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.
 The dividend policy is decided by 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 [1], 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 in the articles.
 Nominations: All nominations 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)].
Difference between MOA & AOA

MEMORANDUM OF
ARTICLES OF ASSOCIATION
ASSOCIATION
 Contains fundamental  Contain the provisions for
conditions upon which the internal regulations of the
company is incorporated. company.

 Meant for the benefit and clarity  Regulate the relationship

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

 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 (
Now Central Govt after 2019 amendment). 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
value.
 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. The court
further held that it was not mandatory for Rayfield to join the
company to be allowed to bring a suit against the company’s
directors.
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 held by the
Court that the lender was aware of such an irregularity and hence the
transaction was not binding.
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