The document discusses the Companies Act of 1956 in India. It provides definitions of a company and outlines the evolution of company law in India from 1850 onward. The Companies Act of 1956 established the legal framework for incorporation of companies in India and set out provisions regarding capital raising, governance, and accounting. The Satyam fraud case is also summarized, where the chairman of Satyam Computer Services admitted to falsifying the company's accounts over several years, inflating profits and hiding losses.

1. INDIAN COMPANIES ACT, 1956
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

2. Definition of company
 A company is a voluntary association of
individuals for profit, having common capital of
transferable shares and the ownership is the
condition of membership.
 It is an artificial person created by Law with a
distinct name, common seal, limited liability of
members and enjoys perpetual succession.
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

3. Evolution of Companies Act of 1956
 Company legislation in India owes its origin to the English
Companies Law.
 The first legislative enactment for ‘Registration of joint stock
companies’ was passed in the year 1850 based on English
Companies Act,1844 which recognized the company as a
distinct legal entity, but did not grant to it the privilege of
limited liability.
 Government of India appointed, on 25th October ,1950, a
committee of 12 members representing various interests under
the chairmanship of Mr. H.C. Bhaba.
 The recommendations of committee culminated in the most
comprehensive and voluminous law on the subject in the
Companies Act of 1956.
 Major amendments to the act made in 2002.
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

4. Definition under the Company’s Act, 1956
 The Companies Act, 1956, lays down procedures by which a
company can be brought into existence. Anybody who wants to
incorporate a company can do so by taking necessary steps
outlined in it. By far the largest number of companies is
incorporated under the Companies Act. These companies may be
called registered companies.
 Application of Act-
a) As regards State of Nagaland, it applies, subject to
modifications, if any, central government may, by notification in
the official gazette, specify [Sec. 1 (3)].
b) As regards Goa, Daman and Diu, such all provisions of the Act
shall not apply or shall apply with exceptions.
c) As regards Jammu and Kashmir, such provisions of Act as the
central government may, by notification in the official gazette.Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

5. Characteristics of the company
 Voluntary association: A company is a voluntary
association because any person of any caste or creed
religion can buy the shares at any time and shares may
be sold at his freewill subject to rules of company act
1956.
 Number of members: For the private company at least
2 members and maximum should be 50. But in case of
public company minimum is 7 and maximum no limit.
 Governing law: All registered companies in India have
to functions according to provisions of company law
1956 i.e. Indian companies operating their business in
India.
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

6. Contd..
 Registration: Registration of all companies is compulsory
according to procedure laid down in companies Act 1956.
Registrar of companies (ROC) issues certificate of
incorporation to newly formed company subject to fulfillment
of certain legal requirements.
 Lawful object: The exact nature of business should be
clearly specified in the memorandum of association, the
object must be lawful.
 Artificial person: Company is an artificial person created by
law. It doesn’t have a physical existence. Therefore it cannot
perform activities like natural person. However it can enter
into contract with 3rd parties e.g. it can buy and sell property,
borrow money.
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

7. Contd..
 Statutory obligations: Company has to functions
according to legal provisions of companies act to protect
the interest of shareholders e.g. shareholders meetings
must be held in time, audit of company a/c is
compulsory, certain documents are required to be filled
with registrar and so on. These examples are called
statutory obligations.
 Registered office: All companies must have a registered
office and its address should be clearly specified in
memorandum of association. All records, books of
accounts should be properly classified in office.
Moreover all the correspondence between the registrar
and company and company with all other parties takes
place through office.
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

8. Contd..
 Common seal: It is a rubber stamp or the signature of
company. The company is an artificial person who
cannot sign and a common seal is required to be affixed
on all important documents of the company. Common
seal remains in the safe custody of the company
secretary.
 Transferability of share: The share is transferable
(movable) property. In case of public company, the
members can freely sale (transfer) their shares subject to
rules and regulations but private company’s shares are
not freely transferable.
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

9. Contd..
 Separation of ownership and management: Due to
large membership the Company’s management is in the
hand of elected representatives called directors and
ownership is in the hand of shareholders.
 Limited liability: The shareholders liability is limited
up to the extent of face value of share purchased by
member i.e. the shareholders private property is not in
danger. The debts of the company to be settled from
company’s property and not from the personal properties
of shareholders.
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

