WEEK 1- DAY 3

1. What is Memorandum and Articles of Association?

i. Memorandum of Association:

The Memorandum of Association (MOA) is a foundational legal document that

defines a company’s purpose and scope. It outlines the business objectives,
specifies the company’s powers (such as entering contracts and borrowing funds),
and sets conditions for its operations. Importantly, the MOA creates a binding
relationship between the company and its members. Think of it as the company’s
mission statement and legal compass rolled into one .

ii. Articles of Association:

The Articles of Association (AOA) complement the MOA by delving into the
company’s internal mechanics. Think of the AOA as the company’s operational
manual. It covers board rules, meeting procedures, director appointments, and more.
The AOA ensures coherence within the organization, guiding directors, officers, and
shareholders. Unlike the static MOA, the AOA can flexibly adapt (within legal
bounds) as the company evolves.

So, while the MOA sets the grand vision, the AOA choreographs the intricate steps of
corporate life. Together, they form the bedrock of a company’s legal structure.

2. What are the mandatory contents of the Memorandum?

The Memorandum of Association is a composite document that includes the company's

name, registered office address, nature of business, authorized share capital, and the
names and signatures of the subscribers who are the initial shareholders.
The particular components that cannot be statutorily excluded from a Memorandum of
Association includes:
 Purpose and Objectives:
o The MoA begins by clearly stating the company’s purpose, objectives, and the
business it intends to undertake. Think of this as the “why” behind the
company’s existence.
 Registered Office and Name:
o It specifies the registered office address where the company will operate.
o The proposed name of the company is also mentioned. This name must
comply with legal requirements and be unique.
 Capital Clause:
o Details the authorized share capital (the maximum amount of capital the
company can raise through shares).
o Specifies the division of capital into shares (e.g., equity shares, preference
shares).
 Liability Clause:
o Describes the liability of members (shareholders) in case the company faces
financial distress.
o For companies limited by shares, liability is limited to the unpaid amount on
shares held.
o For companies limited by guarantee, members commit to contribute a specific
amount if the company faces liquidation.
 Association Clause:
o States that the subscribers (initial shareholders) wish to form a company and
agree to become members.
o The subscribers sign the MoA to express their consent.
 Objects Clause:
o Elaborates on the specific activities the company is authorized to undertake.
o The company can only engage in activities mentioned in this clause. Anything
beyond is considered ultra vires (beyond legal authority).
 Powers Clause:
o Outlines the powers the company possesses to achieve its objectives.
o These powers are subject to legal limits and any restrictions specified in the
MoA.
 Alteration Clause:
 o Explains the process for amending the MoA (e.g., changing the company’s
objectives or capital).
o Alterations require shareholder approval and compliance with legal
procedures.
 Subscription Clause:
o Contains the names, addresses, and signatures of at least two subscribers (for
private limited companies) or seven subscribers (for public limited
companies).
o Subscribers express their intention to form the company and take up shares.
 Witnesses:
o The MoA must be witnessed by at least one person who signs as a witness.

3. Alteration of Memorandum of Association, Articles of Association?

Process of alteration of Memorandum of Association :

Below are the steps required to be followed to bring forth any alteration in a Memorandum of
Association.

 Step 1- Notice of meeting of the Board of Directors

The first step to altering any clause of a Memorandum of Association is to convey to the
Board of Directors (BoD) the proposal to make such an alteration. As mandated by of the Act
by virtue of Section 173, the BoD must be intimated through a notice at least seven days
prior to the actual board meeting. The notice must be accompanied by the details of the
proposed alteration and a draft of the resolution.

 Step 2- Meeting with the Board of Directors

The second step in altering the Memorandum of Association involves the holding of the
board meeting. The meeting witnesses the discussion of the need, pros and cons of the
proposed alteration. Finally, if the BoD agrees to carry out such an alteration, the date, venue,
and time for holding the general meeting are decided. Further, a director or someone else is
authorized to furnish a notice to all the members of the company to participate in the general
meeting.

 Step 3- Notice of Extra-ordinary General Meeting

Next, the notice of the general meeting is sent to all the directors, members, and auditors of
the company. As per Section 101 of the Act, the notice should be sent at least twenty-one
days before the date of the actual general meeting. The notice may be sent either via
electronic or physical means. The notice should specify the exact date, time, and place of the
proposed meeting. Furthermore, it should contain a brief note of the business that is proposed
to take place at the meeting.

