1. CHAPTER 4 Memorandum of Association and Article of Association
By Chirag Chotrani

2. MEMORANDUM OF ASSOCIATION Section 2(56) of the Act states “Memorandum” means the memorandum of association of a company as originally formed and altered from time to time under this act or in any previous law. Memorandum of association is also known as the charter of the company. Basically MOA is the constitution of the company, just like a normal human gets its power from the constitution of India , company derive its power from its MOA and beyond that ,the company cannot work. It is the first step towards the incorporation of the company rather is one of the most important pre requisite of incorporation of the company.

3. Ashbury Railway Carriage & Iron Co. Ltd v/s Riche
FORM OF MOA
The form in table A is applicable to company limited by shares
In table B is applicable to guarantee company not having share capital
In table C is applicable to guarantee companies having share capital
In table D is applicable to Unlimited company not having share capital
In table E is applicable to Unlimited company having share capital

4. REGISTERED OFFICE CLAUSE
Contents of MOA
SUBSCRIPTION CLAUSE
NAME CLAUSE
REGISTERED OFFICE CLAUSE
CAPITAL CLAUSE
OBJECT CLAUSE
LIABILITY CLAUSE

5. NAME CLAUSE
A company must have a name of its own, as the name of the company is a symbol of its independence. The company may adopt any name which is not undesirable.
What can be termed as undesirable ?
Section 4(2) states that the name shall not be identical or resemble too nearly the name of an existing company, or will constitute an offence under any law or is undesirable in the opinion of government.
Section 4(3) states that a company shall not be registered with a name which is likely to give an impression that the company is in any way connected to the central government or state government or any local authority unless the previous approval of central government is taken.
Company is not allowed to use a name which is prohibited under Emblems and Names Act.

6. As in the case of Ewing v/s Buttercup Margarine Co. ltd
The plaintiff carried the name of the Buttercup dairy co. obtained an injunction against the defendant “Buttercup margarine co. Ltd”
The ground of getting the injunction successful was that the public might feel that the two businesses were connected .
Another case was Atlas Cycles (Haryana)Ltd v/s Atlas products pvt. Ltd
Both the plaintiff and defendant belong the same family.
The plaintiff was the owner of the trade mark in the name of “Atlas” .
The defendant started using the name “Atlas” as a corporate name while selling bicycles
Plaintiff objected because of the use of the name and the defendants were restrained from carrying on the activities of the company in the same name.

7. Registered office clause / Situation clause
In this clause the name of the state is mentioned , the exact address of the registered office is not required to be stated therein.
However within 15 days of the incorporation, the company must have a registered office and the company must also furnish verification of the registered office within 30 days of the incorporation in form no. INC 22
Along with Form no. INC 22 following documents to be attached :
Title deed of the property or the lease deed.
If leased , authorisation of the owner to use it
Copy of any bill i.e. electricity or telephone bill

8. PUBLICATION OF NAME : Every company is required to state its name and address in legible letters in conspicuous position outside its registered office and all other offices where work is carried on and in all its business letters , bill heads , letter paper. Where a company has changed its name in the previous 2 years , the company must state its former name along with its new name.

9. OBJECT CLAUSE
The object clause is of great importance as this is the clause which decides the scope of the company or we can say that it determines the capacity of the company. It clearly states the ambit of the company and beyond which nothing should be done.
Another purpose of this clause is to enable the investors to know the range of company’s activities beyond which it can not go and if it acts beyond its ambit then that act will be an ultra vires act and will be considered void.
LIABILITY CLAUSE
In this clause the company clearly states about the liability of its members :
a) In case of limited company : the liability of the member is limited up to the unpaid amount on the face value of the share and if he has paid the full amount of the share , he cannot be called for anything now i.e. his liability is nil.

10. In case of guarantee company : the liability of each member is limited up to the amount guaranteed by it and will arise only at the time of winding up.
In case of guarantee company having share capital : the liability of each member goes 2 fold :
To pay the unpaid amount on the FV of the share
To pay the guaranteed amount at the time of winding up .
NOTE :
In case of a guarantee company the member is also liable for all the liabilities of the company that had arisen when he was the member of the company, if the company goes into winding up within 1 year after the date on which member ceases to be the member of the company.
d) In case of unlimited company : the clause clearly states that the liability of the member can extend to their personal assets.

11. CAPITAL CLAUSE
In this clause the company states its highest amount up to which the company can raise money from the public and is known as the Authorised capital of the company.
Authorised capital can also be called as nominal or registered capital.
The company cannot raise money above its registered capital without altering this clause.
The usual way to state the capital in the memorandum is “ the Authorised capital of the company is 20,00,000 divided into 2,00,000 equity shares of 10 each”
SUBSCRIPTION CLAUSE
The name of the persons subscribing to the memorandum of association are mentioned in this clause.

