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BBM 501 – CORPORATE LAW

February 21, 2012

ARTICLES OF ASSOCIATION
DEFINITION
o

AoA are the rules, regulations and bye-laws for internal management of the co.

o Framed for the purpose of carrying out the objectives of MoA o Subordinate and controlled by MoA o While framing the AoA, co. to ensure that the provisions do not exceed the co.’s powers under the MoA
o

Sec.26 – Co.s which must have their own articles ¢ Unlimited companies ¢ Co.s limited by guarantee ¢ Private companies limited by shares

o AoA to be signed by subscribers of the MoA & registered along with MoA o Public co. to have its own AoA. If it does not have, then it must adopt Table A in Schedule 1 of the act
o

Sec.27 – Regulations for unlimited co., private co. & co. limited by guarantee 1. Unlimited Co. – AoA to state as follows – a) No. of members with which the co, is to be registered b) If it has a share capital, the amount of share capital with which the co. is to be registered 2. Co. limited by guarantee – AoA to state the no. of members with which the co. is to be registered 3. Private co. – AoA to state as follows – a. Restrict the right to transfer the shares b. Limit the number of its members to 50(not including employee members)
c. Prohibit any invitation to public to subscribe for the shares or

debentures of the co.
PADMAPRIYA SRIVATSA Page 1

29) – AoA of other co.s can also include additional matters in its AoA so long as they are not inconsistent with the provisions contained in the above tables CONTENTS OF AOA  Share capital. table shall automatically apply ♠ Form of AoA for other Co. Dividends & reserves  Share Warrants. shall be in such form as prescribed in Tables C. Transmission and forfeiture of shares  Conversion of shares into stock. Voting rights of members. not being co. Alteration of capital  General meetings & proceedings thereof. proxies  Directors. payment of commissions.BBM 501 – CORPORATE LAW February 21. variation of rights. may adopt AoA o May adopt Table A in full o May wholly exclude Table A & set out its own AoA o May frame its own AoA & adopt part of Table A ♠ Unless the AoA of a public co. their appointment.28] ♠ There are 3 alternative forms in which a public co.s (Sec. Such Co. powers and proceedings of Board of Directors. poll. limited by shares. Manager & Secretary  Accounts. 2012 ADOPTION AND APPLICATION OF TABLE A [SEC. audit & borrowing powers. D & E (any one) in Schedule I of the Act or in a form as near thereto. share certificates  Lien & call on shares. qualifications. expressly exclude any or all provisions of Table A. Capitalization of profits  Winding up PADMAPRIYA SRIVATSA Page 2 .s. rights of shareholders. voting. remuneration. Transfer.

BBM 501 – CORPORATE LAW FORM AND SIGNATURE OF AOA [SEC. cannot purchase its own shares 2.. if any) in the presence of at least one witness to attest the signature. Printed Divided into paragraphs Signed by each subscriber of MoA (who shall add his address. 2012 I. Co. Must not sanction anything illegal. AoA is ultra vires & wholly void & inoperative 3. PADMAPRIYA SRIVATSA Page 3 .30]  Articles shall be - February 21. description & occupation IV. II. it is valid even if it alters the whole structure of the co. cannot deprive itself of this power either by provisioning in AoA or by independent contract (AoA containing clause prohibiting alteration) £ Sec. along with latter’s address. description & occupation. III. may alter AoA by passing special resolution o Any Article may be adopted which could have been lawful originally o A copy of every resolution altering the AoA to be filed with the RoC within 30 days of passing o Any alteration so made is as valid as the original AoA LIMITATIONS TO ALTERATION 1.g. Must not contradict the MoA or exceed the powers provided in the MoA. & co. If there is contradiction. E. provided it is neat & legibly printed {1993} ALTERATION OF AOA £ Right to alter AoA is a critical power of the co. Must not be inconsistent with or Ultra Vires the Act. AoA printed on computer laser printer should be accepted by the RoC for registration of co.31 – Procedure for alteration o Co. But if it is legal & not expressly prohibited by MoA.

