According to section 2(20) of the Companies Act, a “ company means a company formed and registered under”

the Companies Act. The memorandum of association of a company is the most important document as it sets out
the constitution of the company

The articles of association of a company are its bye-laws or rules and regulations that govern the management of
its internal affairs and the conduct of its business.

According to section 2(5) of the Act 'articles' means the articles of association of a company as originally framed
or as altered from time to time in pursuance of any previous company laws or of the present Act, ie., the Act of
2013.

The articles regulate the internal management of the company. They define the powers of its officers. They 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

Some of the powers which the company may exercise when authorised by its
articles include:
1. payment of underwriting commission with regard to issue of shares and
debentures (Section 40);
2. payment of dividend proportionate to paid-up amount on shares (Section 51);
3. to issue redeemable preference shares (Section 55);
4. to issue share warrants to bearers;
5. to alter its memorandum by special resolution so as to render the liability of its
directors unlimited;
6. to have an official seal for use outside India

Registration of Articles (Section 7)

Section 7 of the Companies Act, 2013 provides that :
A public company limited by shares may register its articles of association signed by the same subscribers as
those of the memorandum, or alternatively, it may adopt all or any of the regulations contained in Table A of
Schedule I of the Act.
If the articles are not registered Table A applies automatically, and if registered, Table A applies unless it is
excluded by the articles. This provision applies to all companies limited by shares whether public or private.
The articles of a company shall be in respective forms specified in Tables F, G, H, L and in Schedule I as may be
applicable to such company.

Form of Articles
If articles are proposed to be registered they must be printed. They should be divided into paragraphs, each
consisting generally of one regulation and numbered consecutively.
If the company is incorporated by furnishing false or incorrect information in its articles or by suppressing any
material fact or information, then the company and persons making such fraudulent information shall be liable for
action under Section 447 of the Companies Act, 2013 and the punishment provided under Section 448 for false
statement is imprisonment for a term not less than six months and may extend to ten years and shall also be
liable to fine which may extend to three times the amount involve

CONTENTS OF AOA

 Interpretation.
 Private Company.
 Share Capital and Variation Of Rights.
 Preference Shares.
 Alteration to Memorandum.
 Control of Shares.
 Shares held Jointly.
 Increase of Capital
 Winding up
 Meetings
 Etc…
Distinction between Memorandum and Articles

The memorandum and articles, both are important documents of a company. They are of vital importance not
only for the incorporation of a company but also for its management and expansion of business activities.
Though articles have always been held subordinate to the memorandum, both are intimately inter-related. This is
so because the purpose of the memorandum is to state the objects for which the company has been incorporated
while articles provide the manner in which the company is to carry on its business.

The main points of distinction between Memorandum and articles are as follows :-
1. Contents.-Memorandum is the charter of the company which defines the fundamental conditions and
objects for which it is incorporated. Articles of association on the other hand, contain the internal rules
and regulations framed by the company to govern its internal management.
2. Relationship.-Memorandum determines the objects, scope and extent of the activities of the company.
While articles are the bye-laws of the company which prescribe regulations by which the management
of affairs of the company is to be carried out.
3. Registration.-Every joint stock company must get its memorandum duly registerd under the Act. But in
case of Articles, a public company may adopt the model specified in Table A of Schedule I so as to
avoid the formalities of registration.
4. Alteration. -Clauses of the memorandum cannot be easily altered. The company has to pass a special
resolution and seek confirmetion of the Company Law Board, for making alterations in its memorandum.
In case of Articles of Association, members have a right to alter the articles simply by a special
resolution and there is no need to obtain the confirmation of the Company Law Board (now Tribunal)
5. Ultra vires acts.-Any act done by a company beyond the scope of its memorandum shall be ultra vires
being void and the same cannot be ratified even by unanimous vote of all the shareholders. But the acts
of the Board of Directors beyond the articles may be ratified by the shareholders.
6. Limitations. -Memorandum of a company cannot include any clause which is contrary to any of the
provisions of the Companies Act, but articles of association are subsidiary to both, i.e. the Companies
Act and the Memorandum.