 Step 4- General Meeting

Firstly, on the day of the general meeting, the quorum for the meeting is checked. The
quorum for a private company is a minimum of two (personally present.) In the case of a
public company, the quorum is a minimum of five; however, it changes according to the
number of members present in the meeting under Section 103 of the Act.

Secondly, the presence of the auditor of the company is checked. In case he/ she is absent, a
leave of absence may be granted.

Finally, the proposed special resolution for altering the Memorandum of Association has
been passed. A special resolution is said to be passed when it is favourably voted by at least
three times the number of votes cast against it. The votes can be cast either in person, through
a postal ballot, or by proxy.

 Step 5- Filing application with the registrar of the company

After passing the required resolution, various applications have to be filed with the RoC
within 30 days from the date of passing the resolution. The applications vary from one clause
to another, as discussed below.
Alteration of various clauses in a Memorandum of Association:

Section 13 of the Act deals with the alteration of the Memorandum of Association. The said
Section states provisions for altering every type of clause of the Memorandum of
Association, as discussed below. Please note that the steps discussed in the above-mentioned
subheading are mandatory for making any change in the Memorandum of Association of a
company; such a procedure has to be fulfilled no matter which clause’s alteration is proposed.
Nevertheless, the following provisions need to be followed with regard to the respective
clauses of a Memorandum of Association.

 Altering the Name Clause

Sections 4, 13(2), 13(3), and 16 of the Act provide for the alteration in the Name Clause of a
Memorandum of Association. A company that has passed a special resolution for the purpose
can change its name by filing an application (Form INC 24) in the Reserve Unique Name
(RUN) web portal service approved by the Ministry of Corporate Affairs (MCA). The RUN
service can be availed only after log-in into the MCA portal.

The MCA takes 2-3 days to approve the newly proposed name. It will send the name
approval letter if the name is in accordance with Sections 4(2) to 4(5) of the Act. Under
Section 13(2) of the Act, any change in a company’s name shall take effect only after it is
expressly approved by the Central Government. Nevertheless, such approval is unnecessary
in case the change is simply the addition or deletion of the word ‘Private’ when the company
gets converted from one class of company to another.

Once the name of the company is altered, the RoC will replace the old name with the newly
altered name in the register of companies. After registering it, the RoC will issue a new
certificate of incorporation with the altered name printed on it. The issue of the fresh
certificate of incorporation marks the end of the company’s name change.

 Altering the Registered Office clause

Sections 12(4), 12(5), 13(4), 13(5), and 13(7) of the Act give the provisions as to the change
in the registered office clause of a Memorandum of Association. For altering the registered
office clause in case the registered office is to be shifted within the local limits of the same
city, after passing a special resolution for the purpose, the company can file an application
(Form INC 22) with the RoC.

In case the company wishes to shift the registered office from one city to another within the
jurisdiction of the same RoC, it should file e-Form MGT-14 and INC-22 within 30 days of
passing a special resolution.

To shift its registered office from the jurisdiction of one RoC to another within the same
state, the company can file e-Form MGT-14 within 30 days of passing a special resolution.
Furthermore, it should file INC- 23 with the Regional Director, who may issue an order
approving the change in registered office. Then, INC-28 should be filed by the company
within 60 days of the RD’s order. Lastly, within 30 days of getting the approval under INC-
28, the company should file INC 22.

In the event a company wishes to shift its registered office from one state to another, it should
file an application (Form MGT 14) within 30 days of passing a special resolution in this
regard. Then, the company must file Form GNL 2, followed by INC 26 for advertising the
proposed change in newspapers in vernacular language and English. Then, INC 23 is to be
filed to get the approval of the RD; the RD’s approval order should then be filed with the
RoCs of the respective states from and to where the change in the registered office is
proposed. Finally, the approval of both the RoCs must be filed as INC 22 within 30 days.