2012 A co. Must not result in expulsion of member by Board of Directors.No power to Tribunal to amend or rectify AoA.38) 6. British Abrasive Wheel Co. Majority of shareholders were willing to provide more capital if the remaining 2% of shareholders would sell them their shares. even if it is detrimental to some members DIFFERENCE BETWEEN MOA & AOA PADMAPRIYA SRIVATSA Page 4 .BBM 501 – CORPORATE LAW 4. Even clerical errors in alteration to be set right by special resolution 7. Ltd February 21. is not prevented from altering AoA even if such an alteration would result in breach of any contract. Must not increase liability of members to contribute to the share capital or otherwise pay to the co. with the RoC within 1 month from the date of receipt of order of approval 8. Approval of Central government when a public co. When this alteration is approved by Central Government.. Alteration made by special resolution only. is converted into a private co. is necessary. was in financial difficulties.Alteration can be with retrospective effect. as a whole 5. A co. Held. Any provision / alteration of AoA to that effect is repugnant to provisions of the Act with relation to members of public company 10. as a whole Case: Brown v. The affected party may file a suit for damages for breach 9. unless they agree in writing before or after alteration is made (Sec. Majority passed special resolution altering AoA so as to enable 9 / 10ths of shareholders to buy out others. alteration could be restrained as it was designed to allow the majority to do compulsorily what they could not do by agreement & it was not for the benefit of the co. Must be for bonafide benefit of co. Courts can only declare some clause to be ultra vires 11. a printed copy of the AoA as altered to be filed by the Co.

BBM 501 – CORPORATE LAW MoA Charter of the co. Explaining any ambiguity in terms of MoA b. February 21. To supplement MoA upon any matter about which it is silent. AoA subordinate to MoA – a. Terms of MoA cannot be modified or controlled by AoA. cannot create rights inconsistent with MoA 2. AoA cannot give powers to Co. & area of Ops Supreme document of Co.s Act Should not violate both MoA & Companies Act RELATION BETWEEN MOA & AOA 1. AoA to be used only for clarification LEGAL EFFECT OF MOA & AOA PADMAPRIYA SRIVATSA Page 5 .’s relationship with outside world Defines scope of activities of the Co. limited by shares need not have its own AoA Cannot be easily altered Can be altered by special resolution Should not violate any provisions of Co. except for statutory matters in MoA 3. to have MoA Co. MoA to be read with AoA for a. not conferred by MoA. & regulates the co. 2012 AoA Only a set of rules regulating internal management Consists of sub-rules explaining objects as set out in MoA Subordinate to MoA Every Co.

BBM 501 – CORPORATE LAW ∇ MoA. Held. 2012 ∇ MoA & AoA constitute a contract between each member & the co. as against any member. Co. when registered. bind the co. only in accordance with the provisions of the MoA & AoA. B. Held. Members Inter se:.As between members inter se (amongst themselves). A member can restrain a co. Each member is bound to the Co. Odessa Water works Co. A resolution was passed to give the shareholders debenture bonds instead of paying dividend in cash.MoA & AoA constitute a binding contract between the members & Co. Members to Co. as if each member has actually signed the MoA & AoA Case: Borland’s Trustee v.:. the MoA & AoA constitute a contract between them & are also binding on each member as against the other(s). PADMAPRIYA SRIVATSA Page 6 . became bankrupt and his trustee in bankruptcy claimed that he was not bound by the altered AoA.. from doing any ultra vires act by obtaining an injunction Case: Wood v. the words “to be paid” meant paid in cash & a shareholder can restrain a co from acting on the resolution on the ground that it contravened the AoA 3. Such a contract can be enforced through the medium of the Co. as well as members February 21. to Members: . with the sanction of the co. ∇ Legal implications – 1. Ltd AoA as altered provided that the shares of any member who become bankrupt should be sold to certain persons at fair price.A co. Co. Steel Bros & Co. AoA were a personal contract between B & rest of the members & B & his trustee were bound 2. a shareholder. is bound to individual members in terms of their ordinary rights as members. at general meeting. AoA provided that the directors may declare a dividend to be paid to members. can exercise its rights.

