ws 5 MEMORANDUM OF ASSOCIATION The memorandum of association of a company is the most important document as it sets out the constitution of the company. It is in fact the foundation on which the cntire structure of the company is based. It prescribes the name of the company. ils registered office. objects and capital and also defines the extent of its powers. A.company can exercise only such powers which are cither expressly stated therein or as may be implied therefrom including matters incidental to the powers so conferred. Memorandum is therefore a document of great importance in relation to the proposed company.! It is in fact a charter of the company. . : ice. Definition According to Section 2(56) of the Companies Act, 2013, ‘memorandum’ means memorandum_of association of a company as originally formed or altered from time to time in pursuance of any previous companies law-or of this Act. This definition, however, does not give an idea as to the nature of this document nor is it indicative of its importance: Lord Cairns in Ashbury Co. v. Riche,? observed : “The memorandum defines the limitations of the powers of the company. it contains in it, both that which is affirmative and that which is negative. It states affirmatively the ambit and extent of vitality and powers which by law are given to the corporation, and it states negatively, if it is necessury to state, that nothing shall be done beyond that ambit Lord Macmillan has defined memorandum of association and observed : if sets out the constitution of the company, it is, so to speak, the charter of the company, and provides foundation on which the structure of the company is Built. The importance of the memorandum lies. in the fact that it defines the scope of company's activities as well as its relation with the outside world. lis purpose is to enable the sharehiolders, crediters and those who deal with the company to know what is its permitted range of enterprise.” Purpose of Memorandum ‘The memorandum of a company serves two.main purposes. Fitstly, the prospect knowthe-field in which their funds are going to be used by thi pany 1p. 56. gyptian Salt & Soda Company Ltd. v, Port Said Salt Association Ltd., 1 Patmer + Company baw Gi 2. (1875) LR 7 HL 653, See also. (1931) AC 677 (99)98 COMPANY LAW enterprise so that they can. contemplate the risk involved in their and the purpose of the with the company can know exactly the i Si deal investivent, Secondly, the vutsiders can know ¢ shjeets of tne company and whether the contractual relation which they intend to enter into with the company is within the objects of the company. _ CA company ean exercise only such powers which are cither expressly stated in the memorandum or as may be implied therefrom including matters incidental to the powers so conferred. In short, it determines the extent of the powers of a company. A company must act within and not ouside the scope of its memorandum. Any transaction which is not within the ambit of the powers of a company shall be ultra vires and void and cannot be-validated-ow any ground. It is for this reason that a company while drafting its aiemiorandum should exercise utmost care and ensure that its scope is wide enough to include all activities in which the company may engage are well within its range of activities. Form of Memorandum The Companies Act prescribes four different-forms.of. Memorandum, which are icable to different classes of compinies and one of these or one as near thereto as circumstances admit has to be adopted.! Specimen Forms of memorandum for different Kinds of companies are set out in Tables A, B,C, D and E in Schedule I as follows :— (1) the Form in Table ‘A’ is applicable in the case of companies limited by shares ; (2) the Form in Table 'B' is applicable to companies limited by guarantee and not having share capital ; - (3) the Form in Table having a share capital ; (4) the Form in Table capital; itg()) tne Form in Table ‘E" is applicable to unlimited companies having share capital, is applicable to companies limited by guarantee and is applicable to unlimited companies not having share As far as possible, the company to be incorporated should adopt any of the above ‘mentioned model Forms of memorandum as may be applicable to it, or it may prepare it in any other Form, but the same should be as near thereto as the circumstances may admit. Irmustbe stated that the contents of memorandum shall be valid even though they dies radically foi those of the above mentioned models, or even conflict with them. The company may add, subtract or vary the contents thereof ener of the relevant Tables followed? hereof