SUMMARY

Introduc*on
Ø This act was enacted to consolidate and amend the law rela*ng to the companies.
Ø It has 470 sec*ons, 7 schedules and 29 chapters.
Ø Aims to improve corporate governance, simplify regula*ons and strengthen the interests of
minority investors.
Ø Applies to companies incorporated under this Act or any other previous Co. Law, Banking Co.
, Insurance Co. , Electricity genera*on companies, any co. governed by any special act and such
body incorporated by any act as no*fied by Central Govt (“CG”).

1. Company : Meaning and its features

Ø Company [Sec 2(20)] - Company means a company incorporated under this Act or under
any previous company law.
Ø According to Chief Jus*ce Marshall, “a corpora*on is an ar*ficial being, invisible, intangible,
exis*ng only in contempla*on of law. Being a mere crea*on of law, it possesses only those
proper*es which the charter of its crea*on confers upon it, either expressly or as accidental
to its very existence”.
Ø In the words of Professor Haney, “A company is an incorporated associa*on, which is an
ar*ficialperson created by law, having a separate en*ty, with a perpetual succession and a
common seal”.
Ø The features of a company are -
(i) Separate Legal En*ty
• When a company is registered, it is clothed with a legal personality. Its existence is
dis*nct and separate from that of its members.
• Company capable of owning, enjoying and disposing of property in its own name.
• Members can contract with company, acquire right against it or incur liability to it.
• Shareholders are not the private or joint owners of the company’s property.
• Case Law - Macaura Vs. Northern Assurance Co. Limited (1925) - A member does not
have an insurable interest in property of the company.

(ii) Perpetual Succession

• A company is an ar*ficial person created by law, law alone can bring an end to its life
• Existence not affected by the death or insolvency of its members.

(iii) Limited Liability (Depends on the kind of company)

• Limited Liability Co. - Debts of the co. are not debts of the shareholders. Liability of
shareholders limited to extent of nominal value of shares held by them.
• Co. limited by Guarantee - Liability limited to amount guaranteed by shareholders,
only when the company goes into liquida*on.
• Unlimited Co. - Liability of company is liability of shareholders.

(iv) Ar*ficial Legal Person

• It is an ar*ficial person since created by a process other than natural birth.
• It can own property, raise loans and enter into contracts.
• However, it can only act only through some human agency, viz., directors.

(v) Common Seal

 • Official signature of the company. It is affixed by the officers and employees of the
company on its every document. Used by a corpora*on as the symbol of its
incorpora*on.
• However, common seal is op*onal and if a company does not have a common seal,
the authoriza*on shall be made by two directors or by a director and the Company
Secretary (“CS”), if the company has appointed a CS.

2. Corporate Veil Theory

• Legal concept whereby the company is iden*fied separately from the members of the
company.
• Members of a company shielded from liability connected to the company’s ac*ons.
• Case Law - Salomon Vs. Salomon and Co Ltd.
Facts of the case
Ø Salomon along with his family members incorporated a company.
Ø Company took over personal business of Salomon. It had liabili*es worth £10,000 in the
form of debentures payable to Salomon.
Ø Due to general trade depression, company went into liquida*on.
Ø Unsecured creditors worth £7,000 contended that Salomon could not be treated as
secured creditor of the company in respect of debentures held by him since he was the
managing director and that the company was mere sham and fraud.

Ruling
Company has its own existence and hence, a shareholder cannot be held liable for the acts of
the company even if he holds virtually the en*re share capital.

• Liding the veil - Looking behind the company as a legal person i.e., disregarding the corporate
en*ty and paying regard, instead, to the reali*es behind the legal facade.
• The following circumstances warrant liding of corporate veil -

(i) To determine character of the company

Ø If public interest is likely to be in jeopardy, the Court may crack the corporate shell for
ascertaining whether a company is an enemy company.
Ø A company may be characterised as an enemy company if its affairs are under the
control of people of an enemy country.

(ii) To protect revenue / tax

Ø Where corporate en*ty is used to evade or circumvent tax, the Court can disregard
the corporate en*ty.
Ø Case Law [Dinshaw Maneckjee Pe0t] - In this case, the individual earned huge income
by way of dividends and interest. To avoid paying taxes, he opened companies by
purchasing their shares and transferred the income to himself by way of loan.
Therefore, the court ruled that the companies are sham and lided the corporate veil.

