COMPANY LAW

CHAPTER 6

Articles of Association
MEANING

The articles of association sets out the regulations for the internal management
of the company. According to section 2 (5) of the Companies Act, 2013 'articles'
means the articles of association of a company as originally framed or as altered
from time to time in pursuance of any previous companies law or of this Act.
 Rules of internal management : They lay down the mode and manner in
which the business of the company is to be conducted. They define the
powers of its officers. They also establish a contract between the company
and members and the members interse. The articles are framed for carrying
out the aims and objects of the memorandum of association.
 Subordinate to MOA : The articles of association of a company are
subordinate to and are controlled by the memorandum of association.
 Compulsory to have Articles : U/s 5(1) and 7(1)(a) of 2013 Act, it is
compulsory for every company to have its own articles and file the same
with RoC for registration.
MODEL FORM OF ARTICLES

Articles of a public company limited by shares:

 Section 5(7) provides that a company may adopt either:––
 Formulate and register Articles of its own within the provisions of the Act and
the memorandum of association; or
 Adopt all or any of the regulations contained in the model articles (Table F); or
 Partially adopt Table F and also have its own articles.
ARTICLES OF A PRIVATE COMPANY

A private limited company must have articles of its own which must contain the
restrictions as provided in section 2(68) of the Companies Act, 2013.
The company shall have a minimum paid up capital of ` 1,00,000 or such higher paid up
capital as may be prescribed from time to time.
It further–
 restricts the right to transfer its shares;
 except in case of One Person Company, limits the number of its members to 200:
Thus, a private company limited by shares has the following options :
 Adopt the entire Table F as its articles of association;
 Adopt only some of the provisions of Table F and incorporate them in the articles;
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 Adopt only some of the provisions of Table F, but instead of incorporating them in
the articles, include in the beginning of the articles a suitable statement indicating
their adoption;
 Adopt Table F but exclude some of its provisions by including a suitable statement
to that effect in the articles of association of the company;
 Modify the provisions of Table F and incorporate them in the articles of association
of the company; and not to adopt any of the provisions of Table F, but have
independent articles.
ARTICLES OF COMPANY LIMITED BY
GUARANTEE AND UNLIMITED COMPANIES
As per section 5(6) of the Act the articles of association of any company, not
being a company limited by shares, shall be in such one of the Forms in
Tables G, H, I and J in Schedule I as may be applicable, or in a Form as near
thereto as circumstances admit.
The Articles of the above types of companies, which do not have share
capital, may follow the pattern as prescribed in the Act as under:–
 Table ‘G’ – Articles of association of a company limited by guarantee
and having a share capital.
 Table ‘H’ – Articles of association of a company limited by guarantee
and not having share capital.
 Table ‘I’ – Articles of association of an unlimited company and having a
share capital.
 Table ‘J’ – Articles of association of an unlimited company and not
having share capital.
CONTENTS OF ARTICLES
The articles usually contain rules regarding following matters :
1. Adoption of preliminary contracts.
3. Allotment of shares.
5. Lien on shares.
7. Forfeiture of shares.
9. Conversion of shares into stock.
11. Meetings.
13. Borrowing powers.
15. Accounts and audit.
2. Number and value of shares.
4. Calls on shares.
6. Transfer and transmission of shares.
8. Alteration of capital.
10. Voting rights and proxies.
12. Directors, their appointment etc.
14. Dividends and reserves.
16. Winding up.
ALTERATION OF ARTICLES (SECTION 14)
A company can never replace its articles. It is only regulations contained
therein which may be changed.
Procedure for alteration of articles of association
For effecting alteration to the articles of association, the following procedure is
required to be followed : -
1. The proposal has to be approved by the Board of directors.
2. In the meeting the necessary special resolution amending the articles of
association shall be passed.
3. Within 30 days of the passing of the resolution, a certified copy thereof shall
be filed with the Registrar of Companies.
4. Where the alteration of the articles has the effect of converting a public
company into a private company, the company shall seek the approval of
the Tribunal.
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5. After getting the approval of the, printed copy of the articles, as altered, should
be filed by the company with the Registrar of Companies within 15 days of the
date of receipt of order of approval.
6. Six copies of the amendments (one of which shall be certified) should be sent
to the stock exchange(s) on which the shares of the company are listed, as
soon as they have been adopted by the company in the general meeting (as
per the Standard Listing Agreement]
7. Alteration should be noted in every copy of the articles of association, and the
articles issued after the date of alteration should be in accordance with the
altered articles (section 15).
LIMITATIONS ON POWER TO ALTER ARTICLES
 Must not be against the provisions of Act.
 Must not be inconsistent to the Memorandum.
 Must not sanction anything illegal.
 Not be inconsistent with any alteration made by Tribunal [Sec. 242].
 Approval of the Tribunal for conversion of public company into private company.
 No increase in the liability of members.
 Alteration by special resolution only.
 Should not cause breach of contract.
 Must be for the benefit of the company.
 Fraud on the minority.
 Retrospective alteration.
 Articles cannot be made unalterable.
 Discrimination between two groups of Shareholders.
MEMORANDUM AND ARTICLES DISTINGUISHED

