Fundamental Charters of the Company-

Memorandum & Articles of Association

Dr. Aparajita Bhatt

NLU Delhi
• Memorandum of Association- Sec 2(56) MoA of a Co.
as originally framed or as altered from time to time in
pursuance of any previous Company law or the present
Act.
• Lays down the conditions for incorporation
• It identifies the possible scope of its operations beyond
which it cannot go. If anything is done beyond these
powers, that’ll be ultra vires the company & void.
• It defines as well as confines the powers of the co.
• Articles of Association – Sec 2(5) Articles means the
articles of association of a company as originally
framed or as altered from time to time or applied in
pursuance of any previous company law or of this Act;
 MoA
THE NAME CLAUSE- Sec 4 (1) (a), Rule 8 of the Companies (Incorporation)
Rules 2014, Sec 12
• Undesirable names-
 If it attracts the provisions of sec 3 Emblem & Names (Prevention &
Improper Use) Act 1950
 If it includes the name of a registered trademark
 If it includes any words/word which are offensive to any section of the
people.
• Advanced Registration of Name- Sec 4(4)
• Publication of name- Sec 12
• Change of Name- Sec 13(2,3)- By passing SR and approval of Central Govt.
• Society of Motor Manufacturers & Traders Ltd v. Motor Manufacturers &
Traders Mutual Insurance Co. Ltd (1925)
• Dermatine Co. Ltd v. Ashworth (1905)
• Hendon v. Adelman
• Malhati Tea Syndicate Ltd. V. Revenue Officer (1973)
• Rule 29(1) Companies Incorporation Rules
2014- Name change is prohibited in case of
companies which-
• failed to file the annual returns or
whose financial statements are
pending for filing with the RoC
• has not paid or repaid matured
deposits or debentures or interest
thereon
REGISTERED OFFICE CLAUSE- Sec 4(1)(b)
• Every Co. must have a registered office which establishes its domicile.
• Verification of the Registered Office- Sec 12(2) and Rule 25 of the
Incorporation Rules 2014
• Change of Registered Office- Sec 13(4-6)
 Change from one state to another- By passing a SR & sanction of the
central govt.
 Change within the same state from one city to another- By passing a
SR
 New Certificate of incorporation issued on the change of registered
office. Sec 13(7)
 The Registrar’s certificate is a conclusive evidence of the fact of
alteration and of compliance with requirements. (Sec 12)
Orissa Paper Mills Ltd v. State (1957) Orissa – Declined confirmation
Orissa Chemicals & Distilleries (P) Ltd., re, (1961) Ori- Declined
confirmation
Mackinnon Mackenzie & Co. re (1967) Cal- allowed the transfer of
registered office.
THE OBJECT CLAUSE-Sec 4(1)(c)
• The MoA shall state the objects for which the
company is proposed to be incorporated and any
matter considered necessary in furtherance thereof
• A company cannot do anything beyond or outside its
objects & any act done beyond will be ultravires &
void & cannot be ratified even by the assent of the
whole body of shareholders.
• The objects must not be illegal, immoral or opposed
to public policy or in contravention of the Act.
• The statement of objects acts like a contract between
the company and its members.
 Why Object clause?
• For Shareholders
• For Creditors
• In Public Interest
 Doctrine of Ultra Vires
• The powers of the co. are essentially derived from the statute
constituting it & the MoA.
• A Co. may do an act which is a) necessary for, or b) incidental to the
attainment of its objects, or c) which is otherwise authorised by the
Act.
Ashbury Rly Carriage & Iron Co. v. Riche (1875)
Attorney General v. Great Eastern Rly Co.(1880)
A. Lakshmanaswami Mudaliar v. LIC (1963)-
 Co’s funds cannot be diverted to any kind of charity even if there is
an unrestricted power to that effect in the MoA.
 Objects must be distinguished from powers. Powers do not become
independent objects by themselves
Lee, Behrans & Co. Ltd, re (1932)
Hutton v. West Cork Rly Co, (1883)
German Date Coffee Co, re (1882)
 Case Law on Ultra Vires
• Tirupati Techno Projects Limited v Modi Spinning &
Weaving Mills Company Limited and others Company Law
Board, New Delhi Bench Case No : C. P. No. 12/111/2007 &
CP No. 17/111/2008
• In re : Shivshakti Builders and Financial Company
Limited Patna High Court, 2010. [2010] 158 Comp Cas 237
• Effects of Ultra Vires Transactions-
• Void ab initio
• Injunction
• Personal liability of director- Jehangir R Modi v.
Shamji Ladha (1866)
• Breach of warranty of authority
• Acquisition of property that is ultra vires- Canada
Trust Co. v. Lloyd (1968)
• Ultra Vires Contracts??- Beauforte (Jon) London
Ltd, re (1953), Port Canning & Land Investment Co.
re (1871) Bengal LR 583
• Ultra vires Torts ??
 Alteration of Objects
• By a company which has not issued a prospectus- By passing a SR
• By a company which has issued a prospectus – Sec 13(8) along with Rule 32 of
the Incorporation Rules 2014-
 A company, which has raised money from public through prospectus and still
has any unutilised amount out of the money so raised, shall not change its
objects for which it raised the money through prospectus unless a special
resolution is passed and—

