PART A

Q1: E-TEXT
Module ID 3: Objects, powers of companies and their internal administration

Module Overview:
As discussed in earlier module that the most important step in the formation or establishment
of a company is incorporation and registration of a company and for the same the promoters
of a company has to prepare and file number of documents to register the company which
include are memorandum of association, articles of association, registered office, statutory
declaration, list of Directors, written consent (approval) of directors, declaration of the
qualifying shares etc. As observed by Palmer: “These are the documents of great importance
in relation to the proposed company.” The module explains in details the memorandum of
association and articles of association, their purpose, contents and registration. The
memorandum of association and articles of association are now known as Memorandum and
Articles respectively under the new Companies Act, 2013 in view of the fact that now One
Person Company can also be incorporated. These documents are considered to be very
important, as they contain some fundamental clauses which describe conditions of a
company’s incorporation. It also discusses the alteration that can be done in memorandum
and articles of association and effects of such alteration. The module also tries to explain the
difference between memorandum and articles of association and the legal effects of such
documents.
Subject Name: Law

Paper Name: Corporate Law

Module ID: 3

Pre-requisites: For understanding the module, basic understanding of incorporation of

company under Indian law is required

1
Objectives:

To explain the different clauses

of memorandum of association
and the alterations thereof.

To discuss the contents of

articles of association.

To discuss the importance of

memorandum of association
and articles of association for a
company

Learning outcomes:
Following going through this unit, students will be able to:

Understand the meaning of memorandum of association

Give explanation to the clauses / content of memorandum of association

Know about Articles and their content

Understand the procedure for alternation of memorandum

Understand the limitations on power of alteration

Keywords: Incorporation of company, Business Law, companies, Registration,

Memorandum of Association, Association of Articles, object clause, name clause, documents
required for registration

INTRODUCTION
Following two documents are required for registration of a company:
(a) Memorandum of Association
(b) Articles of Association
These documents are listed in Companies Act, 1956. As we know, these are the documents
which make up the constitution of the company. In the Companies Act, 2013 memorandum of
association and articles of association are referred as memorandum and articles respectively.
The memorandum and articles, when registered, bind the company and the members to the

2
same extent as if they respectively had been signed by the company and by each member and
contain covenants on its and his part to observe all the provisions of the memorandum and
articles.

MEMORANDUM OF ASSOCIATION
Preparation of Memorandum of Association (now memorandum) is the first step in the
formation of a company. This can be seen in section 12 of the Companies Act, 1956 and
section 3 of Companies Act 2013 which provides the mode for forming an incorporated
company and states that in the case of public company, any seven or more persons, and in
case of private company, any two or more persons, associated for any lawful purpose, may by
subscribing their names to a memorandum and complying with other requirements of this Act
in respect of registration, may form an incorporated company, with or without limited
liability. According to section 2(28) of the Companies Act," memorandum" means the
memorandum 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. Although this definition does not
state the nature of this document nor is indicative of its importance, section 13 of the Act lays
down the contents of the important document.

Memorandum of Association enables the parties dealing with the company to know with
certainty as to whether the contractual relation to which they intend to enter with the company
is within the objects of the company. It is the main document of the company which defines
its objects and lays down the fundamental conditions upon which alone the company is
allowed to be formed. It governs the relationship of the company with the outside world and
defines the scope of its activities. Memorandum of Association enables the parties dealing
with the company to know with certainty as to whether the contractual relation to which they
intend to enter with the company is within the objects of the company.

In Ashbury Railway Carriage & Iron Co. Ltd v. Riche 1 and Egyptian Salt and Soda Co. Ltd v.
Port Said Salt Association Ltd2, it was held that memorandum of association of a company is
the main charter of a company and it defines the limitation on the powers of a company. It
states negatively that nothing shall be done beyond that ambit which a memorandum of a
company prescribes.

