Unit- 03

Company Law
Alteration in Memorandum of
Association (MOA)

 The expression “alter” means to modify/change or vary;

to make or become different in some respect.
 As per Section 2(3) of the Companies Act, 2013 (the Act)
“alter” and “alteration” shall include the making of
additions, omissions and substitutions.
 Following are the cases where a company has to alter its
Memorandum of Association (MOA) as per provisions of
Section 13 of the Act read with
Companies (Incorporation) Rules, 2014 (the Rules)-
Area of Alteration-

 Change of Name;
 Alteration of Authorized Capital
 Change in Objects, and
 Shift of Registered Office
CHANGE IN NAME-

 A company desiring to change its name may do so in accordance

with the provisions of Section 13 read with Section 4 of the Act by
passing Special Resolution and the name approved by the
Ministry of Corporate Affairs (MCA) on prescribed application.
 The power of the Central Government under Section 13(2) to
approve change in name has been delegated to Registrar of
Companies (ROC).
 However, if the change required is the addition thereto or deletion
there-from, of the word “Private”, consequent upon conversion of a
public company into a private company or vice versa, no such
approval of central Government is required.
ALTERATION OF
AUTHORIZED CAPITAL-
 A Company seeking to issue shares by way of Private Placement or
Rights Issue or by any other prescribed methods, has to check the
Authorized Capital, as the issue cannot exceed the amount of
Authorized Capital. Thus in the view of the above, a Company
may alter its Authorized Capital i.e. Capital Clause by virtue of
Section 13 read with Section 61 by passing an Ordinary
Resolution.
 The Capital Clause will be altered by prescribed process as per the
applicable rules and payment of relevant stamp duty as may be
applicable and levied by concerned state in which the registered
office of the Company is situated.
CHANGE IN OBJECTS:

 A company may change its objects as enshrined in its MOA in

accordance with the provisions of Section 13 of the Act.
Accordingly, any alteration of MOA with respect to the objects
of the company is permitted through Special Resolution.
 However, Section 13 (8) restricts the change in object of a
company which has raised money from public through
prospectus and still has any unutilised amount out of the
money so raised unless a special resolution is passed by the
company and the details of such resolution shall be published
in one vernacular language and one
 English language newspaper in circulation at the place
of registered office of the company as well as on the
website of the company indicating the justification for
such change in the object.
SHIFT IN REGISTERED
OFFICE
 As per Section 12 of the Act, every company shall have
a registered office at all times, to which all
communications and notices may be addressed.
 Every company within 30 days of its incorporation or
any change in the address of its registered office shall
furnish a verification of its registered office in INC-
22 prescribed under
Companies (Incorporation) Rules, 2014.
 A company is permitted to change its registered office from
its existing location to another location-
 Within the local limits of the same city, town or village (e.g.
Bandra, Mumbai to Andheri, Mumbai)
 Outside the local limits of the same city, town or village but
 within same state under jurisdiction of same ROC (e.g.

Bandra, Mumbai to Kalyan)

 under jurisdiction of another ROC within same state (e.g.

Mumbai to Pune)
 One State to another State. (e.g. Mumbai to Delhi)
 Note: As per Section 13 (11) any alteration of MOA, in the
case of Company Limited by Guarantee or Company not
having share capital, purporting to give any person a right
to participate in the divisible profits of the Company
otherwise than as member shall be void.
Next Topic:

Article of Association
Articles of Association

 The by-laws, rules and regulations which help in

governing the management of internal affairs of the
company and also conduct the company’s business are
known as the “articles of association” of a company.
 The term “article” has been defined in Section 2(5) of
the Companies Act, 2013. They mean articles of
association of a company which were originally framed
or altered from time to time that to be in pursuance of
any previous company law or of this Act.
Importance of Articles of Association

