Historical Review of the Development of Bangladesh’s Company Act

**Assist Prof. Md. Robiul Islam, Pursuing PhD

** Institute of Islamic Banking and Finance (IIBF), IIUM, Malaysia, robiulbiu@gmail.com

  1. Abstract

Defining the law is a very difficult task. Nevertheless, various legal scientists and philosophers have tried to define it in different ways. In general, ‘law’ means that we understand the rules of any action. The law is a kind of right and obligation that the state enforces. “Law is the command of the sovereign. According to Article 512 of the Constitution of Bangladesh, ‘law’ means any law, ordinance, order, rules, regulations, by-laws, notice and other legal documents and any customs or customs which have the power of law of Bangladesh. Business law has begun to be integrated with business ethics. However, considering the definition of law in the context of Bangladesh, the definition given in the constitution of Bangladesh is the definition of real law. Since the constitution is the highest law of Bangladesh. There are some branches of Law which cannot be properly understood without their historical background and company law is certainly one of them. Current Bangladesh corporate law not only represents a significant departure from its colonial origins, but the divergence between Bangladesh law and English law as they have developed since independence has been increasing. The article outlines how these features developed in guilds, regulated companies, and the great mercantilist and moneyed companies. I then move on to examine the State’s control of incorporation and the attempts by the founders and lawyers of unincorporated business enterprises to craft the legal characteristics of the corporation. Finally, the article analyses the forces behind the liberalisation of incorporation law in the middle of the nineteenth century. Only a history can be written by reviewing history. Company law in Bangladesh has a long history. How we got this law? Who contributed it? How it was implemented? This research has been performed with the answers to numerous such questions. The main purpose of this study is to review the history of Bangladesh’s Company law and draw a good conclusion from it. Manmade law is not the last but least law; it is always changing.

Keywords: Bubble Act, Company, Corporate Law, Unincorporated Company, Colonial Continuities, Decolonization, Legal Transplant, English Common Law.

  1. Introduction

The history and development of company law in Bangladesh is closely linked up with that of England and for that reason it becomes essential to have a brief account of the history of English law for a proper appreciation of Law. (Acheson et. all 2009) There are some branches of Law which cannot be properly understood without their historical background and company law is certainly one of them.  Companies formed for the purpose of carrying of business have a long history. Such companies enjoying corporate status to appear in the 16th century. (Cheffins and Brian 2008) One of such companies was the East India Company which started business in this century in 1600 A.D. But the history of modern company law in England began in 1844 when the joint companies Act was passed. The Act provided for the first time that a company could be incorporated by registration without obtaining a Royal charter or sanction by a special Act of Parliament. (Edey, H. C. and Panitpakdi, P. 1956) One of the most conspicuous feature in the worldwide development of modern society is what generally referred to as globalisation. John Baglis and Steve Smith defined the globalisation as the process of increasing interconnectedness between societies. A globalised world is one in which political, economic, cultural and social events in one part of the world have an effect on people and societies far away. (Jones, S. and Aiken, M. 1995)

As the birthplace of the Industrial Revolution, the UK was one of the first countries to develop large enterprises organised as corporations, with ownership interests traded on stock exchanges and separation of ownership from managerial control.  Hence, at a relatively early stage, the UK had to deal with the problem of how managers could be held accountable to owners for their use of capital invested in firms.  Yet, because early attempts at regulating companies took place in the nineteenth century, at a time when philosophies of laissez faire were dominant, both Parliament and the courts preferred to leave the regulation of the relationship between owners and managers as a matter for private contract, rather than legal statute.  (Leach, R. and Stamp, E. 1981)

While the Bangladesh 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 Bangladesh corporate law. (Acheson et. all 2011a) This offers valuable lessons. First, even though Bangladesh is considered to be part of the “common law” family, corporate law 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 similarity. Secondly, 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 suggests fragility in the foundations of the transplant. (Acheson et. all 2016)

  1. The Influence of the British Accounting System on Financial Reporting and Regulations in Developing Countries

Almost all developing countries inherit their accounting system from western accounting and their influences have a great impact on most of the developing countries’ accounting systems. Hove (1986, p. 82) in finding out the mechanisms for the transfer of developed country accounting practice to developing countries, observed that existing accounting practice in almost all developing countries was imposed by developed countries initially through colonialism, and then the operations of transnational corporations, professional accounting institutes, and the special conditions in economic aid agreements, rather than in response to the societal needs of those countries. A similar view has been taken by Belkaoui (1985) who opined that accounting in developing countries has for a long time been result of the spread of western accounting which in turn results from colonialism, or powerful foreign investors, or through the influence of multinational companies, foreign aid, and education.

Among the various influences, colonialism can be said to be the most effective way by which the accounting techniques of developed countries were imposed on their former colonies and in developing countries, it can be observed that there is a strong colonial influence of accounting system on them by the former colonial powers (Chandler and Holzer, 1984; Briston, 1984 and Hove, 1986). As observed by Chandler and Holzer (1984):

“we find that most countries that were formerly British colonies have been greatly influenced by British model of accountancy education, financial reporting, the accountancy profession, and governmental accounting. A similar influence can be found in countries that were formerly part of the French colonial empire.” (Chandler and Holzer, 1984)