CONTENTS OF MEMORANDUM

1
(1875) L.R. 7 H.L. 653
2
(1931) A.C. 677

3
 1. Name clause
The first clause of the memorandum has to state the name of the proposed company, as a
company being a legal person should have a name because the name of a corporation is the
symbol of its existence. There are certain things which should be kept in mind while deciding
on a company’s name like no company can be registered with a name which in the opinion of
a Central Government is undesirable and it should not be identical with the name of another
registered company.
Secondly, whatever be the name of the company, if the liability of the members is limited, the
last word of the name must be “Limited” and in the case of a private company “Private
Limited”.3
If a company desires to change its name, then it can be done by passing a special resolution
and with the approval of the Central Government signified in writing. 4
A person may make an application to the Registrar for the reservation of a name for his
proposed company or the name to which the company proposes to change its name. Upon
receiving such an application, the Registrar may reserve the name for a period of 20 days
from the date of approval or other prescribed period. 5 In case of an application for reservation
of name or for change of its name by an existing company, Registrar may reserve the name
for a period of sixty days from the date of approval. 6 If it is found that the name was applied
furnishing wrong or incorrect information, then the reserved name may be cancelled in case
the company has not been incorporated. If in such a case, the company has been incorporated,
the Registrar will give an opportunity of hearing to the company and may take any of the
following actions:

3
Section 4(1)(a) of the Companies Act, 2013; Corresponds to Section 13(1)(a) of the Companies
Act,1956
4
Section 21 of the Companies Act
5
Section 4(5) as amended by the Companies (Amendment) Act, 2017
6
ibid

4
 a. Either direct the company to change its name within a period of three months after
passing an ordinary resolution;
b. Take action for striking off the name of the company from the register of companies;
or
c. Make a petition for winding up of the company.

2. Registered Office
The second clause of the memorandum must specify the State in which the registered office
of the company is to be situated and this should be done within thirty days of incorporation or
commencement of business, whichever is earlier. 7 Registered office should be capable of
receiving and acknowledging all communications and notices as may be addressed to it under
sub.s (1).
If a company desires to shift its registered office from one place to another within the same
city, town or village they can do it without passing a special resolution but if they want to
shift it from one city to a different city altogether then a special resolution has to be passed. 8
Section 12(1)(5) states that no company shall change the place of its registered office from the
jurisdiction of one Registrar to the jurisdiction of another Registrar within the same state
unless such changes are confirmed by the Regional Director on an application made by the
company regarding the same in the prescribed manner.
Section 12 of the Companies Act, 2013 lays down the provision regarding registered office of
company- it states that on and from fifteenth day of the incorporation of a company, the
company should be capable of receiving and acknowledging all communication and notices
as may be addressed to it. It also lays down the manner in which the name of the company
should be affixed or engraved. Section 12 has been amended by the Companies
(Amendment) Act, 2019 by addition of sub.s (9). This provision gives power to the Registrar
for physical verification of the registered office of the company. It says that if the Registrar
has reasonable cause to believe that the company is not carrying on any business or
operations, he may cause a physical verification of the registered office of the company if any
default is found in compliance of provisions of sub. s.(1).

3. Objects and powers

The third and the most important clause of a memorandum must state the objects for which a
company is proposed to be established. It is essential that the public who subscribes for its
shares should know clearly what the objects are for which they are investing.

7
Section 51 of the Companies Act; Corresponds to section 4(1)(b) of the Companies Act,2013
8
Section 17-A of the Companies Act

5
In the case of companies which were in existence immediately before the commencement of
the Companies (Amendment) Act. 1965, the object clause had simply to state the objects of
the company. But in the case of a company to be registered after the amendment, the objects
clause was required to state separately:
● Main Objects- under this clause, the company had to state their main objects and
objects incidental to the attainment of the main objects.
● Other Objects- under this, other objects had to be stated by the company which is not
included in the above.
● States to which objects extend- under this, the companies whose objects were not
confined to one State, this clause had to mention the states to whose territories the
objects extended.
Under the Companies Act, 2013 section 4(1)(c) states the object clause of the
memorandum does not contain categories of main objects and other objects, it only
specifies that the memorandum of a company should specify the objects for which a
company is proposed to be incorporated and any matter considered necessary in
furtherance thereof.

