHANKAR ROY, THE ECONOMIC HISTORY OF INDIA: 1857-1947 294
(2011); Anne O. Krueger & Sajjid Chinoy, The Indian Economy in Global
Context, in ANNE O. KRUEGER & SAJJID CHINOY, ECONOMIC POLICY REFORMS
AND THE INDIAN ECONOMY (2002), at 5 (noting these industries were considered
the “commanding heights of the economy”); J. Bradford DeLong, India Since
Independence: An Analytic Growth Narrative, in DANI RODRIK, ED., IN SEARCH OF
PROSPERITY: ANALYTIC NARRATIVES OF ECONOMIC GROWTH, at 15.
92. TRIPATHI & JUMANI, supra note 86, at 23.
93. Id.
274 AM. U. INT’L L. REV. [31:2
industrial units, including private ones, were required to obtain

licences from the Government before they were established and
operated. 94 Licences were required even for expansion of capacity. 95
Relatedly, a wide network of legislation enacted in the years
immediately following India’s independence introduced “an
extensive system of quantitative controls over capital issues,
industrial licensing, foreign exchange rationing, imports and exports
and the prices and movement of foodgrains.” 96 Under this
dispensation, government’s authority over private businesses was all-
pervasive given that entrepreneurs had to obtain licences for almost
every activity they executed. This gave rise to “widespread rent-
seeking” 97 resulting in the prevalence of the “licence Raj” that
dominated the Indian business sphere for decades to come. 98
In this economic and political context, it is necessary to analyze
the first legislative exercise in corporate law in post-colonial India,
the enactment of the Companies Act, 1956, which also turned out to
be the most enduring piece of corporate legislation in India.
2. The First Companies’ Legislation in Post-Colonial India

In view of the economic and political tensions discussed in the
previous sub-section, it would be reasonable to assume that the
Companies Act, 1956 would mark a significant departure from
corporate law in the colonial era. The economic compulsions of the
socialist approach of India’s first democratically elected government
ought to have driven corporate law in a different direction.
Surprisingly, though, that was not the case. Post-colonial corporate
94. Omkar Goswami, Corporate Governance in India, in TAKING ACTION

AGAINST CORRUPTION IN ASIA AND THE PACIFIC 87 (2002) [hereinafter Goswami,
Corporate Governance] (creating the first barrier against corporate interests,
despite the fact that India had a growing corporate sector and a government that
was equipped as any former British colony to practice good corporate governance
and maximize long-term corporate interest).
96. TOMLINSON, supra note 87, at 171-72. These legislative packages
comprised among others the Essential Commodities Act, 1955, the Essential
Supplies (Temporary Powers) Act, 1946, and the Capital Issues Control Act, 1947.
97. Goswami, Corporate Governance, supra note 94, at 87 (licensing regime
led to rent-seeking as entrepreneurial families and groups from old industries like
textiles, coal, iron, steel, and jute began to create monopolies in newer industries
like aluminum, paper, cement, and engineering).
98. TOMLINSON, supra note 87, at 171.
lawmaking followed exactly the same path adopted over and over
again during the colonial period, which was to indulge in yet another
exercise of legal transplant from England, thereby smacking of
colonial continuity. However, the transplant effort this time was not a
mechanical exercise, but rather well contemplated.
The inspiration for a new companies’ legislation in post-colonial
India arose from the appointment of the Company Law Amendment
Committee in England (known as the Cohen Committee), which
suggested far-reaching changes to the then applicable English
company law, 99 whose recommendations resulted in the enactment of
the English Companies Act of 1948. After some initial law reform
efforts, the Indian Government appointed a committee under the
chairmanship of C.H. Bhabha, which undertook an extensive
exercise (including interviewing experts across the country) and
submitted its 477-page report to the Government in March 1952. 100
The Government accepted most of the recommendations of the
Bhabha Committee thereby enacting the Companies Act, 1956.
Both the Bhabha Committee Report as well as the Companies Act,
1956 are striking in many ways. Despite the momentous shift in
India’s destiny through decolonization, the reliance on English law
as the model for Indian corporate law was unaffected. The tenor of
the Bhabha Committee Report is such that on every aspect of the
law, it largely referred to the developments in English company law
and considered whether that would be relevant to the Indian context
or not. There was no intention whatsoever to frame an indigenous
legislation that is apt to India’s changed circumstances given the
enormous shift in its economic policies. In order to obtain a better
sense of the extent of reliance on English law, a review of the
Bhabha Committee Report indicates approximately 148 references to
the English Companies Act of 1948, adopting with approval 64 of its
provisions, and modifying or rejecting only 21 provisions. 101 The
99. Report of the Committee on Company Law Amendment (Cohen Committee

Report 1945), http://www.takeovers.gov.au/content/resources/
other_resources/cohen_committee.aspx (making suggestions of both major
importance and minor ones, including those dealing with drafting).
100. Bhabha Committee Report, supra note 34 (explaining the clauses and
making suggestions for growing and developing company law in India).
101. Id. (noting the Bhabha Committee Report makes several references to the
Cohen Committee Report.).
276 AM. U. INT’L L. REV. [31:2
faithful adherence to English law also meant a continuation of the

colonial policy of laissez-faire, which stood at stark contrast not only
to the broader economic mindset of the time but also to the other
statutes that were being enacted contemporaneously. 102 It is
somewhat hard to fathom the rationale for such a bewildering
approach of the Indian Parliament.
At one level, it may be possible to attribute this development to
inertia, and the inability to immediately break away from the colonial
mindset. 103 However, that fails to explain the Government’s
enthusiasm to introduce socialistic legislation in related areas of the
law, and to steer clear of a purely market-based approach. 104
Ultimately, it boils down to the compromises that the Government
had to make in its economic philosophy to incorporate both a
socialist approach that grants a large role to the state in business, but
at the same time preserving the importance of the private sector. As
one study notes: “That the government had no intention to unduly
curtail the freedom of the private sector was also reflected in the new
Company Law enacted in 1956.” 105 Moreover, “the new policy
enunciations did not offer much of an immediate threat to private
enterprise, the socialist rhetorics notwithstanding. This was so
because the private sector was left undisturbed in the areas in which
it had been operating or in which it was likely to expand.” 106 Despite
the path dependence demonstrated by corporate law and the retention
of the free philosophy therein, businesses were nevertheless faced
with governmental control, albeit through other legislation rather
than corporate law.
The legislative outlook towards company law can be illustrated by
the treatment meted towards managing agencies, which had become
even more controversial with the advancing tide of economic
nationalism in the country. 107 Although the Bhabha Committee
recognized the dysfunctional nature of the managing agency system,
it was hesitant to jettison it through legislation. 108 It saw “an
102. See supra note 96.

103. See e.g., De, supra note 11; Kalhan, supra note 11.
104. See supra note 96.
106. Id. at 26.
108. See supra Section IIA4.
advantage to continue to rely on the managing agency system” 109 as

it “may yet prove to be a potent instrument for tapping the springs of
private enterprise.” 110 The Committee however recommended the
tightening up of several provisions of the Companies Act relating to
managing agencies. This approach seems to have invited furor, as it
“was immediately denounced by a broad spectrum of Indian political
opinion.” 111 The matter was therefore reviewed by a Parliamentary
committee that suggested further strengthening. 112 As an outcome of
this process, the Companies Act, 1956 “included strict limitations on
managing agency remuneration, a limit on the numbers of companies
any one agency house could manage, and a ban on intercompany
loans between companies within the same managing agency
group.” 113 At no point during this process was there adequate
legislative will to radically address the matter by eliminating the
managing agency system altogether due to its mounting ill effects.
In all, although the Indian Parliament was presented with the
opportunity following independence to radically alter the nature of
company law, especially given the altering economic sentiment, it
chose to adopt the path dependence approach and continue to rely on
transplanted law from England. In other words, decolonization did
not represent any break whatsoever from the past. But, change
became evident, albeit gradually and incrementally, in the years to
follow.
C. THE APOGEE OF SOCIALISM IN INDIAN CORPORATE LAW (1960-

1991)
India’s corporate law departed from its colonial past in the early
part of the 1960s. The Government’s socialist ideology appears not
to have taken effect immediately upon decolonization, but only in the
years that followed. 114 The Companies Act, 1956 proved to be a
dynamic legislation and beginning in the 1960s underwent
109. Bhabha Committee Report, supra note 34, at 84 (suggesting continued use
of the managing agency system despite admitting its many abuses).
110. Id. at 85 (suggesting reducing the abuses of the managing agency system
to a minimum).
112. Id.
113. Id.
114. TRIPATHI & JUMANI, supra note 86, at 26-27.
278 AM. U. INT’L L. REV. [31:2
amendments nearly thirty times during its life. 115 Most of these
amendments were based on recommendations of committees that the
Government appointed from time to time. 116 During the first three
decades of its operation, Indian corporate law was constantly infused
with socialistic ideals.
One such move related to greater influence of the government in
the operation of companies, a departure from the previous market-
oriented light-touch regulation ranging back from the colonial times.
For example, provisions relating to audit and investigation of the
affairs of companies by the government were strengthened. 117 The
concept of “deemed public companies” was introduced to enhance
the regulatory sphere over private companies. 118 Through this,
private companies that had share capital or business turnover beyond
specified limits were treated as if they were public companies and
regulated as such. This signifies a departure from English law, which
not only made a clear distinction between private and public
companies, but also subjected private companies to limited
regulation and conferring considerable freedom given they were
treated as organizations akin to partnerships. 119 Moreover, during this
period, the concept of “public interest” was widely infused into
company law. For example, the Companies Act, 1956 was amended
to provide that any scheme of compromise or arrangement (such as
an amalgamation) would be permitted only if was not prejudicial to
public interest, 120 and that shareholders were entitled to seek the
115. A. RAMAIYA, GUIDE TO THE COMPANIES ACT 1-3 (2010).

116. See Vasudev, supra note 35, at 21 (the dominant political ideology of the
time from the 1960s through the 1980s mostly dictated the implementation of
measures suggested for reform by multiple committees).
117. DATTA, supra note 34, at 9. See also Thanjavur, Companies Act
Amendment Bill: Corporate Regulation in Reverse Gear, 22 ECONOMIC &
POLITICAL WEEKLY 2245, 2246 (1987); Madan Gopal Jajoo, Companies
Legislation in India: Plea for a Rational Review, 8 ECONOMIC & POLITICAL
WEEKLY 1033 (1973)(introducing provisions in the aftermath of certain corporate
scandals of the time).
118. Companies (Amendment) Act, 1960, No. 31, Acts of Parliament, 1960
(India) (introducing § 43A into the Companies Act, 1956 that dealt with deemed
public companies).
119. See Vasudev, supra note 35, at 21 (the English statute of 1948 subjected
public companies to much more rigorous regulations than private companies).
120. Companies Act, 1956, No. 1, § 394, Acts of Parliament, 1956 (India)
(sanctioning of amalgamation of companies must be approved by the Tribunal, but
can only be done if it has received a report from the Registrar that the company’s
oppression remedy if the affairs of the company were conducted in a

manner prejudicial to public interest, 121 thereby riddling the company
legislation with the prevailing socialist ideology.
Continuing with the ongoing illustration of the managing agency
system, 122 it too was caught by the rising wave of socialism. Despite
having survived the turmoil it attracted during the enactment of the
Companies Act, 1956, its death knell was sounded at the end of the
1960s. By way of the Companies (Amendment) Act, 1969, the entire
managing agency system was sought to be abolished, as it was found
to have concentrated power in the hands of a few. 123 This represents
an important step in post-colonial India as it clearly separates an
institution that was historically dominated by the British business
houses, particularly in the colonial period. 124
During this era, other statutes were enacted to supplement
company law in further solidifying the socialist tendencies of the
government. Two such statutes deserve a mention. The first is the
Monopolies and Restrictive Trade Practices Act, 1969 (“MRTP
Act”), which was intended to prevent the concentration of economic
power. The other is the Foreign Exchange Regulation Act, 1973 by
which the Government restricted foreign companies from holding
more than 40 percent shares of Indian companies. In addition to the
altering shape of company law, these statutes had the effect of
curbing private enterprise.
These developments had an arguably negative impact on corporate
governance. They led to the growth of certain business families and
industrial groups (largely to the exclusion of others) that held large
chunks of capital in even publicly listed companies. Finance was
essentially available only through banking channels (as opposed to
the capital markets). During this era, due to concentrated ownership
affairs have not been prejudicial to its members’ interests or public interest).
121. Id. at § 397(1) as amended by the Companies (Amendment) Act, 1963.
122. See supra Section IIA4 and notes 107-113 and accompanying text
(explaining how the managing agency system grew into a force in India, but
generated great amounts of controversy).
123. DATTA, supra note 34, at 10 (extending final deadline for abolition until
1970) MISRA, supra note 76, at 192.
124. MISRA, supra note 76, at 192 (noting also that this was targeted to end “the
old British managing agency houses and the socially exclusive business culture
which they embodied”).
280 AM. U. INT’L L. REV. [31:2
of shares, the controlling shareholders, which were primarily

business families or the state, continued to exert great influence over
companies at the cost of minority shareholders. 125
The legislative activity during this era was ably supported by
innovation in judicial decision-making that stretched the contours of
corporate law to fit within the “socialist” theme underlying the
times. 126 In a significant ruling, the Supreme Court of India observed:
The traditional view of a company was that it was a convenient
mechanical device for carrying on trade and industry, a mere legal frame
work providing a convenient institutional container for holding and using
the powers of company management . . . . This doctrine glorified the
concept of a free economic society in which State intervention in social
and economic matters was kept at the lowest possible level. But gradually
this doctrine was eroded by the emergence of new social values which
recognised the role of the State as an active participant in the social and
economic life of the citizen in order to bring about general welfare and
common good of the community . . . . The adoption of the socialistic
pattern of society as the ultimate goal of the country’s economic and
social policies hastened the emergence of this new concept of the
corporation. . . . But, one thing is certain that the old nineteenth century
view which regarded a company merely as a legal device adopted by
shareholders for carrying on trade or business as proprietors has been
discarded and a company is now looked upon as a socio-economic
institution wielding economic power and influencing the life of the
people. 127
In interpreting the provisions of the Companies Act, the Supreme

Court was willing to depart from the provisions of parallel English
law, where the circumstances so warranted, thereby requiring it to
“shake off the inhibiting legacy of its colonial past and assume a
125. Umakanth Varottil, A Cautionary Tale of the Transplant Effect on Indian