12. The manner in which it must be signed is :
(i) Each subscriber shall take at least one share.
Sign of each subscriber to the memorandum along with name, address , occupation and description in the presence of at least one witness who shall attest the signature along with the same details that of the subscriber.
Where the subscriber is illiterate he shall fix his thumb impression , which shall be described by the person writing for him and he will authenticate the name and thumb of the subscriber. Also he will read and explain the content of the MOA & AOA
Where it is body corporate it must be signed by any person authorised by the board .

13. ALTERATION OF MEMORANDUM OF ASSOCIATION
Alteration of memorandum can be done by the company whenever the company so desire ,by passing appropriate resolution.
It can be altered in the following aspects :
By changing its name (section 13(2))
The name of the Company can be altered
By Passing a special resolution

14. And with the previous approval of Central Government
An application in Form no. INC 24 along with the fees has to submitted to the ROC for the name change
ROC issues fresh certificate of incorporation in Form no. INC 25
Such name shall be effective only after the issue of such COI.

15. Important points :
Where the change in name relates to the addition or deletion of the word ‘private’ , previous approval of central government is not required.
However in this case, approval of NCLT has to be taken , as NCLT has not yet formed , approval of central government is taken.
Change in name will not be allowed if at the time of change of name the company has defaulted in filing its annual returns or has defaulted in paying any matured debentures or deposits.
If the name of the company which has been granted by the CRC (initiative of CG and it works under ROC , Delhi.) is too identical to a name of an existing company , the name of the company must be rectified on the order of CG within 3 months by passing an ordinary resolution.

16. Within 15 days notice of change has to be given to the registrar along with the order of central government.
Name change requirements (listed companies)
A time period of 1 year has elapsed from the last name change.
At least 50% of the profit must be generated from the new activity suggested by the new name.
The new name along with the old name must be disclosed through the website of respective stock exchange where the company has been listed for a continuous period of 1 year from the last name change.
The changed name stays with the MCA and shall not be allowed to use by any company for the next 3 years.

17. EFFECT OF CHANGE OF NAME
The change in name renders no effect on the previous transaction of the company or any previous case on the company .
However , once the new name has been adapted, any case after that must be on the new name of the company.
If the suit has been initiated on the former name, such suit will have no effect.
BY CHANGING REGISTERED OFFICE
Change within the local limits of the city , town or village
Firstly in this situation the MOA is not altered and the change can be initiated by a board resolution . Within 15 days of such change the alteration must be registered and verified with the ROC under Form no. INC 22 . Change will be effected from the date of passing of resolution

18. Change outside the local limits of the city, town or village
Process for alteration :
Call for a Board Meeting
In the Board Meeting pass resolution:
(a) for alteration of registered office
(b) for calling a general meeting
Hold General Meeting
In the general meeting get the approval of the share
holders by passing a special resolution .

19. a) Form MGT 14 along with a copy of SR
b) Form INC 22 for verification of the
registered office.
Both the forms are filed by the company within 30 days from the date of passing of special resolution in which INC 22 has to be filed within 15 days.
In this kind of alteration also the MOA of the company will not be altered .

20. Change of the registered office from 1 ROC to another ROC’s jurisdiction within the same state
An application in Form No. INC 23 to the
RD (regional director)
within 30 days RD will pass the
necessary order
within 60 days of the order of RD ,
the company must file the application
with the ROC (along with the confirmation of RD)
The ROC will then record the order and transfer
all the records to the new ROC

21. Note :
The company before filing any application to the RD must publish at least one month before the application :
A notice in an English newspaper and a vernacular newspaper regarding the change of registered office.
Individual notice to each and every debenture holder , creditor and depositor of the company stating that any person whose interest is likely to get affected may intimate the regional director about the same within 21 days.
Copy of special resolution in Form no. MGT 14

22. d) Change from one state to another state
This kind of alteration includes alteration of memorandum as in this the state is changed , and in the MOA under the registered office clause , the state in which the registered office of the company is mentioned.
Procedure :
Call for a Board Meeting
In the Board Meeting pass resolution:
(a) for alteration of registered office
(b) for calling a general meeting
Hold General Meeting

23. In the general meeting get the approval of the share holders by passing a special resolution . previous approval of Central Government has to be taken Central government after being satisfied that permission of the creditors , debenture holders and depositors have been taken or adequate provision for their fair discharge has been made CG shall dispose the application within 60 days