Legal Effect of Articles of Association

the memorandum and articles of the company when registered, bind the members to the company and the
company to its members, but only in the capacity of members of the company and not in any other capacity such
as directors etc.
Notwithstanding any thing contained in the Companies Act, 2013, once the memorandum and Articles are
registered, they would be binding on the Company and its members as if they have personally signed them and
would be bound to follow the provisions contained in both these documents.

The binding nature of the articles can be considered under the following heads, namely-
1. the members bound to the company ;
2. the company bound to its members; and
3. the members of the company are bound inter se.

1. Members Bound to the company.-The articles (and memorandum) constitute a contract which is binding on
members in their relation to the company. Each member, qua member, that is, in his capacity as member, is
bound to the company by the provisions of the Articles. But a dispute between the company and a member in his
capacity as a director would not be within the terms of such articles even when the director was a member.

In Boreland's Trustee v. Steel Brothers & Co. Ltd., the articles of a company contained a clause that on the
bankruptcy of a member his shares would be sold to other persons at a price fixed by the directors. B, a
shareholder was adjudicated bankrupt. His trustee in bankruptcy claimed that he was not bound by these
provisions and was therefore, force to sell the shares at their market value. It was held that the trustee was
bound by the articles, as the shares were purchased by B on the terms and conditions of the articles.

2. Compary bound to its members.-Just as members are bound to the company, the company is equally bound
to its members since the articles constitute a contract between the company and its members. It, therefore.
follows that a member can bring an action against the company for violation of any of the provisions of the
articles.

In Wood v. Odeesa Water Works Ltd, the articles of the company contained a provision that the directors may,
with the sanction of the company at general meeting declare dividend to be paid to the members. Instead of
paying the dividend in cash to sharehoiders a resolution was passed to give them debenture bonds. One of the
members of the company brought an action to restrain the directors from acting on the resolution. It was held that
as the provision clearly indicated that the dividend was to be paid in cash the directors were, therefore. restrained
from acting on the resolution and not to issue debenture bonds in lieu of dividend in cash.
The Company is not bound to outsiders by the provisions of the Articles

It must be clearly understood that the articles bind the members to the company and vice-versa: but neither the
members nor the company is bound to outsiders to give effect to the articles. The term 'outsider' signifies a
person who is not a member of the company even if he is a director of or a solicitor to the company.

3. Binding effect of articles between the Members inter-se.-As between the members inter se, each member
is bound by the articles to the other members. Thus a shareholder may sue in his own name to restrain another,
or others from doing fraudulent or ultra vires acts. However, the articles do not affect or regulate the rights arising
out of a contract between the members which are completely outside the company's relationship.

Alteration of Articles (Section 14)

Section 14 of the Companies Act, 2013 provides that subject to the provisions of the Act and to the conditions
contained in its memorandum a company may by special resolution alter its articles. However, the only restriction
on this unfettered power granted under Section 14 is that a public company cannot convert itself into a private
company by carrying out alterations in its Articles of Association.

The right to alter the articles being unfettered, the company cannot in any manner, either by express provisions in
the Articles or Memorandum or by independent contract, deprive itself of the power to alter its articles. However,
the alteration should have been made bona fide for the benefit of the company as a whole, and the power to alter
must not have been exceeded.

In Harichandan v. Hindustan Insurance Society, the petitioner took a policy from the Insurance Company under
which a specified amount was to be paid to him on a specific date. Before that date, the Company altered its
articles under which the said amount was to be paid from a Special Fund but the said Fund was declared
insolvent and the petitioner was denied payment on the ground that the Fund had become non-existent.
The petitioner moved the High Court of Calcutta claiming the amount payable by the Insurance Company on the
basis of contract between him and the Company under the Insurance Policy. The Court ruled that any alteration
in the article cannot adversely affect the rights of parties under the contract and therefore, the Company was
bound to pay to the petitioner the amount which it had agreed to pay under a valid insurance contract.

The absolute power of the company to alter its articles is subject to two restrictions:

Firstly, it must not contravene any of the provisions of the Companies Act. That is, it should not be an attempt to
do something which the Act forbids.