4. Capital Clause
The last clause states the amount of nominal capital of the company and the number and
value of the shares into which it is divided. Section 3 of the Act prescribes the
requirement that a public company must have a minimum paid up share capital of five
lakh rupees or such higher amount as may be prescribed; and a private company is
required to have a minimum paid up share capital of one lakh rupees or such higher
amount as may be prescribed by its articles.
Whereas, section 4(1) (e) of the Companies Act, 2013 lays down no amount of minimum
paid up share capital in case of both public or private company, it just says that amount of
share capital with which a company is to be registered and division of the same into
shares which the subscribers to the memorandum agrees to subscribe shall not be less
than one share and the number of shares each subscriber to the memorandum intends to
take should be indicated opposite his name. This means no separate subscription clause is
laid down in 2013 Act as it was laid down in 1956 Act.

ALTERATION OF MEMORANDUM
Alteration of Memorandum involves compliance with detailed formalities and prescribed
procedure. Alterations to the extent necessary for simple and fair working of the company
would be permitted. Alterations should not be prejudicial to the members or creditors of the

6
company and should not have the effect of increasing the liability of the members and the
creditors.
Contents of the Memorandum can be altered under the Companies Act, 1956 as under:
● A company may change its name by special resolution and with the approval of the
Central Government signified in writing. However, no such approval shall be
required where the only change in the name of the company is the addition there to or
the deletion there from, of the word “Private”, consequent on the conversion of a
public company into a private company or of a private company into a public
company.9
● Change of registered office from one place to another place in the same city, town or
village. In this case, a notice is to be given within 30 days after the date of change to
the Registrar who shall record the same. Whereas, in case of change of registered
office from one town to another town in the same State a special resolution is
required to be passed at a general meeting of the shareholders and a copy of it is to be
filed with the Registrar within 30 days of the change of the office. A notice has to be
given to the Registrar of the new location of the office. 10 The alteration shall not take
effect unless the resolution is confirmed by the Central Government.
● The Company may alter its objects on any of the grounds (i) to (vii) mentioned in
Section 17 of the Act. The alteration shall be effective only after it is approved by
special resolution of the members in the general meeting. The Companies
(Amendment) Act, 1996, has dispensed with sanction of Central Government for
alteration of the objects clause in Memorandum of Associations.
● The procedure for the alteration of share capital and the power to make such
alteration are generally provided in the Articles of Association. If the procedure and
power are not given in the Articles of Association, the company must change the
articles of association by passing a special resolution.

ALTERATION OF MEMORANDUM UNDER THE COMPANIES ACT, 2013

Corresponding to sections 16, 17, 18, 19, 21, 23 and 37 of the Companies Act, 1956, section
13 of the Companies Act, 2013 lays down the criteria for alteration of memorandum. It states
that as provided in section 61 a company by special resolution and after complying with the
procedures specified may alter their provisions of memorandum. Regarding the alteration of
name clause, the company can alter its name after the approval of the Central Government in
writing; therefore, when any change in the name of the company is made the Registrar shall
enter the new name in the register of companies in place of the old name and issues a fresh
9
Section 21 of the Companies Act
10
Section 17 of the Companies Act

7
certificate of incorporation. The alteration regarding the registered office of the company as
mentioned earlier shall not have any effect unless it is approved by the Central Government.
Regarding any alteration of object clause of the memorandum of company the registrar should
certify registration within a period of thirty days from the date of filing of the special
resolution in accordance with clause (a) of sub-section (6) of this section.

