Dated:25.08.

2023

UNIT 7-ARTICLES OF ASSOCIATION

RULES,REGULATIONS,POWERS,ALTERATION
BINDING FORCE OF MOA AND AOA/LEGAL EFFECT OF
MOA /AOA(Sec 10)
 When ?-MOA and AOA are registered
 How? They bind a company and members to the same extent as if they have been
signed by company and each member.
 WHO?
a. Members to the company?
b. Company to the members?
c. Members to the members?
d. Company to outsiders?
MEMBERS TO THE COMPANY?

MOA & AOA –contract between company and each member

Member bound by law – follow MOA & AOA as if he had actually signed the same
Implication?-company can enforce AOA against any member.
Case Law- Borland’s Trustee v. Steel Bros. & Co. Ltd.
FACTS-
 AOA of SB had provision if shareholder of co. is bankrupt, his shares would be sold at fair price
 Borland(SH)-bankrupt
 The trustees of Borland claimed Borland not bound by AOA and shares to be given to the Trustee
 Trustees filed suit
HELD-
 Articles personal contract b/w Borland and the Company. Was bound
COMPANY TO THE MEMBERS?

Company also bound to the members

Injunction order against co.-restraining co. from doing ultra vires act.
Case: Wood vs. Odessa Water Works
FACTS:
 AOA of ODW –Directors may declare and pay dividends with the sanction of shareholders at GBM
 Directors passed resolution to issue Debentures for value of Dividend(instead of paying dividend
in cash)
 Wood (SH) filed suit to issue Injunction orders restraining co. from doing so(as against AoA)
 Held: Company not allowed to do so.
MEMBERS TO THE MEMBERS?
Bound amongst themselves
No express agreement
Implied bound by AOA and MOA
But such contract enforceable through the co. only (not through themselves)
CASE LAW: RAYFIELD V. HANDS
FACTS:
 AOA-Members willing to transfer/sell their shares must inform directors of co. & directors must
take said shares equally amongst themselves at fair price.
 Rayfield-informed Directors –intention to sell the shares
 Directors refused
 Rayfield filed suit against one of the Dir
 Dir –Articles did not impose liability on them as no agreement between member and member
HELD-
 Directors were liable to take shares
 AOA imposed obligation on them as members of the co.
COMPANY TO THE OUTSIDERS?
Outsider? Who is not a member per se
AOA –no binding contract b/w company and outsider
Outsider=stranger to a contract ,cannot acquire any R&L under such contract
Not entitled to enforce AOA against company for any breach of right conferred on him by AOA
In a case, AOA- Rs 250 rem. to CS,AOA altered Rs 25/-;can be done?-depends on nature of contract(if
ind. contract, then co.liable for breach)

CASE: PRITCHAND’S CASE

FACTS:
 AOA provided company on incorporation –purchase property of Pritchand –appoint as one Dir
 Wasn’t appointed by company
 Sued for breach of contract
HELD:
Cannot sue as outsider –no rights against company
ARTICLES OF A PUBLIC COMPANY LIMITED BY SHARES

Sec 5(7)-Co. may adopt all or any of regulations in model articles applicable to such company
3 options-
 Adopt all regulations in model articles(table F)
 Adopt AOA of its own (within Act & MOA)
 Partially Table F and also its own articles
RULES AND REGULATIONS IN ARTICLES w.r.t

Share capital-shares and their value –division into equity and preference
Rights of each class of shareholders ;procedure for variation of their rights
Proc. W.r.t allotment of shares, making of calls, forfeiture
Increase ,decrease or alteration of share capital
Rules w.r.t transfer/transmission of shares(+procedure)
R&R w.r.t winding up
W.r.t appointment ,remuneration, power , duties of D&O
Constitution &composition of audit committee, CSR committee
PROCEDURE FOR ALTERATION OF ARTICLES(Sec 14)

Approval of proposal by BOD-fix date and time of the GM

SR passed altering AOA
Intimation to ROC-file CC within 30 days of passing SR(S.117)
If public to pvt. ,Tribunal approval
Intimate ROC of approval of Tribunal-printed copy of altered articles filed within 15 days of the
date of receipt of order of approval.
Intimate Stock Exchange- 6 copies to be sent to SE on which shares of co. listed
Alteration to be noted in every copy of MOA/AOA (S.15)-else default-PUNISHABLE-Rs 1000/-for
every copy issued without noting alteration
LIMITATIONS TO ALTERATION OF ARTICLES

Must not be against TCA,2013

Must not be against MOA
Must not sanction anything illegal
Must not constitute fraud on minority by majority.
If not for benefit of a co. as a whole, only for majority then bad
Must not compel to subscribe for more shares or increase liability of members(unless consented)
Must not cause breach of contract –AOA of Y company-X co. to hold 5k shares in Y co. and will hv
right of nominating 2 directors on Board of Y company. X nominated 2 directors .Y refused. Y
attempted to alter AOA.
Injunction to restrain as it would constitute deliberate breach of contract.