 The articles of association is a very important document for a

company as it holds the rules, regulations and bye-laws for
internal administration and management of the company. The
articles are basically for the internal management of the
company.
 All the powers of directors and other officials are described in the
articles. All the rights and obligations are prescribed under the
articles of association. All the provisions regarding the shares are
also mentioned under the articles of association. In a matter of
internal conflict, it is the article of association what’s referred to.
 There are several rules, rights and provisions which
leads to the importance of an article of association
such as:-
 The valuation of intellectual rights and assets are done in
accordance with the articles.
 The appointment of directors and other key personnel are
done in accordance with the articles.
 All the meetings either board meetings, annual meeting or
a general meeting or any type of meetings are conducted
in accordance with the articles.
 The managerial operations are dealt with the articles.
 The voting rights and other rights of shareholders are
dealt with the articles of association.
 The audit and accounts are managed through the
articles.
 The appointment, removal and remunerations are
managed by the articles.
 The borrowing power is decided by the articles.
 The winding of the company is done according to the
articles.
 So, the articles of association hold key importance in
any company or organization as whole internal
management is done in accordance with it.
Features of Articles of Association:

The features of Article of Association are:

 It is a part of the constitution of an organization.
 It is a contract between the members and among the
members themselves.
 It lays down the duties of stockholders also.
 Some statutory clauses should be included in the article of
associations and other clauses can be chosen by the
stockholders to make them the by-laws of the organization.
 The Court can declare a clause ultra vires if it is
unreasonable.
 Article of associations can be inspected by anyone as
they are a public document.
 Special interest in the provision of Articles of Association
is taken by the lender of the organization.
Understanding Articles of Association

 Rights of the members of the company, inter se, are dealt with
by the articles of association. Hierarchy wise, the Articles of
Association are subordinate to the memorandum of association.
 In Ashbury Railway Carriage and Iron Co. Ltd v. Riche, the
general functions of articles were summarised as follows:
 The role played by articles is subsidiary to the memorandum
of association. The memorandum of association is accepted as
the charter of incorporation of the company. After its
acceptance, the articles proceed to define the rights and duties
and also the powers of the governing body between themselves
and the company.
 Further, the articles define the mode and form in which the
business of the company shall be carried on and the changes
in the internal regulations of the company shall be made.
 The scope and powers of the company are laid down by
the memorandum of association, whereas, the ways in
which the objects of the company are to be carried on and to
be framed and altered by the members:
 1- By defining the powers of the officers of the company and
through the establishment of the contract both between the
members of the
 …company and the company and between the members
inter se, the internal management of the affairs of the
company is regulated by the articles.
 Ordinary rights are governed through the above-said
contract.
Contents of the Articles of Association

 All the rules and regulations of the company for its own
working are set out through the articles.
 Clauses of Articles of Association
 Adoption of preliminary contracts:, A statement
adopting all preliminary contracts.
 Number and value of the shares: What is the total
number of shares and what is the value of shares needs to
be mentioned.
 Issues of preference share: The number of preference
shares issued need to be mentioned.
 Allotment of shares: How many shares have been
allotted to whom and what are its values should be
mentioned in the articles.
 Calls on shares: How much money is to be called on
shares is to be mentioned.
 Lien on shares i.e., if the member is unable to fulfil his
debt to the company, who will retain the possession of
shares.
 Transfer and transmission of shares: The provisions
related to the transfer of shares need to be mentioned
 Forfeiture of shares: How can a company forfeit its
shareholders.
 Alteration of capital: The provisions related to the
alteration of shares must be mentioned in an article of
association.
Entrenched Articles of Association

 The articles of association may contain the provisions for

entrenchment. This concept was not included in the
Companies Act, 1956. Entrench means to establish such
type of attitude or habit which is very difficult to change.
Thus this clause makes some amendments in the article of
association difficult. If the company wants then it can include
entrenchment provisions in the articles of association. This
provision can be made either at the time of incorporation of
the company or after the incorporation of the company by
way of an amendment in the articles of association.
 In the case of a private company the amendment that is made
to include the provision of entrenchment must be agreed by all
the members and in case of a public company special resolution
has to be passed to include this provision.[Section 5(4)]
 Section 5(3) states that the alteration in the articles of
association should be such that the altered provisions become
more restrictive than those applicable in the case of a special
resolution.
 Whenever the condition of entrenchment are brought then it
must be notified to the registrar in the manner prescribed under
[Section 5(5)].
 Before entrenchment- Google Ventures have a 10% stake
in XYZ Private Limited. XYZ Private limited can pass a
special resolution without consent of Google Venture.( e.g.
selling any undertaking or Bank Loan u/s 180)
 After Entrenchment- Before giving the loan to the company
the Bank and Financial Institution will read the MOA and
AOA of the company and if the entrenchment was there for
taking the approval of Google Venture then Banks will ask
for that approval also. So it create safeguard to Google
Venture.
Difference between MOA &
AOA
MEMORANDUM OF
ARTICLES OF ASSOCIATION
ASSOCIATION
 Contains fundamental  Contain the provisions for
conditions upon which the internal regulations of
company is incorporated. the company.