10. Contd..
 Legal status: Company has its own separate status in
the eyes of law i.e. the company’s liabilities are its own
i.e. shareholders cannot act on behalf of the company
and not liable for the debts of company, shareholders
cannot bind the company by their acts.
 Perpetual succession: The death insolvency or insanity
of any of its members does not result into dissolution of
company enjoys a continuous and stable life because it
is an artificial person and enjoys long corporate life.
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

11. The Companies Act, 2013
 The Companies Act, 2013 passed by the Parliament has received the
assent of the President of India on 29th August, 2013.
 The Act consolidates and amends the law relating to companies.
The Companies Act, 2013 has been notified in the Official Gazette
on 30th August, 2013.
 Some of the provisions of the Act have been implemented by a
notification published on 12th September, 2013. The provisions of
Companies Act, 1956 is still in force.
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

12. INCORPORATION & CAPITAL RAISING
 A private company can have a maximum of 200 members, up
from 50 in the Companies Act, 1956. (Section 2: Definitions)
 All companies to follow uniform financial year, running from
April to March. Exceptions to be made only for certain
companies with the approval of NCLT. (Section 2: Definitions)
 The concept of One Person Company introduced. It will be a
private limited company. (Section 3: Formation of company)
 The Prospectus has to be more detailed. (Section 26: Matters to
be stated in prospectus)
 Money raised through a prospectus cannot be used for dealing in
equity shares of another company. If a company changes terms
of the prospectus or objects for which money is raised, it shall
provide dissenting shareholders an exit opportunity. (Section 27:
Variation in terms of Contract or Objects in Prospectus)
 'Private placement' defined, with detailed provisions for such
placement. (Section 42: offer or invitation for subscriptttion on
private placement)
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

13.  Apart from existing shareholders, if the Company having share capital
at any time proposes to increase its subscribed capital by issue of
further shares, such shares may also be offered to employees by way of
ESOP, subject to the approval of shareholders by way of Special
Resolution. (Section 62: Further issue of share capital)
 NBFCs not covered by the provisions relating to acceptance of
deposits. They will be governed by Reserve Bank of India
Rules. (Section 73: Prohibition on acceptance of deposits from public)
 Companies can accept deposits only from its members, that too after
obtaining shareholders approval. Acceptance of deposit also subject to
compliance with certain conditions. (Section 73: Prohibition on
acceptance of deposits from public)
 Public companies can accept deposit from public on complying certain
conditions like credit rating. (Section 76: Acceptance of deposits from
public by certain companies)
 Concept of dormant companies introduced. It can be formed for a
future project or to hold an asset or intellectual property. (Section 455:
Dormant Company) All types of securities to be governed by the Act .
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

14. SATYAM CASE STUDY
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

15. A Brief History of Satyam
 Established on 24th June 1987 by B. Ramalinga Raju and his
brother-in-law, D. V. S. Raju, Satyam Computer Services Limited
was incorporated in 1991 as a public limited company .
 SATYAM got its first Fortune 500 client, Deere and Co. In a short
span of time, it became a leading global consulting and IT services
company spanning 55 countries before nemesis caught up with it.
 It was one of the few Indian IT services companies listed on the
New York Stock Exchange.
 In its heyday, it was ranked as India’s fourth largest software
exporter, after TCS, Infosys and Wipro.
 The 1990s were an era of considerable growth for the company. It
also caused the formation of a number of subsidiary companies
such as Satyam Renaissance, Satyam Info way, Satyam Spark
Solutions and Satyam Enterprise Solutions.
 Satyam Info way (Sify) incidentally became the first Indian internet
company to be listed on the NASDAQ.
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

