The articles of association of a company are the internal regulations which

govern the management of the internal affairs of a company. As against the

articles, the memorandum of a company contains the fundamental
conditions for guidance and benefit of the creditors and outside public as
also shareholders who are desirous of dealing with the company. The
articles being meant for regulating the internal affairs of a company, the
members have full control and may by resolution alter them as the fit so
long as they do not exceed the limits defined by the memorandum of the
company.

In the case of Naresh Chandra Sanyal v. Calcutta Stock Exchange

Association Ltd, the Supreme Court provided that the articles of
association of a company also establish a contract between the company
and its members as well as between the members. This contract governs
the ordinary rights and obligations incidental to the membership in the
company.

Articles of association are like the partnership deed in a partnership. They

particularly provide for matters such as the making of calls, forfeiture of
shares, directors qualifications, the procedure for transfer and transmission
of shares and debentures, powers, duties and appointment of auditors.

Definition and Nature of Articles

Section 2(5) of the Companies Act, 2013 defines "Articles of Association"
thus

"Articles means the articles of association of a company as originally

framed or as altered from time to time or applied in pursuance of any
previous companies law or of this Act."

Thus, it would be seen that the 'articles' of a company are its bye-laws or
rules and regulations which govern its internal affairs and the conduct of
its business. They are of vital importance to the company in as much as
they deal with the rights of the members of the company inter se. They are
subordinate to and controlled by the memorandum.

Lord Cairns L.C. described the functions of Articles of association of a

company in Ashbury Railway Carriage & Iran Co. Ltd. v. Riche. In the
following words:

The articles play a part subsidiary to the memorandum of association.

They accept the memorandum as the charter of incorporation of the
company, and so accepting it. the articles proceed to define the duties,
rights and powers of governing body as between themselves and the
company at large. And the mode and form in which business of the
company is to be carried on, and the mode and form in which changes in
internal regulations of company may from time to time be made"

Briefly stated. While the memorandum lays down the scope and powers
of the company, the articles govern the ways in which the objects of the
company are to be carried out.

The article cannot be used resolve an ambiguity which relates to some

matter required by statute to appear in the memorandum.
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 except insofar as it
is excluded by the articles. This provision applies to all companies limited
by shares whether public or private.

In case where a company has not excluded a regulation contained in Table

A either expressly or by implication, it shall be deemed to have been
incorporated in the articles of the company.

The articles of a private company must incorporate the three restrictions as

contained in Section 2 (68) of the Companies Act, 2013 namely,

(i) restrict the right to transfer its shares, if any,

(ii) Except is case of One Person Company limit the number of its members
to two hundred.

(iii) Prohibit invitation to the public to subscribe for any securities of the
company.

The articles of an unlimited company should state the number of members

with which the company is to be registered and if the company has a share
capital, the amount of share capital with which it is to be registered and in
the case of a company limited by guarantee, the articles must state the
number of members with which the company is to be registered.
The articles of a company shall be in respective forms specified in Tables
F, G, H, I and J in Schedule I as may be applicable to such company.5

Form of Articles

According to Section 7 (a) of the Companies Act, 2013

If the articles of a company are to be registered, they must be printed,

divided into paragraphs and numbered consecutively ; and signed by the
subscribers to the memorandum en the pretence at least one witness. Each
of the signatories as well as the witness must also mention his address,
description and occupation. Etc.

Contents of the Articles

The articles generally contain the following matters:—

1. Exclusion wholly or in part of Table A.

2. Approval of preliminary contracts.
3. Capital rights and their variations, also conditions under which
shares issued.
4. Allotment of shares
5. Calls on shares.
6. Lien held by company upon shares in respect of unpaid amounts
therefore,
7. Transfer and transmission of shares.
8. Forfeiture of shares.
9. Alteration of share capital.
10.Share certificates.
11.Conversion of shares into stock.
12.Voting rights and proxies.
 13.Meetings.
14.Directors, their appointments, qualification, remuneration, powers,
duties, etc.
15.Secretary, His appointment and remuneration
16.Borrowing powers.
17.Dividends and reserves.
18.. Accounts and Audit
19.Winding up—Powers of liquidator to deal with assets.
20.Indemnification of officers out of the assets of the company.

In case, a company desires its shares to be quoted in Stock Exchange. It

must keep in view the Stock Exchange requirements while framing its
Articles.