During the British colonial period, British accounting traditions were spread to many countries which were under British rule by a system of training local people in those traditions so that they could be employed in managing British business interests (Perera, 1975). It has been argued previously that Britain has been directly or indirectly a model for most Commonwealth in states which UK companies’ acts have adopted (Briston, 1978). The British model has been criticised for over-emphasizing external reporting (Briston, 1978) and as being inappropriate to the information needs of developing countries (Hove, 1986). In India, Pakistan and Bangladesh, it can be observed that there is a strong influence on their accounting and financial reporting systems of the former British colonial power. These countries have been greatly influenced by the British model of accountancy education, financial reporting and the accounting profession. (Cheffins and Brian 2001)

The British professional accountancy bodies succeeded in exporting their culture, associated accounting techniques and examinations to India, Pakistan and Bangladesh through economic, political and cultural influences. These countries adopted British legislation without regard to local conditions in the first place and as a result, their corporate legislation and requirements for financial reporting practices followed the British accounting and financial reporting model and this legislation remained unchanged over many years in these three countries. (Foreman-Peck et. all 2015) In addition, there is a great influence of the British accounting system on the accounting education system in India, Pakistan and Bangladesh. Since these countries have been independent for many years and are developing countries one may expect that divergence from the UK model would begin to occur as financial reporting practices adapt to the needs of the changing environment and an underlying similarity resulting from the strong British influence before and possibly after their independence. (La Porta et. all 1998)

In the case of many developing countries the domestic accountancy profession has not developed so as to have its own model and it is not a surprise that they follow their colonial master for their model for professionalisation. (Musacchio et. all 2013

A number of developing countries ruled under the British regime developed accounting professions after the British model. Similarly, it can be found that former French colonies tried to develop their accounting profession after French model. (Bircher, 1988a)

The British accounting system and the associated accounting profession was consequently prevalent in the then British India as a result of 180 years of colonial rule. The impact of British colonial rule on the legal and political systems of India can be very clearly seen in the Indian company’s acts regarding requirements relating to accounting and reporting (Jaggi, 1973). Subsequently, Pakistan and Bangladesh have inherited the British accounting system and accounting profession. (Napier and Noke 1992)

The British influence on the accounting systems of former colonies has been referred to as the strongest compared to other colonial regimes in the world. As observed by Briston (1984; pp. 107-108). “In a number of countries; of course, the British influence is very long standing, and almost all of the colonial territories in which any substantial degree of industrial development took place under British rule will have had imported upon them a British Companies Act within the usual reporting and auditing requirement’s” (Briston, 1984; pp. 107-108)

Parker observed that ‘the British professional accountancy bodies succeeded in exporting their culture, associate accounting techniques and examinations to the British Empire and Commonwealth through economic, political and cultural influence’ (Parker, 1989)

The British model of professional accountancy and accounting qualifications was exported from the second-half of the 18th century and by the end of the 19th century, the British Empire covered Canada, the Australian continent and New Zealand, much of Southern, Central, East and West Africa, India, Ceylon (Sri Lanka), part of East Asia, and numerous islands in Mediterranean, Caribbean, Atlantic, Indian and Pacific Ocean (Parker, 1989).

The role of British professional accountancy institutes in imposing their accounting practices on less developed countries is significant (Hove, 1986). Chaderton and Taylor (1993) cite that in the case of West Indies: ‘…………… the role of the professional accountancy bodies of developing countries in establishing the accountancy professions and accounting systems of other countries is well known and, the initial influence came clearly and strongly from colonial power, Britain (Chaderton and Taylor, 1993).

Similarly, the Nigerian accountancy profession has indiscriminately applied the accounting practices of its former colonial master without proper modification to meet its needs (Jagetia and Nwadike, 1983). The professional accounting institutes in India were established and were empowered to impart theoretical education as well as on-the-job training to accounting profession aspirants. (Jaggi, 1973). In the same way, in the former British colonies in Africa, tradition in the universities and the influence of the companies acts still operating in the countries rather pervasively dictate the choice of the English accounting model (Seidler, 1967). However, the accounting professional model of the UK has been criticised for a reliance on self-regulation which may be inappropriate for a third world country (Parry and Groves, 1990). 

  1. History of Company Legislation in England

In London, the earliest business associations during the 11th to 13th centuries were called the ‘merchant guilds’. These guilds obtained charters from the Crown mainly to secure for their members, a monopoly in respect of particular trade or commodity. (Rutherford 2007) These associations were either formed a ‘Commenda’ or ‘Societas’. ‘Commenda’ operated in the form of partnership, the financier being a sleeping partner with limited liability. The liability was basically borne by the working partners. In ‘Societas’, on the other hand, all the members took part in the management of the trade and had unlimited liability, more in line with the present day partnership. (Foreman-Peck et. all 2012)

In the 14th century, the word ‘Company’ was adopted by certain merchants for trading overseas. This was, more or less an extension of the merchant guilds in foreign trade. By the end of 16th century Royal Charters granted monopoly of trade to members of the Company over a certain territory. These companies were called regulated Companies. East India Company was one of such regulated companies established by a Charter in 1600. (Arnold and Collier 2007) It had monopoly of trade in India; its members could carry on trade individually and had the option to subscribe to the joint fund or stock of the company. After such voyage, the profits made, together with the subscribed amount, were divided among the members. In 1653, however, a permanent subscribed fund was introduced, called joint fund or stock of the company. Accordingly, the term joint stock came into use. The profits were, however, shared at the end of each voyage. (Bryer 2000b)

By the end of 17th century all these companies or merchant guilds any many regulated companies which the Crown had incorporated, meanwhile had established permanent fixed capitals represented by shares which were freely saleable and transferable. The property with which the companies treated was recognised as being under the exclusive control of their governors or directors for the purpose of carrying on these undertakings and was not available for division between members at intervals of time. (Godfrey and Hooper 1996)