(iii) To avoid a legal obliga*on

Ø If sole purpose for forma*on of company was to reduce the amount to be paid by way
of bonus to workmen, then the corporate veil should be pierced.
Ø Case Law [Workmen of Associated Rubber Industry Ltd., v. Associated Rubber
Industry Ltd.] - In this case, A Ltd. purchased shares of B Ltd. The dividend received by
 A Ltd. was shown in P&L Account. However, to reduce the amount of bonus to be paid
to workers of A Ltd. , it transferred its holding in B Ltd. by crea*ng a subsidiary named
C Ltd. which had no business except receiving dividends and the only assets it had were
those transferred by A Ltd. Therefore, the Supreme Court brushed aside the separate
existence of the subsidiary company.

(iv) Forma*on of subsidiaries to act as agents

Ø A company may be regarded as an agent / trustee of its members / another company,
and in this case, the principal will be held liable for the acts of that company.
Ø Case Law [Merchandise Transport Limited vs. Bri0sh Transport Commission] - In this
case, the company wanted to obtain licences for its vehicles but could not apply in its
own name, so it created a subsidiary to obtain those licences. The sole purpose of the
subsidiary was to act as agent of the holding co, hence the parent and the subsidiary
were one commercial unit and the applica*on for licences was rejected.

(v) Company formed for fraud/improper conduct or to defeat law

Ø When the company is incorporated for some illegal or improper purpose, corporate
veil needs to be lided.

3. Classes of Companies under the Act

• Companies may be classified into various classes on the following basis
(i) On the basis of liability
• Company limited by shares [SecHon 2(22)] - When liability of members is limited by
its memorandum of associa*on (“MOA”) to the amount (if any) unpaid on the shares
held by them. Shareholder may be called upon to contribute only to the extent of the
amount, which remains unpaid on his shareholdings. Though a shareholder is a co-
owner of the company, he is not a co-owner of the company’s assets.
• Company limited by guarantee [SecHon 2(21)] - When liability of members is limited
to amount guaranteed by members in the memorandum to contribute to the assets
of the company in the event of winding up.
• Common features between guarantee co. and co. having share capital - legal
personality and limited liability.
• Difference between guarantee co. and co. having share capital – In the former case,
members are called upon to discharge their liability on winding up whereas in the
laier case, members can be called upon any *me to discharge their liability.
• Case Law - Narendra Kumar Agarwal vs. Saroj Maloo
The Supreme Court has laid down that right of a guarantee company to refuse to
accept the transfer by a member of his interest in the company is on a different foo*ng
than that of a company limited by shares. The membership of a guarantee company
may carry privileges much different from those of ordinary shareholders.
• Unlimited Company [SecHon 2(92)] - A company not having any limit on the liability
of its members, their liability ceases when they cease to be a member. Liability of each
member extends to the whole amount of the company’s debts and liabili*es. However,
they can claim contribu*on from other members.

(ii) On the basis of members

• One Person Company (“OPC”) [SecHon 2(62)] -
 Ø A company which has only one person as a member.
Ø No limit for minimum paid-up capital.
Ø Memorandum of OPC to state name of nominee who will become member in case of
subscriber’s death / incapacity to contract. Nominee’s prior wriien consent to be
obtained and he may withdraw his consent any *me.
Ø Change in name of nominee - not regarded as altera*on of MOA
Ø Eligibility (member / nominee) - A natural person (+) Indian Ci*zen (+) stay in India
for >=120 days in the immediately preceding Financial Year (“FY”).
Ø Minor cannot become member / nominee of OPC
Ø A person can incorporate / become nominee in maximum 1 OPC .
Ø RestricHon - Cannot be incorporated or converted into Sec*on 8 Co. / carry out Non-
Banking Financial investment ac*vity.

• Private Limited Co[SecHon 2(68)] -

Ø No minimum paid-up capital requirement.
Ø Minimum and Maximum members - 2 and 200 (excluding present employee-cum-
members and erstwhile employee-cum-members).
Ø Right to transfer shares restricted.
Ø Prohibi*on on invita*on to subscribe to securi*es of the company.
Ø Joint shareholders are treated as single member for the purpose of considering
restric*on on the number of members.
Ø OPC can be formed only as a private company.
• Small Company [SecHon 2(85)] -
Ø Eligibility - Paid up Share Capital<= 4 Crores (+) Turnover<=40 Crore
Ø Small Company cannot be a Sec*on 8 Company / Holding Co. / Subsidiary Co.