PURPOSE OF MEMORANDUM
Main reasons which make the memorandum such an important document for a company are:
firstly, shareholders before making investment in the company come to know the purpose for
which their money will be used and what risk they are going to face by making an investment;
and the second main purpose of memorandum is that anyone dealing with company will know
about the permitted range of activities of the company.

PART B

ARTICLES OF ASSOCIATION11
Articles of association are the second document which has to be registered along with the
memorandum of articles of a company in case of some companies. Companies which must
have articles of association are:
● Unlimited Companies
● Companies limited by guarantee and
● Private Companies limited by shares
This document contains rules, regulations and bye-laws for the general administration of the
company. They may be described as the internal regulation of the company governing its
management and embodying the powers of the directors and officers of the company as well
as the powers of the shareholders.12 They lay down the mode and the manner in which the
business of the company is to be conducted. In framing Articles of Association care must be
taken to see that regulations framed do not go beyond the powers of the company itself as
contemplated by the Memorandum of Association nor should they be such as would violate
any of the requirements of the Companies Act, itself. All clauses in the Articles ultra vires the
Memorandum or the Act shall be null and void.
Contents of Articles of Association

11
Section 26 of the Companies Act,1956
12
Section 5 of the Companies Act,2013

8
 (1) share capital, different classes of shares of
shareholders and variations of their rights (2)
allotment of shares (3) calls on shares (4) issue
of share certificates (5) issue of share warrants

(6) transfer of shares (7) transmission of

shares(8) alteration of share capital (9)
borrowing power of the company (10) rules
regarding meetings

(11) voting rights of members (12) accounts

and audit (13) directors, their appointment
and remuneration (14) payment of interest out
of capital (15) common seal (16) Winding Up.

Articles generally contain provision relating to the following matters: (1) share capital,
different classes of shares of shareholders and variations of their rights (2) allotment of shares
(3) calls on shares (4) issue of share certificates (5) issue of share warrants (6) transfer of
shares (7) transmission of shares (8) alteration of share capital (9) borrowing power of the
company (10) rules regarding meetings (11) voting rights of members (12) accounts and audit
(13) directors, their appointment and remuneration (14) payment
of interest out of capital (15) common seal (16) Winding Up. 13

According to section 5 of the Companies Act, 2013, articles of a company contain the
regulations for management of a company. They contain prescribed content but additional
content may be added if necessary for management of a company. The articles may provide
for entrenchment which means that entrenched regulations or entrenched clauses of articles
can be altered only under conditions which are more restrictive then the special resolution
which is generally required for alteration of articles. Provisions for entrenchment may be
made at the time of formation of a company or later on by an ordinary resolution in case of a
private company and by a special resolution in case of a public company.

ALTERATION OF ARTICLES14
Section 31 of the Companies Act, 1956 grants power to every company to alter its articles
whenever it desires by passing a special resolution and filing a copy of altered Articles with

13
The Companies Act, 1956
14
ibid

9
the Registrar. Alteration of articles is considered to be much easier than memorandum as they
can be altered by special resolution.
In case of conversion of a public company into a private company, alteration in the articles
would only be effective after approval of the Central Government. 15 The power is now vested
with the Registrar of Companies. Alteration of the articles shall not violate provisions of the
Memorandum. It must be made bona fide for the benefit of the company. Alteration must not
contain anything illegal and shall not constitute fraud on the minority. Alteration in the
articles increasing the liability of the members can be done only with the consent of the
members.16
After passing a special resolution for altering the articles of a company and the alteration is
approved by the Central Government, the company is required to submit a printed copy of the
articles so altered to the Registrar of Companies within one month of the date of the passing
of the special resolution.17

ALTERATION OF ASSOCIATION UNDER THE COMPANIES ACT, 2013

The Companies Act, 2013 lays down that according to the provisions of this Act and the
conditions contained in the memorandum of a company, a company can alter its articles by
special resolution. Such alterations may include alterations having the effect of conversion of
a private company into a public company or a public company into a private company. The
proviso says that if a private company alters its articles and removes the restrictions and
limitations required for a private company, the company from the date of such alteration
ceases to be a private company. The proviso further provides after the Companies
(Amendment) Act, 2019 that any alteration having the effect of conversion of a public
company into a private company will not be valid unless it is approved by an order of the
Central Government on an application made in this respect. It also provides that on the date
of commencement of Companies (Amendment) Act, 2019, any application pending before the
National Company Law Tribunal shall be disposed of by the Tribunal in accordance with the
provisions applicable to it before such commencement.