Corporate Governance, 21 NAT. L. SCH. IND. REV. 1, 5 (2009) (focusing mostly on
the manufacturing sector combined with the license-raj and industrial capacity
quota system ensured that only a few businesses would survive, leading to the
growth of certain business families and corporate groups).
126. Constitution (Forty-second Amendment) Act, 1976, § 2 (amending the
Constitution to include the word “socialist” in the Preamble, which now provides
that India is a “Sovereign Socialist Secular Democratic Republic.”).
127. See Nat’l Textile Workers v. P.R. Ramakrishnan, (1983) 1 S.C.R. 9 (India)
(ruling that an employee of a company cannot claim to “appear and be heard in a
petition for winding-up of the company as a matter of right,” but a court can hear
the employee if it determines the employee should be heard to administer justice).
dynamic role in the process of social transformation.” 128

During this era, the legislative measures in corporate law coupled
with activist interpretation by the judiciary brought about a sea
change regarding the manner in which companies were viewed.
What was essentially a private business organization took on public
overtones with much broader societal implications being recognized
and popularized in India. 129
The socialist era came under severe strain towards the late
1980s 130 and a precipice was reached in 1990 when India’s foreign
exchange reserves depleted to alarmingly low levels. 131 In 1991, the
Government then in power was forced to abandon the socialist
principles and embark upon a process of economic liberalization,
which once again altered India’s economic course significantly. This
also had a cascading effect on the destiny of Indian corporate law
thereafter.
D. CORPORATE LAW FOLLOWING INDIA’S ECONOMIC

LIBERALIZATION (1991-2013)
In 1991, the Government introduced a string of policy measures to
address the prevailing economic situation. By way of economic
liberalization, they were intended to boost business activity and
foreign investment in India. These measures included the reduction
of industrial licensing only to a small range of industries, permitting
companies to freely issue capital without any restrictions, and
gradually opening up various sectors for foreign investment. 132 This
128. Id. at § 9. See also Hind Overseas Pvt. Ltd. v. R. P. Jhunjhunwala, AIR
1976 SC 565, at ¶ 31 (observing: “. . . it is more apposite now that the background,
conditions and circumstances of the Indian society, the needs and requirements of
our country call for a somewhat different treatment.”); VEPA SARATHI,
INTERPRETATION OF STATUTES 454-55 (2003); RAMAIYA, supra note 115, at 15-16.
129. A.N. Oza, Committee on Company Law and MRTP Act: Exercise in
Futility, 12 ECON. & POL. WKLY 1268 (1977) (trying to regulate the industrial
sector’s and other industries’ structure with an eye on public interest).
130. India’s socialist policies has also been the subject matter of strident
criticism by several economists. See e.g. JAGDISH N. BHAGWATI, INDIA IN
TRANSITION (1993); ARVIND PANAGARIYA, INDIA: THE EMERGING GIANT (2008).
131. See Kumar, supra note 85, at 8 (decreasing foreign exchange reserves was
mostly caused by large and continuing government deficits, which when combined
with the oil price shocks from the 1990 Gulf War and the fall of the Soviet Union
led to a major economic crisis in India in 1991).
132. Id. (reforming the economy involved several new policies including, but
282 AM. U. INT’L L. REV. [31:2
new economic outlook naturally triggered a slew of changes to

corporate law in India, which operated on different fronts, including
(i) amendments to the Companies Act, 1956, (ii) introduction of
securities legislation to promote the stock markets, and (iii) adoption
of specific measures to enhance corporate governance.
1. Amendments to the Companies Act, 1956

During the liberalization period, the key changes were the
flexibility introduced to companies to raise as well as to restructure
capital. This was intended to enable Indian companies to attract
investments, particularly from foreign investors. For example, Indian
companies were allowed to issue shares with differential rights as to
dividend and voting. 133 Similarly, concepts such as employee stock
option and sweat equity that were by then common in the U.S. now
received statutory recognition in India. 134 A capital maintenance
regime that had previously been extremely stringent was relaxed to
permit companies to buy back their own securities. 135 These
measures had the effect of transitioning this area of Indian corporate
law more towards laws from other jurisdictions (e.g. Delaware
law), 136 with less emphasis or cross-referencing to the English
provisions. 137
Consistent with the introduction of greater flexibility, legislative
reforms of corporate law during this period also sought to reverse the
effects of the previous socialist tendencies. For instance, in the year
2000 the concept of “deemed public companies” was deleted, 138
thereby reverting to the previous scenario where only two types of
companies exist, i.e. private and public. Similarly, the rigors of the
not limited to, licensing only eighteen industries, reducing import tariffs to twenty-
five percent, devaluing the rupee and making it convertible on the trade account).
133. Companies (Amendment) Act, 2000, No. 53, § 86(a), Acts of Parliament,
2000 (India) (allowing companies to issue equity share capital in two ways: 1)
equity share capital with voting rights or 2) with differential rights “as to dividend,
voting, or otherwise.”).
134. Companies (Amendment) Act, 1999, §5(d) Acts of Parliament, 1999
(India) (allowing buy-backs, stock options and sweat equity).
135. Id. (offering multiple ways for companies to buy back securities).
136. Vasudev, supra note 35, at 21 (comparing Indian and Delaware Law will
lead one to find similarities, but also many distinctions).
137. This transition is discussed in greater detail later. See infra Section III.
138. See Companies Act (Amendment), § 23(a) (2000).
MRTP Act were eased through its amendment, which did away with
the concept of pre-merger notification. During that regime, mergers
and takeovers were effectively permitted without any antitrust law
whatsoever. 139
2. Reforms in Securities Regulation

Prior to 1992, India followed the merit-based regulation of
securities offerings. 140 Companies intending to offer securities to the
public were required to obtain the approval of the Controller of
Capital Issues, a government body, which would specifically approve
each public offering and its terms, including the price at which shares
were to be offered. 141 Due to the extensive governmental oversight
that intensified during socialist era and the resultant excessive
stringency in accessing the capital markets, public offering of shares
by Indian companies was not that prevalent.
The establishment of India’s securities regulator, the Securities
and Exchange Board of India (“SEBI”) was a watershed event in
India’s corporate and securities sphere. SEBI’s foray not only led to
more of a disclosure-based regulation of public offerings of
securities by Indian companies, 142 but its role was also focused on
promoting India’s capital markets in general. This enabled
companies since the mid-to-late 1990s to raise billions of dollars in
capital through public offering of shares and accompanied listings.
These factors triggered a dramatic shift in the Indian capital markets.
139. Companies Act (Amendment) (2003) (enacting a new Competition Act in

2002 during the liberalization era to rein in mergers and acquisitions and
reintroducing pre-merger notifications, which did not take effect in regulating
combinations until 2011).
140. See Ronald J. Colombo, Merit Regulation Via the Suitability Rules, 12 J.
INT’L. BUS. & L. 1, 7 (2013)(involving a review by a securities regulator of the
quality and suitability of the offering of securities by a company within the
jurisdiction of the regulator).
141. G. Sabarinathan, Securities and Exchange Board of India and the Indian
Capital Markets – A Survey of the Regulatory Provisions, IIM BANGALORE
RESEARCH PAPER NO. 228, http://ssrn.com/abstract=2152909, at 10-
11(establishing the Controller of Capital Issues under the Capital Issues Control
Act, 1947. See supra note 96 and accompanying text).
142. Upon the establishment of SEBI, the office of the Controller of Capital
Issues was abolished. PANAGARIYA, supra note 130, at 242.
284 AM. U. INT’L L. REV. [31:2
In the two decades that followed its establishment, SEBI has

promulgated a number of regulations that affect almost every
segment of the capital markets. It also acquired powers under the
Companies Act, 1956 to regulate matters pertaining to the issue and
transfer of securities by listed companies or those that are proposing
to embark upon a listing of their securities. 143 In that sense, the
regulatory domain over public listed companies was transitioned
from the Central Government under the Companies Act, 1956 to an
independent market regulator in the form of SEBI that it exercised
through a combination of various corporate and securities laws.
SEBI’s entry into the corporate law domain signifies an important
step in breaking the linkages that India had with its colonial past. To
a large extent, the U.S. Securities Exchange Commission (“SEC”)
has inspired SEBI’s mandate as well as its role and functioning. 144 As
far as securities regulation is concerned, there seems to be very little
reference to the U.K. model suggesting that the Indian Government
had been keen to adopt the U.S. model as a reference point, if at all,
while reviewing its own securities regulation. For instance, a
substantial part of the jurisprudence relating to insider trading has
closely tracked that of the U.S. 145 In all, while SEBI’s entry into the
Indian regulatory scene marks an important milestone in the
evolution of Indian corporate law, it also signifies a further departure
not only from the colonial past but the reluctance to rely upon the
U.K. model as far as securities regulation is concerned.
143. See Companies Act (Amendment), supra note 134, § 16 (conferring

certain powers on SEBI).
144. See Suchismita Bose, Securities Market Regulations: Lessons from US and
Indian Experience, ICRA Bulletin (Jan.-Jun., 2005), http://ssrn.com/abstract=
1140107. (comparing between the role and performance of the SEC and SEBI).
145. See e.g., Rakesh Agrawal v. Securities and Exchange Board of India,
[2004] 49 SCL 351. See also Securities and Exchange Board of India, Report of
the High Level Committee to Review the SEBI (Prohibition of Insider Trading)
Regulations, 1992 Under the Chairmanship of N.K. Sodhi (Dec. 7, 2013),
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf;
Somasekhar Sundaresan, SEBI has greater powers than US SEC, BUS. STANDARD
(last updated Oct. 26, 2009).
3. Corporate Governance Measures

In the 1990s, SEBI rapidly began ushering in corporate
governance reforms as well as a measure to attract foreign
investment. Curiously, the first corporate governance initiative was
sponsored by industry. In 1998, a National Task force constituted by
the Confederation of Indian Industry (“CII”) recommended a code
for “Desirable Corporate Governance,” which was voluntarily
adopted by a few companies. 146 Here, we witness the re-emergence
of the English developments as an influencing factor because the CII
Code was largely based on the Cadbury Committee report issued in
the U.K. 147
Thereafter, a committee chaired by Mr. Kumar Mangalam Birla
submitted a report to SEBI “to promote and raise the standard of
Corporate Governance in respect of listed companies.” 148 Based on
the recommendations of the Kumar Mangalam Birla committee, the
new Clause 49 containing norms for corporate governance was
inserted in 2000 into the Listing Agreement that was applicable to all
listed companies of a certain size. 149 Although the substance of the
corporate governance norms contained in Clause 49 were similar to
those recommended in the U.K. by the Cadbury Committee Report
and which subsequently found their place in the Combined Code on
Corporate Governance, 150 there was one material difference. While
146. See Desirable Corporate Governance: A Code, CONFEDERATION OF

INDIAN IDUS. (Apr. 1998) http://www.acga-
asia.org/public/files/CII_Code_1998.pdf (“CII Code”) (directed at large
companies, contained some of the measures that continue to date, such as the
appointment of a minimum number of non-executive independent directors, an
independent audit committee, the unimpeded flow of key information to the board
of directors and norms for corporate disclosures to shareholders).
147. U.K., Financial Reporting Council, Report of the Committee on the
Financial Aspects of Corporate Governance (1992), http://www.ecgi.org/codes/
documents/cadbury.pdf [hereinafter Cadbury Committee Report].
148. See Securities and Exchange Board of India, Report of the Kumar
Mangalam Birla Committee on Corporate Governance (Feb. 2000),
http://www.sebi.gov.in/
commreport/corpgov.html.
149. Securities and Exchange Board of India, SMDRP/POLICY/CIR-10/2000
dated Feb. 21, 2000, http://www.sebi.gov.in/circulars/2000/CIR102000.html.
Clause 49 contained a schedule of implementation whereby it was applicable at the
outset to large companies and newly listed companies, and thereafter to smaller
companies over a defined timeframe.
150. See U.K., Financial Reporting Council, The UK Corporate Governance
286 AM. U. INT’L L. REV. [31:2
the Combined Code operated as a voluntary code on a “comply-or-

explain” basis, 151 Clause 49 was mandated for large listed companies.
Hence, there was explicit recognition that what works in the U.K.
will not necessarily work in India due to the various institutional
circumstances and other local factors. 152
Thereafter, following Enron and other global corporate
governance scandals that occurred at the turn of the century, SEBI
decided to strengthen Indian corporate governance norms. In the
wake of the enactment of the Sarbanes-Oxley Act (“SOX”) in the
U.S. in 2002, SEBI appointed the Narayana Murthy Committee to
examine Clause 49 and recommend changes to the existing
regime. 153 Following the recommendations of the Narayana Murthy
Committee, SEBI, on October 29, 2004, issued a revised version of
Clause 49, which came into effect from January 1, 2006. 154 Thus, we
Code (Sep. 2014) (note that Combined Code has since been renamed the “UK
Corporate Governance Code”).
151. Other former British colonies such as Australia, Canada and Singapore too
have adopted voluntary codes similar to the U.K. See Anita Indira Anand, An
Analysis of Enabling vs. Mandatory Corporate Governance: Structures Post-
Sarbanes Oxley, 31 DEL. J. CORP. L. 229, 229 (2006); TAN LAY HONG, TAN
CHONG HUAT & LONG HSUEH CHING, CORPORATE GOVERNANCE OF LISTED
COMPANIES IN SINGAPORE (2006). Furthermore, for European jurisdictions, see
Eddy Wymeersch, Enforcement of Corporate Governance Codes (2005),
http://ssrn.com/abstract=759364.
152. The Kumar Mangalam Committee report built upon the pattern established
by the CII Code and recommended, “under Indian conditions a statutory rather
than voluntary code would be far more purposive and meaningful, at least in
respect of essential features of corporate governance.” Id. at ¶ 1.7. For a detailed
discussion regarding the transition from the CII Code to the Kumar Mangalam
Birla Committee Report, see Bernard S. Black and Vikramaditya S. Khanna, Can
Corporate Governance Reforms Increase Firms’ Market Values? Evidence from
India, 4 J. EMP. LEGAL. STUD. 749 (2007).
153. Report of the Secs. and Exch. Bd. of India Committee on Corporate
Governance ¶¶ 1.5.5, 1.6.1 (Feb. 8 2003), http://www.sebi.gov.in/
commreport/corpgov.pdf. [hereinafter SEBI and 2003 Committee on Corporate
Governance Report].The need for a review of Clause 49 was in part triggered by
events that occurred in the U.S. at the turn of the century, such as the collapse of
Enron and WorldCom. See id. at ¶. 1.6.1. Considerable emphasis was placed in this
report on financial disclosures, financial literacy of audit committee members as
well as on chief executive officer (CEO) and chief financial officer (CFO)
certification, all of which are matters similar to those dealt with by SOX.
154. Madan Lal Bhasin, Corporate Governance Disclosure Practices: The
Portrait of a Developing Country, 5 INT’L J. BUS. & MGMT. 150, 152 (2010)
(“assess the adequacy of current corporate governance practices and to suggest
see that although there was some reference to the English position
under the Cadbury Committee report during the initial stages of
formulation of corporate governance norms in India, these norms
have subsequently been strongly influenced by developments in the
U.S. The corporate governance reforms during this era can at best be
said to operate as a mixed transplant from both the U.S. and the U.K.
In sum, during the liberalization era, we see a strong shift from the
pre-existing socialistic disposition towards a more open market-
oriented approach, albeit gradually. While there are some indications
of continued guidance from India’s former colonizer, this era has
been marked by the stronger influence of the U.S. on all fronts,
including corporate finance, securities regulation and corporate
governance.
During the liberalization phase, considerable efforts were also
made to review the provisions of the Companies Act, 1956 given that
it had undergone significant change over the years and had possibly
outlived its relevance and utility. There were calls for a new
companies’ legislation. After nearly two decades of debate, the new
Companies Act, 2013 was enacted that ushered in an entirely new era
in Indian corporate law.
E. CURRENT STATE OF PLAY: THE COMPANIES ACT, 2013

