Legal Aspect of

Business
Tejpal sheth

Companies Act 2013

Memorandum-Article-
Prospectus
Companies Act 2013
Memorandum-Article-Prospectus

• India Cosmetics Limited was a registered company under

the Companies Act, 2013. Later on, another company, India
Cosmetics and Accessories Limited was formed and
registered. There being similarity in the names of both the
Companies, India Cosmetics Limited lodged a complaint
against India Cosmetics and Accessories Limited, with the
Registrar of Companies, stating that there is sufficient
similarity between these two names which may mislead or
defraud the public. India Cosmetics and Accessories Limited
is intending to alter its name. Advise India Cosmetics and
Accessories Limited to alter the name of the Company
according to the provisions of the Companies Act, 2013.
Case analysis
• If the name of company is similar to the name of
company already registered, the first mentioned
company may by Special Resolution change its name.
Permission of Central Government is required.
• The new company registered under the name India
Cosmetics Accessories Ltd. is identical in name with the
existing India Cosmetics Limited. According to the
aforesaid rule the newly setup company should change
its name. In such a case, the company can, on its own,
change the name by obtaining previous approval of
Central Government. Where the name of a company has
been changed the Registrar shall issue fresh certificate
of incorporation with the changed name.
Companies Act 2013
Memorandum-Article-Prospectus

• VD Company Ltd. is registered in Tamil

Nadu within the jurisdiction of the Registrar
of Companies, Chennai. The company
proposes to shift its registered office to a
place within the jurisdiction of Registrar of
Companies, Coimbatore. State the steps to
be taken by the company to give effect to
the proposed shifting of its registered
office.
Case analysis
• Refer Para 19.16 – Section 12.
Companies Act 2013
Memorandum-Article-Prospectus

• The Articles of a Public Company clearly

stated that Mr. A will be the solicitor of the
company. The Company in its general
meeting of the shareholders resolved
unanimously to appoint B in place of A as
the solicitor of the company by altering the
Articles of Association. Examine, whether
the company can do so? State the reasons
clearly.
Case analysis
• The memorandum and articles shall, when registered, bind
the company and the members for membership right. But
member cannot enforce the provisions of articles for his
benefit in some other capacity than that of a member.
• Section 10 also provides that the company may by special
resolution alter its articles. In the given problem the
company has changed its articles by passing resolution
unanimously and therefore the company can change its
articles. The provision of memorandum and articles will bind
the members but in the capacity of a member only and even
a member may be treated as an outsider. Therefore a
member cannot enforce the provisions of articles for his
benefit in some other capacity than that of a member. In the
given case A will not succeed and the company is
empowered to appoint B as a solicitor of the company and
may change the articles accordingly.
Companies Act 2013
Memorandum-Article-Prospectus

• The Secretary of a Company issued a share

certificate to ‘A’ under the Company’s seal
with his own signature and the signature of a
Director forged by him. ‘A’ borrowed money
from ‘B’ on the strength of this certificate. ‘B’
wanted to realise the security and requested
the company to register him as a holder of
the shares. Explain whether ‘B’ will succeed
in getting the share registered in his name.
Case analysis
• The doctrine of Indoor Management can apply only in
case of irregularities which might otherwise affect the
transaction, but it cannot apply to forgery which must be
regarded as nullity. Hence ‘B’ will not succeed in getting
the share registered in his name.
Companies Act 2013
Memorandum-Article-Prospectus

• An offer was made by co. X to the

members of Cos. Y & Z to acquire all
their shares in these companies in
exchange for allotment of shares in co.
Whether it could be considered as
invitation to public?
Case analysis
• An invitation to the public shall include an invitation to
any section of the public, whether as members of the
company or any other person who is not member as
clients of the person. An invitation shall not be an
invitation to the public if it cannot be calculated to result,
directly or indirectly, in the shares or debentures
becoming available for subscription or purchase by
persons other than those receiving the invitation.
• If offer is made to more than 200 persons in one financial
year, it is considered as offer to public.
• In the given case, shares are offered to members of two
public companies (assuming more than 200) and hence
it is public offer.
Companies Act 2013
Memorandum-Article-Prospectus

• Newspaper advertisement stated “some

shares are still available for sale
according to terms of prospectus of co.
which may be obtained on application”.
Whether newspaper advertisement can
be held as prospectus ?
Case analysis
• An invitation to the public shall include an invitation to
any section of the public, whether as members of the
company or any other person who is not member as
clients of the person. An invitation shall not be an
invitation to the public if it cannot be calculated to result,
directly or indirectly, in the shares or debentures
becoming available for subscription or purchase by
persons other than those receiving the invitation.

• In the given case, shares are offered to members by way

of news paper of advertisement. It is public offer.
Companies Act 2013
Memorandum-Article-Prospectus

• Statement in the offer document that the

proceeds of issue of debentures were to
be utilized for improving and developing
the business whereas real object of
issuing was to pay off past liabilities. Can
it be said as misstatement in
prospectus ?
Case analysis
• Yes it can be said as prospectus having mis-
statement.
• Company or its director can’t utilize fund which is
collected by public offer for any other purpose
other than specified in prospectus. If they do so,
it amount as misstatement.
Companies Act 2013
Memorandum-Article-Prospectus

• Statement in prospectus that directors

and their friends have subscribed a large
portion of capital of co. and that they now
offer the remaining shares to public
whereas the fact was that they had only
subscribed ten shares each. Is there
misrepresentation in prospectus?
Case analysis
• Any exaggerated statement is also misstatement
if it is mis-leading public at large. When
prospectus suggest that large amount of shares
are subscribed but in fact only ten shares are
purchased, it is mis leading.
Companies Act 2013
Memorandum-Article-Prospectus

• Modern Furniture Limited was willing to purchase

teakwood estate in Chhattisgarh State. Its
prospectus contained some important extracts
from an expert report giving the number of
teakwood trees and other relevant information in
the estate in Chhattisgarh State. The report was
found inaccurate. Mr. 'X' purchased the shares of
Modern Furniture Limited on the basis of the
above statement in the prospectus. Will Mr. 'X'
have any remedy against the company?
Case analysis
• In the event of any misstatement in a prospectus, the
allottees have certain remedies against the company as
well as against those who were responsible for the issue
of such a prospectus.
• Thus, in the present case the allottee Mr. X shall have
the right to claim compensation from Modern Furniture
Ltd., for any loss that he might have sustained in terms
of the value of shares. But his claim against those
responsible for issue of prospectus shall not succeed
since they made the statement on the basis of the report
of an expert whom they believed to be competent.
However, the expert can be proceeded against, for the
inaccurate report which he had made.