CHAPTER 4

ARTICLES OF ASSOCIATION
SYNOPSIS

1. Articles of Association (AoA) S. Distinction between MoA and AoA

2. Contents of Articles of Association 6. Binding force of Memorandum and
3. Registration of Articles of Association Articles
4. Alteration of AoA 7. Constructive Notice of MoA and AoA
8. Doctrine of Indoor Management

1. Articles of Association
Articles of Association is the second important document that specifies
the regulations for a company's operations and defines the company's
purpose. As per section 2(5) of the Companies Act, 2013 "Article" means
the article of association of a company as originally framed or altered from
time to time or applied in pursuanceof any previous company law or of this
Act. It also includes the regulations contained in Table A in Schedule I of
the Act, in so far as they apply to the company.
In terms of section 5(1), the articles of a company shall contain the
regulations for management of the company. The articles of association
of a company are its bye-laws or rules and regulations that govern the
management of its internal affairs and the conduct of its business. The
articles play a very important role in the affairs of a company. It deals with
the rights of the members of the company inter se. They are subordinate to
and are controlled by the memorandum of association.
"The articles play a part that is subsidiary to the memorandum of
association. They accept the memorandum of association as the charter
of incorporation of the company, and so accepting it, the articles proceed
to define the duties, rights and powers of the governing body as between
themselves and the company at large, and the mode and form in which
business of the company is to be carried on, and the mode and form in
which changes in the internal regulations of the company may from time
to time be made ... "1

1. Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) L.R. 7 H.L. 653.

77
 :\,, Arlld l' c.m g,l ht>yond Lill' mt•mor,rndum of ussocii1lion. The articl
,,1 tlw l'l1mr,m~· •ll'l' ~llhllrdin,11L' .md subjt•ct to MoA. Thus, the mcmorandu:
I.,~~ d~n,·n tlw :-l'llPl' J _tlll powt'rs of the company nnd the _artick•H govern~
"'·" :-- 111 \\'h1d1 tlw oh1ects of the company arc to be earned out and can~
tr.rnwd ,md ,\ltt•n.·d by the members. But they must keep within the lirnib,
m.uJ...t.•d l'\lt by tlw mcmorundum and the Companies Act.
The . Article must be printed, divided into paragraphs numbered
...·on~-cutn·d y, stamped adequately, signed by each subscriber to the
~ kmor.mdum and duly witnessed and filed along with the memorandurn.
l11e ,1rticlc mus t no contain anything illegal or ultra-virus the memorandum
nor it should be contrary to the provisions of 2013 Companies Act. 1
The articles of a company are subordinate to and subject to the
memorandum of association and any clause in the Articles going beyond
lhe memorandum will be ultra vires. But the articles are only internal
regulations, over which the members of the company have full control and
may alter them according to what they think fit. Only care has to be taken
to see that regulations provided for in the articles do not exceed the powers
of the company as laid down by its memorandum. 2
Articles that go beyond the company's sphere of action are inoperative,
and anything done under the authority of such article is void and incapable
of ratification. But neither the articles nor the memorandum can authorise the
company to do anything so as to contravene any of the provisions of the Act.3

2. Contents of Articles of Association

The articles set out the rules and regulations framed by the company for
its own working. The articles should contain generally matters relating to
Exclusion wholly or in part of Table F; Adoption of preliminary contracts;
Number and value of shares; Issue of preference shares; Allotment of
shares; CaJls on shares; Lien on shares; Transfer and transmission of
shares; Nomination; Forfeiture of shares; Alteration of capital; Buy back;
Share certificates; Dematerialisation; Conversion of shares into stock; Voting
rights and proxies; Meetings and rules regarding committees; Directors,
their appointment and delegations of powers; Nominee directors; Issue of
Debentures and stocks; Audit committee; Managing director, Whole-time
director, Manager, Secretary; Additional directors; Seal; Remuneration
of directors; General meetings; Directors meetings; Borrowing powers;
Dividends and reserves; Accounts and audit; Winding up; Indemnity and
Capitalisation of reserves.