This sub-section discusses some of the policy imperatives and
tensions that were prevalent during the elongated process of enacting
the Companies Act, 2013. It is essential to analyze the factors that
were at play behind the scenes for the new legislation in order to
determine whether it breaks further away from India’s colonial past
as well as the current trajectory of English company law. As
elaborated, the new legislation marks a further departure away from
English law. While the liberalization phase that began in 1991
attempted to break away from the shackles of the previous socialist
approach of company law, the new legislation bucks that trend and
reinforces some of the social aspects of corporate law, but in a
subtler and more nuanced fashion.
Since the early 1990s, efforts had been underway to revamp the
companies’ legislation in India due to the difficulties encountered in
improvements”).
288 AM. U. INT’L L. REV. [31:2
the implementation of the Companies Act, 1956, which had to be

amended. Although several proposals were made and Bills drafted
and presented in Parliament over the last two decades (specifically in
1993, 1997 and 2003), 155 it was the appointment of an Expert
Committee on Company Law in 2004 under the chairmanship of Mr.
J.J. Irani (“Irani Committee”) that triggered the shaping of the
current legislation. The Irani Committee issued a concept paper
based on which it conducted a public consultation, following which
it issued its report for drafting a new legislation. 156 The report
suggested a simplification of the law, and was indeed business
friendly, but at the same time subscribed to stringent norms of
corporate governance. 157 Based on the recommendations of the Irani
Committee, the Companies Bill, 2008 was presented in Parliament,
which lapsed. 158
In the interim, corporate India was rocked by a massive corporate
governance scandal involving Satyam Computers. In January 2009,
the chairman of the company confessed to fraud to the magnitude of
over US$ 1 billion. 159 This triggered renewed calls for strengthening
155. Aparna Viswanathan, Reinventing the Company in India: the Expert

Committee Report on Corporate Form and Governance: Part 1, 17 INT’L
COMPANY & COM. L. REV. 1, 1 (2006) (noting that, although there were twenty-
four amendments to the old Companies Act of 1956 before the 2013 revision, no
comprehensive overhaul occurred until it).
156. Jamshed J. Irani, Report on Company Law, EXPERT COMM. ON CO. LAW
(May 31, 2005), http://www.primedirectors.com/pdf/JJ%20Irani%20Report-
MCA.pdf (detailing the committee’s findings and decisions).
157. See id. See also S. Balakrishnan, Irani Committee Norms Stringent, THE
HINDU (Aug. 22, 2005), http://www.thehindu.com/biz/2005/08/22/
stories/2005082201521600.htm
158. John Paterson, Corporate governance in India in the context of the
Companies Bill 2009: Part 1: Evolution, 21 INT’L COMPANY & COM. L. REV. 41-
42 (2010) (noting that it was reintroduced into the next session with only the date
changed).
159. Letter from B. Ramalinga Raju, Chairman, Satyam Computer Servs. Ltd.,
to the Board of Directors of Satyam Computer Servs. Ltd. (Jan. 7, 2009),
http://www.hindu.com/nic/satyam-chairman-statement.pdf [hereinafter Letter from
Ramalinga Raju]. Compare Heather Timmons & Bettina Wassener, Satyam Chief
Admits Huge Fraud, N.Y. TIMES, Jan. 8, 2009, http://www.nytimes.
com/2009/01/08/business/worldbusiness/08satyam.html(detailing a high-profile
investment fraud) with Vikramaditya Khanna, Corporate Governance in India:
Past, Present and Future?, 1 JINDAL GLOB. L.R. 171, 188-89 (2009) (comparing
this situation with the American Enron scandal, replete with details and examples
of its relevance).
corporate law and governance norms in India. Intriguingly, however,

when the Companies Bill, 2009 was presented in Parliament, it
contained no changes whatsoever from its previous incarnation in
2008.
The Companies Bill, 2009 was referred to the Parliamentary
Standing Committee on Finance under the chairmanship of Mr.
Yashwant Sinha. The Standing Committee reviewed the Bill and
issued its report in 2010. 160 Although the Companies Bill, 2009
appeared to turn a blind eye to the fateful occurrences of scandals
that rocked corporate India, the Standing Committee undid the
effects of those deficiencies by recommending detailed provisions in
corporate law to prevent such failures in the future. Specific among
the Standing Committee’s recommendations were heightened
standards of corporate governance and measures to rein in company
managements and impose higher standards on gatekeepers such as
independent directors and auditors. Another set of measures
introduced by the Standing Committee is of immense significance as
it redefined the role of the corporation in the Indian context. While
the Companies Bill, 2009 was shareholder-oriented, in that directors
owed duties to carry on the business of the company “for the benefit
of its members as a whole,” 161 the Standing Committee insisted on a
broader stakeholder approach to corporate law, insisting that
directors have a duty “to promote the objects of the company in the
best interests of its employees, the community and the environment
as well.” 162 Most significantly, a concomitant concept was the
introduction of a corporate social responsibility (“CSR”) provision
requiring a mandatory spending by large companies towards social
causes. 163 Based on the Standing Committee Report, the Government
introduced the Companies Bill, 2011 in Parliament, which naturally
contained significant changes from the Companies Bill, 2009. The
2011 Bill was referred back to the Standing Committee for review of
160. Ministry of Corporate Affairs, Twenty-First Report- Companies Bill 2009,

Fifteenth Lok Sabha, Standing Committee on Finance (Aug. 2010) [hereinafter
Standing Committee on Finance Report] (detailing the findings of the committee).
161. Companies Bill, 2009, No. 59 § 147(2) 2009 (India).
162. Standing Committee on Finance Report, supra note 160, at ¶ 11.80
(motivating factor as corporate social responsibility).
163. Id. at ¶¶ 49-51 (requiring companies to have a corporate social
responsibility policy including spending on it in the form of “at least 2% of its
average net profits during the three immediately preceding financial years”).
290 AM. U. INT’L L. REV. [31:2
the revised provisions, particularly because it contained significant

changes from the previous version. The Standing Committee issued
another report, 164 following which the Companies Act, 2013 was
passed by both Houses of Parliament and received the assent of the
President of India on August 31, 2013. This legislation is being
brought into force in stages, with several of its key provisions having
already been notified. 165
At this juncture, it would be useful to consider some of the policy
issues underlying the enactment of the Companies Act, 2013. In all,
while the Companies Bill, 2009 (and its identical predecessor of
2008) was based on the Irani Committee recommendations, which
were business friendly in nature, the result of its review by the
Standing Committee transformed it into a document with radically
different philosophical overtones that emphasized on stricter controls
through regulation and also emphasized the social responsibility of
corporations. These philosophical pressures are quite evident. It is
clear that the Irani Committee was concerned with attracting greater
investment and providing a simple and clear regime for businesses. 166
However, the Standing Committee approached the legislative process
from a completely different perspective. Significantly, it was
operating in the shadow of a corporate scandal that evoked outrage
164. Ministry of Corporate Affairs, Fifty-Seventh Report- Companies Bill 2011,

Fifteenth Lok Sabha, Standing Committee on Finance (Jun. 2012) [hereinafter
Standing Committee on Finance Report] (detailing the findings of the committee).
165. See Table Containing Provisions of Companies Act, 2013 as Notified Up
to Date and Corresponding Provisions Thereof under Companies Act, 1956,
Ministry of Corporate Affairs, GOV’T OF INDIA, (2013),
http://www.mca.gov.in/Ministry/
pdf/ProvisionsTable_CompAct.pdf. [hereinafter Table of Companies Act
Provisions] (listing provisions which have already taken effect).
166. See At 75, J.J. Irani Bids Adieu to Tata Steel, THE HINDU (Jun. 6, 2011),
accessible at http://www.thehindubusinessline.com/companies/at-75-jj-irani-bids-
adieu-to-tata-steel/article2082317.ece [hereinafter Irani bids adieu to Tata Steel].
(detailing Irani’s business past); Christabelle Noronha & Cynthia Rodrigues, A
Different Life: Dr. JJ Irani Reminisces About Life and Times in Jamshedpur (Aug.
2007), accessible at http://www.tata.com/careers/articlesinside/Cj0IJRfNjr0=/
TLYVr3YPkMU= (providing an interview and perspectives from Irani himself).
See also supra note 156 (noting that the membership of the Committee was
broadly-based, including “13 members and 6 special invitees drawn from various
disciplines and fields including trade and industry, chambers of commerce,
professional institutes, representatives of Banks and Financial Institutions, Sr.
Advocates etc.”).
within the country, particularly against the corporate sector and the
business community. 167 That might perhaps explain the Standing
Committee’s insistence on a stakeholder approach that encompasses
constituencies such as the employees, customers and the
environment as beneficiaries within the corporate law sphere rather
than merely shareholders as has been the approach in several
developed jurisdictions. In the wake of these scandals, a lukewarm
response by the political class would be met with an element of
scorn. It may also be seen as a counteraction by the political class to
curb the influence of the business sector and to impose adequate
checks and balances through corporate law. It is a confluence of
these factors that led to a compromise that is evident in the
Companies Act, 2013 and a number of its specific provisions.
This discussion, without doubt, indicates that the present shape of
corporate law is the result of local issues and concerns, and is shorn
of any influence by the colonial past or its legal regime. During the
law reform process that lasted nearly two decades before culminating
in the Companies Act, 2013, there was almost no reference
whatsoever to English company law. This stands at stark contrast to
the process for the enactment of the Companies Act, 1956, which
was essentially a transplant of the English Companies Act of 1948. 168
Neither the Irani Committee nor the Parliamentary Standing
Committee on Finance (on both occasions in 2010 and 2012) made
any significant references whatsoever to the prevailing English
position in company law. 169 This despite English corporate law
having made giant strides in its evolution since India’s
decolonization with the Companies Act of 1985 and the more recent
Companies Act of 2006. The present English position has been the
subject matter of extensive consultation, 170 most of which has been
167. See NASSCOM Announces Formation of Corporate Governance and

Ethics Committee, BUSINESS STANDARD (Feb. 11, 2009), http://www.business-
standard.com/article/printer-friendly-version?article_id=109021100123_1
[hereinafter NASSCOM Announces] (noting and exemplifying efforts after the
Satyam scandal, which had to some extent sullied the image of the crucial Indian
information technology (IT) industry and also posed a threat to the future of its
stakeholders such as employees, customers and creditors).
168. For a detailed discussion, see supra Section IIB2.
169. Compare this process with supra note 101 (using extensive cross-
referencing during the process for enacting the Companies Act in 1956).
170. See Secretary of State for Trade and Indus., COMPANY LAW REFORM (Mar.
292 AM. U. INT’L L. REV. [31:2
closely followed by other former British colonies. 171 But, Indian

lawmakers chose to ignore those completely.
Although there is no evidence of explicit resistance from the
Indian lawmaking process in embarking on the colonial and the
initial post-colonial approach of transplanting English law into India,
the focus of the current process was entirely inward looking in
attempting to locate solutions for problems that are specific to India.
In other words, the solutions proposed were entirely autochthonous,
thereby signifying a fundamental change from the previous attitude
of Indian legislation.
In concluding this Section, it is evident that the rather lengthy
historical narrative regarding the evolution of Indian corporate law
was necessitated for a number of reasons. First, the literature
regarding the historical analysis of companies’ legislation in India is
sparse, especially over several time horizons. Such a narrative would
fill a gap in the literature and also aid in the understanding of the
various factors that were in play at different points in time so as to
explain the status of some of the present legislative provisions.
Second, and more immediately for the purposes of this article, the
historical explanation supports the core thesis that what began as a
continual process of transplantation in the colonial era and in the
period immediately following India’s decolonization subsequently
converted itself into an introspective process (with some experiences
2005), http://webarchive.nationalarchives.gov.uk/+/http:/www.dti.gov.uk/cld/
WhitePaper.pdf [hereinafter COMPANY LAW REFORM] (discussing the English
Companies Act of 2006, enacted following a series of lengthy consultations that
included a review and a white paper; CORPORATE AND CONSUMER AFFAIRS,
Modern Company Law for a Competitive Economy (Mar. 2005),
http://webarchive.nationalarchives.gov.uk/+/http:/www.dti.gov.uk/cld/WhitePaper.
pdf [hereinafter MODERN COMPANY LAW] http://webarchive.nationalarchives.gov.
uk/20121029131934/http:/www.bis.gov.uk/policies/business-law/company-and-
partnership-law/company-law/publications-archive (listing series of documents
used as a basis for the legislation); PAUL L. DAVIES, GOWER AND DAVIES
PRINCIPLES OF MODERN COMPANY LAW 55-57 (8th ed. 2008) (discussing the
legislative process behind the bill).
171. See, e.g., Report of the Company Legislation and Regulatory Framework
Committee, GOV’T OF SINGAPORE, (Oct. 2002), https://www.acra.gov.sg/uploaded
Files/Content/Legislation/FinalReport1.pdf [hereinafter Report of Company
Legislation] (providing an example of another Asian, Commonwealth state on
these English conventions, one with a powerhouse economy but tiny population
and area).
derived from other jurisdictions such as the U.K. and the U.S.), but
without wholesale adoption of English law as was hitherto the case.
Finally, to be sure, it is not the case that the Companies Act, 2013 or
the preceding legislation during India’s socialist era were entirely
different from parallel English legislation. Of course, several
provisions of the Companies Act, 1956 (which were transplanted
from the English Companies Act of 1948) continue to find their
place in some form or the other under the present law. This might be
the result of the attitude represented by the saying “if it ain’t broke,
don’t fix it”. 172 But, rather than provisions which have been left
untouched, what is of greater importance to this analysis is the areas
of law where specific changes have been proposed from time to time
and those that have required policy-oriented discourses. It is in these
areas where, the reference point that was previously on England has
either moved to other jurisdictions such as the U.S. or has simply
moved inwards in the search of an indigenous solution to solve
problems that are unique to the Indian context. That is what
establishes the visible shift from transplant to autochthony.
III. COMPARATIVE ANALYSIS OF CORPORATE