 Meant for the benefit and  Regulate the relationship

clarity of the public and the between the company and
creditors, and the its members, as well
shareholders. amongst the members
themselves.
 Lays down the area beyond  Articles establish the
which the company’s regulations for working
conduct cannot go. within that area.
 Memorandum lays down  Articles prescribe details
the parameters for the within those parameters.
articles to function.
 Articles can be altered a
 Can only be altered lot more easily, by
under specific passing a special
circumstances and only resolution.
as per the provisions of
the Companies Act,  Articles cannot include
2013. Permission of the provisions contrary to the
Central Government is memorandum. Articles
also required in certain are subsidiary to both the
cases. Companies Act and the
Memorandum.
 Memorandum cannot  Acts done beyond the
include provisions Articles can be ratified by
contrary to the the shareholders as long
Companies Act. as the act is not beyond
Memorandum is only the memorandum.
subsidiary to the
Companies Act.

 Acts done beyond the

memorandum are ultra
vires and cannot be
ratified even by the
shareholders.
 Alteration of Articles of
Association
 Section 14 of the Companies Act, 2013, permits a company to
alter its articles, subject to the conditions contained in the
memorandum of association, by passing a special resolution. This
power is extremely important for the functioning of the company.
The company may alter its articles to the effect that would turn:
 A public company into a private company:- For a company
wanting to convert itself from public to a private company simply
passing a special resolution is not enough. The company will have to
acquire the consent and approval of the Tribunal. Further, a copy of
the special resolution must be filed with the Registrar of Companies
within 30 days of passing it.
 Further, a company must then file a copy of the altered, new
articles of association, as well as the approval order of the
Tribunal with the Registrar of Companies within 15 days of the
order being received.
 A private company into a public company - For a company
wanting to convert from its private status to public, it may do so
by removing/omitting the three clauses as per section 2(68)
which defines the requisites of a private company. Similar to the
conversion of the public to a private company, a copy of the
resolution and the altered articles are to be filed with the
Registrar within the stipulated period of time.
Limitations on power to alter articles:-

 The alteration must not contravene provisions of the

memorandum, since the memorandum supersedes the
articles, and the memorandum will prevail in the event of
a conflict.
 The alteration cannot contravene the provisions of the
Companies Act, or any other company law since it
supersedes both the memorandum and the articles of the
company.
 Cannot contravene the rules, alterations or suggestions of
the Tribunal.
 The alteration cannot be illegal or in contravention with public
policy. Further, it must be for the bona fide benefit and interest of
the company. The alterations cannot be an effort to constitute a
fraud on the minority and must be for the benefit of the company
as a whole.
 Any alteration made to convert a public company into a private
company, cannot be made until the requisite approval is obtained
from the Tribunal.
 A company may not use the alteration to cover up or rectify a
breach of contract with third parties or use it to escape
contractual liability.
 A company cannot alter its articles for the purpose of
expelling a member of the board of directors is against
company jurisprudence and hence cannot occur.
Binding effect of Memorandum and Articles of Association-

 After the Articles and the Memorandum of a company

are registered, they bind the company and its members
to the same extent as if they had been signed by each
of the members of the company. However, while the
company’s articles have a binding effect, it does not
have as much force as a statute does. The effect of
binding may work as follows:-
Binding the company to its members:

 The company is naturally completely bound to its

members to adhere to the articles. Where the company
commits or is in a place to commit a breach of the articles,
such as making ultra vires or otherwise illegal transaction,
members can restrain the company from doing so, by way
of an injunction.
 Members are also empowered to sue the company for the
purpose of enforcement of their own personal rights
provided under the Articles, for instance, the right to
receive their share of declared divided.
Case- Wood v. Odessa
Waterworks Co
 It should be noted, however, that only a shareholder/member,
and only in his capacity as a member, can enforce the provisions
contained in the Articles. For instance, in the case of Wood v.
Odessa Waterworks Co., the articles of Waterworks Co.
provided that the directors can declare a dividend to be paid to
the members, with the sanction of the company at a general
meeting. However, instead of paying the dividend to the
shareholders in cash a resolution was passed to give them
debenture bonds. It was finally held by the court, that the word
“payment” referred to payment in cash, and the directors were
thus restrained from acting on the resolution so passed .
Members bound to the company