24. NOTE :
A copy of special resolution must be filed in Form no. MGT 14 with the registrar.
In such kind of alterations , a copy of the approval of Central Government shall be filed with the ROC of both the states in Form no. INC 28 and in Form no. INC 22 verification of the new registered office with the new ROC should be done .
Registrar of the new state shall issue a fresh certificate of incorporation.
Rule 30 – 31 of Companies(Incorporation)Rules 2014
Application for shift of registered office from one state to another has to be filed under Form No. INC 23
With a copy of MOA & AOA
Copy of notice convening the general meeting

25. Copy of the special resolution by which the MOA was altered
Copy of the minutes of the meeting at which the resolution was passed including the details of number of votes cast in favor.
Affidavit verifying the application
List of creditors and debenture holders entitled to object.
Affidavit verifying the list of creditors
Payment of application fee
Copy of board resolution or power of attorney.
NOTE:
The latest list of the creditors and debenture holders along with their respective amounts must be mentioned.
Latest here means not older than 1 month prior to the making of application.

26. An affidavit about the same that the above information is correct and no other debt of the company is left has to be signed by the Company Secretary of the company and two directors out of which one should be Managing Director , if there is a Managing director.
Shifting of registered office will not be allowed if any kind of inquiry , investigation or inspection is pending under he Act.
An affidavit that no employee is retrenched as a result of shifting of registered office.
List of creditors has to be maintained at the registered office of the company and whosoever wants to check it ,may check and take extracts of the same on payment of a sum not exceeding Rs. 10
An application is given to the chief secretary of the state
At least 14 days before the date of hearing advertise the application in Form No. INC 26 in vernacular newspaper and one English newspaper.

27. Serve by registered post an acknowledgement to the creditors about the advertisement being issued
Objection can be raised by the creditors to the CG before or on the date of hearing.
If no objections are received then CG can pass the order after due checking.
Important point :
A state cannot stop a company from transferring its business from one state to another on the ground of loss of revenue , as the loss of revenue of one state would be accompanied by the increase of revenue in another state. The interest of one state ought not to be considered but it is the interest of the country as a whole.

28. Alteration of Object Clause
Procedure to alter the object clause of the company is also the same .
Pass a special resolution
file it to the registrar and the registrar will
register it within 30 days from the date of filing the SR
Important points:
Where the company is eligible to pass resolution by postal ballot , any alteration must be passed by passing a special resolution through postal ballot .
Where the company is a public company and has raised money through prospectus and has any unutilised money, it shall do so provided :

29. Detail of such resolution must be published in the newspaper(one in English and another in vernacular language)
The dissenting shareholders shall be given an exit option .
Alteration of liability clause
Needs special resolution to be passed and which must be submitted to the registrar of companies in Form No. MGT 14.
Important point to be noted is that the liability of members can never be increased i.e. an unlimited company if it so wants , can convert itself into a limited company . But in no case the liability of the members of a limited company can be altered to unlimited.

30. Alteration of capital clause
If a company is authorised by its article of association , it can alter its capital clause by passing an ordinary resolution
The application of such intimation has to be filed with the ROC in Form No. SH7 within 30 days of the alteration along with the altered MOA
Capital clause of a company can be altered in the following ways :
By increasing its authorised share capital
By consolidating or by sub dividing
Conversion of shares into stock or vice versa
Cancellation of share which has not been taken up , such cancellation of shares should not be construed as reduction of share capital.

31. ARTICLES OF ASSOCIATION As per section 2(5) of the Act ‘articles’ means the articles of association of the company as originally framed or as altered from time to time in pursuance to any previous company law or of this Act. In simple AOA are the bye laws of the company or we can say the rules and regulation of the company by which the company is governed . The articles are subordinate to the memorandum of association , in short Memorandum is the constitution of the company and the exact power of the company vests in the Memorandum of association and there powers are explained by the article of association . So in no case the articles can supersede the MOA. If there is any conflict between the both , MOA will prevail .

32. FORMAT OF ARTICLES :
Company limited by share - Table F
Company limited by guarantee and having share capital – Table G
Company limited by guarantee and not having share capital – Table H
Unlimited company having share capital – Table I
Unlimited company not having share capital – Table J
In case of a private company , it can adopt table F but the restrictions of a private company has to be added in Table F.
If the company wants it can modify the form of AOA and then get it registered. If there is no modification , registration is not mandatory.

33. ALTERATION OF AOA By passing a special resolution in the general meeting , the company may alter its AOA . The 3 restrictions in the AOA if removed will make the company public company and if added it will make it a private company. However if a public company wants to convert itself to private company , approval of NCLT has to be taken. E-Form no. MGT 14 has to be filed with the ROC along with the copy of notice , copy of special resolution and a copy of the new altered AOA .