 Altering the Object Clause

Under Section 13(9) of the Act, the Object Clause in the Memorandum of Association of any
company can be altered by passing a special resolution in this regard. The said Section
provides that any company that wishes to alter its Object Clause must pass a special
resolution and get it approved by the RoC within 30 days of passing the resolution. For that,
the company should file Form MGT 14, following which the RoC shall register such a
proposed change and issue a certificate thereof.

Altering Share Capital Clause

 Sections 13 and 61 deal with the alteration of the share capital clause in a Memorandum
of Association, provided the company’s Article of Association (AOA) permits it. Such an
alteration may include the following: Increase the authorized share capital of the
company;

 Increase or decrease the amount of each share;

 Convert its fully paid-up shares into stock or vice versa, and

 Cancellation of shares.

The alteration of the Share Capital Clause of a company requires the passing of an ordinary
resolution at a general meeting in that regard. Within 30 days from passing the resolution,
Form MGT 14 must be filed with the RoC, who shall then register the change in the Register
of Companies.

 Altering Liability Clause

The Liability Clause in a Memorandum of Association can be altered by passing a special

resolution in this regard. Within 30 days of passing the resolution, the company must file an
application (Form MGT 14) with the RoC.

 Altering Subscription Clause

The Subscription Clause in the Memorandum of Association cannot be altered throughout the
life of the company.

Documents required for alteration of Memorandum of Association

Generally, to alter any clause in a Memorandum of Association, the following documents are
required to be sent along with the application filed under Section 13 of the Act;

 Copy of the Memorandum of Association along with the proposed changes;

 A detailed report of the details of the board and general meetings in which the
resolution allowing such an alteration was passed;
  A certified copy of the resolution passed by the Board, and

 The list of creditors and debenture holders, along with their names, addresses, debts,
claims, or other liabilities due to them.

 Alteration of Articles of Association

Section 14 of the Companies Act, 2013, states the power of a company to alter its AOA,
given that such alteration is within the bounds of the MOA and is passed by the prescribed
procedure of passing a special resolution. This is one of the essential powers of a company
since its effect can turn:

 A private company into a public company

A company can be converted from a private company to a public one by altering its clauses.
This alteration is done in the form of omitting or removing the three clauses mentioned
under Section 2 (68) which states the characteristics of a private company. Once such
alteration is made, a copy of the resolution and the altered AOA shall be filed with the
Registrar within 15 days of passing such a resolution for alteration.

Other changes

In addition to the obvious change of the shares of the company also being available to the
public, as per Section 14 (1) of the Companies Act, any restrictions on the previously private
company, such as the limit on the number of members of the company to two hundred and
the limit in numbers of directors to two, shall be removed after its conversion to a public
company.

The newly converted public company, as per Section 149, would now need to have three
directors at minimum for such conversion as well as have more than the two hundred limit of
members. Furthermore, the company shall update every copy of the Articles of Association,
physical or online, to include the newly updated clauses as per Section 15 of the Act.

 A public company into a private company

For a public company to be converted to a private one, passing a mere special resolution is
not enough. The approval of the Tribunal is needed for such alteration and conversion. In
addition to that, a copy of the special resolution needs to be filed with the Registrar within 30
days of passing the resolution. Once the altered AOA is approved by the Tribunal, the new,
altered Articles of Association and the order of approval of the Tribunal shall also be filed
with the Registrar within 15 days of such order being passed.

Other changes

In addition to the above, in case of such newly converted private companies, the Articles of
Association must contain the three restrictions mentioned in the aforesaid section, which
include the restriction on the right of members to transfer shares, restriction on the number of
employees or members of the company to two hundred and the restriction of invitation to the
public for the subscription of its securities.

Due to such restrictions, the special resolution to be passed by the shareholders becomes even
more crucial along with the approval of the Tribunal. If either one of them is not acquired,
such conversion will not go through. In certain cases, if the public company is acquired or has
shares held by the Government, then such conversion may also require the approval of the
Central Government.

Procedure for Alteration of Articles of Association (AOA) :

As mentioned earlier, Section 14 of the Companies Act, 2013 states the requirements for the
alteration of Articles of Association, which may include addition, deletion, substitution or
modification of the clauses in the aforesaid document.

To alter the Articles, there are four types of procedures that the company can follow:
  As per the steps prescribed in the Articles of Association: If the company has
provided special steps to be followed for alteration in the Articles of Association
itself, then they shall be followed.