There are two main restrictions on contents of articles namely:

I. Any provisions thereof must not contravene with any

provisions of the Companies Act or of general law, for the
time being in force and
II. It must not contain anything which alters or extends the
terms of the memorandum

Distinction between Memorandum and Articles

The major differences between memorandum of association and articles

of association are given as under:

A. Memorandum of Association is a document that contains all the

condition which is required for the registration of the company.
Articles of Association are a document that contains the rules and
regulation for the administration of the company.
B. Memorandum of Association is defined in section 2 (56) while the
Articles of Association is defined in section 2 (5) of the Indian
Companies Act 1956.
C. Memorandum of Association is subsidiary to the Companies Act,
whereas Articles of Association is subsidiary to both Memorandum of
Association as well as the Act.
D. In any contradiction between the Memorandum and Articles regarding
any clause, Memorandum of Association will prevail over the Articles
of Association.
E. Memorandum of Association contains the information about the
powers and objects of the company. Conversely, Articles of
Association contain the information about the rules and regulations of
the company.
F. Memorandum of Association must contain the six clauses. On the
other hand, Articles of Association is framed as per the discretion of
the company.
G. Memorandum of Association is obligatory to be registered with the
ROC at the time of registration of Company. As opposed to Articles of
Association, is not required to be filed with the registrar, although the
company may file it voluntarily.
H. Memorandum of association defines the relationship between
company and external party. On the contrary, articles of association
govern the relationship between the company and its members and
also between the members themselves.
I. When it comes to scope, the acts performed beyond the scope of
memorandum are absolutely null and void. In contrast, the acts done
beyond the scope of articles can be ratified by unanimous voting of all
shareholders.
Legal Effect of Articles of Association

According to section 10 :

Like the memorandum. The articles of a company when registered have a

binding force as they bind the company and its members to the same
extent, if they have been , signed by the company and its each members ' In
other words, 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.

The binding nature of the articles can be considered under the following
heads, namely—

1) The members bound to the company : The articles constitute a

contract which is binding on members in their relation to the
company . each member, quo member that is in his capacity as
member, is bound to the companies by the provisions of the

In Boreland's Trustee v. Steel Brothers & Co. Ltd the articles of a

company contained a clause that on the bankruptcy of 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 the provisions and was therefore free to sell the shares at the
market price. 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) The company bound to its members: Just members are bound to the
company, the company is equally bound to its members the articles
 constitute a contract between the company and its members. It,
therefore follows that a member can bring an against the company
for violation of any of the provisions of the Articles.

Thus for example in Hoole v. Great Western railways it was held

that an individual member can sue a company for an injunction
restraining it from improper payment of dividends.

The Company is not bound to outsiders by the provisions of

the Articles

It must be clearly understood that the articles do not bind the

members to the company and vice-versa but neither the members nor the
company is 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.

In Eley v. Positive government Security Life Insurance Co. the

articles contained a clause that Eley, the plaintiff should he the solicitor to
the company and should not he removed from his office unless he
misconducts himself. He was a member also. He acted as a solicitor for
some time but was later removed and substituted by other solicitor. There
upon, Eley sued the company for breach of the contract. His suit was
dismissed since there was no contract independent of the articles and the
provision contained in Articles being binding between company and the
members, the same could not be enforced against an outsider i.e. the
solicitor.
 This rule, however, proved rather too harsh and was. Therefore,
later modified by the Courts. Thus in Swahey v. Fort Darvin Gold Mining
Co. the articles provided for the payment to each director, by way of
remuneration, a specified sum per annum. The company reduced this
remuneration by a special resolution in July with retrospective effect from
the end of the preceding year. The plaintiff thereupon resigned and sued
the company for three month's remuneration for services prior to his
resignation The Court held that he was entitled to recover on the footing of
an implied contract in terms of Articles of Association.

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 who are completely onside the
company's relationship. Thus in Khusiram v. Hanumatmal .a
member of a company who had a commercial dispute of private
nature with another member could not be compelled to refer the
dispute to arbitration in words of the Articles of the company

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
memorandums a company may by special resolution may alter its articles.
 However, the only restriction on this unfettered granted under Section 14
is that a public company cannot convert itself into private company.

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 artieles.
However, the alteration should have been 'node bona fide for the benefit of
the company as a whole, and the power to alter must not have tree
exceeded.