At this time the only method of obtaining the incorporation of a company was by Royal Charter or by an Act of Parliament. These methods of incorporation were quite expensive and time consuming. Consequently, many companies were formed by agreement without incorporation. As a result, the first 20 years of 18th Century witnessed a flood of speculative and often fraudulent schemes of company floatation’s of which the notorious schemes of the South Sea Company is the best known example. The South Sea Company had a scheme to acquire virtually the whole of the national debt (approx. £ 31,000,000) by purchasing the holdings or exchanging the holdings for the stock of the company. The possession of interest- bearing loan owed by the State was a basis on which the company might raise vast sums to extend its trade. This theory was not necessarily unsound – it was indeed a logical extension of the principle upon which the Bank of England, and the South Sea Company itself, had been originally formed but unfortunately, the Company had very little trade to expand. It had paid a huge sum of money for obtaining the charter in competition with the Bank of England. (Noke 1981)

Ultimately, the company failed. In 1720, the British Parliament came down heavily on such companies in order to check the orgy of speculation in shares and securities which had reached its heights. Consequently, the Bubble Act, 1720 was passed. The Act prohibited generally the use of the form of corporations unless a corporation was authorised to act as such by an Act of Parliament or Royal Charter. However, it exempted all undertakings operative especially before June 24, 1978. With the passing of the Act companies disappeared like the bursting of the bubble. (Napier 1996)

Although the Bubble Act held up the development of capital market for a century, it did not destroy the unincorporated company. To avoid the rigours of the Act, large partnerships were formed. The parties to the deed agreed to be associated with a joint fund or stock divided into number of transferable shares and agreed to alteration of the provisions of the deed by a specified majority. They delegated the management to the directors. The property was vested in a body of trustees which was also given powers to sue or be sued on behalf of the company.

In 1825, the Bubble Act was repealed. In 1834, the Trading Companies Act, 1834 was passed empowering the Crown to confer by Letters Patent any of the privileges of incorporation except limited liability, without actually granting a Charter. The Chartered Companies Act, 1837 re-enacted the Act of 1834 providing for the first time that personal liability of members might be expressly limited by the Letters Patent to a specified amount per share. (The joint companies Act 1844 (7 & 8 Vict.c.110)

In 1844, the Joint Stock Companies Act was passed for the first time. This Act provided for the registration of Companies with more than 25 members or with shares transferable without the consent of all the members. It also provided for incorporation by registration. The Act for the first time created the office of the Registrar of Companies and required particulars of the Company’s constitution, changes therein and annual returns to be filed with the Registrar so that there would be full record retained officially. (Edwards and Webb 1984)

Limited liability, however, was still excluded. Although the company became incorporated, the personally liability of the members was preserved, but their liability was to cease three years after they had transferred their shares by registered transfer and creditors had to proceed first against the assets of the company. Members could only escape personal liability by providing in its contracts, as unincorporated companies had formerly done, that only the Company’s property and the amount unpaid on its member’s shares should be answerable in default. Such a provision was effective if inserted in the contract on which the plaintiff sued, but not, if it was merely contained in the Company’s deed of settlement, even if the plaintiff knew of it when he contracted with the Company. (Edwards 1989)

In 1855, however, an Act of Parliament was passed called Limited Liability Act, 1855 by which any company registered under the Act of 1844 might limit the liability of its members for its debts and obligations generally to the amount unpaid of their shares. The Act was repealed within a few months. In fact, the English Companies Act, 1856 known as the Joint Stock Companies Act, 1856 replaced both the Acts of 1844 and 1855. Under this Act, the company legislation assumed for the first time a form which has been broadly handed down almost to the present day, subject to various amendments which were made from time to time to suit various exigencies. (Parker 1989)

Under this Act seven or more persons could form themselves into an incorporated company with or without limited liability by signing a memorandum of association and complying with the requirements of the Act. The Act of 1856, in its turn, was repealed by the Companies Act, 1862 which followed the same pattern but contained a number of improvements. The Companies Act, 1862 was amended by 17 later Acts, the most important of which enabled Companies to reduce their share capital to alter the objects which they were formed to carry out, imposed liability on promoters and directors for false statements inviting public subscription to shares and debentures, and introduced the concept of private company, which could be incorporated with only two members. In 1908, the whole of the existing statute law was consolidated and after further amending statutes, in 1929 and 1948, the Companies Act of those years repealed the existing law and enacted new consolidated legislation. The Companies Act, 1948 was itself amended and supplemented by the Companies Acts of 1967, 1976, 1980, 1981 and 1983. In 1985, the whole of the existing statute law relating exclusively to companies was consolidated in the Companies Act, 1985 which is the present statute governing companies in England.