34. DOCTRINE OF ULTRA VIRES
In the case of a company whatever is not stated in the memorandum as the objects or powers is prohibited by the doctrine of ultra vires. As a result, an act which is ultra vires is void, and does not bind the company. Neither the company nor the contracting party can sue on it. Also, as stated earlier, the company cannot make it valid, even if every member assents to it. The general rule is that an act which is ultra vires the company is incapable of ratification. An act which is intra vires the company but outside the authority of the directors may be ratified by the company in proper form [Rajendra Nath Dutta v. Shilendra Nath Mukherjee, (1982) 52 Com Cases 293 (Cal.)].
Now , ultra vires can be of two types:
Ultra vires to the company
Ultra vires to the directors

35. Ultra vires to company For a company , any act which is done beyond the power of MOA will be void or we can say acts which are not mentioned in the object clause are ultra vires to the company. Even if the entire share holders ratify the act ,it still cannot be ratified Ultra vires to the directors Acts done by the directors beyond its power are ultra vires to the directors. If there is an ultra vires act which is intra vires to the company , such acts may be ratified by the share holders. But if the act done by the directors is ultra vires to the company, such act can not be ratified by the directors or by the share holders , the directors will be personally liable for such acts.

36. Ashbury Railway Carriage and Iron Company v/s Riche
Facts :
The company entered into a contract with M/s. Riche, a firm of railway contractors to finance the construction of a railway line in Belgium.
On subsequent repudiation of this contract by the company on the ground of its being ultra vires, Riche brought a case for damages on the ground of breach of contract
According to him the words “general contractors” in the objects clause gave power to the company to enter into such a contract and, therefore, it was within the powers of the company.
The House of Lords held that the contract was ultra vires the company and, therefore, null and void. The term “general contractor” was interpreted to indicate as the making generally of such contracts as are connected with the business of mechanical engineers.

37. The Court held that even if every shareholder of the company had been in the room and had said, “That is a contract which we desire to make, which we authorise the directors to make”, still it would be ultra vires. The shareholders cannot ratify such a contract, as the contract was ultra vires the objects clause, which by Act of Parliament, they were prohibited from doing. DOCTRINE OF CONSTRUCTIVE NOTICE The MOA and AOA of the company are its public documents and these documents can be inspected by any person who is willing to enter into contract with the company. So the company assumes that all the content of the MOA and AOA has been read by the outsider and now if the person enters into a contract with the company without reading the MOA and AOA and the contract turns out to be an ultra vires act , in such a case the company will not be liable .

38. Therefore, every person who contemplates entering into a contract with a company has the means of ascertaining and is consequently presumed to know, not only the exact powers of the company but also the extent to which these powers have been delegated to the directors, and of any limitations placed upon the exercise of these powers. In other words, every person dealing with the company is deemed to have a “constructive notice” of the contents of its memorandum and articles. CASE Kotla Venkataswamy v. Rammurthy, AIR 1934 Mad 579 In this case , the articles required that all documents should be signed by the managing director, secretary and the working director on behalf of the company. A deed of mortgage was executed by the secretary and the working director only and the Court held that no claim would lie under such a deed.

39. The Court said that the mortgagee should have consulted the articles before the deed was executed. Therefore, even though the mortgagee may have acted in good faith and the money borrowed applied for the purpose of the company, the mortgage was nevertheless invalid DOCTRINE OF INDOOR MANAGEMENT While the doctrine of ‘constructive notice” seeks to protect the company against the outsiders, the principal of indoor management operates to protect the outsiders against the company According to this doctrine the outsider is not bound to know the internal proceedings of the company , an outsider will assume that the contents of MOA and AOA are regularly followed by the company.

40. Royal British Bank v. Turquand,
In this case the directors of a banking company were authorised by the articles to borrow on bonds such sums of money as should from time to time, by resolution of the company in general meeting, be authorised to borrow.
The directors gave a bond to Turquand without the authority of any such resolution. It was held that Turquand could sue the company on the strength of the bond, as he was entitled to assume that the necessary resolution had been passed.
Lord Hatherly observed : “Outsiders are bound to know the external position of the company, but are not bound to know its indoor management”.

41. Exceptions to the rule of Indoor management
If the aggrieved party has himself attended the meeting in which authority was not given i.e. to say that he himself was aware of the indoor management
Outsider did not consult the MOA and AOA before entering into contract with the company.
Forgery
If there was negligence on the part of outsider.
Important :
Doctrine of Alter Ego = Doctrine of lifting of corporate veil.

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