1. Rashmi Aggarwal and Rajinder Kaur, Legal Aspects of Business (Pearson publication, 1st edn.,
2020).
2. Ashbury v. Wal'son, (1885) 30 Ch. D 376 (CA).
3. Re Pcvcril Gold Mines, (1989) 1 Ch 122 (CA).
 Articles of Associntio11 79

3. Registration of Articles of Association

Section 7(~) pro:ides that _at the time of incorporation of a company
there shall be filed ~ 1th the Registrar within whose jurisdiction the registered
office of a company is proposed to be situated, the memorandwn and articles
of the company duly signed by all the subscribers to the memorandum in
the prescribed manner.
Every typ~ 0 : company whether public or private and whether limited
by shares or luruted by guarantee having a share capital or not having a
share capital or an unlimited liability company must register their articles
of association.
Section 5(2) provides that the articles shall also contain such matters, as
may be prescribed. However, nothing prescribed in this sub-section shall be
deemed to prevent a company from including such additional matters in its
articles as may be considered necessary for its management.
The articles of a company shall be in respective forms specified in
Tables, F, G, H, I and J in Schedule I as may be applicable to such company.
[Section 5(6)]. A company may adopt all or any of the regulations contained
in the model articles applicable to such company. [Section 5(7)]
Section 5(8) provides that in case of any company, which is registered
after the commencement of Companies Act 2013, in so far as the registered
articles of such company do not exclude or modify the regulations contained
in the model articles applicable to such company, those regulations shall, so
far as applicable, be the regulations of that company in the same manner
and to the extent as if they were contained in the duly registered articles
of the company.
A company limited by guarantee having a share capital or a company
limited by guarantee not having a share capital or an unlimited company
having a share capital or an unlimited company not having a share capital
might adopt any of the appropriate regulations of Table G, H, I and J
respectively in Schedule I [Section 5(6)].
However nothing in section 5 shall apply to the articles of a company
registered under any previous company law unless amended under this Act
[Section 5(9)].

Entrenchment Provisions
The articles may contain provisions for entrenchment to the effect that
specified provisions of the articles may be altered only if conditions or
procedures that are more restrictive than those applicable in the case of a
special resolution are met or complied with. [Section 5 (3)]
"The Companies Act, 2013 recognizes an interesting concept of
entrenchment. Essentially, the entrenchment provisions allow for certain
 80 Company u1w

_ in the arti cle s to be am end ed upo n satisfaction of cer tain conditions or

dau~es scribed
tion s (su ch as obt ain ing a 100 % consent) gre ate r tha n those pre
res tric ers
a pro tec tion to the min ori ty sharehold
und ~r the Act. This pro vis ion acts as er
est me nt com mu nit y. This sha ll empow
and 1s of specific inte res t to the inv ty to
rig hts and pro vid e gre ate r certain
~e enf orc em ent of any pre -ag ree d
es."
inv est ors, especially in join t ven tur
err ed to in section 5(3) sha ll be made
Th e pro vis ion s for ent ren chm ent ref
on for ma tion of a com pan y, or by an am end me nt ~ the articles agreed
eith er and
by all the me mb ers of the com pan y in the case of a pri vat e _company
to
of a pub lic com pan y. [Section 5 (4)]
by a special resolution in the case
s for ent ren chm ent , wh eth er made
Wh ere the articles con tain pro vis ion the
the com pan y sha ll giv e not ice to
on for ma tion or by am end me nt, ibed.
for m and ma nne r as ma y be prescr
Reg istr ar of suc h pro vis ion s in suc h
[Section 5 (5) J
ation
4. Alteration of Articles of Associ
to alte r its articles of association.
A com pan y has a sta tuto ry rig ht to the
But the pow er to alte r is subject
to the pro vis ion s of the Ac t and
to
dum . As per Sec tion 14 (1):Subject
con diti ons contained in the me mo ran ,
diti ons con tain ed in its me mo ran dum
the provisions of this Ac t and the con
olu tion , alte r its arti cle s inc lud ing
if any, a com pan y ma y, by a special res
ver sio n of -
alterations hav ing the effect of con
pan y; or
(a) a pri vat e com pan y into a public com
(b) a pub lic com pan y into a privat
e com pan y:
tha t wh ere a com pan y bei ng a
First proviso of the sec tion provides ger
suc h a ma nne r tha t the y no lon
private com pan y alters its articles in lud ed
ion s wh ich are req uir ed to be inc
include the restrictions and lim itat ll, as
y und er this Ac t, the com pan y sha
in the articles of a privat e com pan
se to be a private com pan y:
from the date of suc h alte rati on, cea
1fprovi ded fu rth er tha t any alte rati on hav ing
the eff ect of con ver sio n
pan y into a privat e com pan y sha ll no t be val id unl ess it is
of a public com de
Go ver nm ent on an app lica tio n ma
~pproved by an ord er of the Cen tral
be pre scr ibe d:
m such form and ma nner as ma y
pro vid ed tha t any alte rat ion hav ing
Third provis o of. the sec tion f~t her shall
effe ct of con ver s10 n of a pub lic com pan y int o a pri vat e com pan y
the
effe ct exc ept wit h the app rov al of the Tri bun al wh ich sha ll ma ke
not tak e
such ord er as it may deem fit.
22 of 2019 for second pro viso · ( · f 2 before
1. Subs. By Actstoo d as und : r: w.r.e. · -ll-2018). Seco nd proviso,
subs titution,
• th ff
"provided further that any alterationffh avm g e e . ect of conversion of a pub lic company
into a priva te company shall not t k th the app rova l of the Tribunal which
l mak e such orde r as it may dee :~;, ,, ect except wi
shal
 /11 IId,·.~ of 11.~~otl//tlmi HI