 As per the procedure of special resolution: This step of alteration includes the passing
of a resolution of at least 75% of the votes in favour of the alterations in the general
meeting of shareholders, as per Section 114(2) of the Companies Act, 2013.

 As per the votes of the Board of Directors: The Directors also have the power to alter
the Articles of Association as per the clauses given in the AOA. However, such
alteration needs to be ratified by the shareholders in the next general meeting or else
the alteration will lose its legitimacy.

 As per the Order of the Tribunal: The Articles of Association can also be altered by
the National Company Law Tribunal (NCLT), given that the alteration is either
subtraction or declaration of a clause as void due to any contravention with the
Memorandum of Associations of the company or any legislation of the country. The
main power of alteration is mostly only in the hands of the shareholders and Directors
of the company and the Tribunal can only do so if there are any contraventions of the
clauses with law or if the alteration is necessary for the functioning of the company or
to protect the interests of the shareholders from unfair exploitation. Even in case of
any mistake in the Articles of Association, be it clerical or otherwise, it can only be
rectified by the shareholders.

Before the initiation of any procedure of alteration in the Articles of Association, a notice of
at least 7 days is required to be given for the Board meeting of Directors as per Section
173 of the Companies Act.

Once the Board meeting of the Directors is held and recommendations for alterations as well
as approval are granted, the notice is issued for the general meeting in accordance
with Section 101 of the said Act, which may extend to however much is mentioned in the
clauses in the Articles of Association itself.

Filing alteration for registration

After the general meeting of the shareholders is held a special resolution is passed for the
approval of the alteration. If the resolution fails to reach the required amount of 75%, then the
alteration will not proceed any further. But if it does pass successfully, then the company has
to file form MGT-14 with the Registrar of Companies (ROC) within 30 days of passing of
such resolution with the required documents, consisting of certified copies of passing of the
special resolution as per Section 117, a copy of the notice of the general meeting as well as a
printed copy of the new and altered AOA.

The printed version of altered Articles of Association must also be provided to every
shareholder of the company once it is approved by the Registrar of Companies.

Limitations on power to alter Articles of Association (AOA):

 As mentioned earlier, the alteration made to the Articles of Association shall not be in
contravention of the Memorandum of Association or the Companies Act, given that
the AOA is subordinate to both of them.

 The alteration made to the Articles cannot have a retrospective effect. In simpler
terms, the alteration made in the Articles of Association changing any of the rules
shall not be applicable to the time or situation before its alteration to avoid unfair
treatment or arbitrary actions.

 The alteration cannot be in contravention with the order, alterations or suggestions of

the Tribunal, as per Section 242 of the Act. If the Tribunal decrees for certain actions
or rules, The Articles of Association cannot have any provisions acting against such
order or decree.

 The alteration made shall not be in contravention of morality, public policy or any of
the laws of the State. In addition to that, such alteration to the AOA should be made
for the benefit of the company and not to solely fraud or suppress the minority
shareholder.

 In the case of the conversion of a public company to a private one, no such alteration
can be made until consent from the Tribunal is obtained.
  The alteration in the AOA should not be used by the company to breach any contract
or escape from the liability of a pre-existing contract.

4. Doctrine of ultra vires.

The term ‘ultra vires’ is Latin, and it means ‘beyond the powers.’ Such an ultra vires act shall
be null and void. It cannot be ratified by the company’s Board of Directors (BoD). Similarly,
any contract entered into by the company against the provisions of its Memorandum of
Association shall be ultra vires and have no binding effect on the company. Nevertheless, the
doctrine of ultra vires allows the company to do any act that may be incidental to its main
object specified in its Memorandum of Association. As per the doctrine of ultra vires, the
company is not supposed to bypass the boundary set by the Memorandum of Association on
the company’s activities. If the company does any act outside its operational scope specified
under the Memorandum of Association, such an act will be held ultra vires.

