 MOHANDAS V. STATE OF M.P.

FACTS- The petitioner, a shareholder of a company, challenged the state government's

decision to acquire land owned by the company under the Land Acquisition Act.

ISSUE- Whether such acquisition is valid in eyes of law?

HELD-The court held that, the state government's action to acquire the company's land was
valid, as the company's separate legal entity status prevented the petitioner from claiming any
right or interest in the land owned by the company.

ATTRIBUTES OF SEPARATE LEGAL ENTITY

SEPARATE PROPERTY- A company is a legal person, it can own, enjoying and disposing of
property. A member has no interest in the property of the company and, therefore he cannot
issue it. Thus, the doctrine of corporate personality enables the property of the company to be
distinguished from that of its members.2 The shares of a company may be transferred without
affecting the property of the company.

PERPETUAL SUCCESSION- As an artificial person, a company does not rely on its

members to live. The existence of a corporation is unaffected by the death, insolvency, or
transfer of shares of members. Regardless of whether the membership changes, the company
will continue to exist.3 Members may come and leave, but the corporation can continue
indefinitely until it is dissolved by law. This is termed as perpetual existence.

TRANSFERABLE SHARES- The doctrine of corporate personality facilitates the transfer of

the member’s interest without the consent of the other member of the company. As Section 82
provides shares or other interest of a member in the company in movable property
transferable in the manner provided by the articles of the company.

SUING AND BEING SUED- An incorporated company being a legal person can sue and be
sued in its own name. Thus, the corporate personality of the company has made the litigation
convenient, cheap, and easy.
1
Mohandas v. State of M.P., 1991 SCC OnLine MP 117.

2
Devesh A. Pathak, Company Law- Lightened & Enlightened (Bharat’s, 1st edn., 2022).
3
Rinita Das, Company Law (Eastern Book Company, 1st edn., 2021).
LIMITED LIABILITY- A company is a separate person from its incorporation, its members
are neither the owner of its assets nor liable for its debts. In the case of, Dhulia Amalner
Motor Transport Ltd. v. R.R. Dharamsi 4, The Court upheld the position that a company is a
separate legal person distinct from its members.

The doctrine of limited liability has played an important role in the development of the trade
and commerce. It has enabled the businessmen to invest their money in business run by the
corporate form of organization with limited risk or liability. A creditor cannot claim more
than a company's and its members' liability. A member is only liable for the subscribed value.

If a corporation is formed with limited liability, the members' responsibility is limited to the
face value of the shares they own or the amount they guarantee. This is the concept of limited
liability. In the context of startups and new ventures, limited liability can inadvertently
incentivize founders to pursue high-risk strategies with the hope of substantial gains, even if
such strategies carry significant societal costs.5

CONTEMPORARY BUSINESS PRACTICES AND CORPORATE

PERSONALITY

 INFLUENCE ON MODERN BUSINESS STRATEGIES - Limited liability serves as a

catalyst for entrepreneurial ventures by mitigating the financial risk faced by
investors. The separate legal entity doctrine enhances the credibility of corporations in
the eyes of stakeholders, investors, and customers. This credibility allows
corporations to raise capital through various channels, including public offerings and
debt financing. It also enables corporations to access international markets, expanding
their reach and influence on a global scale.

 MERGERS AND ACQUISITIONS- Corporate personality influences M&A in

multifaceted ways. The separate legal entity doctrine ensures that the acquired
company retains its distinct legal identity, preventing the liabilities of one entity from
being transferred to another. This separation safeguards shareholders of the acquiring
company from the debts and obligations of the acquired entity. The success of M&A

4
Dhulia Amalner Motor Transport Ltd. v. R.R. Dharamsi, 1951 SCC OnLine Bom 126.
5
C. R. Datta, Datta on the Company Law, (Lexis Nexis, 7th edn., 2017)
 hinges on the ability to preserve the autonomy of both entities while extracting
synergies and efficiencies.6

6
Dr. N.V. Paranjape, Company Law, (Central Law Agency, 18th edn., 2017)