 

  1. History of Company Legislation in India

Company Legislation in India owes its origin to the English Company Law. The Companies Acts passed from time to time in India have been following the English Companies Acts, with certain modifications. Even the Companies Act, 1956, it is said, closely followed the U.K. Companies Act, 1948. The first legislative enactment for registration of Joint Stock Companies was passed in the year 1850 which was based on the English Companies Act, 1844. This Act recognised companies as distinct legal entities but did not introduce the concept of limited liability. The concept of limited liability, in India, was recognised for the first time by the Companies Act, 1857 closely following the English Companies Act, 1856 in this regard. The Act of 1857, however, kept the liability of the members of banking companies unlimited. It was only in 1858 that the limited liability concept was extended to banking companies also. Thereafter in 1866, the Companies Act, 1866 was passed for consolidating and amending the law relating to incorporation, regulation and winding-up of trading companies and other associations. This Act was based on the English Companies Act, 1862. The Act of 1866 was recast in 1882 to bring the Indian Company Law in conformity with the various amendments made to the English Companies Act of 1862. This Act continued till 1913 when it was replaced by the Companies Act, 1913. The Act of 1913 had been passed following the English Companies Consolidation Act, 1908. It may be noted that since the Indian Companies Acts closely followed the English Acts, the decisions of the English Courts under the English Company Law were also closely followed by the Indian Courts. Till 1956, the business companies in India were regulated by this Act of 1913. Certain amendments were, however, made in the years 1914, 1915, 1920, 1926, 1930 and 1932. The Act was extensively amended in 1936 on the lines of the English Companies Act, 1929. Minor amendments were made a number of times thereafter. At the end of 1950, the Government of independent India appointed a Committee under the Chairmanship of H.C. Bhaba to go into the entire question of the revision of the Indian Companies Act, with particular reference to its bearing on the development of Indian trade and industry. This Committee examined a large number of witnesses in different part of the country and submitted its report in March 1952. Based largely on the recommendations of the Company Law Committee, a Bill to enact the present legislation, namely, the Companies Act, 1956 was introduced in Parliament. This Act, once again largely followed the English Companies Act, 1948. The major changes that the Indian Companies Act, 1956 introduced over and above the Act of 1913 related to: (a) the promotion and formation of companies;(b) capital structure of companies;(c) company meetings and procedures; (d) the presentation of company accounts, their audit, and the powers and duties of auditors; (e) the inspection and investigation of the affairs of the company; (f) the constitution of Board of Directors and the powers and duties of Directors, Managing Directors and Managers, and (h) the administration of Company Law.

The Companies Act, 1956 has been amended several times since then. The major amendments were introduced in the years 1960, 1962, 1963, 1964, 1965, 1966, 1967, 1969, 1974, 1977, 1985, 1988 and 1991.

In the wake of economic reforms processes initiated from July, 1991 onwards, the Government recognized the many provisions of the Companies Act had become anachronistic and were not conducive to the growth of the Indian corporate sector in the changing environment. Consequently, an attempt was made to recast the Act, which was reflected in the Companies Bill, 1993. Later the Depositories Act, 1996. The Companies Bill, 1997 was introduced in Rajya Sabha on August 14, 1997 to replace by repealing the Companies Act, 1956. The President of India promulgated the Companies (Amendment) Ordinance, 1998 on October 31, 1998 which was later replaced by the Companies (Amendment) Act, 1999. The First Amendment was made in 2002 provides for producer companies. The Companies Act, 2013 was passed by both Houses of Parliament and received the assent of the President of India on August 31, 2013. 

  1. History of Company Legislation in Pakistan

The Companies Ordinance, 1984 (XLVII of 1984) is based on the lines of Legislation in England. The formation of Joint Stock Companies for trading and other purposes with particular reference to the sub-continent dates back to several centuries. The East India Company was formed in 1600 during the period of Queen Elizabeth I. Up to 1844, Companies were incorporated either by Royal Charter or by Special Acts of Parliament. In 1844, the provision of incorporation and registration of Companies, without a Royal Charter or Special Act of Parliament was enacted. The privilege of limited liability was not granted till 1855. In 1856, a codifying law was passed, followed by an amending Act in 1857. The law was again codified in 1862. This was a comprehensive Act and a large number of important decisions in English Courts were passed under this Act.

In 1908, all amendments made during the period 1862 to 1908 were consolidated by Companies (Consolidation) Act, 1908. A Consolidating English Act was again passed in 1929 and came into operation on 1st November 1929. Pakistan Federal Government appointed a Company Law Commission in 1959, with late Mr. I. I. Chundrigar as its Chairman. Mr. Chundrigar died in 1960. The Commission was re-constituted in February 1961, with Mr. Sharifuddin Pirzada as its Chairman. Unfortunately, the recommendations of the commission were not implemented and the Companies Act, 1913 continued up to the enforcement of Companies Ordinance, 1984.

  1. History of Company Legislation in Bangladesh
  • History of Bangladesh

If we want to know the historical background of company law of Bangladesh, it is very important to know the political history of this country. Because of the geo-political position, Bangladesh has been ruled by different colonial groups at different times. The civilization of Greater Bengal started four thousand years ago. The region was inhabited by Dravidians, Tibetan-Burmese and Austro-Asiatic peoples around 1000 BC.

The Buddhist Pala dynasty ruled the region for four hundred years, commonly known as the “Golden Age of Bengal”. This was followed by a brief reign of the Hindu Sen dynasty.
In the twelfth century, Arab Muslim merchants and Sufi missionaries introduced Bengal to Islam extensively, and later Muslim conquests helped spread Islam throughout the region. There is a mosque in Bangladesh established in 690 at Lalmonirhat. Turkish general Bakhtiyar Khilji defeated Lakshman Sen of the Sen dynasty and in 1204 conquered large areas of Bengal.

The region was ruled by the Sultan and Bhuiyan dynasties for the next few hundred years. In the sixteenth century, the Mughal Empire took control of Bengal and Dhaka became an important provincial center of Mughal administration. European traders arrived in the late fifteenth century and after the battle of Palashi in 1757, the British East India Company took control of Bengal. As a result of the bloody revolt of 1857, known as the Sepoy Mutiny, the British took over Bengal. Between 1905 and 1911, an attempt was made to divide the province of Bengal into two zones. When India was partitioned in 1947, the western part of Bengal was annexed to India and the eastern part to Pakistan under the name of East Pakistan. The partition of Bengal took place again in religious terms.