(i) the details, in respect of such resolution shall be published in the

newspapers (one in English and one in vernacular language) and shall also
be placed on the website of the company, if any, indicating therein the
justification for such change;

(ii) the dissenting shareholders shall be given an opportunity to exit by the

promoters and shareholders having control in accordance with regulations to be
specified by the SEBI.
The Liability Clause- Sec 4(1)(d)
• It states the liability of members of the company, whether
limited or unlimited, and also state,—
(i) in the case of a company limited by shares, that liability of its
members is limited to the amount unpaid, if any, on the shares held
by them; and
(ii) in the case of a company limited by guarantee, the amount up
to which each member undertakes to contribute—
(A) to the assets of the company in the event of its being wound-up
while he is a member or within one year after he ceases to be a
member, for payment of the debts and liabilities of the company or
of such debts and liabilities as may have been contracted before he
ceases to be a member, as the case may be; and
(B) to the costs, charges and expenses of winding-up and for
adjustment of the rights of the contributories among themselves.
 "unlimited company" means a company not
having any limit on the liability of its members
– Sec 2(92)
 In case of an unlimited liability company, the
liability may be made limited or reduced by re-
registration of the company- Sec 18.
 This alteration will not affect any debts,
liabilities, obligations, contracts entered into
by or with the company.
• The Capital Clause- Sec 4(1)(e)
i) It must indicate the amount of capital with which the co.
is registered- Registered/ Auhtorised/Nominal capital.

ii) In case of a co. having a share capital, the memorandum

must state the amt. of share capital with which the co. is to be
registered.

iii) It lays down the division of shares of a fixed amt. & the no.
of shares which the subscribers agree to subscribe which shall
not be less than one share.

iv) Share capital- a) Equity share b) Preference share

 Alteration of Share capital clause- Sec 61
(1) A limited company having a share capital may, if
so authorised by its articles, alter its
memorandum in its general meeting to—

(a) increase its authorised share capital by such

amount as it thinks expedient;

(b) consolidate and divide all or any of its share

capital into shares of a larger amount than its
existing shares:
(c) convert all or any of its fully paid-up shares into stock, and
reconvert that stock into fully paid-up shares of any
denomination;
(d) sub-divide its shares, or any of them, into shares of smaller
amount than is fixed by the memorandum, so, however, that in
the sub-division the proportion between the amount paid and
the amount, if any, unpaid on each reduced share shall be the
same as it was in the case of the share from which the reduced
share is derived;
(e) cancel shares which, at the date of the passing of the
resolution in that behalf, have not been taken or agreed to be
taken by any person, and diminish the amount of its share
capital by the amount of the shares so cancelled.