LAW: IMPACT OF DECOLONIZATION
This section analyzes the principal concepts under Indian
corporate law and compares (or contrasts) them with parallel
provisions under English law. This comparison adopts two
approaches. One is to consider how Indian law has evolved across
various key topics since decolonization and in comparison with laws
transplanted from England during the colonial period. The other is to
compare Indian corporate law with the developments in parallel
English legislation since India’s decolonization and to examine how
(and why) the two countries have adopted somewhat different
trajectories despite their shared common law heritage.
This comparison of substantive legal concepts involves four broad
topics, viz. (i) corporate structure and personality, (ii) corporate
finance and capital structuring, (iii) corporate governance, and (iv)
corporate law enforcement machinery. 173
172. To that extent, there is support for the “legal families” or “legal origins”
theories.
173. While it would be impossible to deal with all these topics with equal
294 AM. U. INT’L L. REV. [31:2
A. CORPORATE PERSONALITY AND STRUCTURE

When it comes to corporate personality and structure, the
corporate law in India is strict and somewhat inflexible, and
continues to carry some of the rigors of its colonial past, which have
been buttressed further by measures introduced in the post-colonial
era. On the other hand, England has progressively eased various
structural impediments that have made it far more straightforward for
companies to be incorporated and structured. To that extent, Indian
corporate law has moved in a direction that is very different from the
path adopted by its former colonizer.
Corporate law stipulates that a company that has been
incorporated in accordance with the law is a legal personality that is
separate from its shareholders, directors, creditors and other
constituencies. 174 This principle forms the foundation of the limited
liability protection offered to shareholders that encourages
entrepreneurs to establish business and carry out trade that benefits
the economy as a whole. 175 However, the law pertaining to “piercing
the corporate veil” steps in to create a balance whereby the limited
liability doctrine is not abused to adversely affect the interests of
third parties (particularly creditors). 176 A comparison suggests that
English law is rather circumspect about the idea of piercing the
corporate veil, thereby treating the principles of separately legal
personality and limited liability as sacrosanct. 177 More recent
evidence from the English courts considerably narrow the situations
weight within the course of this article, greater emphasis will be placed on
corporate governance as that is a core (and usually contentious) aspect of corporate
law.
174. See Companies Act, 2013, No. 18, § 9, Acts of Parliament, 2013 (India)
(establishing a similar separation with any future investors as well).
175. See generally Frank H. Easterbrook & Daniel R. Fischel, Limited Liability
and the Corporation, 52 U. CHI. L. REV. 89 (1985) (finding limited liability a
“fundamental principle of corporate law” while noting that liability has never been
“absolutely limited”).
176. See Henry Hansmann & Reinier Kraakman, Towards Unlimited
Shareholder Liability for Corporate Torts, 100 YALE L.J. 1879, 1931-33 (1991)
(concluding that veil-piercing is generally synonymous with the idea of unlimited
liability anyway).
177. See Salomon v. Salomon, [1897] A.C. 22 (H.L.) (establishing the principle
of limited liability in a landmark decision); see also Adams v. Cape Industries,
[1991] 1 All ER 929 Ch. 433.
where the veil can be pierced. 178 Contrast this with the position in
India where courts have been more liberal in piercing the veil. 179 The
differing treatments are indicative of the variance in the philosophy,
whereby England continues to follow a market-oriented approach
wherein incorporation is considered a facilitative process for
advancing the business needs of entrepreneurs, whereas the courts in
India tend to adopt a broader view taking into account the interests of
all stakeholders whose interests are affected by the actions of
companies. 180
One of the colonial-era requirements under Indian law obliges
companies to include in their memorandum of association 181 the
objects for which they are incorporated. This gives rise to the
doctrine of ultra vires whereby a business activity carried out by the
company which is beyond its stated objects is considered void for
exceeding the company’s capacity. 182 Over the years, this doctrine
has caused some level of consternation in countries that have adopted
English law. 183 Therefore, both England 184 as well as some of its
178. See, e.g., Prest v. Petrodel Resources, [2013] UKSC 34 (appeal taken from
Gr. Brit.) (“The recognition of a limited power to pierce the corporate veil in
carefully defined circumstances is necessary if the law is not to be disarmed in the
face of abuse.”).
179. DATTA, supra note 34, at 176 (“The horizon of the doctrine of lifting of the
corporate veil is expanding. It can be lifted even at the invitation of the company
itself. Contemporary trend shows that the lifting of the corporate veil is permissible
whenever public interest so demands. The courts have been pragmatic in their
approach in unveiling companies, especially the subsidiary companies to see their
real face in the interests of justice. The modern tendency is, where there is identity
and community of interest between companies in the group, especially where they
are related as holding company and wholly owned subsidiary or subsidiaries, to
ignore their separate legal entity and look instead at the economic entity of the
whole group tearing of the corporate veil.”); see also Ritu Birla, Maine (and
Weber) Against the Grain: Towards a Postcolonial Genealogy of the Corporate
Person, 40 J. L. & SOC’Y 92 (2013) (finding that on corporate veil piercing India
has adopted a different trajectory from the Western markets).
180. See supra notes 126-128 (revealing the broader “socialistic” approach
Indian courts generally adopt in corporate law).
181. The constitutional documents of a company (both in England and India)
consist of the memorandum of association and the articles of association.
182. See Ashbury Ry. Carriage & Iron Co. v. Riche, [1875] LR 7 (HL) 653
(establishing the ultra vires doctrine).
183. For instance, one method adopted to overcome this strict prohibition was
to follow a “kitchen sink” approach by drafting elaborate objects clauses in the
constitutional documents to include any business activity that can possibly be
envisaged.
296 AM. U. INT’L L. REV. [31:2
former colonies 185 have done away with the requirement that
companies must have objects clauses in their memorandum of
association. Consequently, the ultra vires doctrine has been
effectively abolished in these jurisdictions. Despite the liberalization
of this rule in the light of the evolving business environment, India
has remained unwavering in its faithfulness to the ultra vires rule.
Even the Companies Act, 2013 mandates that Indian companies must
carry in their memorandum of association objects clauses specifying
the type of business activity that they are permitted to carry on. 186
India has therefore opted to display some level of rigidity on this
count despite reforms implemented in other “common law”
jurisdictions. 187
Similarly, on several matters regarding the corporate structure,
corporate law in India is far stringent not only in comparison with its
colonial past, but more so with reference to contemporary English
corporate law. While English law clearly bifurcates the extent of
regulation between private companies (small, closely-held and hence
light regulation) and public companies (large, widely-held and hence
more extensive regulation), this distinction is far less clear in India,
whose regulatory philosophy tends to be rather overarching. Under
current English law, the incorporators possess adequate choice to
determine whether to go for a private company or a public one. 188
The philosophy of Indian corporate law is quite the opposite. Under
the Companies Act, 2013, a private company that is the subsidiary of
a public company is treated for all intents and purposes as if it is a
184. See DAVIES, supra Note 170, at 153-54. See also Companies Act, 2006, c.
46 § 31(1) (Eng.) (providing that a company’s objects are unrestricted unless
otherwise specified).
185. See e.g., WALTER WOON ON COMPANY LAW 113 (Tan Cheng Han ed.
2009) (Singapore in comparison).
186. Companies Act, 2013, § 4(1)(c) (referencing in the same section the other
requirements for companies in their memorandum of association).
187. See Stephen J. Leacock, The Rise and Fall of the Ultra Vires Doctrine in
United States, United Kingdom, and Commonwealth Caribbean Corporate
Common Law: A Triumph of Experience Over Logic, 5 DEPAUL BUS. & COM. L.J.
67 (2006) (showing that U.S. has also granted considerable freedom to companies
to carry on their business and has paid scant regard to the ultra vires doctrine).
188. See DAVIES, supra note 170, at 15; COMPANY LAW REFORM, supra note
170, at ch. 4 (explaining the philosophy behind this approach as “think small first”
and avoid the application of regulation to private companies that were written for
public companies).
public company. 189 By this, the state is not only arrogating to itself
from the incorporators the choice of corporate form (that is otherwise
available to them in other Western jurisdictions), but it also has the
effect of enhancing the scope of regulation because several private
companies incorporated as such are subjected to extensive regulation
if they are subsidiaries of public companies. This demonstrates the
philosophy of the Indian state to exercise broader control over the
corporate sector, although it arguably has the effect of inducing
greater transparency that may benefit various stakeholders.
Other measures in Indian legislation that have crept in over the
years represent a rather interventionist approach of the state
compared to the market-oriented approach of the colonial period. For
example, Indian corporate law places undue restraints on the
establishment and operation of corporate groups, although they are
quite common in India. 190 The Companies Act, 2013 confers powers
on the Government to prescribe the number of layers of subsidiaries
that a specific class of company may have. 191 Moreover, a company
cannot make investments through more than two layers of
investment companies. 192 Although there can be no case against the
need for restricting the abuse of group company structures, the
present stance arguably goes too far. It is unusual for jurisdictions to
impose such absolute curbs on the use of investment vehicles and
this provision appears somewhat unusual in the international context.
This requirement appears to have emanated from specific episodes
witnessed in India in the past, in this case the stock market scam
involving the use of investment vehicles for routing funds back and
forth from companies and their controlling shareholders, which was
the subject matter of a Joint Parliamentary Committee report over a
decade ago. 193 Although such a legislative response ensnares specific
189. See Companies Act, 2013, § 2(71) (exemplifying the difference with
English law by its well-defined rules).
190. See Marianne Bertrand et al., Ferreting Out Tunneling: An Application to
Indian Business Groups, 117(1) Q.J. ECON. 121, 121 (2002). See also Rajesh
Chakrabarti, Corporate Governance in India – Evolution and Challenges 14-20, 7
(2005) (unpublished manuscript), http://ssrn.com/abstract=649857 (referencing the
tendency of these groups to develop worldwide and providing certain specific
examples in India).
191. Companies Act, 2013, § 2(87).
192. Id. at § 186(1) (proscribing this system of protective layering).
193. Joint Committee on Stock Market Scam and Matters Relating Thereto,
298 AM. U. INT’L L. REV. [31:2
abuses of corporate group structures, it also has the unintended effect

of capturing genuine business transactions and structures thereby
curbing the ability of companies to organize more efficiently. While
the general method utilized in other countries to prevent abuse is to
invoke the doctrine of piercing the veil, albeit in exceptional
circumstances, the law in India proscribes such structures at the
outset. In addition, corporate law in India imposes severe restrictions
on the movement of funds between group companies (such as
holding companies and subsidiaries) whether by way of investment
or loan transactions. 194 This makes transactions between group
companies extremely onerous. 195
Hence, on matters relating to corporate personality and structure,
Indian corporate law has continued to hold firmly on to some
colonial vestiges such as the ultra vires doctrine although the origin
country and its other former colonies have jettisoned it along the
way. On other matters such as group structures, India’s approach has
been far more restrictive not only compared to the colonial period,
but also in the context of developments in the U.K. and other
Western jurisdictions which have moved in the opposite (more
liberal) direction.
B. CORPORATE FINANCE AND CAPITAL STRUCTURING

This sub-section begins by exploring the evolution of the law
relating to the equity finance in India, and how that compares with
the colonial era as well as subsequent developments in England.
Here, the findings show that India has made giant strides in
introducing flexibility to companies as compared to the colonial
period, and has also substantially kept with developments in England
in this field (although the law in India continues to be somewhat
more restrictive than England). This partially explains the explosive
LOK SABHA SECRETARIAT, (Dec. 2002), http://www.watchoutinvestors.com/

JPC_REPORT.PDF [hereinafter Joint Committee on Stock Market] (discussing the
irregularities committed by specific firms and banks and detailing the actual and
proposed responses to them).
194. Companies Act, 2013, §§ 185-186 (outlining the two-layer system,
defining the violations an individual might commit within it, and providing
specific fines for its violation).
195. See infra Section IIIC2 (discussing the restriction on related party
transactions).
growth of India’s equity capital markets over the last two decades
since liberalization. 196
A combination of company legislation and securities regulation
established a conducive framework for securities offerings in the
Indian markets, which permitted offerings of the type recognized
internationally. The assumption of regulatory responsibilities by
SEBI in 1992 resulted in a complete shift from fixed-price offerings
to book-built offerings. 197 Under this regime, companies are free to
invite bids from investors within certain indicative limits on the basis
of a draft prospectus that contains all the necessary disclosures. 198
Pricing through regulatory intervention gave way to a market-based
price discovery process. This enabled companies since the mid-to-
late 1990s to raise billions of dollars in capital through public
offering of shares and accompanied listings. 199 These factors
triggered a dramatic shift in the Indian capital markets, particularly
on the primary-markets front. 200
196. See Vikramaditya Khanna & Umakanth Varottil, Developing the Market
for Corporate Bonds in India, (Nat’l Stock Exch. Of India Ltd., Working Paper
No. 6, 2012), http://ssrn.com/abstract=2021602 (noting that while the equity
capital markets have witnessed significant growth over the years, the debt markets
(e.g. for corporate bonds) have failed to gather steam).
197. See Nitish Ranjan & T.P. Madhusoodhanan, IPO Underpricing, Issue
Mechanisms, and Size, SOCIAL SCIENCE RESEARCH NETWORK, 3-4 (Mar. 22, 2004)
(unpublished article), http://ssrn.com/abstract=520744 (implementing this as a
means of ending the broad underpricing which various studies had noted existed
across the country).
198. See S.S.S. Kumar, Short and Long-run Performance of Bookbuilt IPOs in
India, INT’L J. MGMT PRACS. & CONTEMP. THOUGHTS, 19, 20-21,
http://dspace.iimk.ac.in/bitstream/2259/523/1/sssk.pdf (providing a brief
description of the manner in which the book building process was to be carried out
for the purpose of price discovery).
199. See Arif Khurshed et al., IPO Certification: The Role of Grading and
Transparent Books 1, 3 (Mar. 31, 2011) (unpublished article),
http://www.cass.city.ac.uk/__data/assets/pdf_file/0006/86640/Khurshed.pdf (“the
Indian book building process is the most transparent in the world in that the book
building activity is shown live on stock exchange website with updates every 30
minutes”); id. at 3-4 (allowing retail investors to make their bids with full
knowledge of the nature of bids made by the better-informed institutional
investors).
200. See Jayanta Kumar Seal & Jasbir Singh Mataru, Long Run Performance of
Initial Public Offerings and Seasoned Equity Offerings in India 1, 2 (Indian Inst. of
Foreign Trade Working Paper No. FI-13-19, 2012) http://cc.iift.ac.in/research/
Docs/WP/19.pdf (providing a table including information of resources raised in the
primary market).
300 AM. U. INT’L L. REV. [31:2
SEBI’s emphasis on disclosure-based regulation has witnessed a

proliferation of disclosure norms for various types of capital raising
activities by Indian companies. Over the last two decades, SEBI has
gradually expanded the disclosure norms and prospectus
requirements, culminating in the presently applicable SEBI (Issue of
Capital and Disclosure Requirements) Regulations, 2009 (the “ICDR
Regulations”). The ICDR Regulations contain detailed disclosure
requirements to be complied with by companies undertaking various
types of securities offerings. For public offerings, the ICDR
Regulations are prescriptive and encompass disclosures pertaining to
the business, risks, legal matters, capital structure and even the
controlling shareholders and other entities within the group in which
they hold shares. The requirements in the ICDR Regulations are so
onerous that the disclosures required to give effect to a public
offering in the Indian markets are comparable (or possibly even far
exceed) those required in most developed markets. The trajectory
followed by SEBI in the last two decades demonstrates the pivotal
nature of disclosure as a tool for securities regulation in the primary
markets. 201
Other measures have introduced flexibility in equity financing.
Previously, public companies in India were restricted to two types of
shares, i.e. preference shares and equity shares. However, another
category was added in 2000 whereby Indian companies have been
allowed to issue shares with differential rights as to dividend and
voting. 202 Other hybrid instruments such as global depository
receipts 203 and derivatives 204 have received express statutory
201. See Sandeep Parekh, Integrated Disclosure – Streamlining the Disclosure

