Q 1-Define article of association explain the alteration of articles of association under companies

act

The articles of association of a company are its by-laws or rules and regulations which govern the
management of its internal affairs and the conduct of its business. They are framed with the object
of carrying out the aims and objects as set out in the Memorandum of Association. According to
Section 2(2) of the Companies Act, 1956 ‘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 laws or of
the present Act, i.e. the Act of 1956.

The Articles regulate the internal management of the company. They define the powers of its
officers. In Naresh Chandra Sanyal vs Calcutta Stock exchange association Ltd (AIR 1971 SC 422), the
SC said that the articles of association also establish a contract between the company and the
members and between the members inter se. This contract governs the ordinary rights and
obligations incidental to membership in the company.

Contents Of Articles Of Association

Articles usually contain provisions relating to the following matters-

1. Share capital including sub division thereof, rights of various shareholders, the relationship of
these rights, payment of commission, share certificates,

2. Lien of shares

3. Calls on shares

4. Transfer of shares

5. Transmission of shares

6. Forfeiture of shares

7. Surrender of shares

8. Conversion of shares into stock

9. Share warrant

10. Alteration of capital

11. General meetings and proceedings thereat

12. Voting rights of members, voting by poll, proxies

13. Directors, including first directors or directors for life, their appointment, remuneration,
qualifications, powers and proceedings of Board of directors’ meetings

14. Dividends and reserves

15. Accounts and audits

16. Borrowing powers

17. Winding up

Alteration Of Articles

Sec. 31 of the Companies Act, 1956, provides that a company may by passing a special resolution,
alter regulations contained in its Articles any time subject to

a) the provisions of the Companies Act and

b) Conditions contained in the Memorandum of Association [Section 31(1)].

A copy of every special resolution altering the Articles shall be filed in Form no 23, with the Registrar
within 30 days its passing and attached to every copy of the Articles issued thereafter.

The fundamental right of a company to alter its articles is subject to the limitations: some of them
are

a) The alteration must not exceed the powers given by the Memorandum of Association of the
company or conflict with the provisions thereof.

b) It must not be inconsistent with any provisions of Companies Act or any other statute.

c) It must not be illegal or against public policies

d) The alteration must be bona fide for the benefit of the company as a whole.

e) It should not be a fraud on minority, or inflict a hardship on minority without any corresponding
benefits to the company as a whole.
Q 5 What is the principle of lifting of corporate veil ? explain with the help of case laws.

Company enjoys a separate position from that of position of it’s owners. It is artificial but yet a
person in eyes of law. Problems arise when this position of the company is misused. It is not
incorrect to say that, though the company is an unreal person, but still it cannot act on it’s own.
There has to be some human agency involved so that company is able to perform it’s functions.
When this human agency is working, in the name of the company, for achieving goals approved by
law, the social order is not disturbed. But when this medium of operations begins to be tainted,
conflicts arise. This authority rather becomes firing of bullets from someone else’s gun.

When directors, or whosoever be in charge of the company, start committing frauds, or illegal
activities, or even activities outside purview of the objective/articles of the company, principle of
lifting the corporate veil is initiated. It is disregarding the corporate personality of a company, in
order to look behind the scenes, to determine who the real culprit of the committed offence is. Thus,
wherever this personality of the company is employed for thepurpose of committing illegality or for
defrauding others, Courts have authority to ignore the corporate character and look at the reality
behind the corporate veil in order to ensure justice is served. This approach of judiciary in cracking
open the corporate shell is somewhat cautious and circumspect.

In the case United States v. Milwaukee Refrigerator Transit Company[4], it was stated “A corporation
will be looked upon as a legal entity, as a general rule, and until sufficient reason to the contrary
appears; but, when the notion of legal entity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, the law will regard the corporation as an association of persons.”
Supreme Court of India had adopted the similar thinking in the case Tata Engineering And
Locomotive Co. Ltd. vs. State of Bihar & Ors[5] where the corporations petitioning had joined
together and claimed protection under Article 286 of Constitution of India for non-imposition of
taxon the sale or purchase of goods, the Apex Court held that “If their contention is accepted, it
would really mean that what the corporations or companies cannot achieve directly, they can
achieve indirectly by relying upon the doctrine of lifting the veil.”