Every alteration of the articles under section 14 of the Companies Act, 2013 and a copy of the
order of the Central Government approving the alteration shall be filed with the Registrar,
together with the printed copy of the altered articles. The 2013 Act lays down a very
important point regarding the alteration of the articles of a company and that is that any

15
Section 31 of the Companies Act
16
<http://www.icra.in/files/content/articlesofassociation.pdf> assessed 2 September 2014
17
Ibid

10
alteration of the articles registered under the sub-section (2) of the section 14 should be valid
as if it were originally present in the articles.

DISTINCTION BETWEEN ARTICLES AND MEMORANDUM

Memorandum
1. It is a charter of a company indicating
the nature of its business & capital. It also
defines the company’s relationship with
outside world
2. It defines the scope of the activities of
the company, or the area beyond which
the actions of the company cannot go.
3. It, being the charter of the company, is
the supreme document.
Articles
1. Articles are regulations for the internal
management of the company and are
subsidiary to the memorandum.
2. They are the rules for carrying out the
objects of the company as set out in the
Memorandum.
3. They are subordinate to the
Memorandum. If there is a conflict
between the Articles and the
Memorandum, provisions of
Memorandum will always prevail.

4. Every company must have its own 4. Now under the Companies Act, it is
Memorandum necessary for all types of companies to
have articles.

5. Any act of the company which is ultra 5. Any act of the company which is ultra
vires the Memorandum is wholly void vires the articles can be confirmed by the
and cannot be ratified even by the whole shareholders if it is intra vires the
body of shareholders. memorandum.

Changes brought in by 2013 Act in setting up of a company18

Provision 2013 Act 1956 Act

1. One Person ● Section 3(1) of 2013 ● No such concept as
Company Act- OPC means a One Person
company with only Company under
one person as its 1956 Act.
member. Only a
natural person who is
an Indian citizen and
resident in India can
incorporate an OPC
or be a nominee for

18
Companies Act, 2013 Key highlights and analysis <
http://www.pwc.in/assets/pdfs/publications/2013/companies-act-2013-key-highlights-and-analysis.pdf>
accessed 1 November 2016

11
 the sole member of
an OPC.

2. Memorandum of ● The only change ● 2013 Act specifies

association brought in 2013 Act the mandatory
is that it does not content for the
require the objects memorandum of
clause in the association, which
memorandum to be is similar to the
classified as the existing provisions
following: of the 1956 Act,
(i) The main such as name
object of the clause, registered
company office, liability
(ii) (ii) Objects clause.
incidental or ● No procedure given
ancillary to for applying for the
the availability of a
attainment of name for a new
the main company.
object
(iii) (iii) Other
objects of the
company

● Reservation of name:
The 2013 Act
incorporates the
procedural aspects
for applying for the
availability of a name
for a new company
or an existing
company in sections
4(4) and 4(5) of 2013
Act.

3. Articles of association ● The 2013 Act ● No such concept of

introduces the entrenchment
entrenchment provision in 1956
provisions. An Act.
entrenchment
provision enables a
company to follow a
more restrictive
procedure than
passing a special
resolution for altering

12
 a specific clause of
articles of
association. A private
company can include
entrenchment
provisions only if
agreed by all its
members or, in case
of a public company,
if a special resolution
is passed.