Thus in Allen v. Gold Reefs West Africa Ltd.: The articles of the
company gave the company lien over all "not fully paid" shares for calls
due to company. 'A' was the only shareholder who held fully paid shares;
he also owed money to the company for calls due on other shares. 'A' died.
The company altered its articles by striking out the words not fully paid
up" and thus gave itself the power to exercise lien on all of A's shares. The
Court held that alteration was valid as it was bona fide made for the benefit
of the company. The articles must be altered in good faith and not so ac to
give unfair advantage to majority of shareholders

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.

For example, in Madhav R. Karnath v. Canara Banking

Corporation Ltd. the company altered its articles by a special
resolution for expulsion of a member and authorising the directors
to register the transfer of his shares without a transfer-deed. The
 alteration was struck down by the Court being contrary to the
provisions of the company Law.

 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 in the Memorandum or inconsistent
therewith, it shall be veil being ultra vires the Memorandum.

Procedure for Alteration of Articles

The procedure to be followed by a company for altering its articles may

briefly he described as follows:—

1. First of all, the proposal has to be approved by the Board of

Directors and Me Board shall decide the date and time of the
general meeting and Secretary will he authorised to convene the
meeting. The Board will also approve the draft of notice, special
resolution and explanatory statement. If the alteration requires
taking or subscribing more shares by the members than already
held by them, prior consent of the members in writing shall be
necessary before passing the special resolution to this effect.

2. The special resolution should be passed in the general meeting

appointed date.
3. Within thirty days of the passing of the resolution the company
has to file Form No 23 of the Companies (Central Government)
General Rules and Forms. 1956 duly filled in with the Registrar of
Companies along with the requisite fee as per Schedule X to the
Act along with a certified copy of the resolution.
 4. In case the alteration of articles relates to conversion of a public
company into a private company, the company should make an
application in writing in Form 1-B to the Regional Director
concerned for his approval within three months of the date on
which special resolution for alteration was passed.
5. After the approval printed copies of the articles as altered should
be filed by the company with the Registrar of Companies within
fifteen days on the date of the receipt of the approval order
6. In case the shares of the company are listed on a Stock Exchange
as per Standard Listing Agreement, the company must forward to
the Exchange, the copies of all notices sent to its shareholders and
also file with the Exchange six copies of such amendment one of
which should be a certified copy.
7. The alteration should he noted on 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 limitation:—

1. The alteration must not exceed the powers conferred by the

memorandum or contravene any of its provisions.
2. It must not be inconsistent with any of the provisions of the
Companies Act or any other law in force.
3. The alteration must be bona fide for the benefit of the
company as a whole.
 4. It must not contain anything illegal or against the public
policy.
5. Any alteration in the Articles which tends to increase the
liability of a member to contribute more than his share-
holding is not binding on him, unless he consents to it in
writing.
6. A company cannot justify a breach of contract with other
parties by altering its articles. It shall remain liable for
damages for its breach.
7. A reserved liability once created cannot be converted into
unreserved liability by altering the articles but it may be
cancelled on a reduction of capital.
8. The alteration must not be inconsistent with the order of the
National Company Law Tribunal.
9. An alteration must not constitute a fraud on the minority nor
should it cause any hardship on the minority without any
corresponding benefit to the Company as a whole.

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 dealing with the company shall be deemed to have notice of the
contents of this document This is, shall be deem 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 or the company
rendered a particular act or delegation of authority ultra vires the company.
The public or persons arc expected to go through the contents of
memorandum and articles before entering into transactions with the
Company.

The case of Kotla Venkatswami v. Ramanmurty may be cited to support

this contention. The facts of the case were as follows:

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.

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 he will be deemed to have
constructive notice of the contents of article.

However, there is an exception to this rule. This exception is known as

'doctrine of Indoor management and was for the first time enunciated in the
case of Raval British Bank v. Turquand.

In this case, the directors of a banking company were authorised by the

articles to borrow on bonds such sums of money as should from time to
time, by resolution of the company in general meeting, be authorised to
borrow. 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 strengths of the bond, as he was entitled to assume that the necessary
resolution had been passed.

Lord Hatherly observed : "outsiders are bound to know the external

position of the company, but are not bound to now its indoor
management".

It is important to note that the doctrine of "constructive notice", can he

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 he invoked by the company.

An outsider is entitled to act on a certified copy of the resolution of the

Board of Directors delegating the powers of borrowing money to the
Massaging Director subject to the limitation mentioned therein.'

