The Companies Act of 2013 governs the operation and establishment of corporations or firms. The first Companies Act following independence, which controlled corporate enterprises in the country, was passed in 1956 and was formed after the recommendations of the Bhabha Committee. This Act has been revised several times, and substantial revisions were implemented in 2013. Section 135 of the 2013 Act made corporate social responsibility (CSR) spending mandatory by law, making India the first country to do so. Moreover, Section 7 of the Companies Act talks about the incorporation of a company.
The Companies Act, of 2013, was enacted to establish a comprehensive structure and set of laws for Indian companies. The Act is a comprehensive law that covers all elements of business activities. This act was passed to improve the country’s economic development and welfare by making it simpler for Indian companies to incorporate and operate a company. The Act intends to improve corporate governance in India as well.
The following are the goals underlying the passage of this legislation:
- To develop a comprehensive framework for corporate regulation in India.
- To make it easy for Indian companies to establish and operate.
- Encourage corporate governance in India.
- To promote entrepreneurship in order to strengthen the country’s economic development.
In this article, we’ll be understanding Section 7 of the Companies Act in detail.
Understanding the Incorporation of the Company: Section 7 of the Companies Act
The general term for a company registered in India to become a separate legal entity is incorporation. That corporate entity is frequently owned by shareholders (even if it is a single-member company) and is governed by a board of directors. This process has been explained in Section 7 of the Companies Act.
The legal process of incorporation of a corporate entity or a business is referred to as incorporation. An incorporated corporation is a legally recognized independent legal entity. In their names, these corporations are distinguished by phrases such as ‘Private Limited‘ or ‘Limited’. It becomes a legal corporate entity distinct from its owners. Everything related to company incorporation has been explained under Section 7 of the Companies Act.
Section 7 of Companies Act, 2013: Explained
Section 7 of the Companies Act, 2013 states the following:
- The following documents and information for registration must be filed with the Registrar whose jurisdiction the registered office of a business is planned to be located, namely:
- the company’s memorandum and articles, duly signed by all subscribers to the memorandum in the manner specified;
- a declaration in the prescribed form by an advocate, a chartered accountant, a cost accountant, or a company secretary in practice who has been engaged in the process of company incorporation, and by a person who has been named as a director, manager, or secretary of the company in the articles, that all the requirements of this Act and the rules made concerning the registration and matters precedent or incidental thereto have been met.
- a declaration from the subscribers to the memorandum and from persons named as first directors, if any, in the articles stating that he has not been convicted for any offence relating to the promotion, management, or formation of any company, or that he has not been found guilty of any misfeasance or fraud, or of any breach of duty of any company under this Act or any previous company law during the preceding five years, and that all documents filed with the;
- the communication address until its registered office is established;
- the particulars of every subscriber to the memorandum, including surname or family name, nationality, residential address, and such other particulars as may be prescribed, together with proof of identity, and in case the subscriber is a body corporate, such particulars as may be prescribed must be provided;
- the particulars of the people named in the articles as the company’s first directors, including their names, surnames, or family names, the Director Identification Number, residence address, nationality, and any other information, including evidence of identity, as specified; and
- the particulars of the interests of the people named in the articles as the company’s first directors in other businesses or bodies corporate, as well as their permission to act as directors of the company in the form and manner as prescribed.
Explanation – Section 7(1) of the Companies Act states that to incorporate a company under the Companies Act, 2013, the company’s owner must submit certain documents and other details necessary for company registration as mentioned below to the registrar under whose jurisdiction the company’s registered office will be located:
- The memorandum and articles of association of the company have to be submitted to the registrar and the memorandum must be signed by all its subscribers in the specified manner as per Section 7 (1) of the Companies Act.
- A declaration has to be submitted in the specified form confirming that during the incorporation of the company, the requirements of this act and related rules that are applicable to the company have been complied with in the matters of company registration. Moreover, this declaration has to be signed either by an advocate, a chartered accountant, a cost accountant, or a company secretary who is engaged in the process of company incorporation. Apart from this, the person who is named as a director, manager, or secretary of the company in the articles of the company shall also sign the declaration.