Norms in the Indian Securities Market, (Indian Inst. of Mgmt., Ahmedabad
Working Paper 2005-01-04,2005, http://ssrn.com/abstract=653703 (showing that,
at the same time, the disclosure standards imposed in the secondary markets are
considerably inferior in comparison with those in the primary markets).
202. See Companies Act, 2013, § 43(a)(ii) (incorporating the shares with
differential rights after intense debate about the issues surrounding them);
Companies (Amendment) Act, 2000 (outlining these changes which were later
reaffirmed in the 2013 Act).
203. See Companies Act, 2013, § 2(44) (“any instrument in the form of a
depository receipt, by whatever name called, created by a foreign depository
outside India and authorised by a company making an issue of such depository
receipts”).
204. See id. at § 2(33) (“as defined in clause (ac) of section 2 of the Securities
Contracts (Regulation) Act, 1956”).
recognition. All of these provide different financing options to Indian

companies. Moreover, concepts such as employee stock options 205
and sweat equity enable the use of equity shares 206 to compensate
employees. As far as the menu of options available for equity
financing is concerned, the Indian legislation is quite modern.
However, when it comes to capital maintenance, corporate law in
India continues to be fairly restrictive in nature. For instance,
companies are still required to follow the concept of authorized
capital 207 and par value of shares. 208 The concepts that were infused
into Indian corporate law during the colonial period were intended to
offer some form of creditor-protection. 209 However, these have since
outlived their utility, as they had no correlation with the true value of
the company that was of greater concern to its creditors. 210 Several
Western jurisdictions have either not been following these
requirements, 211 or have been following them partly. 212 Even some of
the former colonies of the British Empire have since moved away
from these somewhat archaic requirements. 213 Even though Britain
205. See id. at § 2(37) (option given to the directors, officers or employees . . .
which gives such directors, officers or employees, the benefit or right to purchase,
or to subscribe for, the shares of the company at a future date at a pre-determined
price”).
206. See id. at § 2(88) (“such equity shares as are issued by a company to its . . .
employees at a discount or for consideration, other than cash, for providing their
know-how or making available rights in the nature of intellectual property rights or
value additionsFalse).
207. See id. 2013 at §§ 2(8), 60-61 (such capital as is authorized by the
memorandum of a company to be the maximum amount of share capital of the
company).
208. See, e.g. id. at § 65.
209. See DAVIES, supra note 170, at 260.
210. See, e.g., WOON, supra note 185, at 425-29 (providing the example of
Singapore); How Yew Kee & Lan Luh Luh, The Par Value of Shares: An
Irrelevant Concept in Modern Company Law, SING. J. LEG. STUD. 552 (1999)
(comparing the par value regimes of Commonwealth states New Zealand and
Australia with Singapore and recommending to Singapore a move in their
direction).
211. See, e.g., Vasudev, supra note 35, at 28 (discussing Delaware law in the
U.S. and comparing it with Indian law); William T. Allen et al., COMMENTARIES
AND CASES ON THE LAW OF BUSINESS ORGANIZATION, 1, 123-24 (2012).
212. See e.g., DAVIES, supra note 170, at 260-61, 265-66 (noting that although
the U.K. has done away with the concept of authorized capital, it has retained the
par value).
213. See, e.g., WOON, supra note 185, at 425-29 (providing Singapore as an
example of this).
302 AM. U. INT’L L. REV. [31:2
and some of its colonies have migrated away from the concepts of
authorized capital and par value of shares that were considered a
form of creditor-protection in the colonial era, India has remained
wedded to this concept, wherein no reform was suggested even
during the most recent process of enacting the Companies Act, 2013.
The rather restrictive approach continues in other areas of capital
maintenance and capital restructuring. For example, strict rules
permit buyback of shares by a company only out of free reserves,
share premium or the proceeds of a fresh issue of shares. 214
Moreover, there are ceilings in terms of total amounts that a
company can pay out in a buyback (25% of paid up capital and free
reserves) and a maximum percentage (25%) of shares it can buy
back. 215 In order to protect the creditors, directors must issue a
solvency certificate and the company must maintain a minimum
debt-equity ratio following the buyback. 216
The current regime in India regarding buyback of shares
represents a radically different position from the colonial period
when a company was not permitted to acquire its own shares under
any circumstances whatsoever. The flexibility allowing companies to
buy back their own shares was introduced only as late as 1999, 217
after which it has taken a prominent place. It is somewhat
comparable to the present English position, which too permits
companies to purchase their own shares, although the conditions and
requirements are somewhat differently structured with less rigid
conditions. 218
214. See Companies Act, 2013, § 68 (outlining the power of a company to

purchase its own securities).
215. Id. at § 68(2) (including the various technicalities and details as well).
216. Id. at § 68(2)(d)(6) (“It shall, before making such buy-back, file with the
Registrar and the Securities and Exchange Board, a declaration of solvency signed
by at least two directors of the company”).
217. Companies Act, 1999 (Amendment).
218. See Companies Act, 2006, Part 18 (Eng.) (providing a general discussion
of the rules for British companies acquiring their own shares). See also Wee Meng
Seng, Reforming Capital Maintenance Law: The Companies (Amendment) Act
2005, 19 SING. ACAD. L.J. 295 (2007) (providing a discussion on other former
British colonies, which have adopted varying approaches to capital maintenance
and buyback of shares, ranging from several conditions imposed for buyback of
shares as prevalent in Singapore to the emphasis largely on the solvency of the
company for permitting a buyback in New Zealand).
As a final matter relating to capital maintenance, the rule against

financial assistance operates in an absolute manner whereby
companies are prohibited from providing any form of financial
assistance for the acquisition of its own shares. 219 While this rule has
been controversial owing to its rigidity, a number of jurisdictions
have made modifications over the years. Some carry whitewash
provisions that enable shareholders to approve the financial
assistance so long as the company continues to be solvent
thereafter. 220 Others make the rule inapplicable to private
companies. 221 In such a case, where a public company has been
acquired, it can first be converted into a private company following
which it could provide financial assistance. 222 This provides options
for acquirers of companies to carry out leveraged acquisitions
(whereby the financing of the acquisition is secured by the assets of
the company acquired). The Indian position is rather rigid as it does
not provide for any exceptions (such as whitewash provisions).
Although the rule against financial assistance is not applicable to
private companies, this is not altogether attractive as targets in large
leveraged buyouts are likely to be public companies. Moreover, even
if they are privatized following the acquisition, they could continue
to be treated as public companies if they become subsidiaries of
acquirers that are themselves public companies. 223 For this reason,
the rule against financial assistance is unduly restrictive in the Indian
circumstances, with no meaningful exceptions contained in the
legislation. Surprisingly, the law reform process that resulted in the
Companies Act, 2013 does not seem to have considered this issue at
all. To this extent, India’s position continues to rely heavily on its
colonial origins and has made little progress despite the advancement
in equity markets and capital restructuring transactions.
219. Companies Act, 2013, § 67(2).

220. See Wee, supra note 218 (noting Singapore has adopted this approach).
221. Companies Act, 2006, § 678.
222. Paros Plc v Worldlink Group Plc [2012] EWHC 394 (Comm) at ¶ 73,
where an undertaking by the company while it was a public company to provide
some sort of financial assistance to a purchaser of shares after it was re-registered
as a private company (which was a pre-condition) was found to be lawful. For a
brief discussion of this case, see GEOFFREY MORSE (ED), PALMER’S COMPANY
LAW (1992) at ¶ 6904.1.
223. See supra note 189 and accompanying text.
304 AM. U. INT’L L. REV. [31:2
In all, on matters of corporate finance and capital maintenance, on

several aspects such as public offerings, options on types of
securities and buyback of shares, the Indian legislation has evolved
over a period of time. However, on other matters of capital
maintenance such as the rule against financial assistance, it has failed
to dislodge itself from its rigid stance that continues to affect
transactions in the Indian context although the U.K. and some of its
former colonies have adopted a more pragmatic approach given the
commercial development of the times. 224
C. CORPORATE GOVERNANCE
While corporate governance 225 has been an inherent part of
corporate law since its inception, the concept has gathered
considerable momentum in India in the last two decades (and for a
longer period of time in Western jurisdictions). During this period,
India has adopted corporate governance measures from other
jurisdictions, particularly the U.S. and the U.K. 226 This despite
considerable variances between conditions prevailing in those
Western jurisdictions and locally in India. For example, the U.S. and
the U.K. follow the “outsider” model of corporate governance 227
224. See Umakanth Varottil, Corporate Governance in M&A Transactions, 24

NAT. L. SCH. IND. REV. 50; Vikramaditya Khanna, Mergers & Acquisitions and
Corporate Governance, NSE QUARTERLY BRIEFING (Oct. 2013),
http://www.nseindia.com/research/content/res_QB3.pdf. (as far as corporate
restructuring is concerned, Indian corporate law continues to operate on the basis
of concepts derived from the colonial era, which the U.K. too follows to a large
extent. These include the concepts of scheme of compromise and arrangement (for
effecting amalgamation of companies), contractual mergers (in very limited
circumstances), schemes of reduction of capital, compulsory acquisitions and the
like.).
225. See Cadbury Committee Report, supra note 147, at ¶ 2.5 (defining
corporate governance as relating to the system where companies are directed and
controlled and representing the checks and balances within the corporate structure
that helps create long-term value enhancement for stakeholders in a company). See
also ROBERT A.G. MONKS & NELL MINOW, CORPORATE GOVERNANCE 2 (1995).
226. See supra notes 146-153 and accompanying text (suggesting that India
tends to adopt the U.S. model rather than the U.K. model in securities regulation).
See also Varottil, supra note 125 (asserting that implementing the outsider model
would not properly address India’s governance problem).
227. Stilpon Nestor & John K. Thompson, Corporate Governance Patterns in
OECD Economies: Is Convergence Under Way? At 5,
http://www.oecd.org/dataoecd/7/10/1931460.pdf. (describing the U.S. and U.K.
systems as the classic “outsider” systems enabling both countries’ institutional
wherein most companies in those jurisdictions display dispersed

shareholding and it is not too common to find controlling
shareholders. 228 On the other hand, India follows the classic “insider”
system 229 where most public companies are controlled (by virtue of
dominant shareholding) by either business families or the state. 230
Although there could be several possible methods to analyze the
corporate governance issues in a legal system (and more so in
comparison with other systems), this article resorts to the “agency
problems” paradigm that provides an elegant underlying
framework. 231 As explained in an influential book on the subject, 232
investors to be among the largest owners of equity and owners of industry).

228. See Ronald J. Gilson & Jeffery N. Gordon, The Agency Costs of Agency
Capitalism: Activist Investors and the Revaluation of Governance Rights, 113
COLUM. L. REV. 863, TBD (2013) (explaining that while this theory has come
under some strain in the U.S. context, it remains true in the U.K). For a discussion
on the U.S.: Clifford G. Holderness, see The Myth of Diffuse Ownership in the
United States, 22 REV. FIN. STUD. 1377 (2009). See Bernard S. Black & John C.
Coffee Jr., Hail Britannia?: Institutional Investor Behavior Under Limited
Regulation, 92 MICH. L. REV. 1997, 2001(discussing on the U.K); BRIAN R.
CHEFFINS, PUTTING BRITAIN ON THE ROE MAP: THE EMERGENCE OF THE BERLE-
MEANS CORPORATION IN THE UNITED KINGDOM, 151, 151 (2002) in JOSEPH A.
MCCAHERY, PIET MOERLAND, THEO RAAIJMAKERS & LUC RENNEBOOG (EDS.),
CORPORATE GOVERNANCE REGIMES: CONVERGENCE AND DIVERSITY 151, 151
(2002).
229. See Nestor & Thompson, supra note 227 at 9 (distinguishing insider
groups from the outsider system by noting the absence of an agency problem in
insider groups due to their small size and ability to act together in management).
See also Law & Finance, supra note 1 (discussing the protection of the
shareholders’ rights in the insider system specifically in terms of voting).
230. See Chakrabarti, supra note 190 (describing the inter-locking of corporate
control within family businesses and corporate groups that are prevalent in India as
blocking minority shareholders’ rights). See also Shaun J. Mathew, Hostile
Takeovers in India: New Prospects, Challenges, and Regulatory Opportunities, 3
COLUM. BUS. L. REV. 800, (2007) (dismissing the potential for hostile takeovers by
foreign enterprises in India due to the predominance of founding families with
shareholding positions and Indian provision and government approvals that favor
the founding families); N. Balasubramanian & R.V. Anand, Ownership Trends in
Corporate India 2001-2011: Evidence and Implications (Indian Inst. of Mgmt,
Bangalore, Working Paper No. 419), http/::ssrn.com:abstract=2303684
(elaborating that India’s corporate ownership is mainly controlled by the promoter
groups multinational parents, or the state).
231. See R. Cheffins, The Trajectory of (Corporate Law) Scholarship (Nov.
2003) (unpublished paper), http://ssrn.com/abstract=429624 (noting that the
agency concept is used by academics in corporate governance literature in a wider
economic sense and ought to be distinguished from the contractual concept of
agency).
306 AM. U. INT’L L. REV. [31:2
the effort of corporate law is “to control conflicts of interest among

corporate constituencies”. 233 These conflicts are referred to in
economic literature as “agency problems”. 234
Corporate law and corporate governance literature define three
generic agency problems. 235 The first agency problem relates to the
conflict between the company’s managers and its owners (being the
shareholders). 236 Hereinafter referred to as the “manager-shareholder
agency problem”, such conflict exists largely in jurisdictions which
manifest diffused shareholding in companies. This is due to
collective action problems and the resultant inability of shareholders
to properly monitor the actions of managers. The second relates to
the conflict between the majority or controlling shareholders on the
one hand and minority shareholders on the other. 237 Such conflict,
which is referred to hereinafter as the “majority-minority agency
problem” is largely prevalent in jurisdictions that display
concentrated shareholding where the interests of minority
232. REINIER R. KRAAKMAN ET AL., THE ANATOMY OF CORPORATE LAW: A