J,'Vl'l " · ,il1t•r,1t h:n of llw ,1rllrlt•s 1111dl r th is 1-1 <.•clion nnd a copy of lhc order
1

111 the 'll, t•n tr,tl,

l,OVl'l'llnll:11t1 npprov ing the illll•rnlio n ns per section 14(1)
:-!i,dl Ill' f rl.t•d. with tl~L' Rq~1~lr<I!', logl'lht•1· with n printed copy of the altered
,1rtidl's, wit hin •1 Pl'nod of fifll'L'n d,1ys in such mnnner as may be prescribed,
wlw !-h,dl rcgistt•r tlw s,mw. [Sl•ction 14 (2)]
;\ 11)' ,1ltt•r,1l io11 of the nrticlcs registered under section 14(2) shall, subject
tn thl' provisio ns o f this Act, be vnlid as if it were origina lly in the articles
.
/Sl'clillll 14(:1) 1
I lowevl' r, in spit'c of the power to alter its articles, a compan y can exercis e
this powl'r subject only to certain limitations. These are:
(i) The altcrntion mus t not exceed the powers given by the
memor andum . In the event of conflict between the memor andum
nnd the nrticles, it is the memor andum that will prevail.
(ii) The alteration must not be inconsistent w ith any provisions of the
Compa nies Act or any other statute. Similarly, where a resolut ion
wns passed expelling a member and authorising the directo r to
register the transfer of his shares withou t an instrum ent of transfer,
the resolution was held to be invalid as being against the provisi ons
of the Act.2
(iii) The Articles must not include anythin g which is illegal or oppose d
to public policy.
(iv) The alteration must be bona fide for the benefit of the compa ny as
a whole.
(v) The alteration must not constitute a fraud on the minori ty by a
majority. If the alteration is not for the benefit of the compa ny
as a whole, but for majority of shareho lders, then the alteration
would be bad. In other words, an alterati on to the articles must not
discriminate betwee n the majority shareho lders and the minori ty
3
shareholders so as to give the former an advant age over the latter.
(vi) Articles cannot be altered so as to compel an existing membe r to
take or subscribe for more shares or in any way increas e his liability
to contribute to the share capital, unless he gives his consen t in
writing.
(vii) By effecting alterati on in its articles, a compa ny cannot defeat escape
from its contractual obligation with any person . The compa ny will
always be liable in such a case.
--- --
]. Subs. By Act 22 of 2019, sec (ii), for "Tribunal" (w,r.e.f. 2·11-2018)
2. Madhava Ramachandra Karnath v. Canara Banking Corporation [1941] 11 Com Cases 78
(Mad)
3- All India Railway Mens Benefit Fund v. Jamadar Baheshwamath Ball (194.5) 15 Com Cases 14l
(Nag.)
 H2 Cu11111t1111j I 11w
unJ er !,e<.lu,n 8
~•<.t1<>n H(4) (1) prov1Jt.•i, thc1t a com pJn y n•gbtercd
1 t' . com pJn u.•4, wit h ch,trit,1ble objt'Cl!> shall not
aJtcr the provi..,ions of it\
h the previous approvt1l of the Centrc11
".'l' mo r,m dum or articll''> except wit
Cov<•rnmt•nt.