is deemed to have notice of MoA & Aoa ⊕ On registration with RoC. Positive Govt. are entitled to assume that everything is regular as far as the internal proceedings of the co. provided that E should be the solicitor of the co. to inspect these documents ⊕ Special resolutions & particulars of charges registered with RoC are public documents & outsiders deemed to have notice of the same ⊕ Natural presumption is that outsider dealing with the co. & outsider & there is no action CONSTRUCTIVE NOTICE OF MOA & AOA ⊕ Every outsider dealing with the co. as these are public documents open to all DOCTRINE OF INDOOR MANAGEMENT  One limitation to constructive notice – Outsiders dealing with the co. for damages for breach of contract.AoA do not constitute any binding contract as between Co. 2012 4. AoA did not constitute any contract between co. An outsider cannot take advantage of the AoA to file a claim against Co. Based on Privity of contract (stranger to a contract cannot acquire any rights under the contract). dismissed him without alleging misconduct. E took office & became shareholder. AoA of co. it cannot be enforced against the Co. E sued the co. the co. & outsider. After sometime. has read the MoA & AoA. Company to Outsiders:. for life & could be removed from office only for misconduct. Security Life Assurance Co. Case: Eley V. If rights are conferred by AoA on any person in any capacity other than member.BBM 501 – CORPORATE LAW February 21. This is known as Constructive notice of MoA & AoA ⊕ It is the duty of every person dealing with the co. are concerned PADMAPRIYA SRIVATSA Page 7 . Held. these become public documents.

Held. Case: Royal British bank V. was to escape liability by denying the authority of officers to act on his behalf EXCEPTIONS TO INDOOR MANAGEMENT 1. against outsiders.s are not bound to inquire into regularity of internal proceedings & will not be affected by irregularities of which they have no notice  Rule based on public convenience & justice as an outsider is presumed to know the constitution of co.D.Sassoon & Co. had issued a bond to T. but not what may or may not take place within the closed doors of the co. Ltd PADMAPRIYA SRIVATSA Page 8 . they had the power to issue such a bond. on the ground that he was entitled to assume that the resolution was passed  Persons dealing with limited liability co. E. 2012  Presumption is that outsiders have read the MoA & AoA but this does not extend to inquiry into regular internal proceedings of the co.  Presumption is that all internal activities are being done regularly  This limitation to constructive notice is known as the Doctrine of Indoor Management or the rule in Royal British bank V.  Lot of creditors of a Co.BBM 501 – CORPORATE LAW February 21. he cannot claim the benefit of indoor management Case: T. has actual or constructive notice of irregularity as regards internal management.Pratt (Bombay) Ltd V. doctrine of Indoor Management protects outsiders against Co. would become unhappy if the Co. No such resolution was passed by the Co. Turquand Directors of a Co. T could recover the amount of bond from the Co.R. provided they were authorised by a resolution passed by the shareholders at a general meeting of the Co. turquand or Turquand’s rule  Doctrine of constructive notice protects Co. Under the AoA. Knowledge of irregularity – if the person dealing with the Co.

000 without the approval of the shareholders in general meeting. he cannot subsequently claim benefit of indoor management. A lent money to Co. was liable for only £1. could borrow any amount up to £1. an amount in excess of the borrowing powers of the co.s were the same.000 2.000. Patent Ivory Co. A co. 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. Negligence – If the person dealing with the Co. Plaintiff should have seen the power of attorney of co. Ltd PADMAPRIYA SRIVATSA Page 9 .’s property from its accountant. Protection of the rule not available where the circumstances surrounding the contract are so suspicious as to invite inquiry & outsider dealing with the co. Held. lender had notice of the irregularity & hence mortgage was not binding Case: Howard V.BBM 501 – CORPORATE LAW February 21. Ltd Plaintiff accepted a transfer of a co. Procedure laid down in AoA for such transactions was not complied with. Directors themselves lent to the Co. Held. Directors of a co. Dinshaw & Co. Directors of the 2 co. B on a mortgage of its assets. Great Fingall Consolidated Co. could discover the irregularity if he has made proper inquiries. 3. without shareholder’s consent. in favour of accountant. 2012 Co. transfer was void as such a transaction was apparently beyond the scope of the accountant’s authority. cannot be held liable for forgeries committed by its officers Case: Ruben V. does not make such inquiry Case: Anand Bihari Lal V. Held. director had notice of irregularity & hence the co. but had to obtain consent for amounts more than £1.

Schenekers Ltd A branch manager of a co. Acts outside the scope of apparent authority – co. Held. Held.’s seal with his own signature & the signature of the director forged by him. issued a share certificate under the Co. in favour of a payee to whom he was personally indebted. the co. 2012 Secretary of a co. share certificate was not binding on the company. drew & endorsed bills of exchange on behalf of the co.BBM 501 – CORPORATE LAW February 21. to do so. was not bound PADMAPRIYA SRIVATSA Page 10 . is not bound for such acts of its officers Case: Kreditbank Cassel V. The person who advanced the money on the certificate was not entitled to be registered holder of the shares 4. He had no authority from the co.