COMPARATIVE AND FUNCTIONAL APPROACH, (2009) (defining agency problem as
arising when a principal’s welfare depends on an agent’s actions and those actions
are not done in the interest of the principal).
233. Id. at 35.
234. For a detailed analysis of agency theory in economic literature, see J.
Michael Jensen & William Meckling, The Theory of the Firm: Managerial
Behavior, Agency Costs, and Ownership Structure, 3 J. FIN. ECON. 305, (1976)
(explaining that in an agency relationship the principal and the agent generally
incur “positive monitoring and bonding costs” and so the agent cannot always
make decisions beneficial to the principal’s welfare). See also KRAAKMAN, ET. AL.,
supra note 232, at 35 (noting that an ‘agency problem’—in the most general sense
of the term—arises whenever the welfare of one party, termed the ‘principal,’
depends upon actions taken by another party, termed the ‘agent.’ The problem lies
in motivating the agent to act in the principal’s interest rather than simply the
agent’s own interest. Viewed in these broad terms, agency problems arise in a
broad range of contexts that go well beyond those that would formally be classified
as agency relationships by lawyers).
235. See generally KRAAKMAN ET. AL., supra note 232, at 36; Paul L. Davies,
The Board of Directors: Composition, Structure, Duties and Powers 1, 2
(unpublished article) (2000), http://www.oecd.org/dataoecd/21/30/1857291.pdf
(outlining three types of agency problems).
236. KRAAKMAN ET. AL., supra note 232, at 36; Davies, supra note 235, at 2
(noting that the conflict between shareholders and the management arises where
shareholdings are dispersed).
237. See Davies, supra note 235, at 3 (explaining that an issue arises in
protection of minority shareholders when a small number of shareholders have
large amounts of shares in the company).
shareholders are significantly diluted. The third agency problem

relates to the conflict between the owners and controllers of the firm
(such as the shareholders and managers) and other stakeholders (such
as creditors, employees, consumers and public), with many of whom
the company may enter into a contractual arrangement governing
their affairs inter se. 238 This conflict, referred to hereinafter as the
“controller-stakeholder agency problem” exists both in jurisdictions
that have diffused shareholding as well as those that have
concentrated shareholding, but its role is accentuated in those that
have concentrated shareholding. 239
Through this “agency problems” paradigm, it is appropriate to
discuss the evolution of corporate law in post-colonial India and how
it has sought to address these different agency problems.
1. Controlling the Managers

The manager-shareholder agency problem is of limited relevance
in India due to the general concentration of shareholding. However,
looking at historical evolution in India, legal instruments were indeed
utilized to address this agency problem that existed during
independence. As we have seen, 240 the managing agents that
proliferated during the colonial era gave rise to the manager-
shareholder agency problem. The managing agents of the time held
only a small percentage of shareholding in the companies they
managed. Since the outside investors were not only large in number
and unrelated to the managers, they were also disinterested in
participating in the management of the companies. Arguably, the
governance issues afflicting Indian companies that were managed
during the colonial period by the managing agents were somewhat
238. Id. (noting that all company laws address relations between the company
and its creditors because of the company’s shareholders’ limited liability).
239. Mark J. Roe, Political Preconditions to Separating Ownership from
Corporate Control, 53 STAN. L. REV. 539, 539 (2000). See also Alan Dignam &
Michael Galanis, Corporate Governance and the Importance of Macroeconomic
Context, 28 OXFORD J. LEGAL STUD. 201, 202 (2008) (explaining that there is
some correlation between ownership structure and the shareholder-stakeholder
focus. Interesting political explanations have been proffered for this phenomenon.
Professor Roe notes that “when we line up the world’s richest nations on a left-
right political continuum and then line them up on a close-to-diffuse ownership
continuum, the two correlate powerfully.”).
240. See supra Section II.A.4.
308 AM. U. INT’L L. REV. [31:2
akin to those faced by the classic Berle & Means corporation in the
U.S. 241 Although there was initial hesitation to confront this agency
problem directly both towards the end of the colonial period and
immediately upon India’s independence, 242 sufficient political will
was mustered in the late 1960s to eliminate the institution of
managing agencies altogether. 243
To that extent, India’s experience in dealing with the manager-
shareholder agency problem is somewhat distinctive. The transplant
of English law into India until the 1960s did not specifically address
the problems relating to managing agencies. Although English law
was focused on addressing the manager-shareholder agency problem
generally, the indigenous innovation of managing agencies in India
required a more targeted solution. This required the Indian
Parliament to make a clean break from the colonial era in eliminating
the concept of managing agencies altogether. Thereafter, the agency
problems that were more prevalent in India relate to those between
controlling shareholders and minority shareholders, wherein neither
the colonial laws nor the corporate governance regime as it has
evolved in England provide any solution.
2. Protecting the Minority

Due to the concentration of shareholding in Indian companies, the
majority-minority agency problem is rampant. Hence, the role of
corporate law and governance norms ought to be to address that
specific problem. Until recently, corporate law in India failed to
directly address this problem. In the two decades following
liberalization, several corporate governance norms were gradually
introduced in the Indian context. 244 The efficacy of importing several
corporate governance concepts into an emerging economy like India
from the developed economies like the U.S. and U.K. is open for
debate. 245 Any problems with regard to transplantation of these
241. See ADOLF A. BERLE & GARDINER C. MEANS, THE MODERN

CORPORATION AND PRIVATE PROPERTY 66 (1940).
242. See supra notes 107-113 and accompanying text.
243. See supra notes 122-124 and accompanying text.
244. See supra Section II.D (discussing the norms and how they were
introduced).
245. Jairus Banaji & Gautam Mody, Corporate Governance and the Indian
Private Sector 8 (Univ. of Oxford, Queen Elizabeth House Working Paper No. 73,
corporate governance concepts are exacerbated by the differing

political, social and economic considerations that operate in these
two sets of jurisdictions, namely the U.S. and U.K. (the outsider
system) on the one hand, and India (an insider system) on the
other. 246 As argued elsewhere, several corporate governance concepts
remained unimplemented effectively in India, and this
implementation failure raises questions regarding the viability of the
transplant itself. 247
Just to illustrate this point further, during this phase, one key
transplant related to the concept of board independence, which was
transplanted to India from the U.S. and the U.K. 248 As mentioned
earlier, controlling shareholders in Indian companies possess
significant voting power, both de jure and de facto, and can
determine the composition of the boards of most Indian public listed
companies by exercising their voting power to appoint or remove
directors. 249 This holds good for the appointment of independent
directors as well. Hence, although independent directors (a
seemingly critical component of the corporate governance norms) are
required to act in the general interests of the company and the
shareholder body as a whole and as monitors of managers and
controlling shareholders, in practice they are generally likely to owe
their de facto allegiance to the controlling shareholders, as such
2001), http://www3.qeh.ox.ac.uk/pdf/qehwp/qehwps73.pdf.
246. See Troy Paredes, A Systems Approach to Corporate Governance Reform:
Why Importing U.S. Corporate Law Isn’t the Answer, 45 WM. & MARY L. REV.
1055, 1058 (2004).
247. Varottil, supra note 125 (describing that it is arguably ineffective in using
the U.S. and U.K. models because their corporate government norms are not
effective in India).
248. See Umakanth Varottil, Evolution and Effectiveness of Independent
Directors in Indian Corporate Governance, 6 HASTINGS BUS. L.J. 291 (2010)
(analyzing the incorporation of the independent director concept in India and the
process by which it has evolved).
249. Companies Act, 1956, No. 1, §§ 263, 284, Acts of Parliament, 1956
(India) (in India, the appointment of each director is to be voted on individually at
a shareholders’ meeting by way of a separate resolution. Each director’s
appointment is to be approved by a majority of shareholders present and voting on
such resolution. Hence, controlling shareholders, by virtue of being able to muster
a majority of shareholders present and voting on such resolution, can control the
appointment of every single director on the board. Companies Act, 1956, § 263.
Similarly, any director may be removed before the end of her term without cause
by a majority of shareholders present and voting on such resolution.).
310 AM. U. INT’L L. REV. [31:2
directors depend on the controlling shareholders for their board seats

(as well as remuneration and other terms and conditions). In view of
this, independent directors may have a tendency to passively approve
actions taken by controlling shareholders and the managers (whose
appointments again are subject to be influenced substantially by the
controlling shareholders). Proceeding on the assumption that one of
the fundamental purposes of corporate governance in India is to
address the controller-minority agency problem by protecting the
interests of the minority shareholders from actions of the controlling
shareholders, this purpose is defeated at its very source because the
instrumentality of independent directors that has been created to
solve this agency problem is itself subject to potential dominance by
the controlling shareholders. 250 This illustration of the independent
director concept is replete with problems that are likely to be
encountered when concepts from outsider systems are transplanted to
insider systems without adequate consideration of inherent
differences in corporate structures or other relevant factors.
The latest round of corporate law reforms have, however, shifted
away from a wholly transplant-oriented approach to a more
indigenous approach that takes into account the local circumstances,
particularly the concentration of shareholding in Indian companies
and hence the presence of the majority-minority agency problem.
The Companies Act, 2013 brings about substantial changes to the
concept of board independence and also introduces other measures
such as rules pertaining to related-party transactions, all of which
seek to directly address the majority-minority agency problem.
Under the new legislation, independent directors are to be chosen by
a nomination committee of the board, which has been made
mandatory. 251 Moreover, a widening monitoring role of independent
directors also extends specifically to protecting the interest of the
minority shareholders, thereby providing a pointed solution to the
agency problem prevalent in India. 252 The altered role of independent
250. As controlling shareholders have vast powers to determine the selection of

the independent directors, it is likely that controlling shareholders would most
likely appoint persons who would be passive to their decision-making. Further,
even independent directors who may wish to act in the larger interests of the
company may be precluded from doing so because of the wide-ranging powers that
controlling shareholders exercise.
251. Companies Act, 2013, No. 18, § 178 Acts of Parliament, 2013 (India).
252. Id. at Schedule IV, ¶ II(5),(6),(8).
directors under the contemporary legislation is an effort to devise

indigenous solutions as opposed to simply relying on transplants.
The enormous stress placed on regulating related-party
transactions under the new legislation is yet another evidence of
autochthony. Previously transplanted legal regimes pertaining to
corporate governance in India paid short shrift to related-party
transactions as they are less relevant in jurisdictions such as the U.K.
(and the U.S.) where shareholding is diffused. They are, however,
rampant where shareholding is concentrated and corporate groups
structures are common, such as in India. 253 The Companies Act, 2013
introduces strict measures to regulate related-party transactions. For
instance, such transactions are now required to be approved by the
board of directors of the company, and in the case of material
transactions they also require the approval of the shareholders
(wherein a shareholder who is a related party is disallowed from
voting). 254 Disinterestedness and independence in decision-making
would ensure that the transactions are carried out at arm’s length and
are not abusive in nature so as to unduly transfer value from a
company to a related party (such as a controlling shareholder) so as
to adversely affect the interests of the minority shareholders.
These illustrations are indicative of India’s shift away not only
from colonial era laws (that did not encompass matters of corporate
governance in as much detail), but also from developments in the
U.K. (as well as perhaps other former colonies such as Australia and
Canada) in recognition of the specific majority-minority agency
problem that is prevalent in India.
253. See ORG. FOR ECON. CO-OPERATION & DEV., GUIDE ON FIGHTING ABUSIVE
RELATED PARTY TRANSACTIONS IN ASIA 11 (2009) (related-party transactions are
defined as those transactions between a company, its subsidiaries, employees, its
controlling shareholders, management or members of their immediate family, and
affiliates. While related-party transactions are often beneficial to companies, they
also have the potential to be abusive in nature thereby unduly benefiting the
controlling shareholders while adversely affecting the interests of minority
shareholders.).
254. Companies Act 2013, § 188 (outlining when a company may not enter into
arrangements with a related party).
312 AM. U. INT’L L. REV. [31:2
3. Enabling Other Stakeholders

The question whether companies should be run for the benefit of
their shareholders or whether the interests of other stakeholders must
be taken into account is a vexing one, 255 and directly attracts the
controller-stakeholder agency problem. The colonial law in India
was unequivocal in its zeal to protect shareholders so as to enable
companies to attract capital. 256 Corporate law did not play any role at
all in taking cognizance of the interests of non-shareholder
constituencies. This position continued immediately following
decolonization, but the change in philosophy began taking shape in
the 1960s with amendments to the Companies Act, 1956, which was
also consistent with the escalation of the socialistic sentiment of the
period. 257 This sub-section seeks to demonstrate that the legal
position has evolved substantially in the post-colonial era such that
corporate law’s approach towards viewing the company as a private
matter has given way to an approach that considers the company as
carrying wider societal ramifications and affecting public interest.
This vision of the corporate entity not only contrasts with the
colonial origins of Indian corporate law, but stands at considerable
variance with the English position, which continues to be staunchly
shareholder-oriented.
Following decolonization, consistent with its journey through
years of socialism, the role of company law in India has extended
beyond merely the protection of shareholders. 258 It encompasses the
protection of employees, creditors, consumers and society. For
instance, employees obtain certain special rights under company law,
such as preferential payment for dues in case of winding up of a
255. Martin Gelter, Taming or Protecting the Modern Corporation?