16. Sat yam's promoter
Ramalinga Raju
 Born on September 16, 1954 in a family of farmers, Ramalinga Raju
completed his B. Com. From Andhra Loyola College at Vijayawada and
subsequently earned an MBA from Ohio University,USA.
 Raju also attended a short duration Owner / President course at Harvard.
 After returning to India in 1977, he moved away from the traditional
agriculture business to set up a spinning and weaving mill named Sri
Satyam (Satyam means truth!).
 Thereafter, he went on to the real estate business and started a
construction company which he named Satyam Constructions.
 In another strategic move, Ramalinga Raju became in 1987, one of the
pioneers of the Information Technology industry in India as the prime-
mover, co-founder and Chairman of Satyam Computer Services Ltd.
 With the launch of Sify, Satyam became one of the early birds to enter
into the Indian internet service market.
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

17. What went wrong with
Satyam? The success-run of the company was halted rather abruptly in early
January 2009, when Satyam promoters resolved to invest the
company’s funds in buying stakes for an amount equivalent to $ 1.6
billion against their book worth of only $ 225 million, in two firms,
Maytas Properties and Maytas Infra founded by Satyam's Chairman,
Ramalingam Raju’s sons.
 The board of directors concurred, without any compunction about
the fact that the sweetheart deal-pushers owned only 8.5 per cent of
the IT Company.
 Shareholders’ funds would thus be used to expand into realty, a
trade entirely unrelated to Satyam’s business profile.
 On 7th January 2009, Ramalinga Raju confessed to massive fraud
leading to the company’s stock crashing by more than 80 per cent
on a single day.
 Raju then resigned as the Chairman of Satyam after admitting to
major financial wrong-doings, involvement in inflating the profits of
the company ‘for the past couple of years’. Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

18. Contd..
 His attempt at trying to plug the gaping hole in his balance
sheets by persuading the board of directors to “rubber-stamp”
his acquisition of the two family-owned companies, the
Maytas (“Satyam” read backwards) Infrastructure and Maytas
Properties as his last trick of the trade having failed, he made
a public confession of his misdeeds before the national Press
in Hyderabad.
 The email is sent a day before Raju confesses to all
Independent Director , Auditor- Price Waterhouse stating that
‘Satyam did not have any liquid assets, and this fact could be
independently verified from its banks ‘.
 According to the investigation report, the falsification of the
company’s accounts began in the financial year 2001-02 after
there was an informal meeting between Ramalinga Raju, his
brother Rama Raju and Srinivas, apart from G Ramakrishna.
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

19. Facts revealed by CBI
 Fabricated invoices were created for artificially hiking sales and the
amounts shown as receivables in the books of accounts, thereby
inflating the company’s revenues.
 7,561 invoices worth Rs.51.17 billion were found hidden in
the Invoice Management System (IMS). The accused had
entered 6,603 of these, amounting to Rs. 47.46 billion.
 Ramalinga Raju and his associates indulging in crimes
against their investors and other stakeholders have forged
board resolutions and unauthorizedly obtained loans and
advances to the tune of Rs. 12.2 billion.
 Raju and his accomplices in the Satyam fraud had resorted to
a criminal breach of trust and falsified accounts to the tune of
another Rs.1.8 billion by inflating prices pertaining to the
acquisition of shares of Nipuna services Ltd, the ITes arm of
Satyam
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

20. Contd..
 The re-routing of funds was done through European nations
and was shown as investments in nearly 300 fictitious
companies. floated in the names of Raju’s relatives.
 According to SEBI, independent directors are meant to
protect the interests of the non-promoter shareholders and
help promote the cause of corporate governance.
 The Satyam case clearly proves that the independent directors
in the company’s board had completely failed to live up to
these guidelines.
 It was seen that all the non-executive directors at Satyam
have been allotted significant stock options equivalent to at
an unbelievable strike price of Rs 2- per share and apart from
this, all the non-executive directors have also earned
handsome commissions during 2007-08,
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

21.  In the Satyams case, the CID arrested in January 2009 S.
Gopalakrishnan and Talluri Srinivas, Partners in Price
Waterhouse, the statutory auditors of the company for
their alleged involvement in the Rs. 71.36 billion
fudging and manipulation of financial statements, as
revealed by Ramalinga Raju.
 As late as 21st November 2009, the CBI arrested
Satyam’s “internal audit head V.S. Prabakar Gupta for
alleged breach of trust, forgery, cheating and fabrication
of accounts… Gupta charged with knowing that the
auditing irregularities were perpetrated in a systematic
manner and preventing them from coming into the open
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU