Conversion of Co’s already registered - Sec.

18
 (1) Co. of any class registered U/T/A may convert itself
as a Co. of other class U/T/A by alteration of MOA &
AOA of Co. in accordance with T/P/O/T/Chp.
 (2) Where the conversion is required to be done U/T/S
ROC shall on an application made by the
Co., after satisfying himself that
T/P/O/T/Chp. applicable for registration of
Co’s have been complied with
Close the former registration of the Co. &
After registering the documents referred to
Ss (1) - Issue a COI in the same manner as its
first registration.
 Conversion of Co’s already registered - Sec. 18
(3) Registration of a Co. U/T/S shall not
affect any debts, liabilities, obligations /
contracts incurred / entered into, by / on
behalf of the Co. before conversion &
Such debts, liabilities, obligations &
contracts may be enforced in the manner
as if such registration had not been done.
Binding Nature of
MOA & AOA
 Effect of MOA & AOA - Sec. 10
(1) Subject to T/P/O/T/A - MOA & AOA
shall –
When registered -
Bind the Co. & the members thereof to the
same extent as if they respectively had been
signed by Co. & by each member, &
Contained covenants on its & his part to
observe all the provisions of MOA & AOA
(2) All monies payable by any member to
the Co. under MOA & AOA shall be a debt
due from him to the Co.
 Binding Nature
Binding the Co. ?
Wood v Odessa Waterworks Co., (1889) 42 Ch S 6
Hanuman Prasad Gupta v Hiralal, (1970) 40 Comp. Cas. 1058 (SC

Members are bound ?

Borland’s Trustee v steel Bros. Co. Ltd., [1901] 1 Ch. 279

V.B. Rangaraj v V.B. Gopalakrishnan & Others, AIR
1992 SC 453; 1992 73 Comp Cas 201 SC
Members Inter - se ?

1. Rayfield v Hands, 1960 Ch 1

Co. & 2. Hickman v Kent…, [1915] 1 Ch 88
Outsiders ? 3. Ramakrishna Industries (P.) Ltd. v P.R. Rama Krishnan & Ors, 1988
64 Comp Cas 425 Mad

Browne v La Trinidad, (1887) 37 Ch D 1

Eley v Positive Govt. Security Life Ass. Co. 1876,1 Ex.
D. 88
 Hickman v Kent Or Romney Marsh Sheep-Breeders’ Association
[1915] 1 Ch 88  - Astbury J
 Hickman - Member of the Assn.
 Assn. proposed to expel him.
 Action for an injunction to prevent the expulsion .
 “Any dispute between the Assn. & its members should
be referred to arbitration.”
 Hickman attempted to bring court proceedings against
the Assn. over its refusal to register his sheep
 Assn. argued – dispute ought to be referred to
arbitration.
 Did it mean that a Co’s constitution created a contract -
the parties to which were the Co. & its members? Or
 Alternatively (as Hickman argued) did it only create a
contract between the members themselves? 
 Held - Combined effect of Co’s Act & Co’s
MOA/AOA was to create a contract between the
Co. & the members & also between the
members themselves, both individually &
collectively (or “the members inter se”), breach
of which was enforceable by & actionable
against the members as well as the Co., so long
as the member was acting in his capacity as
member (“qua member”) at all material times.
 Hickman’s claim was stayed & referred to
arbitration.
 Hickman ‘Filter’
 Who is trying to enforce the contract ?
Only a member can do so
 What kind of a right are they trying to enforce?
Only an insider right may be enforced
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 Construction of Memorandum & Articles
 MOA has to be read together with AOA - where the terms are
ambiguous / silent - AOA may explain the MOA - But cannot
extend its scope.
 Dr. A. Lakshmanaswami Mudaliar v LIC, (1963) 33 Comp. Cas.
420 (SC)
 In case of ambiguity in MOA - Articles may be referred to for
the very limited purpose of explaining the ambiguity.
 Shyam Chand v Calcutta Stock Exchange Assn. Ltd., AIR 1949
Cal. 337
 AOA should be construed as a business document so as to give
business efficacy.
 S.S. Rajakumar v Perfect Castings Pvt. Ltd., (1968) 38 Comp. Cas.
187 (Mad.); Jarnail Singh v Bakshi Singh, (1960) 30 Comp. Cas.
192 (Punj.); Holmes v Keyes, (1959) Ch. 199
 MOA of the Co. irrevocably binds a subscriber thereof to
contribute the proportion of the capital for which he subscribes
 Duke’s Case, (1876) 1 Ch.D. 620
 AOA establish a contract between Co. & Members &
between the members inter se
 Naresh Chandra Sanyal v Calcutta SE Assn. Ltd., (1971) 41
Comp. Cas. 51 (SC) : AIR 1971 SC 422
 As if they had been signed by Co. & by each member &
covenanted to by Co. & each SH to observe all the
provisions of MOA & AOA.
 Dale & Carrington Invt. P. Ltd. v. P.K. Prathapan, (2004)
122 Comp. Cas. 161 (SC)
 AOA are its constituent document are binding on the
Co. & its directors.
V.B. Rangaraj v V.B. Gopalakrishnan & Others,
AIR 1992 SC 453, 1992 73 Comp Cas 201 SC