Effoct of Alt('red Articles

lion bin d., mt.• mbc •rs in the s.im e way a5 origin.ii drticle5. Thl'
AII Pr.l
cle s 5ha ll bin J the com pan y and the members to the sam e extt.•nt
J lll'n.'d arti
y had bec :n &ign ed by the com pan y and by each member, means thl'
ti., 1( tht• stand altered
clt. •c; a4, orig ina lly fram ed, or ac; they m.1y from time to time
Jrti
Act. There is clear pow er to alter the
art• valid um kr the provi-;ions of the
mbers jus t in the same way as did the
articles, and a~ altered, they bind me
onginal article-,. 1
ctio n Bet wee n Me mo ran dum of Association and Articles of
5. Di! >tin
Association
Th e main points of dis tinction bet
ween the me mo ran dum and art icle!>
ilrt ' given below :
mes
(1) Memorandum of associa tion
is the cha rte r of the com pan y and dcf
for which the com pan y is grante
d
the f undam cnt al conditions and objects
are the ru les and regulations framed
incorporation . Articles of association
of the com pan y.
'<> govl•rn this interna l management
not be easily altered . They can only
(2) Cla u<,er, of the memoran dum can
de prescribed by the Act. In some
of
be altered in accord ,mce with lhe mo or
mir,sion of the Central Government
the.· C<l'il''>, alterdt ion req uires the pcr to
ac,sociation, me mb ers hav e a right
the Co urt . Jn the cc1<,e of articles of
. Generally the re b no need to obtain
.illc.·r th e art,c.ll·'> by a spt.•cic1 l resolution
tra l Go ver nm ent for alteration of the
the pn m ic,<,1on of the Co urt or the Cen
art1c I<•<,
includ e any clause con tra ry to the
'1J .\1t'morc1n<lum of ac,sociation cc1nnot
.,1<m c, of the Com pc1 nic s Ac t. The articles of association are subsidiary
prc,v1
me moran dum of association.
both to the (omp,mi('r, Act and the
y
(4) 1 lw m~•mc,r,rndum gl•nc.·ral.ly def
ines the relaticm bet ween the com pan
the
regulate the rela tionshi p bet we en
cJ nd th e.· <Jut .,1<.fn..,, while the c1rt1cll•s
en the me mb ers int er se.
compan y anJ 1h mt.·mb(•rr, and betwe
1 Ac t.., <lon e.• by a com pan y bc.·y ond the ~o pe of the me mo ran dum are
( J
11•/ y \; <,iJ ,md ultr c1 \- •
1rc. r, and can not be ratified eve n by una nim ous
c1h.,,,1u icl ~
the act s of the dir ect ors bey ond the art
\- "'" ,,f cilI thl' <,/ia n:h <Jldl'f.,. But
, an bt• rc1 ttfu d by the• c,hc:m •holde r<,.