- A declaration is required to be submitted to the ROC by every subscriber of the memorandum and the person named as the first director in the articles of company if any under Section 7 of the Companies Act.
- The affidavit must state that the person has not been convicted for any offence that is related to the formation, promotion and management of the company and that he has not been found guilty of breach of duty, fraud or misfeasance in the last five years in relation to any company formed under this act or previous companies act. Moreover, the affidavit shall also state that all the documents that have been submitted to the registrar for company registration are accurate and complete in his knowledge and belief.
- A communication address has to be provided till the time the company has its own registered office. Moreover, a communication address is an address where all communications between the owner and the registrar can take place.
- The details of all the subscribers of the memorandum, such as full name, family name, residential address, and nationality of the individual along with other prescribed details must be submitted to the registrar. Moreover, if the subscriber is a body corporate that means an institution, company etc., then the particular details must be given to the registrar as prescribed.
- The person acting as the first director of the company as per the articles must provide his particulars of interest in any other firm or company, if any. He shall also provide his consent to act as a director in this particular company in the prescribed form and in the prescribed manner.
- On the basis of the documents and information filed under Section 7 of the Companies Act sub-section (1), the Registrar shall register all of the documents and details provided in that subsection in the register and then issue a certificate of incorporation in the form as prescribed indicating that the proposed company is incorporated under this Act.
Explanation – The registrar will mention all the documents and information submitted by the company in Section 7 of the Companies Act, subsection (1) in his register and then issue the certificate of incorporation on the basis of documents and information submitted in the prescribed manner. The certificate shows that the company is incorporated under this Act.
- On and from the date specified in the certificate of incorporation issued under subsection (2), the Registrar shall assign the company a corporate identity number, which shall serve as a distinguishing identity for the company and shall be contained in the certificate.
Explanation – Every company has its own corporate identity number (CIN). This number is issued by the registrar on and from the date as mentioned in the certificate of incorporation issued under Section 7 of the Companies Act, subsection (2). This will the unique number of the company and it is will be included in the certificate.
- The company must prepare and keep copies of all documents and information filed under subsection (1) at its registered office until it is dissolved under this Act.
Explanation – As per Section 7 of the Companies Act, subsection (4), the company is required to maintain a record of all the documents submitted under subsection (1) and keep them safe at the registered office of the company until the time it is dissolved under this act.
- Any person who provides false or erroneous information or suppresses material information of which he is aware in any of the documents submitted with the Registrar in regard to the registration of a business is liable for action under Section 447.
Explanation – If any person provides wrong information or hides any material information of which he was already aware in the submitted documents to the registrar during company incorporation, then such a person shall be punished as per Section 447 which provides punishment for fraud.
- As per the provisions of sub-section (5), if it is proven that a company was incorporated by providing any incorrect or false information or representation, or by suppressing any material fact or information in any of the documents or declarations filed or issued for incorporating such company, or by any fraud action, the promoters, the persons named as the company’s first directors, are liable under Section 447.
Explanation – The liability of fraud action under Section 447 for providing any false information or hiding any material fact as mentioned in Section 7 of the Companies Act, subsection (5) will be on the promoters and the person acting as the first director of the company.
- As per the provisions of sub-section (6), where a company has been incorporated by providing false or incorrect representation or information, or by suppressing any material fact or information in any of the documents or declarations filed or issued for incorporating such company, or by any fraud action, the Tribunal may, on an application made to it, and if satisfied that the situation so warrants, –
- issue such orders as it deems necessary for the regulation of the company’s management, including any modifications to its memorandum and articles, in the public interest or in the interests of the company, its members, and creditors; or
- direct that the members’ liability be unlimited; or
- direct withdrawal of the business’s name from the company registry; or
- issue an order for the company’s liquidation; or
- issue such further orders as it sees fit:
Provided, however, that before making any order under this sub-section,
- The company shall be given a reasonable opportunity to be heard in the matter; and
- the Tribunal shall consider the transactions entered into by the company, including any obligations contracted or payment of any liability.