Secondly, the company's power to alter the articles is subject to the conditions in the Memorandum. If any
alteration in the articles is contrary to the provisions contained in the Memorandum, it shall be void being ultra
vires the Memorandum.

The altered articles shall have the same binding effect on the members of the company as that of the original
articles. But the articles so altered shall not operate retrospectively.

On an application made under Section 241 or 242 of the Act the Tribunal may order a company to alter its
articles with a view to resolving complaints against oppression and mismanagement in the company.

Procedure for Alteration of Articles

The procedure to be followed by a company for altering its articles is as follows :-

1. First of all, proposal has to be approved by Board of Directors, who decide date & time of
meeting and Secretary convenes.
2. The special resolution should passed in general meeting on the appointed date.
3. Within 30 days of the passing of the resolution the company has to file form 1-B, with
registrar.
4. After approval, printed copies of the articles as altered should be filed by the companies with
the ROC within fifteen days of the date of the receipt of approval order.
5. Alternation must be noted in each copy of the articles of association.
Limitations on Power to alter Articles

A company can alter its articles by a special resolution in the general meeting. This statutory power
of the company is however, subject to the following restrictions or limitations:

1. The alteration must not exceed the powers conferred by the MoA
2. It must not be inconsistent with CA, 2013
3. The alteration must be bona fide and for benefit of the company
4. It must not be illegal or against public interest
5. Alteration increasing liability of member exceeding his shareholding isn’t binding unless he
consents in writing
6. A company cannot justify breach of contract by altering its AoA
7. Reserved liability once created cannot be converted to unreserved liability by altering AoA,
but may be cancelled by reduction of capital.
8. The alteration must not be inconsistent with NCLAT (National Company Law Tribunal)
9. Alteration must not constitute fraud on minority nor cause hardship on minority. Thus, in
Sidebottom v. Kershaw Leese & Co. Ltd., the articles of a private company were altered to
give the directors power to acquire the shares of a member who carried on a business in
competition with the company. The alteration was held to be valid as it was made bona fide
for the benefit of the company.

Constructive Notice of Memorandum and Articles

As stated earlier, the articles (and memorandum) when registered, become a public document,
therefore, anyone whether a member or an outsider, who has dealings with the company, shall be
deemed to have notice of the contents of these documents. This is known as the doctrine of
constructive notice which prevents the third party i.e. outsider from saying that he did not know that
the Articles/Memorandum of the company rendered a particular act or delegation of authority ultra
vires the company.

The public or persons are expected to go through the contents of memorandum and articles before
entering into transactions with the Company. These documents arc available in Registrar's office,
and copy thereof may be obtained on payment of prescribed fee.

In short, once the memorandum and/or Articles are registered in the office of the Registrar of
Companies, aJI the persons who deal with the Company shall be presumed to have 'constructive
notice' of the contents thereof.

Section 398 of the Companies Act, 2013 provides that applications, documents, for inspection etc.
filed in the electronic form shall be accepted and maintained by the Registrar in the manner
prescribed.

In case of Kotla Venkatswami v. Ramamurty,

A South Indian Agriculture and Industrial company provided in its Articles that all contracts entered
into by the Company must bear the signatures of its Managing Director, Secretary and Executive
Director. The petitioner obtained a bond from the Company which was signed only by the Secretary
and executive director. Held, that the bond having not been signed by the Managing Director, it
could not be enforced against the Company.
According to Palmer, the doctrine of the constructive notice applies to all such documents of the
Company which affect its powers. But from the practical stand point, this view appears to be
unrealistic because people know about the Company through its officials and not its documents.

The rule has therefore, been abandoned in Europe, and in India also, the Courts have not deemed it
necessary to follow the doctrine rigidly.

However, the persons desirous of dealing with the Company should in their own interest collect
information about the contents of memorandum and/or Articles through the office of the Registrar
of Companies so as to have know about the real status of the Company.

Doctrine of Indoor Management

The memorandum and articles of a Company become a public document after they are registered by the
Registrar of Companies, therefore any person intending to deal with the Company may, have access to these
documents and obtain copies thereof. Thus he will be deemed to have constructive notice of the contents of
memorandum and/or article.
However, there is an exception to this rule of constructive notice. This exception is known as 'doctrine of Indoor
management and was for the first time enunciated in the case of Royal British Bank v. Targuand.' It is also known
as Rule Tarquand.