Under the leadership of Bangabandhu Sheikh Mujibur Rahman, the Awami League emerged as the political voice of the Bengalis. Although believing in the same religion, Islam, being neglected and oppressed due to being a Bengali, East Pakistan became independent from West Pakistan (now Pakistan). Bangabandhu Sheikh Mujibur Rahman declared the independence of Bangladesh from March 26, 1971 when the Pakistan Army carried out genocide all over Bangladesh. The war ended on 16 December 1971 when the Pakistan army surrendered to the joint command of the Bangladesh and India armies.

  • History of Company Law in Indo-Pak Sub-Continent

Indo-Pakistan Sub-continent followed the English Companies Act, 1844. In 1850, it was enacted that every un-incorporated company of partners associated under a deed containing a provision that the shares in the stock or business of the said company were transferable without the consent of all the partners, were entitled for registration under this Act. This Act of 1850 may be said to be the nucleus around which subsequent Companies Acts further developed, according to needs of the time.

  • Company Laws Between 1857 to 1913

In 1857, an Act for incorporation and regulation of Joint Stock Companies and other Associations (either with or without limited liability) of the members was passed. Under this Act, the privilege of limited liability was not extended to any company formed for the purpose of banking or insurance. In 1860, this Act was amended on the lines of the English Act, 1857. Following the English Act of 1862, a comprehensive Act was passed in 1866 for consolidating and amending the laws relating to the incorporation, regulation and winding up of Trading Companies and other Associations. This Act was re-casted in 1882 employing the amendments that were made in the Company Law in England up to that time.

  • The East India Company

East India Companies were established in England, Holland, France, Denmark, Scotland, Spain, Austria and Sweden, as one of the Chartered Companies formed for trade with the Indian and New World, which had more wide-reaching influence in the history of Indo-Pak Sub-continent. The most important of these companies was The East India Company, which survived until it handed over its functions to the British Government in 1858.

In order to compete with the Dutch Merchants, Queen Elizabeth I, by Royal Charter dated 31st December 1600, under the title of “The Governor and Company of Merchants of London, trading into the East Indies”. The charter conferred the sole right of trading with the East Indies, unauthorized interlopers were liable to forfeiture of ships and cargo. The early voyages of the Company, during 1601 to 1612, reached as far as Japan and the subscribers bore the cost of each voyage and reaped the whole profits, which seldom fell below 100%. After 1612, voyages were conducted on the Joint Stock System for the benefit of the Company as a whole.

The East India Company’s main business was trading; it was left to manage its own affairs. The original charter placed its control in the hands of a Governor and a Committee. After Clive’s victory at Plassey (1757) had made the Company a ruling power in India. In order to have more control over the territories thus acquired, the East India Company ceased to be a trading concern and exercised only administrative functions and after the Indian Mutiny, the entire transference of Indian administration to the British Government on 2nd August 1858. 

  • Companies Act, 1913

Following the English Companies (Consolidated) Act, 1908, the Companies Act, 1913 was passed in the sub-continent, which was almost the reproduction of the English Act. However, some amendments were made in this Act in 1914, 1915, 1920, 1926, 1930 and 1932. At the end of World War II, the need for revision was felt and many changes had taken place in the organizational structures and the management of the joint stock companies and over a wide sector that was dominated by new demands in trade and industry.

Companies (Amendment) Act, 1936 came into operation on 15th January 1937. Pakistan adopted the Companies Law by an order in 1947, by making amendments in various sections of the Act and finally Ordinance Order, 1949 came into force on 26th March 1949. In January 1972, the President’s Order No. 2 of 1972 was issued, which abolished the system of managing agents in company administration and introduced a sort of corporate democracy, directing the election of directors by cumulative system of voting.

On 26th September 1973, the Companies (Amendment) Act, 1973 was passed to conform to the new constitutional pattern and also made some amendments in Section 248 and 277. On 1st March 1974, the Companies (Appointment of Legal Advisors) Act, 1974 was passed, which made it compulsory for every company to appoint one legal advisor on retainership basis. The Companies Act, 1913 was further amended by the Companies (Amendment) Ordinance LXII of 1979.

  • Companies Ordinance, 1984

A draft Ordinance was prepared and published on 20th December 1980 for eliciting views of the public. Finally, the last, but not the least, the Company Law entitled “The Companies Ordinance, 1984 (XLVII of 1984) was issued on 8th October 1984. This piece of legislature comprises of the largest number of sections of any Act in the Statute Book of Pakistan. The Companies Ordinance, 1984 came into force on different dates, notified by the Federal Government. Sub-section (3) of Section 1 empowers the Federal Government to fix different dates for bringing into force different provisions of the Ordinance.

 The existing Companies Ordinance is an amalgamation of:

(a) The Companies Act, 1913
(b) The Companies (Foreign Interest) Act, 1918
(c) The undesirable Companies Act, 1958
(d) The Securities & Exchange Ordinance, 1969
(e) The Companies (Managing Agency & Election of Directors) Order, 1972
(f) The Companies (Shifting of Registered Office) Ordinance, 1972

  • Corporate Laws Reforms in Bangladesh

Corporate Laws Reforms in Bangladesh with the initiation of economic reforms process in July 1991, the Government has initiated the process of Legislative Reforms to suit the changing policy orientation and to fulfill its obligations under WTO. In the process, the Government enacted various new laws, amended existing legislations and some Bills are awaiting nod of Parliament, to provide a conducive economic and corporate legal environment. 