The doctrine of ultra vires was essentially brought forth to safeguard the interests of the
members—that is, the shareholders and creditors of any company. The shareholders or
creditors of the company invest in it by essentially considering its main objectives. They
invest in a particular company, considering various factors like the market trends, the
reputation of the company, etc., and expect to get a good profit out of it. They invest, thinking
that their investment will be used only for the purposes about which they were already
informed. They expect the company to be consistent with its objectives. So, the doctrine
of ultra vires prevents the company from going beyond its permitted limits of operation. That
is why altering the Memorandum of Association of any company follows a lengthy and
complex process to ensure the company expands its scope of operation without being affected
by the doctrine of ultra vires.

Basic principles of the doctrine of ultra vires

The following are the basic principles of the doctrine of ultra vires as derived through the
course of various case laws.

 The defence of ultra vires is available to all parties.

 No member of the company can ratify an ultra vires act.

  A party that has fully performed its part in an ultra vires transaction cannot later avail
itself of the defence of ultra vires; it is prohibited under the doctrine of estoppel.

 Any act committed or omitted by any agent or representative of any company within
the extent of his employment cannot be repudiated availing the defence of the
doctrine of ultra vires.

Case laws relating to the doctrine of ultra vires:

Let’s know more about the connection between the doctrine of ultra vires and the alteration of
a Memorandum of Association through a few landmark case laws.

i. Ashbury Railway Carriage and Iron Company Ltd. v. Riche (1875)

One of the landmark cases on the doctrine of ultra vires in company law is Ashbury Railway
Carriage and Iron Company Ltd. v. Riche (1875). In this case, the object clause of the
Ashbury Co. provided the following as its objects:

 To make, sell, lend, or hire railway carriages and wagons, and all kinds of railway
plants, fittings, machinery and rolling stock;

 To carry on the business of mechanical engineers and general contractors;

 To purchase, lease, work, and sell mines, minerals, land and buildings;

 To purchase and sell as merchants timber, coal, metals, or other materials, and

 To buy any such materials on commission or as agents.

Ashbury Co. entered into a contract with the defendant company, Riche, to construct a
railway line in Belgium. Though the contract was initially ratified by the members of
Ashbury Co., it was later repudiated by it. The defendant sued Ashbury Co. for breach of
contract. In the end, the Court held that the contract was beyond the objects specified in the
Ashbury Co.’s Memorandum of Association, and so it was held void. The Court held that the
phrase “to make, sell, lend, or hire railway carriages and wagons, and all kinds of railway
plant” did not mean the company could build an actual railway line. Ultimately, the contract
was held to be ultra vires.

ii. Evans v. Brunner and Mond Co. (1921)

In this landmark case, a company that carried out the business of manufacturing chemicals.
The object clause in the company’s Memorandum of Association permitted it to do anything
that may be incidental to accomplishing its business. Further, the Memorandum of
Association allowed the company to provide funds to any English university for the
advancement of science and research. Such an allowance was challenged in court. The
challenge was based on the contention that it was not a part of the main object stated in the
Memorandum of Association.

Nevertheless, the Court acknowledged that funding for such activities was connected to
carrying out the company’s future operations. The fund was needed to train the prospective
students who may be easily recruited into the company. Such an act was held to be incidental
to the main object and hence valid.

5. Doctrine of Indoor Management?

The doctrine of indoor management, also known as the Turquand rule is a 150-year old
concept, which protects outsiders against the actions done by the company.

Any person who enters into a contract with the company shall ensure that the transaction
is authorised by the articles and memorandum of the company. Any individual who goes
into an agreement or is tied up with a contract with the organisation will guarantee that
the exchange is approved by the memorandum and the articles of the organisation. There
is no prerequisite to investigate the inward abnormalities, and regardless of whether there
are any anomalies, the organisation will be held obligated, since the individual has
followed up on the grounds of sincere trust or good faith. The doctrine began from the
milestone case Royal British Bank V Turquand (1856) 6 E&B 327. The current realities of
the case are as per the following. The Articles of the organisation accommodate the
getting of cash on bonds, which requires a special resolution to be passed in the General
Meeting. The management obtained the credit yet neglected to pass the resolution. The
reimbursement on the credit defaulted, and the organisation was expected to take
responsibility. The investors wouldn’t acknowledge the case without even a trace of the
resolution. They held, the organisation will be obligated since the individual managing
the organisation is qualified to accept that there has been essential compliance with
respect to the internal administration.
The standard was additionally embraced by the House of Lords in Mahony V, East
Holyford Mining Co. [1875] LR 7 HL 869. 6. For this situation, the Articles of the
organisation state that the cheque will be endorsed by two Directors and countersigned by
the Secretary. It later became exposed that neither the Chiefs nor the Secretary who
marked the cheque was selected appropriately. Held, the individual getting such a cheque
will be qualified for the sum since the appointment of directors is a piece of the internal
administration of the organisation, and an individual managing the organisation isn’t
needed to enquire about it.