 Each member of the company is bound to the company

and must observe and adhere to the provisions of the
memorandum and the articles. All the money that may
be payable by any member to the company shall be
considered as a debt due. Members are bound by the
articles just as though each and every one of them has
signed and contracted to confirm to their provisions.
Borland’s Trustees v. Steel
Bros. & Co. Ltd.-
 In Borland’s Trustees v. Steel Bros. & Co. Ltd., the
articles the company provided that in the event of
bankruptcy of any member, his shares would be sold at a
price affixed by the directors. Thus, when Borland went
bankrupt, his trustee expressed his wish to sell these
shares at their original value and contended that he could
do so since he was not bound by the articles. It was held,
however, that he was bound to abide by the company’s
articles since the shares were bought as per the provisions
of the articles.
Binding between members:-

 The articles create a contract between and amongst

each member of the company. However, such rights can
only be enforced by or even against a member of the
company. Courts have been known to make exceptions,
and extend the articles to constitute a contract even
between individual members. In the case of Rayfield v
Hands Rayfield was a shareholder in a particular
company., who was required to inform directors if he
intended to transfer his shares, and subsequently, the
directors were required to buy those shares at a fair
 Thus, Rayfield remained in adherence to the articles and
informed the directors. The directors, however,
contended that they were not bound to pay for his
shares and the articles could not impose this obligation
on them.
 The courts, however, dismissed the directors’ argument
and compelled them to buy Rayfield’s shares at a fair
value.
Constructive notice
 A Constructive notice may be defined to be “the
knowledge of a fact or facts which the law imputes to a
person and in respect to which all questions of actual
knowledge thereof is excluded”. It means “a person is
deemed to have actual knowledge of the fact if he willingly
abstains from acquiring the knowledge or is grossly
negligent.” In other words, having constructive notice of
something means that even if there is no actual
knowledge of the facts, it is determined by law that such
knowledge is there.
 Doctrine of Constructive Notice was first propounded in the
1850s under the English Law with respect to Deed of
Settlement, which discussed that if a person is dealing with a
company, it would be deemed that such person has notice of
that company’s registered constitutional documents. In
furtherance to this, such notice also included that the person
would be deemed to have also understood the provisions of
these documents. Though the ambit of constructive notice
included the articles and the memorandum of association,
but also special resolutions, it did not cover matters filed by a
 company to disclose the financial information and other
information, in order to assist the shareholder to make
an informed judgment. So, the scope of this doctrine
remained uncertain.
 Even though the Principle originated from the common
law, is no longer a part of the English Corporate laws.
Nevertheless, the doctrine of Constructive notice is still
a part of the Indian laws. It is not in its original form but
remains, in essence, the same doctrine.
Constructive notice of memorandum and articles of
association

 The two most important documents of every company that

are a memorandum of association and articles of association
are registered with the registrar of the company. These
documents become public documents as these documents
are registered at the office of the registrar which is also a
public office. So they are open and accessible to the public.
It is the duty of each and every person dealing with the
company to read and inspect all the documents. It is
presumed that he knows all the contents of the documents
at the time of coming into a transaction of the company.
 Whether a person actually reads them or not he will be
presumed in the same position that he has read them.
This type of presumed notice is called constructive
notice.
Case: Kotla Venkataswamy vs.
Rammurthy

 The practical effect of this rule is provided in the case of . In this

case, the plaintiff accepted a deed of mortgage that is executed
by the secretary and working director only. But, the articles of
association requires that all the deed needs to be duly signed
by the working director, managing director and the secretary.
The court held that if the plaintiff consulted the document
carefully then she must have rejected the document rather than
accepting it. So nevertheless the bond is invalid.
 Another effect to rule of constructive notice is the person who is
dealing with the company has not only read the documents but
 he/she has understood them completely. There is
constructive notice not only for memorandum and
article of association but also for all the documents like
special resolutions etc.
Statutory reform of constructive notice