Explanation – As per the provisions of Section 7 of the Companies Act, subsection (6), if any company has been incorporated by providing incorrect information, hiding any material fact or information, furnishing wrong documents, or incorrect declaration filed or by any other fraudulent means, the tribunal has the power of issuing the following orders if such an application is filed before it and is satisfied with the situation –
- Issue any such order it may fit for regulating the management of the company, it may include any amendments to the articles and memorandum, in the public interest, or in the interest of the company, its members, and creditors.
- Direct the member’s liability to be unlimited.
- Direct cancellation of the name of the company from the registry of the companies.
- Issue an order for the liquidation of the company
- Any other order as it may deem necessary.
However, before issuing any such order, the tribunal must:
- Give the company a reasonable opportunity of being heard.
- Consider the transaction entered by the company including any contracts which the company is obliged to perform or the payment of any existing liability.
Amendments to Section 7 of the Companies Act, 2013
The amendment pertaining to Section 7 of the Companies Act, 2013 is mentioned below:
- Section 7(1)(c) – Previously, an affidavit was required to be submitted to the registrar by the subscribers of the memorandum and first director of the company that they had not been found guilty of any offence, and had not been convicted of any offence related to any company either registered under this act or previous companies act in the last five years. Now, after the (Amendment) Act, 2017 dated 03.01.2018, effective from 27.07.2018, the word an affidavit has been replaced with a declaration.
Case Law on Section 7 of the Companies Act, 2013
The following law is related to section 7 of the Companies Act, 2013:
Dmitry Rosnin vs. Registrar of Companies
Facts of the Case
In the case of Dmitry Rosnin vs. Registrar of Companies[, the applicants were from Moscow and sought to form a private limited company called ‘O.’ They were given DIN numbers. The petitioners then applied for the Company’s online incorporation and submitted the required e-forms. They satisfied all of the requirements for an applicant/applicant seeking the establishment of a firm.
The required funds were made, and the required facts and information were supplied. However, the process of forming and registering their private limited company was slowed since some conditions were not satisfied, notably because overseas subscribers had not supplied their local addresses. This has explained the concept of Section 7 of the Companies Act.
The petitioners have filed a writ petition under Article 226 of the Indian Constitution, requesting that the respondent/Registrar of Companies issue a writ of mandamus or other appropriate writ or direction in the nature of mandamus directing the respondent/Registrar of Companies to register a company named ‘O’ without the petitioners providing a local address.
Judgement of the case
The petition has been granted. The Respondent is directed to register and incorporate Olga Consultancy Services Private Limited as a Private Limited Company in the State of Goa, provided the petitioners comply with all other rules regulations and requirements, with the exception of providing a local address in regard to Section 7 of the Companies Act.
This judgment does not restrict the authorities from pursuing compliance with other laws by the petitioners, but the directive is confined to conformity with the Companies Act, of 1956, notably in relation to company registration and formation as per the new Section 7 of the Companies Act.
Similarly, if the petitioners have not complied with any of the requirements allowing them to stay in India beyond the stipulated period, or if they are bound to be overstaying in India, necessary action can be initiated against them in accordance with the relevant laws, and this order does not preclude the authorities from initiating such proceedings as are permissible and in accordance with law against them. The writ petition is rejected in the way described above, but no order is issued.
Section 7 of the Companies Act, 2013 prescribes everything about company incorporation starting with the documents required to register a company, submission of declaration by a company secretary or advocate, etc. stating that all the rules of Company Law have been followed during incorporation. Section 7 of the Companies Actalso states the liability of promoters and directors in case of furnishing any false information or hiding a material fact while incorporating a company under this act. Moreover, this section also empowers the tribunal to take necessary action in case the company has been incorporated through fraud or by hiding any important fact or information.