• Public Company [SecHon 2(71)] –

Ø Is not a private company.
Ø Minimum / Maximum members - 7 / unlimited.
Ø No minimum paid up capital requirement.
Ø Subsidiary of a public company is deemed to be a public company.

(iii) On the basis of control

• Holding / Subsidiary Co.
Ø Subsidiary Co. [SecHon 2(87)] - A co. in which the holding co. controls composi*on of
Board of Directors or controls >50% of the total vo*ng power directly or indirectly
through one or more subsidiaries.
Ø A company shall be deemed to be subsidiary company of the holding company even
if the control is of another subsidiary company of the holding company. Eg - B is a
subsidiary of A and C is a subsidiary of B. In such a case, C will be the subsidiary of A.
• Associate Company [SecHon 2(6)] -
Ø A company in which other co. has significant influence but is not a subsidiary of the
co. having significant influence. Associate Co. includes Joint Venture.
Ø Significant Influence - >=20% but <=50% of total vo*ng power / control / par*cipa*on
in business decisions.
Ø Joint Venture - Joint arrangement where par*es have joint control and right to net
assets of the arrangement.
(iv) On the basis of access to capital
• Listed Co. [SecHon 2(52)] / Unlisted Co. -
Ø Listed Co. - Company which has any of its securi*es listed on any recognised stock
exchange.
Ø Unlisted Co. - Co. other than listed Co.

(v) Other Companies

• Government Co. [SecHon 2(52)] –
Ø A co. in which >=51% of the paid-up share capital is held by CG / one or more State
Govt(s) / partly by CG and partly by one or more State Govt(s).
Ø Subsidiary of Govt Co. is a Govt. Co.

• Foreign Co. [SecHon 2(42)] –

Ø A co. or body corporate incorporated outside India (+) place of business (“POB”) in
India (+) conducts business ac*vity in India in any other manner.
Ø POB - may be physically / electronic mode / through agent.

• Companies with charitable objects [SecHon 8 Co.]

Ø Promotes charitable objects of commerce, art, science, educa*on etc.
Ø Profits used for promo*on of objects.
Ø Prohibited to distribute dividends to members.
Ø CG registers them as Co. with limited liability without adding words ‘Limited’ or
‘Private limited’ to its name. Power to grant registra*on delegated to ROC.
Ø License is revoked by CG if it contravenes any requirements / condi*ons of this
sec*ons or if the affairs of the company are conducted fraudulently, or viola*ve of the
objects of the company or prejudicial to public interest.
Ø Effect of revoca*on - Registrar adds the word ‘Limited’ or ‘Private Limited’ against the
company’s name in the register. Further, CG may in public interest order that the
company be amalgamated with another Sec*on 8 Co. having similar objects or get
wound up.
Ø Penalty
Co. - Fine >=10 Lakhs, Max - 1 Crore
Directors / Officer in default (“OID”) - Fine>= 25,000 ; Max - 25 Lakhs
Ø General mee*ng can be called by giving a clear 14 days’ no*ce.
Ø Requirement of minimum number of directors does not apply.
Ø A partnership firm can be a member of Sec*on 8 company.

• Dormant Co. [SecHon 455]

Ø Co. formed and registered for a future project / hold an asset or intellectual property
(+) has no significant accoun*ng transac*on or an inac*ve co. may make an
applica*on to the Registrar for obtaining status of dormant company.
Ø Inac*ve Co. - A co. not carrying on any business or no significant accoun*ng
transac*on made during last two FYs or not filed F/S and Annual Returns during last
two FYs.
Ø Significant Accoun*ng Transac*on - Any transac*on other than –
(i) payment of fees by a company to the Registrar
(ii) payments made by it to fulfil the requirements of this Act / any other law
(iii) allotment of shares to fulfil the requirements of this Act
 (iv) payments for maintenance of its office and records

• Nidhi Co. [SecHon 406]

Ø Co. which the CG no*fies in the Official Gazeie to be declared as Nidhi or Mutual
Benefit Society.
Ø Created for cul*va*ng habit of thrid and savings amongst its members.