so Tong. the yeneral form Any provision in memorandum or articles of a company not having share capital shall not give any right to participate in the divisible profits otherwise than as member of the company, Contents of Memorandum ‘The memorandum of a limited com i i n company must contain the following fundamental clauses which have often been described as the conditions of iis incorporation, + (a) Name claus (b) Registered office clause; 5 if the Companies ‘Act, 2013, 2. Gaiman v, National Association of Meutal Heal 2 ANE 3. Section 4 (a) 10 (9 of the Companies Act, 2013.7 27) 2 AER 3MEMORANDUM OF ASSOCIATION tor (ce) Objects clause; | (@) Limited liability clause; (e) Capital clause ; and (Association clause. (A) NAME CLAUSE A company being a legal person, must have a Johnson, J. in Osborn y. Bank of U.S..! “the name of an incorpor: its personal existence” name of its own, As pointed by ion is the symbol of Although a company is free to adopt a name of its choice but it cannot be registered with a nazne which, in the opinion of the Central Government, is undesirable.? ft should not contravene the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950, nor should it be suggestive of any Government's patronage or protection to the company. It should not include the word ‘Co-operative’ in it. More recently, the non- Government Companies or enterprises are prohbited to include the word ‘national’ within its name, A company may not adopt a name which is identical, with or too nearly resembles the name by which a company in existence has been previously registered. If a company adopts such a name, it may be declared undesirable by the Central Government, and may be restrained from adopting such an identical name which may be misleading and injurious to an already existing company. In order to avoid the possibility of an identical name being adopted by a new. company, the promoters have to seek advance approval of the name through an application made to the Registrar of Companies. The Registrar shall inform the company about the approval of the name or otherwise, within fourteen days of the receipt of the application. The application seeking the availability of the name is to be made in Form No. I-A and the relevant governing rule is Rule 4-A of the Companies (Central Government) Rules & Forms, 1956. The Registrar r per existing procedure, allow the same name if otherwise available,affer three months from the date when the name was allowed to the original promoters.3 . A newly formed company cannot be registered by a name which is similar to or resembles the name of an already incorporated company as the same may be tnisleading to the public! Explaining the reasons for not allowing an identical name to a new-comer company Lord Lawrence, J. in Society of Motor Manufacturers & Traders Lul. v. Motor Manufacturers & Traders Mutual Insurence Co. Ltd observed, "no other company can be registered under a name identical with it or so nearly resembling it as to be calculated to deceive; since the name of a company is a part of its business reputation and that would definitely be injured if a new company could adopt an allied name" In the instant case, the plaintiff company was incorporated under the name “The Society of Motor Manufacturers & Traders Ltd.” in 1902. Later, in 1924 the defendant company was incorporated under the name “Motor Manufacturers & ‘Traders Mutual ce Lid." The plaintiff company sued the defendant company for adopting an identical name on the ground that it was deceptive and prayed that the defendant be restrairied from using this name. The Court, however, ruled that the defendant company's 9 Wheat 22 US) 738. Section 4 (2) (b) Gi) Cireulur No. 1 of 1990, See (1990) 67 Comp. Cas. (1925) 1 Ch. 675oN es COMPANY LAW Iculated to deceive’ inasmuch as it w; AIS an in, name could not be regarded as one ‘e eee motor-manufacturer and trading company whereas the plaintiff company was namuac | thusa person with oadnary pence woul se thatthe business ofthese tg ety, is distinctly different from one another and, therefore, there was no FCaSON fog a eonfusion because of similarity in the names of the (vo Urn Mp He must, however, be stated that before granting approval of the name the Regi is under a duty to inquire as to the genuineness of the prepoeed Danes Mn the Regi allowed a company to be registered under the name the "Met rede hurch of Ing i without inquiring into its credentials, that was held to be wrong. eontingy. whe, Eenuine representative of the Methodist Church sought registration under thay Name, the Court ordered the Registrar to accept that name. The Registrar, however, is