The above view held on account of the House of Lords in Mahony V East Holyford
Mining Co. is upheld by Section 176 of the Companies Act, 2013, which expresses that
the imperfections in the arrangement of the chief or directors will not discredit the
demonstrations or acts done.

The doctrine gives the outsiders who go into an agreement with the organisation ensured
against any abnormalities in the inside method of the organisation. The outsiders can’t
discover interior abnormalities that happen in an organisation, consequently, the
organisation will be responsible for any misfortune endured by them because of these
anomalies.

The doctrine of constructive notice ensures the organisation is against the claim of
outsiders while the convention of indoor administration secures the outsiders against the
organisation’s methods.

Special Cases or Exceptions to the Doctrine of Indoor Management:

Recorded underneath are the exemptions for the doctrine that have been judicially settled,
which give conditions under which the advantage of indoor administration can’t be
guaranteed by an individual managing the organisation.

Information on Irregularity:

This standard doesn’t apply to conditions where the individual impacted has genuine or
helpful notification of the anomaly. In Howard V Patent Ivory Manufacturing Company
 (1888) 38 Ch D 156, the Articles of the association enabled the chiefs or directors to
acquire as much as 1,000 pounds. The cutoff could be raised given assent was given in
the General Meeting. Without the goal being passed, the chiefs or the directors took 3,500
pounds from one of the chiefs who took debentures. Held, the organisation was
responsible just to the degree of 1,000 pounds. Since the chiefs realised the resolution was
not passed, they couldn’t guarantee insurance subject to Turquand’s authority.

Doubt or Suspicion of Irregularity:

On the off chance that any individual managing the organisation is dubious with regards
to the conditions spinning around an agreement or the contract, then, at that point, he will
enquire into it. Assuming he neglects to enquire, he can’t depend on this standard or rule.

On account of Anand Bihari Lal V Dinshaw and Co, (1946) 48 BOMLR 293, the offended
party acknowledged the exchange of property from the bookkeeper. The Court held that
the offended party ought to have gained a duplicate of the Power of Attorney to affirm the
power of the authority of the bookkeeper. Accordingly, the exchange was viewed as void.

Fabrication or Forgery:

Exchanges including fabrication are void ab initio (invalid and void) since it isn’t true of
the shortfall of free assent; it is a circumstance of no assent by any means. This has been
set up in the Ruben V Great Fingall Consolidated case [1906] 1 AC 439. An individual
was given a share certificate with a typical mark of the organisation. The mark of two
chiefs and the secretary was needed for a legitimate authentication. The secretary marked
the testament in his name and furthermore manufactured or forged the signatures of the
two chiefs. The holder was satisfied that he didn’t know about the fabrication, and he isn’t
needed to investigate it. The Court expected that the organization isn’t to take
responsibility for fabrication done by its officials.

6. Doctrine of Constructive notice?

Section 399 of the Companies Act, 2013 states that any person may, after payment of the
prescribed fees inspect by electronic means any documents kept with the Registrar of
Companies. Any person can also obtain a copy of any document including the certificate
of incorporation from the Registrar.

In line with this provision, the Memorandum of Association and the Articles of
Association are public documents once they are filed with the Registrar. Any person may
inspect the same after payment of the fees prescribed. The special resolutions are also
required to be registered with the Registrar under the Companies Act, 2013.

The doctrine presumes that every person has knowledge of the contents of the
Memorandum of Association, Articles of Association and every other document such as
special resolutions as it is filed with the Registrar and available for public view.

This principle has been upheld in the landmark case of Oakbank Oil Co. V. Crum (1882)
8 A.C.65. Thus, if any person enters into a contract, which is inconsistent with the
company’s Memorandum and Article, he shall not acquire any rights against the company
and shall bear the consequences himself.