 This is more or less an unreal doctrine because people know a

company through its officers rather than its documents.
Section 9 of the European Communities Act, 1972 has repeal this
doctrine. Section 35 of the Companies Act, 1985 incorporate the
provisions of Section 9.
 In the case of TCB Ltd vs. Gray, Financial Times, the
company was held liable because the debenture issued by the
company was duly signed by the solicitor as attorney of a
director of the company but it was mentioned in the article of
association that all the documents need to be signed by the
director directly.
 Courts in India also do not seems to have taken this rule
seriously. For example in Dehradun Mussoorie
Electric Tramway Co Ltd V Jagmandar Das, the
article of company expressly provided that the directors
could delegate all their powers except the power to
borrow. Even so an overdraft taken by the managing
agents without approval of the board was held to be
binding.
MCQ-

1. The Companies which are formed under Special

Act. Those Companies are called as
 A. Chartered companies
 B. Statutory companies
 C. Registered companies
 D. None of these
1. B

2. The Companies which are formed under

Companies Act. 1956 . They will be called as
 A. Chartered companies
 B. Statutory companies
 C. Registered companies
 D. None of these
2. C
3. Can Private Company go for Public issue?
 A. Yes
 B. No
4. One who Undertakes to form a Company with
reference to a given object and set it going And who
takes the necessary steps to accomplish that purpose
 A. Promoter
 B. Directors
 C. C.E.O.
 D. Board of Directors
 4. A

5. A is one who Performs the Preliminary duties

Necessary to bring A Company into being and
 float it.
 A. Auditor
 B. Promoter
 C. Director
 D. Financer
 5. B

6. Which of the following is not a stage of the

Development of Company
 A. Promotion
 B. Production
 C. Incorporation
 D. Commencement of Business
 6. B

7. A Company is Named as govt. Company if it is

holds_____% of paid up share capital
 A. more than 30
 B. more than 40
 C. more than 50
 D. None
 7. C

8. Maximum no of Members in case of public

company is
 A. 0
 B. unlimited
 C. 50
 D. 100
 8. B
9. Transmission is effected by
(a) Sale
(b) Death
(c) Insolvency
(d) Both (b) & (c)
9. D
10. The liability of members if company is limited by
guarantee.
(a) Unpaid value of shares
(b) Guarantee amount
(c) Unlimited liability
(d) None of the above
 10. b
11. The liability of members if company is limited by
shares
(a) Unpaid value of shares
(b) Guarantee amount
(c) Unlimited liability
(d) None of the above
Doctrine of Indoor Management

 The ‘Doctrine of Indoor Management’ which is an old

established principle which came to be recognized 150
years ago in the context of ‘Doctrine of Constructive
Notice’. The Doctrine of Indoor Management is an
exception to the Doctrine of Constructive Notice. The
doctrine of Constructive Notice seeks to protect the
company from the outsider whereas the Doctrine of
Indoor Management seeks to protect the outsider
from the company.
 This doctrine emphasizes on the concept that an outsider
whose actions are in good faith and has entered into a
transaction with a company can have a presumption that
there are no irregularities internally and all the
procedural requirements have been complied with by the
company. This is the protection which is provided by the
Doctrine of Indoor Management. Though it is necessary for the
outsider to be well versed with the Memorandum and Articles of
Association of the company in order to seek remedy for the
same. The government authorities are also within the purview of
this doctrine.
Origin-

 The Doctrine of Indoor Management has originated from an English

case called Royal British Bank v. Turquand. Hence, the
alternative name to this doctrine is the ‘Turquand Rule’. In this
case, the directors of the company had been authorized by the
Articles to borrow on bonds that sum of money as they should from
time to time by passing a special resolution in a General Meeting of
the company. A bond under the seal of the company which was
signed by the secretary and the two directors were given to the
plaintiff to draw on the current account without the authority of any
resolution. Turquand sought to bind the company’s action on the
basis of such bond.
 Thus, the main question of law in this matter was
whether the company can be held liable for that bond.
The court, in this case, held that the bond was binding
on the company as Turquand was entitled to presume
that the resolution of the company has been passed in
the general meeting.
 The Memorandum and Articles of Associations are Public
documents and hence can be inspected by the public.
But whatever is happening internally in the company is
not known to the public.
 An outsider is oblivious to the internal procedures of the
company and hence the outsiders are entitled to
presume that all the internal procedures are catered by
the company.
Exceptions to the Doctrine of Indoor Management