I ',,1,,,., 1,
 1\1/11 In 11/ ;\ "" /11 /1u1/
6. Binding Fore<• of MrmorJndum ,md Artid,•,
1h 10 0 0111 ,md ,1 rt,c /,~,
Pl'_r t""ctifmlt , J f C J>.1nit •-, A< I, 2011 IJ11• rru•rw,r,111d111n ·r
,
\\' Ill'I\ rq;1~ t'rt'l , ,mu t1it• com 1, 111 Y 1111 <I ll
b . ' 'i riwrnh,·r'I tu the• -i,11111• c•,-.: l1•11t ,,., 1
c,hi,,c•rv,• and
tlwy hJVl' l't.'n s ignl•d by llw romp.my ,111d by 1•,11 h nu·m bn to
lw bmu~d by c11l tlw provi-,ion-, of tlw ITll'llH>r,llld um ,ind u( the
artic Ir•-.. Aho,
um
,,II 1m~llll'S pay,,bh• by c1ny nwmbl•r to the· company unJer the: mem or,md
or ,1rlir~l'S sh,,_ll bt.• •1 dl•l>t <lut• from him to tlw company.
The m<•morandum
,rnJ ,1rt1d t•s bind:
(,1) Tl1t• Mt'mbers to the Company
mcm bef',
Tlw mem orand um and articles constitute a contract binding the
comp any. I:ach
of till' comp any. The members, as members, arc bound to the
orand um and
ml.'mbrr must, therefore, observe the provisions of the mem
between each
articles. "It is quite true that the articles constitute a contract
member and the comp any".I
Case Example
Co.
In a decid ed case name d Boreland's Trustee v. Steel Brother and
bank ruptc y
Ltd.,2 the articles of a company contained a clause that on the
a price fixed
of a member his shares would be sold to other persons and at
His truste e
by the directors. B, a shareholder was adjudicated bank ntpt.
sions and
in bank ruptc y claimed that he was not bound by these provi
held that
should be at liberty to seIJ the shares at their true value. It was
ased by B
the trustee was boun d by the articles, as the shares were purch
in terms of the articles.

(b) The Comp any to the Members

mem bers
Since the articles constitute a contract binding the comp any to its
again st the
in their capacity as members, a member can bring an action
For exam ple,
company for infringement by it of the memorandum or articles.
an individual mem ber can sue the comp any for
an injunction restra ining
is boun d to
it from impr oper paym ent of dividend. Further, the comp any
3
bers, e.g. the
individual mem bers in respect of their ordin ary rights as mem
to them , or to
right to receive share certificate in respect of shares aIJotted
h of articles
receive notice of general meeting, etc. Normally, action for breac
mem bers.
against the company can be broug ht only by a majority of the
(c) The Members Inter Se
the articl es
As between the members inter se each mem ber is boun d by
and articl es
to the other members but that does not mean the mem orand um

1. Welton v. Saffery, 1897 AC 299,315 (HL)

2. (1901) l Ch. 279
3. Hoolc v. Great Western Railway (1867) 3 Ch. D. 262
 '- h '.llt' .,n l ' \J 'l°l''' l'\'lllr,Kl .rnuing till' mL't11bL•rs of the company. Thus, a
nwml• n ('f ., t'\'llll'·" "' h,b llll right tn bring n suit lo enforce the articles
m '"' '-''''" n.mw .,~,,m:-t ,my othl'r nll'mber or members: It is the company 1

.,ll,,w ,, hid, c.m ~\ll' tlw offL•ndL•r so ,15 to protect the aggrieved membe r. It is 1
111 thb ,, .,,. th,\t tlw rights of members inter sc are regulat ed. A shareholder
m.n-. I"'" t.'\ t.'r, ~UL' in his own name to restrain another, or others from doing
tr,llldul'-·nt t.'r ultr., ,·ires acts.

(,/> TI,t' Co m11,111y to Outsider

Tht.• lL•rm "outsid er" signifies a person who is not a membe r of the
('Omp.m y t.•,·cn if he is a director of or solicitor to the company. Even in
rt.'h.ud t~ members, the articles bind the compan y to them in their capacity
.is mt•mbc rs.
.-\s bchvee n outsiders and the company, neither the memor andum nor the
.:irticll's would give any contractual rights to outside rs against the company
0r its membe rs even though the names of outside rs are mentio
ned in those
docum ents in connection with the arrange ments that the compan y might
h.:i\'e contemplated for carrying on its business. The articles do not confer
.:iny contrac tual rights even upon a membe r in a capacity other than that of
a member. To succeed, the party suing must prove a contrac t outside and
1
indepe ndent of the art:ides.