Pvt. ltd.
Co.

Baluswamy Naidu
Died Feb. 5, 1963

 Whether SH’s can among

themselves enter into an
agreement which is
contrary to / inconsistent
with AOA
 V.B. Rangaraj v V.B. Gopalakrishnan & Others,
AIR 1992 SC 453, 1992 73 Comp Cas 201 SC

 Art. 13 –
No new member shall be admitted except with the
consent of the majority of the members.
On the death of any member of his heir / heirs /
nominee, shall be admitted as member.
If such heir, heirs / nominee is / are unwilling to
become a member - such share capital shall be
distributed at par among the members equally /
transferred to any new member with the consent of
the majority of the members. (Right of Pre-emption)
 No limitation on - Transfer of shares by a living
member either to the existing member / to a new
member?
 V.B. Rangaraj v V.B. Gopalakrishnan & Others,
 Plaintiff alleges – in 1951 there was an oral agreement - between
two brothers - Each of the branches of the family would always
continue to hold equal number of shares (25 Shares each)
 If any member in either of the branches wished to sell his share /
shares, he would give the first option of purchase to the members
of that branch &
 Only if the offer so made was not accepted, the shares would be
sold to others.
 Defendants disputed - there was any such agreement entered into
between brothers
 Finding recorded - Against the defendants
 AOA were not amended to bring them in conformity
with the said agreement
 Contrary to the said agreement – 1st Def. (Son of Baluswamy)
sold the shares to - Sons of Guruviah Naidu (Def. 4 -6)
 V.B. Rangaraj
 Baluswamy’s sons filed the present suit for
A declaration - Said sale was void & not binding
upon the Plaintiffs & 2nd Defendant (who is son of
Baluswamy - but was joined as a pro-forma def.) &
An order directing Def.s 1 & 4 - 6 to transfer the said
shares to the plaintiffs & 2nd Def. &
A permanent injunction restraining Def.’s 4 – 6 from
Applying for registering the said shares in their
names &
From acting adversely to the interests of the
plaintiffs & 2nd Def. on the basis of the transfer of
the said shares.
 AOA - are the regulations of Co. binding on the Co. &
its SH’s ?
 Shares are a movable property ?
 Transfer is regulated by AOA ?
 Restriction which is not specified in AOA is
Not binding either on the Co. / on SH’s?
Vendee of the shares cannot be denied the
registration of the shares purchased by him on a
ground other than that stated in AOA?
 S.P. Jain v Kalinga Tubes Ltd., 965 SCR (2) 720
 RNRL v RIL, (2010) 7 SCC 1
 Canbank Financial Services Ltd. v The Custodian & Others, (2004) 8 SCC 355
 Vodafone International Holdings B.V. v UOI & Anr, (2012) 6 SCC 613
 M.S. Madhusoodhanan & Another v Kerala Kaumudi Pvt Ltd & Others, (2004)
9 SCC 204
 Gore-Browne on Companies
 While dealing with transfer of shares - It is stated
that subject to certain limited restrictions imposed
by law - A SH has prima facie the right to transfer
his shares when & to whom he pleases.
 Freedom to transfer may… be significantly
curtailed by provisions in AOA.
 In determining the extent of any restriction on
transfer contained in AOA - A strict construction is
adopted.
 Restriction must be set out expressly / must arise by
necessary implication & any ambiguous provision
is construed in favour of SH wishing to transfer.
 Palmer’s Company law
 Transfer of shares –
 Is well-settled that unless AOA otherwise provide - SH has a
free right to transfer to whom he will.
 Not necessary to seek in AOA for a power to transfer, for the
Act - itself gives such a power.
 Only necessary - To look to AOA to ascertain the
restrictions, if any, upon it.
 Member has a right to transfer his share / shares to another
person unless this right is clearly taken away by AOA.
 Penington’s Company Law
 When a restriction is capable of two meanings –
 Less restrictive interpretation will be adopted by the court.
 Made clear - These restrictions have to be embodied in
AOA.
 Part 1 of the AOA
 No limitation on the transfer of his shares by a
living member either to the existing member / to
a new member.
 Only condition is that
When the transfer is made to a new member -
It will have to be approved by the majority.
 Transfer may be to any existing member –
Whether he belongs to one or the other
branch of the family
In such case there is no need of a consent
of the majority.
 Part 2 of the AOA
 AOA in fact envisages –
 Distribution of SH’ing of the deceased member
(& not of the living member) equally among the
members of both branches of the family & not
of any one of the branches only.
 Even the shares of the deceased member can be
transferred to any new member when his heirs /
nominees are not willing to become members.
 However, this can be done only with the consent
of the majority of the members.
 Private agreement imposes
 1. A restriction on a living member to transfer the
shares only to the existing members &
 2. Transfer has to be only to a member belonging to the
same branch of family.
 Agreement Imposes additional restrictions on the
member’s right to transfer his shares?
 Obviously - Are contrary to - Provisions of AOA (Art.
13) & not binding either on SH /on the Co.
 Hence - Sale by 1st Def. of his shares to Def 4 - 6 is
invalid (In breach of the private agreement) - is
erroneous in law.
 Baker Hughes Ltd. v. Hiroo Khushalani
(2000) 102 Comp. Cas. 203 (Delhi)
 JV Agreement provided
 If the equity participation of the foreign Co. at any time fell
below 40% then Co. would stop using the foreign Co’s trade
name.
 Foreign Co. disposed off equity shares.
 Injunction – granted against the Indian Co. from using the
foreign Co’s trade name.
 Held - Not contrary to AOA & was binding on the Indian Co.
Master Gautam R. Padival (Minor) v Karnataka Theatres Ltd.
(2000) 100 Comp. Cas. 124 (CLB)

 Section 111A, CA, 1956 - Shares of a PLC are freely transferable.

 Any stipulation in AOA contrary to the same, putting fetters on
the free transferability, would be hit by the provisions of section
9 of the Act (Sec. 6 – 2013)
 Master Gautam R. Padival (Minor) v Karnataka Theatres Ltd.
(2000) 100 Comp. Cas. 124 (CLB)
 AOA of a Stock Exchange provided – For cancellation of
membership of a defaulting member –
 Intra vires the Companies Act, 1956 & SEBI Act, 1992
& shall be valid
AOA shall be consistent with the other statutes ?
E.g. Securities Contract Regulation Act, 1956
 AOA & transfer of shares - “Pre-emptive right” - Right in the
existing SH’s to purchase shares
 Legitimate restriction by AOA in a private Co. - AOA would have
to be complied with in order to effect a valid transfer
Lyle & Scott Ltd v Scott’s Trustee [1959] 2 All ER 661, Lyle&Scott
Ltd v Scott’s Trustee, (1960) 30 Comp Cas 30 (HL);
Hunter v Hunter [1936] AC 222, Hunter v Hunter (1937) 7 Comp
Cas 36 (HL)
Ramakrishna Industries (P.) Ltd. v P.R. Ramakrishnan and Ors, 1988
64 Comp Cas 425 Mad
 Art. 38 – In the event of disagreement between the directors at
any time prejudicially affecting the emoluments / the interests of
any member of BOD - then the aggrieved party may either sell
his shares to the other members at a fair value / purchase the
share of the other members at a fair price, thus settling the
matter between them.
 In case any member fails to agree to the method above said to
end the deadlock, then the Co. shall be WU forthwith, & for the
purpose of realisation of assets -
 Assets may either be sold for monetary consideration / may
be distributed among the members in specie provided all the
debts & liabilities due by the Co. shall entirely be discharged.
 For the purpose of the Spl. Res., every member shall vote in
favour of the resolution for WU when such contingencies
arise.”
 Contention was Art. 38 - is void in so far as they
enabled the Co. to be WU on a ground which is
not specified U/S 433, CA, 1956
 AOA will have a contractual force between
Co. & its members
Between members inter se - In relation to
their rights as such members.
 Parties are bound by such contractual
obligations ? 
 Valid & binding on the Co. & its members ?
 AOA do not constitute a contract between Co. & any third party.
 Doraiswami Iyengar v United India Life Assurance Co. Ltd., AIR 1956 Mad.
316; Major General Shanta Shamsher Jung Bahadur Rana v Kamani Bros. P.
Ltd., (1959) 29 Comp. Cas. 501 (Bom.)
 An outsider to whom rights are purported to be given by AOA in
his capacity as such outsider whether he is / subsequently
becomes a member cannot sue on those AOA treating them as
contracts between himself & Co. to enforce those rights.
 No rights merely purporting to be given by an AOA to a person
whether a member / not in a capacity other than that of a
member, such as a solicitor / promoter, can be enforced against
the Co.
 Hickman v Kent Sheep-Breeders Association, (1915) 1 Ch. 881; Rameswar v
Calcutta Wheat and Seed Association, (1938) 42 CWN 161 (Cal.)
 Rights arising out of such contracts can be enforced only
through the Co.
 MacDougall v Gardiner , (1875) 1 Ch.D.13; Burland v Earle, (1902) AC 83
 Solicitor (Eley v Positive Govt. Security Life Ass. Co.
1876,1 Ex. D. 88)
 Promoter (Re English & Colonial Produce Co. [1906] 2
Ch. 435)
 Director (Browne v La Trinidad (1888) 37 Ch.D. 1;
Melhado v Porto Alegre Railway Co. (1874) L.R. 9 C P
503)
 Of a Co. to whom a right has been given by AOA has
not been able to enforce such right upon the basis that
there is a contractual relationship between himself &
the Co. Unless it could be shown that the relevant AOA
formed part of a contract independently of AOA &
MOA.
 Quin and Axtens Ltd v Salmon
[1909] A.C. 442
 Constituent documents of the Co. operate with
contractual force between the Co. & its members?**
E.g. Co. is entitled – A member is entitled to enforce the
To enforce obligations rights against the Co.
against its members Voting upon his shares
Attainment of a share certificate
Liens on shares
Return of capital on a WU
Repayment of loans Redemption of shares at a fixed
price
Payment of calls
Dividends due
Share transfer Forfeiture of shares other than in
provisions accordance with the constituent
documents.
 Alteration of AOA in breach of the contract
 Hari Chandana J. Dev v Hindustan Co-op Insurance Society, AIR 1925 Cal 690
 Southern Foundries Ltd v Shirwal, 1940 AC 701 (Removal as Director )
 British Mural Syndicate v Alperton Rubber Co, (1915) 2 Ch 186 (to hold 5000
shares - Appoint Nominee Director (Art. 88 of AOA )
 Alteration of AOA for compulsory purchase of shares of a SH
who was competing with the Co.
 Any alteration must be made in good faith for the benefit of the
Co. as a whole
 Sidebottom v Kershaw, Leese & Co [1920] 1 Ch 154, CA.; Also See AIIen v.
GoId Reefs of West Africa Ltd. (1900) 1 Ch. 656]
 AOA which provided that disputes between the Co. & its
members must be referred to arbitration would not avail a
person whose dispute was between the Co. & himself in his
capacity as a director, even though he was also a member
 Beattie v E. & F. Beattie Ltd, [1938] 1 Ch. 708
 Claude-Lila Parulekar v. Sakal Papers Pvt. Ltd.
(2005) 124 Comp. Cas. 685 (SC)

 AOA are a source of powers of Directors – Can exercise only

those powers conferred by AOA
 Any action referable to AOA & contrary thereto would be ultra
vires the AOA
 Ram Chand and Sons Sugar Mills P. Ltd. v. Kanhayalal
Bhargava, AIR 1966 SC 1899
 Acts of the Directors within the powers conferred on them may
be binding on the Co. But their acts outside the said powers will
not bind the Co.
 Gulab Singh v Punjab Zamindara Bank, AIR 1942 Lah. 47
 Terms of AOA - SH was appointed as MD of the Co.
 Acted for several years & was remunerated as provided in AOA
– Declaration as MD?
 Held - This constituted an implied contract between CO. & the
SH so as to entitle him to a declaration that he was the MD of the
Co.
 Stamp duty -  Indian Stamp Act, 1899
MOA & AOA- require impressed stamp.
Stamp duty varies from State to State -
Depends on the nominal share capital in
some States
Sec. 8 Co’s - Exempted from paying any
stamp duty