• SUBSCRIPTION CLAUSE
 ARTICLES OF ASSOCIATION- Sec 5
• Sec 2(5) Articles means the articles of
association of a company as originally framed
or as altered from time to time or applied in
pursuance of any previous company law or of
this Act.
• Internal regulations/ bye-laws/regulations for
the management of the co.
• Contains any additional matters that may be
requisite for the needs of the co.
• Defines the powers of its officers.
Entrenchment Provisions-Sec 5(3) (4) (5)
• The articles may contain provisions for entrenchment to
the effect that specified provisions of the articles may be
altered only if conditions or procedures as that are more
restrictive than those applicable in the case of a special
resolution, are met or complied with.
• The provisions for entrenchment shall only be made
either on formation of a company, or by an amendment
in the articles agreed to by all the members of the
company in the case of a private company and by a
special resolution in the case of a public company.
• Where the articles contain provisions for entrenchment,
the company shall give notice to the Registrar of such
provisions.
• 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.
• A company may adopt all or any of the
regulations contained in the model articles
applicable to such company.
Naresh Chandra Sanyal v. Calcutta Stock
Exchange Association Ltd 1971 SC
• Subject to the Companies Act, any stipulation
as to the relationship between co. & its
members & between members interse.
 AoA must not conflict with the provisions of
the Act. Eg Sec 272, Sec 123
 AoA must not conflict with the provisions of
any other law.
 AoA must not conflict with the MoA.
 Alteration of Articles- Sec 14
(1) Subject to the provisions of this Act and the
conditions contained in its memorandum, if any, a
company may, by a special resolution, alter its articles
including alterations having the effect of conversion of—
(a) a private company into a public company; or
(b) a public company into a private company:
Provided that where a company being a private company
alters its articles in such a manner that they no longer
include the restrictions and limitations which are required
to be included in the articles of a private company under
this Act, the company shall, as from the date of such
alteration, cease to be a private company:
• Provided further that any alteration having the effect of
conversion of a public company into a private company
shall not be valid unless it is approved by an order of
the Central Government on an application made in such
form and manner as may be prescribed:
• (2) Every alteration of the articles under this section and
a copy of the order of the Central
Government approving the alteration as per sub-section
(1) shall be filed with the Registrar, together with a
printed copy of the altered articles, within a period of
fifteen days, who shall register the same.
• (3) Any alteration of the articles registered under sub-
section (2) shall, subject to the provisions of this Act, be
valid as if it were originally in the articles.
 Limitations on power to alter the articles
• Must not exceed the powers given by MoA or in conflict with
MoA.
• Must not be inconsistent with the Act.
• Must not be inconsistent with any alteration made by the
Tribunal.
• Must not contain anything which is illegal or opposed to public
policy or unlawful.
• Must be bonafide for the company as a whole.
• Must not constitute a fraud on the minority by a majority.
• Conversion of a public co. into a private co. cannot be made
without the approval of the tribunal.
• A company can’t justify breach of contract with third party or
avoid contractual liability by altering Articles.
• Amended regulation in the Articles can’t operate retrospectively.
• Relationship between MoA and AoA
• Binding force of MoA and AoA- Sec 10-
 Subject to the provisions of this Act, the memorandum
and articles shall, when registered, bind the company and
the members to the same extent as if they respectively
had been signed by the company and by each member,
and contained covenants on its and his part to observe all
the provisions of the memorandum and of the articles.
 All monies payable by any member to the company under
the memorandum or articles shall be a debt due from him
to the company.
 Articles do not have the force of a statute!
 Hill Properties Ltd. v. Union Bank of India (2014)SC
 VB Rangaraj v. VB Gopalkrishnan (1992) SC
I. Binding on members in their relation to Co.
Borland’s Trustee v. Steel Bros & Co. Ltd. (1901)
II. Binding on company in relation to its members-
Wood v. Odessa Waterworks Co (1889)
III. But not binding in relation to outsiders-
Eley v. Positive Govt. Security Life Assurance Co.
(1876)
IV. How far binding between members?
Welton v. Saffery (1897)
World Phone India (P)Ltd. V. WPI Group Inc (Del) 2013
Rayfield v. Hand (1906)
 Doctrine of Constructive Notice
• MoA and AoA, upon registration becomes public
documents.- sec 399
• On payment of a prescribed fee, the co. shall send a copy of
MoA & AoA, within seven days of request- Sec 17 along
with Rule 34 of the Company (Incorporation)Rules 2014
• Every person dealing with the company is –
 presumed to have read the documents &
 understood them in their true perspective.
• Even if the party dealing with the co. does not have actual
notice of the content of these documents, it is presumed
that he has an implied (constructive) notice.
• This doctrine seeks to protect co. against the outsiders.
• Kotla Venkataswamy v. Chinta Ramamurthy (1934)