not expected to carry out any elaborate investi tion as {0 the proposed name at the time of registration of the company except ensuring that ye Provisions of Section 7 (1) (c) of the Companies Act, 2013 have been duly Complieg With. Unless the purpose of the company in, adopting a particular name appears to be Prinia facie unlawful or is patently illegal and prohibited by law, it cannot be regarded a, an unlawful association.2 In Ewing v. Buttercup Margarine Co, Ltd.3 the plaintiff was an unincorporateg firm carrying on substantial business under the trade name of Buttercup Dain, Company. ‘The defendant company was registered to trade in similar commodities and selected the name bona fide believing that there was no other Company in existence Wwith a similar name. The plaintiff alleged that the name of the new company would lead to confusion and was detrimental to the plaintiff's business. ‘The Court granted injunction against the defendant on the ground that the public might think that the wo business were inter-connected, the word ‘buttercup’ being unnecessarily’ used for the sake of fancy.4 In Asiatic Goyernment Security Life Insurance Company Ltd. v, New Asiatic Life Insurance Co. Ltd.,5 the suit of the plaintiff company for an injunction against the use of the defendant's name was dismissed on the ground that the word "New and absence of the words ‘Government Security’ was sufficient to establish different identity of the wo companies, The rule shall equally apply to foreign companies as well. Thus in La Societe Anonyme Panchard at Levessor v. Panchard Lev ssor Motor Co, Lrd..® the plaintifis were a French Company carrying on motor car manufacturing business in Paris and were using S their manufacturing name. They challenged the use of the nana by the defendant company alleging that the defendame deliberately wanted 10 injure wrongfully the business of the plaintiff by Passing of theit goods at those of plaintiff's brand. The Court restrained the defendants from using the plaintiff's manufacturing name. In Exxon Corporation v, Exxon Insurance Consultants Ltd.,7 the plaintiff Corporation were granted an injunction Festraining the defendant company from using the word 'Exxon' as a part of its name as the same had been initially coined by the plaimtills ‘who had the exclusive claim to use it to the exclusion of all others. ) Methodist Threh Union oda (1988) 57 Comp, Cas. 443 Bom, / CiniTy ae Andra Prabha CP) su, (1960) 39 Con, Can aa py, 917 2Ch. Banque v. Euro Seas Group Finance Co, (1981) 3 AILER 198, which lates to misdescription of name (1939) 3 Comp, Cas 208 had mis ” (1901) 2 Ch, $13, (1981) 2 ANT ER 495, ‘MEMORANDUM OF ASSOCIATION 10 Where the company is with meagre sources but the name styggests that it has a it shall be treated a ge scale business or its trading extends over a wide field | the Department of Company «described in Ta misleading and deceptive) Elaborating this aspect further \ Affairs has issued clarification and the words suggesting ‘scale of business’ are key-wonds as follows! npanies with authorised capital of 1. The word ‘Corporation’ should be: used hy ¢ five crore rupees and above. 2. The word ‘International’, ‘Universal’, ‘Continental’, ‘InterContinental’, ‘Asiatic’, ete, as the first word of the name can be used hy companies having capital of one crore rupees. and if any of these words are used in the name with or without brackets (but not ame), the company should have a capital of minimum fifty lakhs asthe first word of the rupees .Udyog'—Rupees one crore. ss’, "Manufacturing’—Rupees 3. For using the word ‘Industries "Busi 4, For using the word ‘Enterprises’, ‘Products’ ten lakhs. — Use of the word ‘Limited’ A public company with limited liability must use the word ‘Limited’ word of its name while a private limited company should use the words ‘Private inthe end of its name? The purpose of this provision is that all persons dealing with the Company may have notice of the fact that the liability of the members is limited. the last The name of the company and the address of its registered office must be painted or affixed outside every office or place at which its business is carried on. The words ‘outside the office’ do not mean outside the premises in which office is situated.> Non-compliance of this provision shall be punishable under Section § of the Companies Act, 2013. The name of the company should be displayed in a conspicuous place of its registered office in the local language of the locality. The name must also be engraved on the Company's ‘common seal and mentioned on all the business letters and official documents and negotiable instruments issued or endorsed by the’;company and on all its relevant papers.