7. Doctrine of Constructive Notice

After registration, Memor andum and Articles becomes public documents
and can be inspect ed by anyone on payme nt of nomina l fee. Hence, every
person who contem plates enterin g into a contrac t with a compa ny has the
means of ascertairung and is conseq uently presum ed to know, not only the
exact powers of the compan y but also the extent to which these powers
have been dcJegated to the directors, and of any limitati ons placed upon
the exercis e of these powers . In other words, "every person dealing with
the compan y is deemed to have a "constr uctive notice" of the content s of its
memor andum and articles. In fact, he is regarde d not only as having read
those docum ents but also as having unders tood them accord ing to their
proper meanin g."2
"Conse quently, if a person enters into a contrac t which is beyond the
powers of the compan y, as defined in the memor andum , or outside the limits
set on the authori ty of the directors, he cannot, as a genera l rule, acquire
3
any rights under the contrac t against the compan y. "

1. [ley v. Pm,i tivc Life Insurance Co., (1876) 1 E.X.D. 88

2. Griffith v. P;iget, (1877) Ch. D. 517
3. Mohony v. Enst I lolyfrod Mining Co., (1875) L.R. 7 H.L. 869
 Articles of Association 85

Case Example

Kotla Venkataswamy v. Rammurthyl, In this case, the articles required

that all documents should be signed by the managing director, secretary
and the working director on behalf of the company. A deed of mortgage
was executed by ~e secretary and the working director only and the Court
held that no claim would lie under such a deed. The Court said that
the mortgagee should have consulted the articles before the deed was
executed. Therefore, even though the mortgagee may have acted in good
faith and the money borrowed applied for the purpose of the company,
the mortgage was nevertheless invalid.

8. Doctrine of Indoor Management

The doctrine of 'constructive notice" seeks to protect the company against
the outsiders; the foremost of indoor management operates to protect the
outsiders against the company.2
Case Example

c: In Royal British Bank v. Turquand1, the directors of a banking

~ company were authorised by the articles to borrow on bonds such sums
of money as should from time to time, by resolution of the company in
general meeting, be authorised to borrow. The directors gave a bond to
Turquand without the authority of any such resolution. It was held that
Turquand could sue the company on the strength of the bond, as he was
entitled to assume that the necessary resolution had been passed. Lord
Hatherly observed: "Outsiders are bound to know the external position of
the company, but are not bound to know its indoor management".
There are certain exceptions to the rule of indoor management:
1. The doctrine does not protect any person who has genuine or even
an implied notice of the absence of authority of the person acting
on behalf of the company. Thus, a person cannot seek the protection
under the doctrine if he is fully aware that the Directors do not have
the authority to make the contract but still enters into the same.
2. The doctrine of indoor management does not encompass to transactions
comprising forgery or which are othetMM! 'Void or illegal ab initio.
The only clear illustration is R.u!NtP.• igall Consolidatetfl the
plantiff was the transfree of a ed under the seal of
the defendant comp~. the company's
1. AIR 1934 Mad 579
2. Rashmi Aggarwal
2020).
 Ccm111,111y L1w

!-t.'CTd,,ry , whn h,1J affixed the seal of the company and forged the
:-i~..,,.,tun'S of hvo directors.
"Thl' p!Jintiff contended that whether the signatures were genuine
or forgl'd was a part of the internal management and, therefore, the
comp.my should be stopped from denying genuiness of the document.
But it ,-vas held that the rule has never been extended to cover such
a complete forgery" .1
3. The doctrine will not extend protection to the people who act
negligently or without verifying the authorities of the officers dealing
with the same.
-L The rule has no application where the party affected by an irregularity
had actually notice of it. " thus where a transfer of shares was approved
by two directors, one of whom within the knowledge of the transferor
was disqualified by reason of being the transfree himself and the other
2
was never validly appointed, the transfer was held to be ineffective"
5. This Doctrine is also not applicable where a pre-condition is required
to be fulfilled before company itself can exercise a particula r power.
In other words, the act done is not merely ultra vires the directors/
3
officers but ultra vires the company itself.
6. Again, the rule cannot be invoked in favour of a person who did
not consult the memorandum and articles and thus did not rely on
them. In a decided case "where Twas a director in the company. He,
purporting to act on behalf of the company, entered into a contract
with the Rama Corporation and took a cheque from the latter. The
articles of the company did provide that the directors could delegate
their powers to one of them. But Rama Corporation people had never
read the articles. Later, it was found that the directors of the company
did not delegate their powers to T. The Plaintiff relied on the rule of
indoor management. Held, they could not because they even did not
know that power could be delegated."4
Sec. 6 of the Companies Act, 2013 gives overriding force and effect to the
provisions of the Act, notwithstanding anything to the contrary contained
in the memora ndum or articles of a compan y or in any agreeme nt executed
by it or for that matter in any resolution of the compan y in general meeting
or of its board of Directors. A provision contained in the memora ndum,
articles, agreeme nt or resolution to the extent to which it is repugna nt to
the provisions of the Act, will be regarded as void. s