  • Regulatory and Legal Compliance

Among others, the Bank complied with the requirements of the following circular, rules and regulations:

  1. The Bank Company Act, 1991 as amended
  2. The Companies Act, 1994
  3. BRPD Circular No. 14 dated 25.06.2003 and “Guidelines for Islamic Banking” issued by Bangladesh Bank through BRPD Circular No. 15 dated 09.11.2009”
  4. Other circulars, rules and regulations issued by Bangladesh Bank from time to time
  5. The Securities and Exchange Rules, 1987
  6. The Securities and Exchange Ordinance, 1969
  7. The Securities and Exchange Commission Act, 1993
  8. Income Tax Ordinance, 1984
  9. VAT Act, 1991
  10. Standards issued by AAOIFI
  11. The Stamp Act-1899
  12. The Customs Act-1969
  13. The Money Laundering Prevention Act, 2012
  14. The Anti-Terrorism (Amendment) Act, 2012 etc.
    • Company Act 1994, Bangladesh

Companies Act 1994 (Act XVIII of 1994) governs company law in Bangladesh. It received the assent of the President of the People’s Republic of Bangladesh on 11 September 1994. Before its enactment in 1994, company law was governed by the Companies Act 1913 which was amended in 1915, 1920, 1926, 1930, 1932, 1936, 1938, 1949 and 1969, 1973 and 1984.

The early history of company law of India was laid in the British Companies Act 1844 on the basis of which the Joint Stock Companies Act 1850, the first company law for the sub-continent, was formulated. This act was based on ‘unlimited liability’. In 1857, the Joint Stock Companies Act 1850 was amended with the provision of unlimited liability was replaced by ‘limited liability’ and the act was renamed as The Companies Act 1857. With the expansion of trade and commerce in the sub-continent, the Companies Act 1857 was amended in 1860, 1866, 1882, 1887, 1891, 1895, 1900 and 1908. The Indian Companies Act 1913 was actually the amended and reformed version of The English Companies Act 1908.

The Companies Act 1994 has eleven parts. Part-I contains the preliminary aspects of the act including the short title of the act, commencement and extent, definitions of various terms. Part-II is concerned with formulation and incorporation of companies, including bank companies, and memorandum of association for various types of companies, articles of association, general provision for registration of memorandum and articles of association, associations not for profit, and companies limited by guarantee. Part-III mainly narrates the rules for share capital, registration of unlimited company as limited, and the limited liability of directors. This part states the rules and procedures for distribution of share capital of companies and the provisions for reduction of share capital.

Part-IV states the framework for regulating the management and administration of companies, the requirements for having a registered office of a company with a distinct name at a specific place, the provisions for penalties for non-disclosure of name, and the way to show the authorised, subscribed and paid up capital of companies. It contains the procedures and rules for holding meetings of companies, provisions and procedures for appointment of company directors, their responsibilities, rights and obligations, powers, tenure, loans to and from a company, and their relationship with the managers, and managing agents of a company. This part includes the rules and conditions for appointment of managing agent, the provision for contracts and execution of deeds, power of companies to use their seal abroad, rules regarding company prospectus, the powers of a company to pay interests, commissions and discounts and to allocate and issue additional shares, the provisions for information and procedure as to mortgage and other unregistered charges. Issuing and redemption of debentures, appointment of receivers, and their submission of returns, and registration of charges are also the concerns of this part. It also provides requirements and rules to keep proper accounts, preparation and submission of balance sheets, other statements and records, as well as provisions for penalty for not keeping proper books of accounts.

Further, this part states the provisions for statements to be published by banking and certain other companies; the power of the registrar of joint stock companies to investigate into and seize any accounts, statements, records and information; the requirements and procedures for inspection and audit of company affairs; appointment of auditors; their powers and duties, qualification, remuneration, etc.; provisions for service; issue and authentication of company documents; provisions for arbitration and compromise; and rules of conversion of private company into’ public company, and protection of interest of minority shareholders.

Part-V of the act provides details of the mode and methods of winding up, liabilities of company directors, owners of the shares and their successors, procedures and options of winding up, ordinary and extraordinary power of courts to be involved in the winding up process, appointment of official liquidator and their powers and duties, settlement of debts of companies and transfer and distribution of assets and liabilities. Part-VI deals in matters relating to the registered office/s of companies; appointment of registrar/s by the government; their powers and responsibilities, payment of registration fees and submission of returns and documents to registrar by the companies. Part-VII interprets the rules of application of the act to companies formed and registered under former Companies Acts. Part-VIII identifies and defines the companies capable of being registered, the various aspects required for registration and the power to substitute memorandum and articles for deed of settlement, etc.

The main concern of Part-IX of the act is the procedure for winding up of unregistered companies. This part explains the meaning of unregistered companies; procedure for their winding up; power to stay or restrain proceedings; suits stayed on winding up order; directions as to property in certain cases; and the status of provisions of this part cumulative. The contents of Part-X include the requirements for establishing foreign companies in Bangladesh, rules for regulating them, preparation, maintenance, audit and submission of their accounts to the host country regulators; notice for closure of foreign companies in Bangladesh; and restrictions on sales and offer for sale of shares. Finally, Part-XI is supplemental and relates legal proceedings, offences, etc. The subject matters elaborated in it are cognisance of offences, application of fines, power to require limited company to give security for costs, and penalty for wrongful withholding of property.