• Public Financial InsHtuHons (“PFI”) [SecHon 2(72)] - The following ins*tu*ons are to be
regarded as public financial ins*tu*ons:
(i) Life Insurance Corpora*on of India
(ii) Infrastructure Development Finance Company Limited
(iii) specified company referred to in the Unit Trust of India Act, 2002
(iv) such other ins*tu*on as may be no*fied by CG (consul*ng with Reserve Bank of India)

Ø Condi*ons for an ins*tu*on to be no*fied as PFI –

(i) Established or cons*tuted by or under any Central or State Act OR
(ii) At least 51% of the paid-up share capital is held by CG or by any State Govt./s or
partly by the CG and partly by one or more State Govts.

4. Mode of Registra*on / Incorpora*on of Company

• Promoter [SecHon 2(69)] - A person
Ø who has been named as such in the prospectus / annual return OR
Ø who has control over the affairs of the company, directly or indirectly OR
Ø in accordance with whose advice Board of Directors are accustomed to act.
• Persons ac*ng only in a professional capacity e.g., the solicitor, banker, accountant etc.
are not regarded as promoters.
• Sec*on 7 provides the procedure for incorpora*on of a company :
(i) Filing of documents and informa*on with registrar -
§ Memorandum and Ar*cles of the Co. duly signed by all subscribers to
memorandum
§ DeclaraHon by person engaged in formaHon of company (an advocate, CA, CS in
prac*ce) and a person named in the arHcles (director, manager or secretary of
the company) that all the requirements of the Act and rules have been complied
with.
§ declara*on from all subscribers to memorandum and from persons named as the
first directors that –
(a) he is not convicted of any offence in connec*on with the promo*on,
forma*on or management of any company, OR
(b) he has not been found guilty of any fraud or misfeasance or of any breach of
duty to any company under this Act or any previous company law during the
last five years AND
(c) all the documents filed with the Registrar for registra*on of the company
contain correct informa*on to the best of his knowledge and belief.
§ address for correspondence *ll registered office is established
§ parHculars of every subscriber to the memorandum along with proof of iden*ty
§ par*culars of persons men*oned in the ar*cles and subscribers to the
Memorandum and such other par*culars including proof of iden*ty
 § par*culars of interests of persons men*oned in the ar*cles as the first directors
of the company in other firms or bodies corporate along with their consent to act
as directors of the company
(ii) Issue of cer*ficate of incorpora*on (“COI”) on registra*on - Registrar issues COI on
basis of documents and informa*on filed.
(iii) Allotment of Corporate Iden*ty Number (“CIN”) - Registrar allots a corporate iden*ty
number to the Co., which is dis*nct iden*ty for the company and shall be included
in the cer*ficate.
(iv) Maintenance of copies of all documents and informa*on - All documents and
informa*on to be preserve at its registered office *ll its dissolu*on under this Act.
(v) Furnishing of false or incorrect informa*on or suppression of material fact at the
*me of incorpora*on - Person furnishing such informa*on shall be liable for ac*on
for fraud under sec*on 447.
(vi) Company already incorporated by furnishing any false or incorrect informa*on or
representa*on or by suppressing any material fact (post IncorporaHon) - promoters,
the persons named as the first directors of Co. and persons who made declara*on
shall each be liable for ac*on for fraud under sec*on 447 if the above statement is
proved.
(vii) Order of the Tribunal – If Co. is incorporated in circumstances men*oned above, the
Tribunal may, on an applica*on made to it –
(a) pass such orders for regula*on of management of the Co. OR
(b) direct that liability of the members shall be unlimited OR
(c) direct removal of the name of the company from ROC OR
(d) pass an order for the winding up of the company OR
(e) pass such other orders as it may deem fit.

• Tribunal before making any order give the Co. a reasonable opportunity of being heard
and take into considera*on the transac*ons entered into by the company.
• In a step towards easy sewng up of business, Ministry of Corporate Affairs has simplified
the process of filing of forms for incorpora*on of a company through Simplified Proforma
for incorpora*ng company electronically.
• Effect of Registra*on [Sec*on 9] - The following are the effects of registra*on:
§ Becomes a body corporate by the name contained in memorandum;
§ Capable of exercising all the func*ons of an incorporated company;
§ Has perpetual succession with power to acquire, hold and dispose of property, to
contract and to sue and be sued;
§ A binding contract comes into existence a binding contract between the company and
its members as evidenced by the Memorandum and Ar*cles of Associa*on.