1. Avtar Singh, Company Law (Eastern Book Company, 17th edn., 2019).
2. Devi Ditta Mal v. Standard Bank of India, AIR 1927 Lah 797 (1).
3. Pacific Coast Coal Mines v. Arbuthnot (1917) AC 607.
4. Rama Corporation v. Proved Tin & General Investment Co. (1952) lAll. ER 554
5. Supra 18
 "' \I nt "' .u-, :
llw .ut11 k, ,,1 ., u11111• •\ll\ ,ll l ' Ilei [ I I 111 ,11\' 111 ,111.I .. ,, I ,,,., I IC' ti II •
""
1 11 111
•' ""'" •11111 1\ ,ll\d ,\I\\' , l.111 •,1• l11 tlu· /\1 tic 11•-. 1~11111g lw y11111 l
1
,~'., 1''' ' · hh1tn
th· nwm,,1.Hhlllm '' ill l•,• ultr ,1 , i11 ·... 1\111 till' ,,rt 11 11•-; , 11 , , c,nl y 11111·111,il
n·.:u\.1l. 11" ' ' ' ' ,·r '' IH, h llw llll'lllb1·r~ t1I lhl' 1 nmp,11 1y li,1\'C' full , 1111l rol 41ml
c1.\\ .,l rcr tlwrn ,h "·, rdm~ h1 wh,,t tlw\ thinl,.. ht. l )nly 1 ,lfl' h,,., lo,,,. t. 1kc •11 lo
1

~,· th.it n·~ul,,lll ' 11 ' J'l'l 1\·idl·d fnr in till' .utidt•s cln 1111I ,·xn•c•d the p11w1·r·• of
th· "·,•mr•'"' ·"' l,11 d dnwn by ih nll'mnr,rndum . A comp.my h.1~ .i ~1.1lutnry
,-~ht h 1 ,,lh·r ib ,lrtidt•, of ,1s~od,1tion. But the pmvt•r lo ,1l kr i:-. ~ubjt·t l lo llw
rn•, '' "'11' ,,t tlw Ad Jnd to the conditions conlc1ined in lht• ml'mor,rnJ11m .
1!w \ rti,·k , in ,l comp.m y c,m be aller,•d and no cl,rnsc c,m bt• irn:luJl'J
1n thl' Arttdl·~ th.1t it is not ,llterablc. Persons who become mcmbt•rs of a
,:,•mr,rny h,n-e no right to assume th.1t the Articles will always rl'mJin in J
fJrti"·ul,1r form .
l' ' l'ry dl•,1ling with the company is deemed to have a "constructive
pl'r.-(H\
n,11l(e.. l,f the contents of its memorandum and articles. In fact, he is regarded
1 nl1t l,nly as h.t\'ing read those documents but also as having unders tood
thl•m J(cording tu their proper meaning. While the doctrine of 'constructive
n,ltio~" St.>cks to protect the company against the outsiders, the principal of
i.nJlx,r m ..magcment operates to protect the outsiders against the company.
QUESTIONS
J. Tirt Articles of Association (AoA) Ca11 Be Considered tlte
•constitution of a Company." It Outlines the Rules and Reg11latio11s
11r•t Stipulate a Compa11y's Internal Affairs. Discuss Briefly.
The articles of association (AoA) can be considered the "constitution
of I company." It outlines the rules and regulations that stipulate a
company's internal affairs. Articles of Association which contains the
rule and regulations relating to the internal management of a company.
II ii a document that defines the purpose of a company and specifies the
llgUlations for its operations. The document outlines how tasks should
bt Wllplished within an organization, including the preparation and
• • & JCtcnt of financial records, and the process of director appointmt•nts.
1111 llldll of uaociation will usually specify the way a comp,my issues
e d • .lllbtbuta dividends, and performs financial records. The document
If I II 11 • ping the reader information about the methods a company
1 W'l'Mlt • ltl dally, monthly, and yearly goals.
,,_nlng and Signijica,rce of tire Doctrine of "Indoor
with Rtftrmce to Decided Case "Royal Brit-isl,