* _ Power to dispense with the word 'Limited' Section 8 of the Companies Act, 2013, however, provides that the Central Government may by licence permit the registration of a company with limited liability, without the word ‘limited’ as part of its name, if it is formed for the promotion of commerce, art, science, religion, charity, protection of environment or any other useful object and prohibits distribution of its income by way of dividend to its members> Before granting such a licence, the Central Government may impose reasonable restrictions and require them to be incorporated in the company's memoranduta or articles. However, if the company subsequently proposes to alter the objects, it has to seek prior approval of the Central Government failing which the licence may be cancelled.” Such companies need not have minimum share capital. _/ 1 1989) 65 Comp. Cas, 536. 2. ‘Section 8 (5) of the Companies Act, 201 3. Dr HLL. Batliwalla Sons & Co. Lid. v. Emperor, (1941) 1i Comp. Cas. 154. 4 5 Section 12. companies are known as "Ch share capital 6. Section 8 (1) (a). tion 8 (1) (€), 8. Section 8 (5), itable Companies” and are usvally limited by guarantee without aCOMPANY LAW . vences of omission to tse the word ‘Limited Consequences of « ¢ word ‘Limited’ as the last wory Ny ce omission to mention the wor name May kad to seriou alin tn) leliberate but merely acciden Int where the omission is not ¢ ly 7 Se ernlNalt attrac ted Thus in Dermative Co. Ld. provisions of the Act shall not t ) Hill of exehange was drawn upon a linited company in its proper name and 7 a seed hy te dieetors af the company, The word Limited’, however. didnot apy" the bill, the reason being that the rubber stamp by which the words of accep? impressed on the Dill was longer than the paper of the Bill and therefore. da limited’ was missing, ‘The Court held that this omission, far from being deliby rate, merely an error of a nivial nature, hence the dircetors were not held personally tive this defiant In Nassau Steam Press v. Tyler? the company was registered as Bastille Syndicay Ld, but the defencants who were two directors and the Secretary of the company « bill of exchange on its behalf giving the name of the company as the Ole! p ssuille Lid. ‘The Court held that the name of the company mentioned by the defendants was quite different from its registered name and the company not having paid the bill, ‘efengants were personally liable since they were responsible for this misdescription, acceprey ‘aris ang / Poe an Goldsmith (Sicklesmere) Lad. v. Baxter,’ it was held that misdescription of name dlocs not affect the validity of the contract as a limited company has churucteristic, other than its name by reference to which it can be easily identified. (The omission of any part of the name is sufficient to“render the officers of the company personally liable as held in Hendon v. Adelman.“ this case the directors of ge “L&R Agencies Ltd." purported to sign a cheque for the company by vr ing "LAR. Agencies Ltd.”. The signatories of the cheque were held personally liable under Section § (11) because omission to put the word ‘and or symbol '&’ was a serious default on their part. In Xe Stacey & Co. v. Wallis,s the Court observed that the use of “Ltd.” or a Similar abbreviation instead of the word "Limited" was permissible. and it did ie matter So long as the name appeared correctly on the instrument. Likewise, the use of abbreviation “Co” tor "Company" has also been well recognised as Ineghat® But no abbreviation for any other word used in the name of a company could be permissible under the kiw. Thus the use of letier 'M' for "Michael" in the company’s name iv Michael Jackson (Fancy Goods) Lid. was not accepted and directors wee heyy personally 1 pn Ao the plainti? who were not able to enforce the Bill beens of the use of abbreviation 'M' for Michael.7 Venture Capital Companies ‘The Department of Economic Affairs under the Ministry of Finance, Government of India has issued directions that the companies making venture capital services available should be allowed to use the words like ‘venture capital’, ‘venture capital fund’ or ‘Venue capital Finance Company’ at the end of its name so that they may be identified as venture 1. (1905) 27 TER S10, 2. (1894) 70 LT 376. 3. (1969) 3 AILER 733. 4. 