In Premier Industrial Batik Ltd. 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 he 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.

Exceptions to the Doctrine of Indoor Management

From the foregoing discussion it would be 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 company has knowledge of irregularity. Thus
in Howard v. Patent Ivory with the manufacturing Co. the
directors had no power to borrow money more than £1000
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 they had the notice of
internal irregularity and therefore the debenture only to the extent
of £1000 were held valid.
This exception to the doctrine is not only conferred to persons
dealing with company but it also extends to another company, or a
corporate body. Thus even company may have notice or
knowledge of irregularity in the internal management 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 to
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.

Thus in Anand Bihurilul v. Dinshaw & Co. where the plaintiff

accepted a transfer of company's property from its accountant, the
transfer was held void and the plaintiff could not succeed because
he ought to have known that ordinarily an accountant does not
have authority to effect transfer of company's property in absence
of power of attorney. Therefore, the transfer of property by an
accountant was itself enough to raise suspicion of irregularity in
plaintiff mind and he should have enquired whether the
accountant had the power of the attorney the transfer or not.

Similarly, in E.B.M. Co. v. Dominion Bank the directors of a

company secured their own indebtedness to a bank by a charge
upon the company's property. The bank was denied the benefit of
the charge as in those circumstances they should have made an
inquiry as to whether the charge was authorised by the company.
3. Forgery and Fraud:

Another exception to the doctrine of 'Indoor Management' where

the acts done in name of the company are void ab initio due to
forgery or fraud.

The decision in Ruberi v. Great Fingall Consolidated illustrates

this exception well.

In this case the Secretary of a company forged the signatures of

two directors required under the articles on a share certificate and
 issued the same, about authority. The plaintiff who was the
transferee the share certificate contended that whether the
signatures were genuine or forged was something pertaining to
internal management of the company and, therefore the comp
should be estopped from denying the genuineness of the
certificate.

Lord Loreburn observed :

"It is quite true that persons dealing with limited liability

companies are not bound to inquire into their indoor management
and will not be affected by irregularities of which they have no
notice. But this doctrine, which is well established, applies to
irregularities which otherwise might affect a genuine transaction.
It cannot apply to a forgery."

Thus the company was held not bound by the forgeries

committed by its officers.

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. The case of Lakshmi Rattan Lal Cotton
Mills v. J.K. Jute Mills Co. illustrates rule:

In this case, 'G' was the director of a company. The company had
managing agents whose director was also 'G'. The Articles
authorised the directors to borrow money and also empowered
them to delegate this power to any other director or directors. C
 borrowed money from the plaintiff. The company refused to be
bound by the loan on the plea that there was no resolution as to
delegation of power to G. however, the court held the company
liable. The reason being that even if there was no actual resolution
authorising G to enter into transactions, the plaintiff was right in
assuming that the power which could have been delegated under
the articles must have been actually conferred in fact.

This view has found support from eminent writers on company

law such as rainier and Gower.

In substance, 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 did
not delegate the authority in the matter to the said officer.

5. Lastly the rule in Turquand’ 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.

Copies of Articles to be sent to members (Section 17)

Section 17 of the Companies Act, 2013 requires the company to send to a

member within seven days of the requisition and on payment of a fee of
rupee one, a copy of articles of association. In case of default, the company
and its every officer shall be punishable with fine to the extent of five
thousand rupees.
Act to override Articles of Association (Section 6)

The provisions of the Act shall prevail over the provisions contained in
articles, memorandum, agreement or resolution to the extent to which
they are contrary to or incompatible with the provisions of the Companies
Act.

It was held in Cricket Club of India v. Madhav Apte that any provision
contained in articles, memorandum, agreement or resolution of a company
which is repugnant to any provision of the Companies Act, whether
expressly or by implication found in the section would be void and
ineffective. In this case, the Company's articles contained a provision that a
person who has held office of the director of the Company continuously
for a period of six years will not be entitled to contest election for
directorship for the next three years. The legality of this clause was
challenged before the High Court of Bombay. The Court held that the said
provision being violative of Section 274 (3) of the Companies Act, 19564
was illegal because the provisions of the Companies Act would override
the articles of association.

From the foregoing discussion, it may be concluded that Articles of

Association constitute an important document of the company and their
significance is not only confined to the incorporation of the company but
extends to management, development and working of the company as a
going concern. The whole internal management of the company is
regulated by the contents of the Articles.