Shareholder-Stakeholder Debates in a Comparative Light, 7 N.Y.U. J.L. & BUS.
641, 642 (2011) (analyzing the history behind the argument of whether a
corporation should be run in favor of a shareholder’s interest or stakeholders’
interests by examining the systems in US, Germany, and France).
256. See supra Section II.A.3. (noting that this was consistent with the laissez
faire policy prevalent during the period).
257. See supra Section II.C.
258. See Tarun Khanna & Krishna Palepu, Globalization and Convergence in
Corporate Governance: Evidence from Infosys and the Indian Software Industry,
35 J. INT’L BUS. STUDIES 484, 500 (2004) (laying out the debate in the context of
protection of employees using the stakeholder theory).
company, 259 and also the right to be heard in case of significant

proceedings involving a company such as in a scheme of
arrangement (merger, demerger or other corporate restructuring) 260 or
in a winding up 261 of the company. As far as creditors are concerned,
while company law does provide them with the standard rights and
remedies, 262 other special laws confer further corporate law rights
such as the ability of the creditors to convert their loans into equity
of the debtor company and, more specifically from a corporate
governance standpoint, to appoint nominee directors on boards of
debtor companies. 263 These rights are seemingly provided to protect
the interests of the creditors. Building upon the element of “public
interest”, affected parties may exercise remedies in case the affairs of
a company are carried out in a manner prejudicial to public
interest, 264 or if a scheme of arrangement 265 is not in consonance with
public interest. 266 For example, while according its sanction to a
merger, demerger or corporate restructuring that is carried out
through a scheme of arrangement, the court must take into
consideration the effect of such a transaction on public interest, a
260. Companies Act 2013, §§ 230-232. See In Re, River Steam Navigation Co.
Ltd., (1967) 2 Comp. L.L. 106 (Cal.) (holding that in considering any scheme
proposed, the Court will also consider its effects on workers or employees); In Re,
Hathisingh Manufacturing Co. Ltd., (1976) 46 Comp. Cas. 59 (Guj.) and Bhartiya
Kamgar Sena v. Geoffrey Manners & Co. Ltd., (1992) 73 Comp. Cas. 122 (Bom.)
(approving the proposition that while sanctioning a scheme of arrangement the
court should consider not merely the interests of the shareholders and creditors but
also the wider interests of the workmen and of the community).
261. Companies Act, 2013, No. 18, § 282 Acts of Parliament, 2013 (India). See
National Textile Workers’ Union v. Ramakrishnan (P.R.), (1983) 75 A.I.R. SC
(India) (holding that a court can hear the employee if it determines the employee
should be heard to administer justice).
262. Companies Act, 2013, § 272(1)(b) (stating that these include the right to
initiate a winding up of the company, which is a customary company law right
conferred on creditors in most jurisdictions).
263. See e.g., State Bank of India Act, 1955, No. 23, § 35A, Acts of Parliament
(2010) .
264. Companies Act, 2013, § 241(1)(a). See also supra note 121.
265. See Jennifer Payne, Schemes of Arrangement, Takeovers and Minority
Shareholder Protection, 11 J. CORP. L. STUD. 67 (2011) (mergers, demergers and
other forms of corporate restructuring are usually effected through a scheme of
arrangement that not only requires the approval of different classes of shareholders
and creditors, but also the sanction of the relevant court of law).
314 AM. U. INT’L L. REV. [31:2
matter that is alien to English law. 267

If Indian corporate law was already stakeholder-oriented during
the socialist era, the recent reforms culminating in the Companies
Act, 2013 stress that further in several ways. Here, two such reforms
are indicative of this move, viz. (i) expansion of directors’ duties,
and (ii) corporate social responsibility.
Hitherto, directors of Indian companies had negligible guidance
under company law as regards their duties and liabilities. The
preexisting Companies Act, 1956 did not explicitly stipulate
directors’ duties, which made it necessary to fall back on common
law principles (to be articulated by courts while delivering specific
decisions). The statutory uncertainty was compounded by the
absence of significant cases of director duties and liabilities before
Indian courts. This somewhat unsatisfactory situation has been
mended in the Companies Act, 2013, which is rather explicit about
directors’ duties. The new provisions not only provide greater
certainty to directors regarding their conduct, but also enable the
beneficiaries as well as courts and regulators to judge the discharge
of directors’ duties more objectively.
More important for our present purpose, the Companies Act, 2013
extends the stakeholder principle further while codifying directors’
duties. It provides:
A director of a company shall act in good faith in order to promote the
objects of the company for the benefit of its members as a whole, and in
the best interests of the company, its employees, the shareholders, the
community and for the protection of environment. 268
Even if there was a doubt under previous legislation as to the

extent to which stakeholder interests are to be considered by
directors of a company, it has been put to rest in the new legislation.
In other words, shareholders are not the only constituency that
deserves the attention of directors; other constituencies such as
employees and even the community and the environment are to be
considered by the directors.
267. Hindustan Lever Employees’ Union v. Hindustan Lever Ltd., A.I.R. 1995
S.C. 470, ¶ 5 (India).
268. Companies Act, 2013, No. 18, § 166(2) Acts of Parliament, 2013 (India).
While the stakeholder approach was considered during the latest

English company law reform process, matters were resolved rather
differently. There, the Company Law Review came up with
proposals to cater to stakeholder interests. 269 Essentially, two
approaches that were considered: (i) the pluralist approach, which
states that “company law should be modified to include other
objectives so that a company is required to serve a wider range of
interests, not subordinate to, or as a means of achieving, shareholder
value . . . but as valid in their own right,” 270 which represents an
expansive conception of stakeholder interest; and (ii) the enlightened
shareholder value (“ESV”) approach, which takes the position that
the ultimate objective of company law to generate maximum
shareholder value is also the best means of securing protection of all
interests and thereby overall prosperity and welfare. 271 In other
words, the latter approach conceives of a merger of interests of
stakeholders and shareholders by adopting the position that if the
company acts to preserve stakeholder interests, then that would
necessarily bring about enhancement of shareholder value. However,
after some extensive debate, it is the ESV model that has received
statutory recognition in the UK. This appears to be a hybrid approach
that is primarily for the benefit of shareholders, but also obliquely
takes into account the interests of other stakeholders. 272
Notwithstanding this compromise, it is clear that in case of conflict
between various interests, the directors must prioritize shareholders’
interests, which is the paramount goal. 273
On the other hand, in the context of the aforesaid dichotomy, the
Companies Act, 2013 in India has preferred to adopt the pluralist
approach by providing recognition to both stakeholders and
shareholders, without necessarily indicating a preference to either.
269. Supra note 170.

270. Id. at ¶ 5.1.3 (explaining that the approach is “pluralist because it argues
that the interests of a number of groups should be advanced without the interests of
a single group (shareholders) being overriding”).
271. Id. at ¶ 5.1.2.
272. Companies Act, 2006, c. 46, § 172(1) (Eng.)
273. See CHRISTOPHER M. BRUNER, CORPORATE GOVERNANCE IN THE
COMMON-LAW WORLD: THE POLITICAL FOUNDATIONS OF SHAREHOLDER POWER
34, 44 (2013) (showing that U.K. legislation and jurisprudence hold a
shareholder’s interest as higher priority as shown through §172 of the U.K.
Companies Act).
316 AM. U. INT’L L. REV. [31:2
Despite the superficial similarity between the English and Indian

legal provisions on directors’ duties, there is a vital distinction in that
shareholders continue to occupy a pivotal position in England,
whereas in India they are only one among a number of constituencies
that command the attention of directors.
Related to this is the newly introduced requirement of CSR, 274
which has gained considerable traction. The concept of social
responsibility of corporations is not novel, and has been part of the
indigenous thinking during the colonial era. 275 After much debate,
CSR found its place in the Companies Act, 2013 whereby every
company of a certain size is to announce a CSR policy. More
importantly, India is one of the earliest countries to require large
companies to spend at least two percent of its average net profits
made during the three immediately preceding financial years in
pursuance of its CSR policy towards specified activities. 276 During
the legislative process, there was an intense debate as to whether the
spending requirements must be made mandatory, but in the end due
to a compromise the position resulted in a “comply-or-explain”
approach although the wording of the statutory provision largely
operates as a mandate. 277 While there is strident criticism against
such a broad and overarching CSR policy on various counts, the
requirements are here to stay. 278 These developments are a far cry
274. See Bhasin, supra note 154.

275. For example, Mohandas K. Gandhi is credited with the idea of the
trusteeship obligations of businesses. See BIRLA, STAGES OF CAPITAL, supra note
47, at 103. See also Colin Mayer, THE FIRM COMMITMENT: WHY THE
CORPORATION IS FAILING US AND HOW TO RESTORE TRUST IN IT (2013) (arguing
that a corporation is able to afford commitments to others).
276. Companies Act, 2013, No. 18, §135 Acts of Parliament, 2013 (India).
277. See Umakanth Varottil, Companies Bill, 2011: CSR, INDIACORPLAW BLOG
(Dec. 16, 2011), http://indiacorplaw.blogspot.in/2011/12/companies-bill-2011-
csr.html (showing that the law provides a way for companies to explain why they
did not spend the required amounts under CSR).
278. For a growing literature on CSR in India, see Afra Afsharipour,
Symposium, Directors as Trustees of the Nation? India’s Corporate Governance
and Corporate Social Responsibility Reform Efforts, 34 SEATTLE U. L. REV. 995,
TBD (2011) (describing the history behind CSR and its purpose as an attempt to
expand the interaction amongst the stakeholders and the corporations); See also
Caroline Van Zile, Comment, India’s Mandatory Corporate Social Responsibility
Proposal: Creative Capitalism Meets Creative Regulation in the Global Market,
13 ASIAN-PAC. L. & POL’Y J. 269 (2012) (explaining that the legislation does not
define CSR and therefore allows companies to create CSR spending plans specific
from the position that prevailed during the colonial period, which
was a single-minded focus on shareholder interests. They also take
India in a different direction compared to the largely shareholder-
oriented focus that continues to operate in contemporary U.K. While
the corporation has acquired public overtones in India, which have
only increased over time, the broader stakeholder interest is
subservient to shareholder value enhancement in the U.K. context.
In all, we find diverging philosophies in corporate governance that
operate in India and its colonizer. Viewed from the agency problems
paradigm, the manager-shareholder agency problem that is the focus
of corporate law in the U.K. hardly exists in India. Similarly, the
recent focus of the Indian legislators in dealing with the majority-
minority agency problem is of limited interest in the U.K. Finally,
while shareholders continue to hold the attention of corporate
managements in the U.K., other stakeholders are entitled to the wider
protection of corporate law in India. Here too, transplant has given
way to autochthony.
D. CORPORATE LAW ENFORCEMENT MACHINERY

Corporate law may be enforced either through the public
enforcement apparatus or through private action. In public
enforcement, the state (or an independent regulatory body) initiates
proceedings against alleged violators of corporate law with a view to
imposing civil or criminal penalties. 279 Private enforcement consists
of legal action by the victims of wrongdoing (who are private
parties) to recover damages or obtain injunction by way of a civil
suit. 280 The “legal origins” strain of literature posits that in common
law countries the judiciary plays an important role in enforcing
investor rights, thereby enhancing the value of capital markets. 281 On
the other hand, civil law countries tend to rely heavily on
to them); Afra Afsharipour & Shruti Rana, The Emergence of New Corporate
Social Responsibility Regimes in China and India, 14 U.C. DAVIS BUS. L.J. 174
(2014) (discussing India’s emergence as the first to require CSR considerations
and compulsory spending whereas places like China still strongly support a
voluntary structure).
279. Bernard Black, The Core Institutions that Support Strong Securities
Markets, 55 BUS. LAW. 1565, 1576-77 (2000).
280. Id. at 1577-78.
281. Supra note 1.
318 AM. U. INT’L L. REV. [31:2
governmental intervention in regulating the capital markets.

In India, during the colonial period, there was greater emphasis on
private enforcement and very little on public enforcement. This is
consistent with the approach in England (which largely continues to
date) wherein private enforcement plays a significant role in
enforcing corporate law. However, beginning the socialist phase in
Indian corporate law history, the focus shifted rather significantly
towards public enforcement, whereby the government obtained
extensive powers of investigation and other forms of enforcing
corporate law. 282 This approach was fortified after SEBI’s
establishment when it obtained significant powers of enforcement.
It is simple at first blush to attribute the growth to India’s legal
system through civil liability and its enforcement through the
judiciary. This would be consistent with the “legal origins” notion of
investor protection due to India’s colonial legal heritage. 283 India not
only has a sufficiently robust substantive law on investor protection,
but the independent judicial system drawn from the common law
tradition allows for judges to mold the law to suit specific
circumstances and thereby adapt to the dynamicity in the capital
markets.
However, as argued elsewhere, 284 the efficacy of India’s legal
system as a tool for enforcing corporate and securities laws
necessitates a more nuanced treatment. Counter-intuitively, India’s
common law legal system operating through the judiciary has not
played a vital role in the development of the capital markets through
the imposition of civil liability upon issuer companies or the
compensation of investors for losses due to misstatements. Despite
the existence of substantial rules for civil liability and compensation
282. See supra Section II.C (discussing India’s corporate governance and
adoption of the U.S. and the U.K. models).
283. See Armour & Lele, supra note 3, at 499. See also Afra Afsharipour,
Rising Multinationals: Law and the Evolution of Outbound Acquisitions by Indian
Companies, 44 UC DAVIS L. REV. 1029, 1047-49 (2011) (correlating India’s
common law structure and complex structure of laws to the adoption of the English
language and colonization by the British for two centuries).
284. Umakanth Varottil, The Protection of Minority Investors and the
Compensation of Their Losses: A Case Study of India, in PIERRE-HENRI CONAC &
MARTIN GELTER, GLOBAL SECURITIES LITIGATION AND ENFORCEMENT
(forthcoming), http://ssrn.com/abstract=2421098 (arguing that India’s common law
system fails to impact investor protection through the court system).
and the presence of an elaborate court system, the associated

conditions for the judiciary to make an impact on corporate law and
investor protection are conspicuous by their absence. 285 The Indian
court system is plagued by delays, costs, and other inefficiencies.
Nearly 32 million cases are pending before different levels within the
Indian judiciary thereby causing a significant strain on the system. 286
Cases can on average take 15 years to achieve final outcomes. 287 For
this reason, civil liability and compensation of investors’ losses have
almost never been utilized to any meaningful extent in India as a tool
for enforcing corporate law.
By way of comparison, under English law while case law forms
the bulwark of the evolution in areas of corporate such as directors’
duties, there is sparse case law in post-colonial India in this crucial
area of the law despite over half a century of judicial experience in
implementing the Companies Act, 1956. 288 Similarly, the shareholder
remedy of derivative law suits, an important form of private
enforcement of directors’ duties, has been hardly utilized in India. 289
Recognizing the need for private enforcement of corporate law,
the Companies Act, 2013 has introduced a statutory shareholder class
285. Armour & Lele, supra note 3, at 508-11.