against the company. It protects innocent

with the Company and are not in a position
 88 Compnny UIW
plie d with . mem oran dum or
to kno w if som e internal rule has not been com
othe r doc ume nts of constitution.
a ban king company
In Royal British Bank v. Turquand, the directors of
bon ds such. sum s of mon ey as
wer e auth oris ed by the articles to borr ow on
com pan y rn gene ral. meeting,
shou ld from time to time, by resolution of the
d to Tur qua nd with out the
be auth oris ed to borrow. The directors gav e a bon
that Tur qua nd coul d sue the
auth orit y of any such resolution. It was held
enti tled to assu me that the
com pan y on the stre ngth of the bon d, as he was
herl y obse rved : "Outsiders
necessary resolution had been pass ed. Lord Hat
com pan y, but are not bound
are bou nd to kno w the external position of the
to kno w its indo or man agem ent".
e, Yet it is Subject to a
3. ✓1The Power of Altering the Articles is Wid
Large Number of Limitations". Explain.
the prov isio ns for the
Section 14 of the Companies Act, 2013 cont ains
com pan y. A com pan y may
alteration of the Articles of Association of a
ial reso lutio n, with a 75%
modify, delete or add any article by a spec
effect to any alte ratio n of
majority, has to be pass ed by the Board to give
ting can be called with a
the articles. Then an Extraordinary General Mee
of the mem bers enti tled to
shorter notice with the consent of at leas t 95%
mem bers and aud itor of
vote. The notice should be sent to all the dire ctor s,
crib ed quo rum , pres ence of
the company. The meeting shou ld hav e the pres
with the pass ing of a special
audi tor (leave of absence otherwise), con duc ted
resolution for the alteration of the AOA.
sho uld con form to the
The ame ndm ent or the alter atio n to AO A
ple, the alte ratio n shou ld
provisions of the Com panies Act, 2013. For exam
of the com pan y. The alteration
' not modify the membership or shar eho ldin g
ber or shar eho lder of the
should not increase or alte r the liability of any mem
not viol ate the mem oran dum
company. The alteration of the articles sho uld
the alte ratio n has the effect of
of association of the com pan y. In a case whe re
pan y or a pub lic com pan y
~onvert~ g a private com pany into a pub lic com
ied out with out the app rova l
mto a private company, the sam e cann ot be carr
of Ass ocia tion com es into
of the Central Governm ent. he ame nde d Articles
n. The alte red articles will
effect on the date of passing of the boa rd reso lutio
alte ratio n is effective only
have the sam e effect as_ the ori ~al articles. The
ies Act and Mem oran dum
~hen the proc edu re laid dow n rn the Com pan
the cop ies of the Arti cles of
is foll?~ed. The chan ges shall be mad e in all
Asso c1at10n.

4. Distinguish Articles From Memorandum.

doc ume nt so as to ·ve
_Articles . shou ld be cons true d as a busi ness k gibl
whi ch will
busmess efficacy pref erence to. a con stru ctio n pro ve unw or a e.
Where the con duc t f th e part ies reveals that ther e has bee n som e prac tice in
o
 Articles of Association 89

vogue for several years. which was accepted by everyone concerned witho~t
any challenge or .qu:sti~n, then that practice in the course of long years m
itself becomes an indication that the rules or articles which are framed by w ay
of internal management were understood in that sense. The memorandum
rnust like any other document be construed according to accepted principles
applicabl~ to. the interpr~tation of all legal documents. No rigid canon of
construction 1s to be applied to such a document. Like any other docum~t,
it must be read fairly and its import derived from a reasonable interpretation
of the language which it employs.