In this case, The Articles of the company provide for the borrowing of money on bonds, which requires a
resolution to be passed in the General Meeting. 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
It is important to note that the doctrine of "constructive notice", can be invoked by the company and it does not
operate against the company. Instead, it operates against the person who has failed to inquire but does not
operate in his favour. On the other hand, the doctrine of "indoor management" can be invoked by the person
dealing with the company and cannot be invoked by the company.

In Premier Industrial Bank Lid. v. Carlton Manufacturing Co. Ltd., elaborating the implications of the doctrine of
Indoor Management, the Court held, "if the directors have power and authority to bind the company, but certain
preliminaries are required to be gone through on the part of the company before that power can be duly
exercised, then the person contracting the directors is not bound to see that all these preliminaries have been
observed". He can safely presume that the necessary formalities must have been duly complied with by the
directors.

Again, in Dewan Singh Hira Singh v. Minerva Mills Ltd., Sonepat, the company's articles gave to the directors the
power to allot only 5000 'A' class shares. They however, went much beyond and allotted over 13,000 such
shares. It was held that the allottees of shares were contracting in good faith with the company and were entitled
to assume that the acts of directors in making allotment to them were within the scope of their power. In other
words, they were not bound to make an inquiry whether the director's act of allotment of shares was properly
performed since it relating to internal management of the company.

Exceptions to the Doctrine of Indoor Management

It is seen that the doctrine of Indoor Management has great significance in the business world inasmuch as it
would be practically difficult, if not impossible, for a person dealing with the apparent agent of a company to
inquire and investigate that all the internal regulations had been duly observed by the company. The doctrine is,
however, subject to the following exceptions:

1. Knowledge of Irregularity
The doctrine of indoor management will not apply where the person dealing with the company has knowledge of
irregularity. Thus in Howard V. Patent Ivory Manufacturing Co.' the directors had no power to borrow money more
than £ 1,000 without the consent of the general meeting but they borrowed £ 2,500 from themselves and took
debenture without obtaining the sanction of the general meeting, it was held that they had the notice of internal
irregularity and therefore the debenture only to the extent of £ 1,000 were held valid.

This exception to the doctrine is not only conferred to persons dealing with a company but it also extends to
another company,' or a corporate body. Thus even a company may have notice or knowledge of irregularity in the
internal management of another company with which it deals and lose its claim on the ground of this exception.
2. Suspicion of Irregularity
The doctrine of Indoor Management does not apply and the protection of Turquand's rule is not available to a
person where in the circumstances surrounding the contract a man of ordinary prudence ought to have
suspected the irregularity and made necessary inquiries before dealing with the company. For example, where
the officer of a company is purporting to act in a manner which is apparently outside the scope of his authority.

3. Forgery and Fraud

Another exception to the doctrine of 'Indoor Management where the acts done in the name of the company are
void ab initio due to forgery or fraud.
The decision in Ruben v. Great Fingall Consolidated, illustrates this exception well. In this case, a person was
issued a share certificate with a common seal of the company. The signature of two directors and the secretary
was required for a valid certificate. The secretary signed the certificate in his name and also forged the
signatures of the two directors. The holder contented that he was not aware of the forgery, and he is not required
to look into it. The Court held that the company is not liable for forgery done by its officers.

A company shall however, be held liable for fraudulent acts of its officers acting under their ostensible authority
on its behalf for their own benefit and not for the benefit of the company.

4. Ignorance about the contents of Articles

The doctrine of indoor management does not apply to cases where a person dealing with the company has not in
fact consulted and gone through the articles (and memorandum) and even if he would have examined those
documents, he would not have revealed the irregularity.

It may be stated that once it has been established that the contract or transaction in question is within the
ostensible authority of the officer through whom it was made, the company cannot escape liability unless it has
been shown that the articles (and memorandum) did not delegate the authority in the matter to the said officer.

5. Lastly, the rule in Turquand's case does not bind the company either to its officers or other persons who
should know whether the regulations in the articles can be observed.