The Companies Act has twelve schedules. The following is a list of them along with the section numbers: Regulation for management of a company limited by shares (sections 2, 17, 18, 86, 367); table of fees to be paid to the registrar (sections 348, 363); particulars of prospectus and reports incorporated in it (section 135); statement in lieu of prospectus (section 141); memorandum and articles of associations of the various types of companies; summary of share capital and lists of shareholders/directors in accordance with Part One of the Companies Act 1994 (section 36); specimen of company balance sheets and instruction for profit and loss accounts (section 185); and statements to be published by bank and insurance companies, deposits/provident/welfare associations (section 192). [Abul Kalam Azad] 

  1. Historical Background of Company Law: From British to Bangladesh

 History of Company Legislation in England

  1. 11th to 13th centuries: The earliest business associations during the 11th to 13th centuries was called Merchant Guilds
  2. 14th century: In the 14th century, the word ‘Company’ was adopted by certain merchants for trading overseas.
  3. 16th century: By the end of 16th century Royal Charters granted monopoly of trade.
  4. 1600: East India Company was one of such regulated companies established by a Charter in 1600.
  5. 1653: In 1653, a permanent subscribed fund was introduced, called joint fund or stock of the company.
  6. 17th century: By the end of 17th century all these companies or merchant guilds any many regulated companies which the Crown had incorporated.
  7. 18th Century: The first 20 years of 18th Century witnessed a flood of speculative.
  8. 1720: The Bubble Act, 1720 was passed.
  9. 1825: In 1825, the Bubble Act was repealed.
  10. 1834: The Trading Companies Act, 1834 was passed.
  11. 1837: The Chartered Companies Act, 1837 re-enacted the Act of 1834.
  12. 1844: In 1844, the Joint Stock Companies Act was passed for the first time.
  13. 1855: In 1855, however, an Act of Parliament was passed called Limited Liability Act, 1855.
  14. 1856: The Act was repealed within a few months the English Companies Act, 1856 known as the Joint Stock Companies Act, 1856 replaced both the Acts of 1844 and 1855.
  15. 1862: The Act of 1856 was repealed by the Companies Act, 1862.
  16. 1862: The Companies Act, 1862 was amended by 17 later Acts.
  17. 1908: In 1908, the whole of the existing statute law was consolidated.
  18. 1929: Amending statutes in 1929.
  19. 1948: The Companies Act of those years repealed.
  20. 1967, 1976, 1980, 1981 and 1983: The Companies Act, 1948 was itself amended and supplemented by the Companies Acts of 1967, 1976, 1980, 1981 and 1983.
  21. 1985: The Companies Act, 1985 which is the present statute governing companies in England.
  • History of Company Legislation in India
  1. 1850: The first legislative enactment for registration of Joint Stock Companies was passed in the year 1850 which was based on the English Companies Act, 1844.
  2. 1857: The Companies Act, 1857 closely following the English Companies Act, 1856.
  3. 1858: It was only in 1858 that the limited liability concept.
  4. 1866: In 1866, the Companies Act, 1866 was passed based on the English Companies Act, 1862.
  5. 1882: The Act of 1866 was recast in 1882.
  6. 1913: The Act of 1913 had been passed following the English Companies Consolidation Act, 1908.
  7. 1914, 1915, 1920, 1926, 1930 and 1932: Certain amendments were, however, made in the years 1914, 1915, 1920, 1926, 1930 and 1932.
  8. 1936: The Act was extensively amended in 1936 on the lines of the English Companies Act, 1929.
  9. 1950: At the end of 1950, the Government of independent India appointed a Committee under the Chairmanship of H.C. Bhaba. He submitted its report in March 1952.
  10. 1956: The Companies Act, 1956 was introduced in Parliament. This Act, once again largely followed the English Companies Act, 1948.
  11. 1960, 1962, 1963, 1964, 1965, 1966, 1967, 1969, 1974, 1977, 1985, 1988 and 1991: The Companies Act, 1956 has been amended several times since then. The major amendments were introduced in the years 1960, 1962, 1963, 1964, 1965, 1966, 1967, 1969, 1974, 1977, 1985, 1988 and 1991.
  12. 1991: July 1991 onwards, the Government recognized the many provisions of the Companies Act.
  13. 1993: The Companies Bill, 1993.
  14. 1996: The Depositories Act, 1996, certain amendments were, however, incorporated by the Companies (Amendment ) Act, 1996.
  15. 1997: The Companies Bill, 1997 was introduced in Rajya Sabha on August 14, 1997 to replace by repealing the Companies Act, 1956.
  16. 1998: The President of India promulgated the Companies (Amendment) Ordinance, 1998.
  17. 1999: The Companies (Amendment) Act, 1999.
  18. 2002: The First Amendment of 2002 provides for producer companies.
  19. 2013: The Companies Act, 2013 was passed by both Houses of Parliament and received the assent of the President of India on August 31, 2013.
  • History of Company Legislation in Pakistan
  1. 1600: The East India Company was formed in 1600.
  2. 1757: Clive’s victory at Plassey (1757) had made the Company a ruling power in India.
  3. 1844: The English Companies Act, 1844.
  4. 1850: The first legislative enactment for registration of Joint Stock Companies was passed in the year 1850 which was based on the English Companies Act, 1844.
  5. 1855: The Limited Liability Act, 1855.
  6. 1856: In 1856, a codifying law was passed.
  7. 1857: The Companies Act, 1857 closely following the English Companies Act, 1856.
  8. 1862: The law was again codified in 1862.
  9. 1866: In 1866, the Companies Act, 1866 was passed based on the English Companies Act, 1862.
  10. 1882: Act was re-casted in 1882.
  11. 1908: In 1908, all amendments made during the period 1862 to 1908 were consolidated by Companies (Consolidation) Act, 1908.
  12. 1913: The Act of 1913 had been passed following the English Companies Consolidation Act, 1908.
  13. 1918: The Companies (Foreign Interest) Act, 1918
  14. 1914, 1915, 1920, 1926, 1930 and 1932: Amendments were made in this Act in 1914, 1915, 1920, 1926, 1930 and 1932.
  15. 1936: The Act was extensively amended in 1936 on the lines of the English Companies Act, 1929.
  16. 1936: Companies (Amendment) Act, 1936 came into operation on 15th January 1937.
  17. 1947: Pakistan adopted the Companies Law by an order in 1947, by making amendments in various sections of the Act and finally Ordinance Order, 1949 came into force on 26th March 1949.
  18. 1958: The undesirable Companies Act, 1958.
  19. 1969: The Securities & Exchange Ordinance, 1969
  20. 1972: In January 1972, the President’s Order No. 2 of 1972 was issued.
  21. 1972: The Companies (Managing Agency & Election of Directors) Order, 1972
  22. 1972: The Companies (Shifting of Registered Office) Ordinance, 1972
  23. 1973: On 26th September 1973, the Companies (Amendment) Act, 1973 was passed.
  24. 1974: On 1st March 1974, the Companies (Appointment of Legal Advisors) Act, 1974 was passed.
  25. 1979: The Companies Act, 1913 was further amended by the Companies (Amendment) Ordinance LXII of 1979.
  26. 1984: The Companies Ordinance, 1984 (XLVII of 1984) was issued on 8th October 1984.
    • History of Company Legislation in Bangladesh
  27. 1844: The early history of company law of India was laid in the British Companies Act 1844
  28. 1850: The first legislative enactment for registration of Joint Stock Companies was passed in the year 1850 which was based on the English Companies Act, 1844.
  29. 1857: The Companies Act, 1857 closely following the English Companies Act, 1856.
  30. 1860, 1866, 1882, 1887, 1891, 1895, 1900 and 1908: The Companies Act 1857 with the expansion of trade and commerce in the sub-continent, the Companies Act 1857 was amended in 1860, 1866, 1882, 1887, 1891, 1895, 1900 and 1908.
  31. 1913: The Indian Companies Act 1913 was actually the amended and reformed version of The English Companies Act 1908.
  32. 1915, 1920, 1926, 1930, 1932, 1936, 1938, 1949 and 1969, 1973 and 1984: Before its enactment in 1994, company law was governed by the Companies Act 1913 which was amended in 1915, 1920, 1926, 1930, 1932, 1936, 1938, 1949 and 1969, 1973 and 1984.
  33. 1994: The Company Act 1994.
  34. Follow Chart of Evolution of Company Act 1994
British (UK) British India