4. Incorporation of ● 2013 Act mandates

company inclusion of declaration
to the effect that all
provisions of the 1956
Act have been complied
with, which is in line
with the existing
requirement of 2013Act.
● An affidavit from the
subscribers to the
memorandum and
from the first
directors has to be
filed with the ROC,
to the effect that they
are not convicted of
any offence in
connection with
promoting, forming
or managing a
company or have not
been found guilty of
any fraud or
misfeasance, etc
● 2013 Act further
prescribes that if a
person furnishes false
information, he or
she, along with the
company will be
subject to
penal provisions as
applicable in respect
of fraud i.e. section
447 of 2013 Act.

5. Formation of a ● A company with ● Under 1956 Act,

13
company with
charitable objects
charitable objects companies
may be incorporated incorporated with
in accordance with charitable objects
the provisions of the did not had to face
2013 Act. New stringent provisions
objects like
environment
protection, education,
research, social
welfare etc., have
been added to the
existing object for
which a charitable
company could be
incorporated.

6. Registered office of ● Where a company ● No such

company has changed its name requirement to be
in the last two years, done by companies
the company is under 1956 Act.
required to paint,
affix or print its
former names along
with the new name of
the company on
business letters, bill
heads, etc. However,
the 2013 Act is silent
on the time limit for
which the former
name needs to be
kept [section 12 of
2013 Act].

7. Alteration of ● The 2013 Act ● No such restriction

memorandum imposes additional imposed on the
restriction on the companies
alteration of the
regarding alteration
object clause of the
memorandum for a of object clause of
company which had the memorandum
raised money from of the company.
the public for one or
more objects
mentioned in the
prospectus and has
any unutilized
money.
● The 2013 Act specifies
that along with obtaining

14
 an approval by way of a
special resolution, a
company would be
required to ensure
following if it intends to
alter its object clause:
1. Publishing the notice
of the aforesaid
resolution stating the
justification of
variation in two
newspapers
2. Exit option can be
given to dissenting
shareholders by the
promoters and
shareholders having
control in
accordance with the
regulations to be
specified by the
Securities and
Exchange Board of
India (SEBI)
[section 13 of 2013
Act].

8. Subsidiary company ● Section 42 of the

not to hold shares in its 1956 Act which
holding company prohibits a subsidiary
company to hold
shares in its holding
company continues
to get acknowledged
in the 2013 Act.

DOCTRINE OF CONSTRUCTIVE NOTICE

As we all know by now that memorandum of association cannot be altered by the sweet will
of the members of a company, it can be altered only by following the procedure prescribed in
the Companies Act. Articles of association contain the rules and regulations which are
granted for the internal management of the company and articles of association can be altered
any time by the procedure as prescribed in the Companies Act. It is generally presumed that
every person dealing with the company is presumed to have read the memorandum and
articles of association and understood them in their true perspective. This is known as
doctrine of constructive notice.

LEGAL EFFECT OF MEMORANDUM AND ARTICLES

15
Memorandum and Articles, when registered bind the company and its members to the same
extent as if they have been signed by the company and by each member to observe and be
bound by all the provisions of the memorandum and of the articles. Also, all moneys payable
by any member to the company under the memorandum or articles shall be a debt due from
him to the company.19
1. Members bound to the company
Each member must observe the provisions of articles and memorandum. In V.B Rangaraj vs
V.B Gopalkrishnan20, it was held that the articles are the regulations of the company binding
on the company and on its shareholders. Shareholders, therefore, cannot among themselves
enter into an agreement which is contrary to or is inconsistent with the articles of the
company.
2. Company bound to members
A company is bound to its members by whatever is contained in its articles and
memorandum. The company is bound not only to the “members as a body” but also to the
individual members as to their individual rights.21