286. M.J. Antony, Only Bad News, THE BUS. STANDARD (Jan. 14, 2014),
http://www.business-standard.com/article/opinion/m-j-antony-only-the-bad-news-
114011401025_1.html (noting that around five thousand cases are added every
month and only about four thousand are disposed). See also, Jayanth Krishnan,
Globetrotting Law Firms, 23 GEO. J. OF LEGAL ETHICS 57 (2010).
287. See Press Release, Press Information Bureau, Gov’t of India, National
Legal Mission to Reduce Average Pendency Time from 15 Years to 3 Years, (June
23, 2010), http://pib.nic.in/newsite/erelease.aspx?relid=62745(stating that the
National Litigation Policy’s purpose is to diminish the average pendency time in
Indian courts from fifteen years to three years).
288. See Paterson, supra note 158 at 50 (stating the lack of case law on
directors’ duties has made the law somewhat less certain in India compared to
other jurisdictions where the judiciary sets the standards for director conduct.);
Chen, supra note 24 (arguing generally that the minimal amounts of insurance
litigation is causing Singapore’s inability to develop insurance-contract law).
289. See Vikramaditya Khanna & Umakanth Varottil, The Rarity of Derivative
Actions in India: Reasons and Consequences, in THE DERIVATIVE ACTION IN ASIA:
A COMPARATIVE AND FUNCTIONAL APPROACH, 380 (Dan W. Puchniak et al. eds.,
2012) (finding that “over the last sixty years only about ten derivative actions have
reached the high courts or the Supreme Court. Of these, only three were allowed to
be pursued by shareholders, and others were dismissed on various grounds”).
320 AM. U. INT’L L. REV. [31:2
action mechanism. 290 In order to obviate the delays faced before the
regular court system, the legislation proposes the establishment of a
specialized body in the form of the National Company Law Tribunal
(“NCLT”) that will hear shareholder class actions and other
corporate law disputes. Nevertheless, it is difficult to be sanguine
about their effectiveness due to the lack of institutional factors
necessary for their utilization. For example, India follows the English
rule on costs, whereby the loser pays the reasonable costs of the
opponent as ordered by the courts. 291 This may act as a disincentive
to shareholders to bring suits even if they have a strong case on the
merits. Moreover, in India the costs are not limited to attorneys’ fees.
Because investor actions are brought before the regular civil courts,
plaintiffs usually have to pay stamp duty and court fees, which may
be significant in some states. Contingency fees are one way to
motivate entrepreneurially minded attorneys to take on riskier suits
with the likelihood that they would partake a portion of the proceeds
if the suit were successful. Although this system has worked in the
U.S. and a number of other jurisdictions, contingency fees are
prohibited in India 292 thereby disincentivizing plaintiff attorneys from
taking on riskier suits. Although the establishment of the NCLT will
eliminate some of the costs such as stamp duty and court fees, the
lack of institutional factors that promote a class action culture make
it unlikely that private enforcement will obtain the necessary fillip.
India’s enforcement is vastly different from that of the U.K. on yet
another count, particularly in the area of corporate governance. In
order to implement corporate governance norms, legal systems have
utilized two broad approaches. One relates to the use of a voluntary
code of corporate governance. Under this approach, either the
government or an industry body (self-regulator) may establish a code
of conduct for companies. This is often referred to as “soft law”. 293
290. Companies Act, 2013, No. 18, §135 Acts of Parliament, 2013 (India)
(although this provision is yet to take effect as of the date of this writing).
291. Code Civ. Proc. (1980), § 35(2), (India), http://www.vakilno1.
com/bareacts/laws/civil-procedure-code-1908.html#35_Costs.
292. Bar Council of India Rules, Part VI, Chapter II, § II(20),
http://lawmin.nic.in/la/subord/bcipart6.htm#chapter2. (“An advocate shall not
stipulate for a fee contingent on the results of litigation or agree to share the
proceeds thereof.”).
293. Melvin Aron Eisenberg, The Architecture of American Corporate Law:
Facilitation and Regulation, 2 BERKELEY BUS. L.J. 167, 182 (2005) (defining “soft
Although there is no compulsion to comply with such a code,

companies are required to make appropriate disclosures on whether
they comply with the code, or alternatively to explain the reasons for
non-compliance. The Combined Code in the UK is a classic example
of such a voluntary “comply-or-explain” approach. 294
While India began briefly with the “comply-or-explain”
approach, 295 it quickly migrated to a mandatory approach towards
corporate governance, 296 which has since continued. This resonates
with the legal tradition and enforcement culture in India, wherein in
the postcolonial period there has been reliance on government
regulation of the corporate sector. Since independence, the Indian
industry has been subject to close regulation and supervision by the
government through mandatory regulation. 297 This approach has
become further solidified with the enactment of the Companies Act,
2013, which encapsulates detailed corporate governance provisions.
The push towards mandatory rules in India has therefore become
complete. 298
Hence, the enforcement machinery in corporate law in India has
undergone a sea change not just compared to colonial time (which is
understandable given the pace of developments in India’s corporate
sector since decolonization), but it has developed in a direction that
is very different from that of its colonizer.
As this Section indicates through the extensive use of various legal
concepts that apply under contemporary Indian corporate law, not
only has there been a break from India’s colonial past, but India has
law” as one that is not similarly binding like traditional laws because it is voluntary
to certain degrees and is not directly backed by a state sanction).
294. See supra note 151. The voluntary approach is the brainchild of the
institutional investor community that plays a significant role in the U.K. corporate
sector. Simon C.W. Wong, Developing and Implementing Corporate Governance
Codes 5, 9 (2008), http://ssrn.com/abstract=1321127.
297. See Khanna, supra note 159, at 174-79; Rajesh Chakrabarti, William L.
Megginson & Pradeep K. Yadav, Corporate Governance in India, 20 J. APP.
CORP. FIN. 59, 62-63 (2008).
298. At the same time, mandatory rules of corporate governance imposed
through legislation might be subject to criticism. Given that corporate governance
is dynamic and requires a flexible approach with constant updating in accordance
with developments in the markets, addressing ongoing concerns in an efficient
manner would be impossible through legislative amendments.
322 AM. U. INT’L L. REV. [31:2
also charted its own course which is considerably different from

those of Britain as well as several of its leading former colonies.
IV. LESSONS AND CONCLUDING REMARKS

This article analyzes the evolution of corporate law in India since
the colonial period and the considerable shifts it has witnessed in the
post-colonial era. While Indian corporate law began as a legal
transplant from England, subsequent amendments and reforms have
moved it further away from its origin as they have been focused
either on finding solutions to local problems or borrowing from other
jurisdictions such as the U.S. To that extent, decolonization has had a
significant effect of radically altering the course of Indian corporate
law. Although the shift was not evident in the period immediately
following decolonization, it began to take shape about a decade
thereafter. Current Indian corporate law not only represents a
significant departure from its colonial origins, but the divergence
between Indian law and English law as they have developed since
independence has been increasing. This study offers some valuable
lessons that add to the theoretical debates across various planes,
including on comparative corporate law and post-colonial legal
systems. This section summarizes some of the key messages
emanating from the analysis.
First, as demonstrated in this article, the corporate law in India has
evolved in a rather fundamentally different fashion from that in
England despite both countries being part of the “common law”
family and one being a former colony of the other. This raises doubt
about the bolder and more free ranging claims made by the
proponents of the “legal origins” thesis as to the differences between
the “common law” systems and the “civil law” systems. 299 A more
nuanced approach ought to be taken while considering the effect of
dispersion in the law among systems that share the same legal
family. 300
299. See La Porta, supra note 1 (concluding that countries with the common
law tend to afford stronger protections to outsider investors but civil law countries
tend to provide them with less protection).
300. This approach resonates with the literature set out in supra note 4. See also
Mahy & Ramsay, supra note 24.
This assertion can be supported by several findings in this article.

For example, although “common law” systems are generally
understood to be shareholder-oriented, there is ample evidence of
India adopting a broader stakeholder approach. While “common
law” systems tend to rely on judge-made law in the development of
their jurisprudence, in the corporate sphere India has largely relied
on a codification process rather than through judge-made law (which
is almost non-existent in this subject area). Consequently, greater
reliance in placed on public enforcement of corporate law rather than
private enforcement. At one level, if a combination of these factors is
taken into account, India begins to resemble the typical civil law
jurisdiction where these factors are present. But that is too simplistic
an analysis. For example, nothing explains why India has not gone as
far as civil law jurisdictions in insisting on codetermination whereby
workers obtain a set on the board of directors and hence participation
in the management of the company. 301
India’s position as a member of the “common law” family is
different from others, particularly the U.K. This is on account of
historical, economic and political reasons that have determined its
destiny in a manner that is different from that of its colonizer. The
economic policies of the Indian government following
decolonization appear to have had some role to play by which some
of the socialist mindset and government oversight of corporate
affairs continues to the day.
Second, India’s initial corporate law during the colonial period
was a direct transplantation of English law on an ongoing basis. Such
a legal transplant did not take into account local conditions. For
instance, the law was focused on enabling British businesses to trade
with India, and failed to heed to the indigenous business
organizations, which did not find any place in corporate law. 302
Similarly, the transplanted legislation paid little regard to the
problem of managing agencies, which did not pose any significant
problem in England.
301. See Spamann, supra note 4, at 1866-67.

302. See supra Section II.A3 (describing the impact and goals of corporate
legislation on Indian businesses during the colonial era).
324 AM. U. INT’L L. REV. [31:2
Resistance to the transplanted legal system began occurring only

in the post-colonial scenario. Some signs of decoupling are
evidenced by legislative reforms such as the abolishment of the
managing agency systems. More importantly, the transplanted
legislation was incapable of addressing local issues in the post-
colonial era due to which ongoing reliance on English law for
legislative reform in India came to an end. All future corporate law
reform processes looked inward for solutions to problems and did not
look at all to the origin country for guidance. This suggests that
transplants that do not take cognizance of local circumstances may
be present formally but may not possess much functional effect.
Moreover, following the lapse of time, one may witness change at
the formal level itself.
Finally, a comparison of the historical colonial experience in the
functioning of the transplanted legal system and the more
contemporary experience in the post-colonial period suggests
fragility in the foundations of the transplant. It is also an indication
that formal transplants may be inevitable during the colonial era, but
following decolonization such transplants could be called into
question. India’s post-colonial economic history also appears to have
a significant role to play in the evolution of corporate law. A laissez
faire policy at independence gave way to socialist propensities for
nearly three decades followed by a process of gradual liberalization
of the economy.
This article presents a macro-comparative analysis of the evolution
of corporate law in India across two planes. First, it compares the law
as it evolved in the colonial period, and how decolonization operated
as a break from the past due to which the post-colonial developments
took on a rather different tone. Second, it compares the post-colonial
evolution of corporate law in India and England to determine the
different direction that India took from its fellow-member of the
“common law” family. The findings presented herein take into
account not only the legal evolution, but also places it in the context
of historical, economic and political factors that were at play in
determining the legal regime from time to time.
Several avenues for further research arise from this article. For
instance, research in specific areas of corporate law may be analyzed
in depth to test the conclusions made in this article at a macro-level.
Such a body of literature may not only aid in our understanding of

post-colonial legal developments, but also operate as a reflective and
introspective exercise that will help better understand contemporary
corporate law in India.

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THE EVOLUTION OF CORPORATE LAW IN

POST-COLONIAL INDIA: FROM

I. INTRODUCTION ........................................................................ 254

* Associate Professor, Faculty of Law, National University of Singapore. I

2. Reforms in Securities Regulation .................................... 283

1. Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer & Robert

2. La Porta et. al., Legal Determinants of External Finance, supra note 1, at

colonies. 5 While legal scholarship has affirmed the concept of legal

5. Spamann, supra note 4, at 1812-13; Daniel Berkowitz, Katharina Pistor &

be reasonable to hypothesize that if a law that has been transplanted

transplants given that the inception of corporate law in India resulted

V.D. KULSHRESHTHA, LANDMARKS IN INDIAN LEGAL HISTORY AND

Parliament, after initial hesitation, sought to move away from the

corporate and commercial laws is scanty despite the prominence of

24. ROB MCQUEEN, A SOCIAL HISTORY OF COMPANY LAW: GREAT BRITAIN

existing theoretical debates across different planes including

II. HISTORICAL EVOLUTION OF CORPORATE

A. CORPORATE LAW DURING THE COLONIAL ERA (1850-1947)

The emergence of the modern business corporation in India can be

1. Developments in the Nineteenth Century

2. Developments in the Twentieth Century

CULTURE, AND MARKET GOVERNANCE IN LATE COLONIAL INDIA 40 (2009)

developments such as the enactment of the Government of India Act,

Companies Act, 1844 Act for Registration of Joint

Limited Liability Act, 1855 Companies Act, 1857

Companies Act, 1862 Companies Act, 1866

Amendments to the Companies Companies Act, 1882

3. The Impact of Corporate Lawmaking in the Colonial Era

prevailing context in India accounting for the economic and social

The impact of transplanting English law into India to favor British

In sum, the need to facilitate British businesses to trade with India

adopted a free-market approach. The adverse effect impacted local

4. Evolution of the Managing Agency System

69. Rosen, supra note 17, at 262 .

businesses to manage them. 74

became susceptible to abusing their powers. 81 That leads to the

After exploring the phenomenon of transplants during the colonial

B. THE EFFECT OF DECOLONIZATION ON INDIAN CORPORATE LAW

1. Economic Policy Shift Following Independence

85. Nirmalya Kumar, India Unleashed, 20 BUSINESS STRATEGY REVIEW 4, 7

improve productivity and at the same time curb economic

87. FRANCINE R. FRANKEL, INDIA’S POLITICAL ECONOMY 1947-2004: A

industrial units, including private ones, were required to obtain

2. The First Companies’ Legislation in Post-Colonial India

94. Omkar Goswami, Corporate Governance in India, in TAKING ACTION

99. Report of the Committee on Company Law Amendment (Cohen Committee

faithful adherence to English law also meant a continuation of the

102. See supra note 96.

advantage to continue to rely on the managing agency system” 109 as

C. THE APOGEE OF SOCIALISM IN INDIAN CORPORATE LAW (1960-

115. A. RAMAIYA, GUIDE TO THE COMPANIES ACT 1-3 (2010).

oppression remedy if the affairs of the company were conducted in a

of shares, the controlling shareholders, which were primarily

In interpreting the provisions of the Companies Act, the Supreme

125. Umakanth Varottil, A Cautionary Tale of the Transplant Effect on Indian

dynamic role in the process of social transformation.” 128

D. CORPORATE LAW FOLLOWING INDIA’S ECONOMIC

new economic outlook naturally triggered a slew of changes to

1. Amendments to the Companies Act, 1956

2. Reforms in Securities Regulation

139. Companies Act (Amendment) (2003) (enacting a new Competition Act in

In the two decades that followed its establishment, SEBI has