(India, Pakistan, Bangladesh)

Pakistan

(Independent Pakistan)

[East Pakistan i.e., Bangladesh and West Pakistan]

Bangladesh

(Independent Bangladesh)

11th Century-1757 1757-1947 1947-1971 1971-Up to date
United Kingdom Company Act 1844 British India Company Act 1850 (based on United Kingdom Company Act 1844) Governed by India Company Act 1913 Governed by India Company Act 1913 (Amended in 1936)
United Kingdom Company Act 1908 British India Company Act 1857   Bangladesh Companies Act 1994 (Replace 1913) Based on India Company Act 1956/1988 (Amended)
United Kingdom Company Act 1929 (Replace 1908) British India Company Act 1882 (Replace 1857)    
  British India Company Act 1913 (Replace 1882) Reproducing United Kingdom Company Act 1908    
  British India Company Act (Amended) 1936 (based on 1913) based on United Kingdom Company Act 1929    

 

  1. Conclusion

In this article, we have analyzed the evolution of corporate law in Bangladesh since the colonial period and the considerable shifts it has witnessed in the post-colonial era. Conclusion Legal modernisation is required when development in science and industry coupled with policy reforms greatly accelerate the pace of change. Accordingly, the corporate laws reform process was initiated in Bangladesh to make the legal framework compatible with global standards. A number of legislations have been introduced in Parliament and it is hoped that an entirely new regulatory environment conducive to the economic growth of the country will be in place in times to come.

Here, we summarize some of the key messages emanating from the analysis.  First, as we seek to demonstrate in this paper, the corporate law in Bangladesh 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.

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 paper. For instance, research in specific areas of corporate law may be analyzed in depth to test the conclusions made in this paper 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 Bangladesh.

 

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Acts and Reports

  1. The English Companies Act, 1844
  2. The Indian Companies Act, 1913
  3. Companies Act of 1913.
  4. The Depositories Act, 1996
  5. Bhabha Committee Report, 1952
  6. The Companies (Amendment) Act, 2001
  7. The Companies (Share Capital and Debenture) Rules, 2014
  8. The Companies (Amendment) Act, 2015
  9. The Companies (Amendment) Act, 2017
  10. The Committee Report. 2018
  11. The Companies (Amendment) Act, 2019
  12. The Companies Act (Bangladesh), 1994
  13. Companies (Consolidation) Act, 1908.
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