3. Members bound to members

The articles bind the members inter se, i.e. one to another as far as rights and duties arising
out of the articles are concerned. After the articles are registered, they not only constitute a
contract between the association or company on the one hand and its members on the other,
but also they constitute a contract between the members inter se- Shiv Omkar Maheshwari vs
Bansidhar Jagannath22.
4. Company and the outsiders
The articles do not constitute any binding contract as between a company and an outsider. An
outsider cannot take advantage of the articles to find a claim against the company. This is
based on the general rule of law that a stranger to a contract cannot acquire any rights under
the contract.23

Doctrine of Indoor Management

19
Section 36 of the Companies Act
20
[1992], 73 SC
21
Kaushik Dhar, Articles of Association And Alteration of Articles [2012]<
http://www.legalservicesindia.com/article/article/articles-of-association-&-alteration-of-articles-1050-
1.html> accessed 1 November 2016
22
1957 27 CompCas 255 Bom
23
Kaushik Dhar, Articles of Association And Alteration of Articles [2012]<
http://www.legalservicesindia.com/article/article/articles-of-association-&-alteration-of-articles-1050-
1.html> accessed 1 November 2016

16
The Doctrine of indoor management is a presumption on the part of the people dealing with
the company that the internal requirements with regard to the articles of association and
memorandum of association have been complied with. The outsiders dealing with the
company are entitled to assume that as far as the internal proceedings of the company are
concerned, everything has been regularly done. They are presumed to have read incorporation
or public documents of the company which are submitted to ROC and to see that the proposed
dealing is not inconsistent therewith, but they are not bound to do more; they need not inquire
into the regularity of the internal proceedings as required by the Memorandum and the
Articles. They can presume that everything is being done regularly. This limitation of the
doctrine of constructive notice is known as the “doctrine of indoor management”, or the rule
in Royal British Bank v. Turquand24, or just Turquand Rule25. Thus, whereas the doctrine of
constructive notice protects the company against outsiders, the doctrine of indoor
management seeks to protect outsiders against the company.
The basic principle behind this rule is that outsiders are not bound to inquire into the
regularity of the internal proceedings and will not be affected by irregularities of which they
had no notice.

Exceptions to the Doctrine of Indoor Management26

1. Knowledge of irregularity: When a person dealing with a company has actual or

constructive notice of the irregularity as regards internal management, then he cannot claim
the benefit under the rule of indoor management. He may in some cases be himself a part of
the internal procedure.

24
(1856) 6 E&B 327
25
Turquand case served to qualify the harsh implications of the 'constructive notice' doctrine, under
which all persons conducting business with a corporation were deemed (or construed) to have
knowledge of any restriction on the authority of an agent contained in the corporation's articles and by-
laws.
26
<http://www.gla.ac.in/glau/Download/Company%20Laws%20BBA%20IVsem.pdf>accessed
25 September 2014

17
2. Negligence: Where a person dealing with a company could discover the irregularity if he
had made proper inquiries, he cannot claim the benefit of the rule of indoor management. The
protection of the rule is also not available where the circumstances surrounding the contract
are so suspicious as to invite inquiry, and the outsider dealing with the company does not
make proper inquiry.
3. Forgery: The rule in Turquand’s case does not apply where a person relies upon a
document that turns out to be forged since nothing can validate forgery. A company can never
be held bound for forgeries committed by its officers.
4. Acts outside the scope of apparent authority: If an officer of a company enters into a
contract with a third party and if the act of the officer is beyond the scope of his authority, the
company is not bound.

SUMMARY

The changes brought in the 2013 Act have important effects that are set to significantly
change the manner in which corporates operate in India. This module has summarized the
major changes as compared to the 1956 Act and has gone through two different constitutional
documents that are memorandum of association and articles of association. The two
documents highlighted that the matters in the memorandum were fundamental and unalterable
whereas the articles could be altered by the company. But now it is possible to alter almost all
the provisions of a company’s memorandum, though specific procedures are prescribed for
each type of alteration. Separate documents are, therefore, no longer necessary and the
memorandum and articles of association can be replaced by a single document.

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