• Rama Corporation v. Proved Tin and General

Investment Co. (1952)- the plaintiffs contracted with
the defendant co and gave a cheque under the
contract. The director could have been authorized
but in fact, was not. The plaintiffs had not read the
articles. The director misappropriated the cheques
and the plaintiff sued. Held, director not liable as it
was outside his authority.
 Doctrine of Indoor Management
It seeks to protect the outsiders against the company.
• Royal British Bank v. Turquand (1856)
Exceptions to the doctrine-
 Where the outsider had knowledge of irregularity
 Suspicion of irregularity/ Negligence- . Anand Bihari Lal v. Dinshaw & Co.
Ltd
 No Knowledge of articles
 Forgery- Ruben v. Great Fingal Consolidated (1906); South London
Greyhound Racecourse Ltd. V. Wake (1931); Official Liquidator v. Commr of
Police (1968) Mad
 Acts outside apparent authority- Anand Bihari Lal v. Dinshaw & Co. Ltd
 Representation through articles- Delegation Clause Lakshmi Ratan Cotton
Mills Co. Ltd v. JK Jute Mills co Ltd., Houghton & Co v. Nothard, Love &
Wills Ltd (1927)
• Negligence
• Oppression
• Acts Outside apparent authority- Anand Bihari
Lal v. Dinshaw & Co. Ltd
 Constructive Notice & Indoor Management- Other Cases

• Shashank Bhagat and another v Shefali Varma and

others Delhi High Court, 2019
• Renaissance Buildcon Company Private Limited and
others v S. E. Investments Limited and others Delhi
High Court, 2018.
• Kantu Shankar Dessai v Sociedade Agricola Dos
Gauncares De Cuncolim E Veroda Bombay High
Court, 2019. 2019 (6) MahLJ 910
 SHA v. AoA-
• Provisions of SHA contrary to the AoA
• Provisions of SHA, not contrary, but missing from the AoA.
• VB Rangaraj v. VB Gopalkrishnan & Ors (1992)SC- SHA restrictions
contrary to AoA would not be binding on either the shareholder or the
Co.
• Vodafone International Holding BV v. U.o.I & Ors (2012) SC- “The
provisions of SHA shall not go contrary to the AoA. But we do not
subscribe to the view that provisions of SHA imposing restrictions,
even when consistent with Company legislation, are to be authorised
only when they are incorporated in the AoA, is a view we do not
subscribe.”
• Premiere Hockey Development Pvt Ltd v. Indian Hockey Federation
(Del) 2011- As the SHA was not in contravention to the CA 1956 and
did not violate the AoA, these clauses would be binding on the parties
despite their non-inclusion in the AoA.
 SHA v. AoA
• World Phone India Pvt. Ltd & Ors v. WPI Group
Inc USA (2013) Del
• Akshay Ispay Udyog Pvt Ltd & Ors v. Ishwardas
Rasiwasia Agarwal & Ors – Arbitration clause
mentioned as the preferred method of dispute
resolution in the document entered b/w the
parties, could not be availed as AOA was silent on
it.
• Umesh Kumar Bareja & Ors. V. IL&FS
Transportation Network Ltd. (2014) Del-
Arbitration cl. Could not be enforced as it was not
incorporated in the AoA.
• Whether Doctrine is applicable to govt.
authorities?
MRF Ltd. V. Manohar Parrikar (2010)SC

• The doctrine of indoor management protects

the outsiders that are dealing/contracting
with the company and is an exception to the
doctrine of constructive notice.