Particulars Memorandum of Association Articles of Association

Meaning Memorandum of Association Articles of Association deals with the rights of
defines the relation of the company the members of the company Inter se and
with the outside world also establishes the relationship of the
company with the members.
Scope Memorandum of Association is the Articles of Association of the company is a
charter of the company and defines document which regulates the internal
the scope of its activities. management of the company
Contents Name Clause, Registered Office Contains Regulations for Company
Clause, Objects Clause, Liability management and those that regulate
Clause, Capital Clause and relationship between members inter se.
Association Clause.
Status Memorandum is a supreme Articles are subordinate to the
document of the company memorandum. They cannot alter or control
the Memorandum of Association.
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Alteration Can be altered only under certain Can be altered by the members by
situations and in the manner passing a Special Resolution only.
provided. Approval of Central
Government is required.
Ultra vires A company cannot depart from the Anything done against the provisions of
provisions contained in its Articles, but which is intra vires the
Memorandum, and if it does, it would Memorandum, can be ratified.
be ultra vires the company.
BINDING EFFECT OF MEMORANDUM AND ARTICLES

the members the company the company

the member
to the to the to the
inter se,
company, members, outsiders.
DOCTRINE OF CONSTRUCTIVE NOTICE

Section 399 provides that the Memorandum and Articles when registered with
Registrar of Companies ‘ become public documents’.
Hence, to Summarise we can say that the Doctrine of Constructive Notice
means :-
1. The memorandum and articles of association of every company are required to
be registered with the Registrar of Companies. The office of the Registrar is a
public office and consequently the memorandum and the articles on registration
become public documents. They are open and accessible to all.
2. These documents are open for public inspection on payment.
3. Every one dealing with the company, whether a shareholder or an outsider is
presumed to have read the two documents.
4. The parties dealing with the company must be taken not only to have read these
documents but also to have understood them according to their proper
meaning.
DOCTRINE OF INDOOR MANAGEMENT

The doctrine of indoor management is an exception to the rule of constructive

notice. A person dealing with a company is deemed to have knowledge of the
memorandum and the articles of association of the company. So, if he enters
into a transaction with the company which is ultra vires of the memorandum or
articles, he cannot treat the transaction as binding on the company.
The doctrine had its origin in the leading case of Royal British Bank v. Turquand
Royal British Bank V. Turquand (1856) 6E & B. 327].
It was held that borrowing of money by the directors without any authorisation
from the shareholders amounted to a mere internal irregularity and further held
that Mr. T could sue the company on the strength of the bond as he was entitled
to assume that necessary resolution had been passed.
EXCEPTIONS
1. Knowledge of irregularity. A person, who deals with company and who
has knowledge of the irregularity in its internal management in connection
with subject matter of his dealings, cannot claim the benefit of the rule in
Turquand's case.
2. Negligence. A person cannot claim the benefit of the rule in Turquand's
case in circumstances under which he would have discovered the
irregularity if he had made proper inquiries.
3. Forgery. The rule in Turquand's case will not apply where a document on
which the person seeks to rely is a forgery. The rule cannot be invoked in
favour of transactions involving forgery or otherwise void or illegal abinitio.
4. Acts outside the apparent authority. The rule in Turquand's case does
not apply where a person acting on behalf of the company exceeds any
actual or ostensible authority given to him. If the act of an officer of a
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company is one which would ordinarily be beyond the powers of such an
officer, the plaintiff cannot claim the protection of the Turquand rule.
5. No Knowledge of the contents of articles. A person who has not actually
read the memorandum and articles of a company and who was not at the
time, he entered into the contract, aware of their contents, cannot seek to
rely on statement contained therein.
He cannot claim that he should for his own benefit be treated as if he has
read them by virtue of the doctrine of constructive notice. The rule of
constructive notice operates against the person who fails to enquire but
does not operate in his favour. In other words, it operates in favour of a
company and not against it.
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