Sr. No. Case Law Held

1 Hari Nagar Sugar Mills Ltd. vs. S.S. From the date of incorpora*on
Jhunjhunwala men*oned in the cer*ficate, the
company becomes a legal person
separate from the incorporators.
There comes into existence a
binding contract between the
company and its members.
 Sr. No. Case Law Held
2 State Trading Corpora*on of India vs. A company on registra*on
Commercial Tax Officer acquires a separate existence and
the law recognises it as a legal
person separate and dis*nct from
its members.
3 Spencer & Co. Ltd. Madras vs. CWT Merely because a company
Madras purchases all shares of another
company it will not serve as a
means of puwng an end to the
corporate character of another
company and each company is a
separate juris*c en*ty.
4 Heavy Electrical Union vs. State of The mere fact that the en*re
Bihar share capital has been
contributed by the Central
Government and all its shares are
held by the President of India and
other officers of the Central
Government does not make any
difference in the posi*on of
registered company and it does
not make a company an agent
either of the President or the
Central Government.

• Effect of Memorandum and Ar*cles [SecHon 10] - Once memorandum and ar*cles are
registered, it binds the company and the members as if they respec*vely had been signed
by the company and by each member.

5. Classifica*on of Capital
• Nominal or authorised or registered capital [SecHon 2(8)] - Such capital authorised by
the memorandum of a company to be the maximum amount of share capital.
• Issued Capital [SecHon 2(50)] - Such capital as the company issues from *me to *me for
subscrip*on. It includes shares alloied for considera*on other than cash. Issued capital
has to be mandatorily disclosed in the balance sheet.
• Subscribed capital [SecHon 2(86)] - Such part of the capital subscribed by the members
of a company. It is the nominal amount of shares taken up by the public. Where any official
communica*on states the authorised capital, the subscribed and paid-up capital must
also be stated in equally conspicuous characters. Penalty for viola*on - 10,000 and 5,000
for Co. and every officer in default respec*vely.
• Called-up capital [SecHon 2(15)] - Such part of the capital, which has been called for
payment.
• Paid-up capital - Total amount paid / credited as paid up on shares issued. It is equal to
called up capital less calls in arrears.

6. Shares
• Nature of Share
Ø Share [SecHon 2(84)] - Means a share in the share capital of a company and includes stock.
 Ø Borland Trustees vs. Steel Bors. & Co. Ltd. - share is not a sum of money but an interest
measured by a sum of money and made up of various rights contained in the contract.
Ø Shares are movable property transferable in the manner provided by the ar*cles of the
company [SecHon 44].
Ø Shares shall be numbered. However, it does not apply to share held by person as holder
of beneficial interest in the records of a depository.
• Kinds of Share capital [SecHon 43]
Ø Share capital of a company limited by shares shall be of two kinds :
(i) Equity share capital (with vo*ng rights OR with differenDal rights as to dividend, voDng
or otherwise)
(ii) Preference Share Capital - Part of issued share capital of the company which carries or
would carry a preferen*al right with respect to payment of dividend and repayment (in
case of winding up or repayment of capital).
Ø In case of private company - Sec*on 43 shall not apply where memorandum or ar*cles of
associa*on of the private company so provides.

7. Memorandum of Associa*on
• Defines cons*tu*on and scope of powers of the company
• Object of registering a MOA - (i) iden*fies scope of its opera*ons beyond which its ac*ons
cannot go, (ii) enables stakeholders to know powers of co. and ac*vi*es it can undertake, (iii)
shareholders know where the money is used and the risks taken by them.
• Departure from provisions contained in MOA not allowed in any circumstances.
• Sec*on 4 - MOA to be drawn up in form as is given in Tables A, B, C, D and E in Schedule I of
the Companies Act, 2013.
• Table A - company limited by shares, Table B - company limited by guarantee and not having a
share capital, Table C - company limited by guarantee and having a share capital, Table D – an
unlimited company, Table E - an unlimited company and having share capital.
• Content of the memorandum –
Ø Name Clause
§ Last word - “Limited”(public limited co.), or “Private Limited” (private limited co.).
§ Not applicable to Sec*on 8 Companies
§ For Companies under sec*on 8 of the Act, the name shall include the words
founda*on, Forum, Associa*on, Federa*on, Chambers, Confedera*on, council,
Electoral trust and the like etc.
§ Govt Co. - must end with the word “Limited”
§ OPC - words “One Person Company”, should be included below its name
Ø Registered Office clause - State in which registered office of the company is situated
Ø Object clause - Objects for which company is proposed to be incorporated and other
necessary maier. If change in ac*vity of co. not reflected in name, name to be changed
within 6 months from change of ac*vi*es.
Ø Liability clause - Liability of members to be stated (whether limited or unlimited)
§ Company limited by shares - Liability limited to amount unpaid on shares held by
members.
§ Company limited by guarantee - Amount which each member undertakes to
contribute to the assets of the co. in case of winding up while he is a member or
within one year ader he ceases to be a member for payment of liabili*es /
 liabili*es contracted before he ceased to be a member and to the costs, charges
and expenses of winding-up.