 The Doctrine of Indoor Management is more than a

century old. The companies in today’s time have come to
occupy the centric position in economic and social life in
the modern communities, it is important to widen the
scope of this doctrine. Eventually, in the modern time, the
Doctrine of Indoor Management has been subjected to
various exceptions which are as follows:
 Knowledge of Irregularity- When an outsider who is
entering into a transaction with a company has
constructive or actual notice of the
 irregularity in relation to the internal management of the
company, then He/she cannot seek remedy under the
doctrine of Indoor Management. There can be some
cases, where the outsider is himself/herself a part of the
internal procedure.
 For example, in the case of T.R. Pratt(Bombay) Ltd. v.
E.D. Sassoon & Co. Ltd.[4] Company A had lent money
to Company B for mortgaging its assets. The procedure
for the same which was laid down in the Articles for such
nature of transactions were not complied with. The
Directors of both the companies were the same. It was
Forgery

 It is pertinent to note that the Doctrine of Indoor Management

does not apply in cases where an outsider relies on a document
which is forged in the name of the company. A company can
never be held liable for the forgeries committed by its officers.
 For example, In the case of Ruben v. Great Fingall Ltd. The
Plaintiff was a transferee of the share certificate issued under
the seal of the defendant company. The certificate was issued
by the Company’s secretary who has forged the signature of the
two directors of the company and had affixed the seal of the
Company.
 The plaintiff, in this case, had contended that whether
the signature was forged or genuine comes under the
purview of the internal management of the company,
therefore the company shall be held liable for the same,
But it was held by the court that the doctrine of Indoor
Management has never extended to cover a forgery.
Negligence

 Where an outsider entering into a transaction with a

company could discover the irregularities in the
management of the company if he/she would have made
proper inquiries, then he/she cannot seek remedy under
the doctrine of Indoor Management. The remedy under
this doctrine is also not available where the circumstances
and situations surrounding the contract are so suspicious
that it invites inquiry, and the outsider of the company
does not make any efficient inquiry for the same.
 For example, in the case of Anand Bihari Lal v. Dinshaw
& Co. A.I.R. (1942) Oudh 417 The Plaintiff had accepted
a transfer of a company’s property from the accountant
of the company. It was held by the court that the
transfer is void in nature as such a transaction was
beyond the scope of the accountant’s authority. It was
the duty of the plaintiff to check the power of attorney
that was executed in favour of the accountant by the
company.
Acts that are beyond the scope of apparent authority

 Acts done by an officer of a company which are beyond

the scope of its apparent authority will not make the
company liable for any of the defaults caused by the
officer. In such a case, the outsider cannot seek any
remedy under the doctrine of Indoor Management simply
because Articles did not delegate the power to the officer
to do such acts. The outsider can only sue the company
under the doctrine of Indoor Management if the officer had
the delegated power to act on those grounds.
 For example, in the case of Kreditbank Cassel v.
Schenkers Ltd.[7], the branch manager of the company
had endorsed a few bills of exchange in the name of the
company in favour of a payee to whom he was
personally indebted. The Company did not give him any
authority to do so. It was held by the court that the
company was not bound.
Representation through Articles

 This exception is the most confusing and highly controversial

aspect of the Turquand Rule. Articles of Association generally

contain a clause of “power of delegation.” For example, in the

case of Lakshmi Ratan Cotton Mills v. J.K. Jute Mills Co. One B

was the Director of the company. The company comprised of

managing agents of which B was also a Director. The Articles

of Association authorized the directors to borrow money and

also empowered them to delegate this power to one or more

of them. B borrowed a sum of money from the plaintiff.

 Further, the Company refused to be bound by the loan
on the ground that there was no resolution passed
directing to delegate the power to borrow given to B. Yet
it was held in the case that the company was bound by
the loan as the Articles of Association had authorized
the director to borrow money and delegate the power
for the same.
Thanks