Ø Capital clause - Amount of authorized capital and number of shares agreed to be taken by
subscribers to the memorandum. A company not having share capital need not have this
clause.
Ø Associa*on clause - Details of subscribers to be formed into a company. Memorandum to
conclude with this clause.
• The memorandum must be printed, divided into paragraphs, numbered consecu*vely, and
signed by at least seven / two / one persons in the presence of at least one witness, who will
aiest the signatures.
• A minor cannot be a signatory to the memorandum.
• MOA cannot contain anything contrary to the provisions of the Companies Act.

8. Doctrine of Ultra Vires

• Meaning - “beyond (their) powers”. Applicable to acts done in excess of legal power of doers.
• Object of a co. can be departed to the extent permiied by the Companies Act.
• Impact - company can neither be sued on an ultra vires transac*on, nor can it sue on it.
• Memorandum is a ‘public document’, open to public inspec*on. Person dealing with co.
deemed to know powers of co. If someone enters into a transac*on which is ultra vires the
company, it cannot be enforced against the company.
• Act which is ultra vires the company being void, cannot be ra*fied by the shareholders.
Some*mes, act which is ultra vires can be regularised by ra*fying it subsequently. Eg - if the
act is ultra vires the power of the directors, the shareholders can ra*fy it; if it is ultra vires the
ar*cles of the company, the company can alter the ar*cles etc.
• Ashbury Railway Carriage and Iron Company Limited v. Riche (1875) - An ultra vires contract
can never be made binding on the company. It cannot become “Intravires” by reasons of
estoppel, acquiescence, Iapse of *me, delay or ra*fica*on.
• Summary of Doctrine of Ultra vires
§ A legal act, if not authorized by memorandum, is ultravires the company, and hence null and
void.
§ An ultravires act cannot be ra*fied by unanimous consent of shareholders.
§ An act which is ultravires the directors, but intravires the company can be ra*fied by passing
a resolu*on of shareholders at general mee*ng.
§ If act is ultravires the Ar*cles, it can be ra*fied by altering the Ar*cles by a Special Resolu*on
at a general mee*ng.

9. Ar*cles of Associa*on (“AOA”)

• AOA - Rules and regula*ons to manage internal affairs.
• Case Law - Ashbury Carriage Co. vs. Riches - The ar*cles play a part subsidiary to memorandum
of associa*on. They accept the memorandum as the charter of incorpora*on. Ar*cles proceed
to define the du*es, the rights and powers of the governing body as between themselves and
the company, mode and form in which business of company is to be carried on and mode and
form in which changes in internal regula*on of company may be made from *me to *me.
• Case Law - S.S. Rajkumar vs. Perfect Cas*ngs (P) Ltd. - AOA is a business document, to be
construed strictly. It regulates domes*c management of company and creates certain rights
and obliga*ons between members and co.
• Contents and model of AOA
§ Contain Regula*ons - for management of co.
§ Inclusion of maiers - contain such maiers, as prescribed under the rules
§ Contain provisions for entrenchment - may contain provisions for entrenchment to protect
something
§ Manner of inclusion of entrenchment provision - can be made either on forma*on of a
company, or by amending the ar*cles agreed to by all the members of the company in
case of private co. and by special resolu*on in case of public co.
§ No*ce to the registrar of the entrenchment provision - if provisions for entrenchment
contained in ar*cles, no*ce shall be given to registrar.
§ Forms of ar*cles - ar*cles of company shall be in respec*ve forms specified in Tables, F, G,
H, I and J in Schedule I (as applicable)
§ Model ar*cles - company may adopt all or any of the regula*ons contained in the model
ar*cles applicable to such company
§ Company registered ader the commencement of this Act - If Co. registered ader
commencement of act, to the extent the registered ar*cles of such company do not
exclude or modify regula*ons contained in model ar*cles, they shall be the regula*ons of
that co.

• Difference between MOA and AOA

§ Objec*ve - MOA defines and delimits objec*ves of a company; AOA lays down the rules
and regula*ons for internal management of a company.
§ Rela*onship of Co. - MOA defines rela*onship of company with the outside world; AOA
define the rela*onship between company and its members.
§ Altera*on - MOA can be altered under certain circumstances, in most cases permission of
Regional Director, or Tribunal is required. AOA can be altered by passing Special resolu*on.
§ Ultravires - Acts done beyond scope of MOA cannot be ra*fied. Acts done beyond scope
of AOA can be ra*fied by a special resolu*on of the shareholders (provided not beyond
scope of MOA).

10. Doctrine of Indoor Management

• Doctrine of Construc*ve No*ce - Sec*on 399 of Companies Act state that inspec*on of
documents kept by Registrar can be done electronic means or copy or extract of documents
can be taken on payment of prescribed fees.
• MOA and AOA are public documents. Therefore, it is duty of every person dealing with a
company to inspect its documents. It is presumed that he knows the contents of documents.
This kind of presumed/implied no*ce is called construcHve no*ce.
• By construc*ve no*ce is meant :
(i) Irrespec*ve of whether documents are read, the person is presumed to have knowledge
of the contents of the documents and has understood them in true perspec*ve.
(ii) Every person dealing with the co. has construc*ve no*ce of all documents registered with
ROC.
• Therefore, if a person enters into a contract which is ultravires MOA or outside authority of
directors as per MOA / AOA, he cannot acquire any rights under contract against the company.
• Doctrine of Indoor Management (‘Turquand Rule’) - Excep*on to doctrine of construc*ve
no*ce. It states that outsiders are not deemed to have no*ce of the internal affairs of the
company.
• Eg - If act is authorised by AOA / MOA, an outsider can assume that all the detailed formali*es
for that act have been complied.
• Case Law - Royal BriHsh Bank vs. Turquand
Facts - Mr Turquand was the official manager (liquidator) of an insolvent Co. The company had
given a bond for £ 2,000 to the Royal Bri*sh Bank. The bond was under the company’s seal,
signed by two directors and the secretary. When the co. was sued, it alleged that AOA
authorised directors to borrow up to an amount authorized by a company resolu*on. The
resolu*on passed did not specify amount which directors could borrow.
Ruling - The bank was deemed to be aware that the directors could borrow only up to the
amount resolu*ons allowed. But the bank could not be deemed to know which ordinary
resolu*ons passed, since they were not registrable. The bond was valid because there was no
requirement to look into the company’s internal workings.
• Excep*ons to doctrine of Indoor Management :
(a) Actual or construc*ve knowledge of irregularity - Protec*on not granted when any person
dealing with the company has no*ce, whether actual or construc*ve, of the irregularity.

Case Laws
o Howard vs. Patent Ivory Manufacturing Co. - Directors could not defend issue of debentures
to themselves because they should know extent to which lending to the co. requires assent in
the general mee*ng which was not obtained.
o Morris v Kansseen - Director could not defend an allotment of shares to him as he par*cipated
in the mee*ng, which made the allotment.

(b) Suspicion of Irregularity - The doctrine in no way, rewards those who behave negligently.
Further, it is also not available where circumstances surrounding the contract are
suspicious and hence invite inquiry.

Case Laws
o Anand Bihari Lal vs. Dinshaw & Co. - Plain*ff accepted a transfer of a company’s property from
its accountant, the transfer was held void. In absence of Power of Aiorney, plain*ff cannot
assume that the accountant had authority to transfer company’s property.
o Haughton & Co. v. Nothard, Lowe & Wills Ltd. - A person holding directorship in two companies
agreed to apply money of one company in payment of the debt to other, the court said that it
was something so unusual “that the plain*ff were put upon inquiry to ascertain whether the
persons making the contract had any authority in fact to make it.”

(c) Forgery - It cannot apply to forgery which must be regarded as nullity.

Case Law
o Ruben v Great Fingall Consolidated - Plain*ff was the transferee of a share cer*ficate issued
under the seal of the defendant’s company. The Co. Secretary forged the signature of the two
directors and issued the cer*ficate. It was held, that the rule has never been extended to
cover such a complete forgery.