1973) 117 S¥o31 5. (1912) 106 LT $44, ique de lIndochine et de Suez v, Durham Faney Goods Lid. v. Michyel Meck’ Group Finance Company Limited, (1981) 3 All ER 198 ickyon (Funey Goods) Lid, (1968) 2 QB 839.MEMORANDUM OF ASSOCIATION 105 capital service providers and seck tax exemptions. But they must obtain the permission of the Finance Department before using these words in its name. Change of Name by a Company [Section 13 (2)] ~~ X company may change its name only by passing a special resolution and with the written approval of the Central Government ' The powers of the Central Government to accord approval to the change of name have been delegated (o Registrar of Compantes However. if ‘ge pertains to only the addition or deletion of the word ’Private’ t0 the name. the approval of the Central Government shali not be necessary-— Once a company is registered with a particular name. it cannot be normally changed. However. if it is subsequently found that through inadvertance or otherwise, a company is registered with a name which appears to be undesirable or is identical with oF too nearly resembles the name of a company which is already in existence, the Central Government have power to direct the company to change or rectify its name by passing an ordinary resolution? ~ (When a company has changed its name, the Registrar shall substitute the new in the Register of Companies and issue a certificate of incorporation in the new name_) —— The change of name shall become effective only on the issue of such a certificate? A change of name does not affect any rights or obligations of the company or any legal proceedings by or against i 4 (once the company has acquired its new name, legal proceedings against it cannot be initiated by its old name. An appeal filed by the company in its former name, which has boon substituted by the new name on the register. was held to be incompetent in Malhatt Tea Syndicate Lid. v. Revenue Officer. Jalpaiguri.’ In this case. the company had changed jig name from "Malhati Tea Syndicate Ltd." to "Malhati Tea & Industries Ltd”. It filed a ‘writ petition in its former name when it had already acquired its new mame which was entered in the Register of Companies. Held, petition was liable to be dismissed. It must, however, be stated that a decree obtained by a company in its former name can be executed in its new name. case of One Person Company, the name of the person who, in ber or his incapacity to contract, shall become the name The memorandum the event of death of the subscril member of the company.® 6 to Section 12 (3) of the C mmpanies Act, 2013 provides that in case of One 2 Company’ shall be mentioned in brackets below name is printed, affixed or engraved.) ( Provis Person Company the words ‘One Persor the name of such company wherever i (B) REGISTERED OFFICE CLAUSE to state in its memorandum of association.the name of the State in which the registered office ‘of the company is. to_be situated, However, the company is not required to mention the exact address of is rep tered olfice. This can be filed with the Registrar of Com, nies sspsaey in Form No. 18 within thirty days of the incorporation of the company- ‘A company is required Section 13 (2) of Companies Act, 2013. 2006 (37) AIC 98 1 2 sion 16 (1). FS eeeiee 1G). See Prasad Technology Park Pot. Ltd. v. Sub-Resistrit sand others. (SC). 7 +. ae economic Investment Corporation Ltd. Commissioner af Ines m2: AIR 1970 Cal. 385. S. AIR 1973 Cal. 78. © Section 41) (2.COMPANY LAW 2 es tha a company must have a registered off Section L2ULof the Act, 2013 requires that a company 1 7 h Sorue eT a incorporation or on the day when it commences busin Me ce we : i er, 80 that allcommunications afd potices may be sent to it. In actual meet The ae © the notice of the address of the registered attics practice. the companies generally fi the tig ‘of Tiling th Licey and articles, Gre company shall get its name, address of its registered office and the Corporate Mentity Number (CIN) along with telephone number, fax number, if any, e-mail and ang Sie-aldresses, if any, printed in all its business letters, bill-heads, letter papers and in sh Publications! and have its name printed on hundie, ange and such other documents as may be prescribed.2 its notices and other offic promissory notes, bill of excl " (The purpose of registered office of the company is to enable persons dealing with the company including Registrar to serve notices, documents, communications, ete: on the company. Since a company is required to keep a variety of registers and records at its registered office and most of them are open to public inspection, there is need to notify the registered office of the company so that its exact location is known to them. sec* 1/4 document is deemed to have been served on a company when it is sent to its ~ registered office by post under a certificate of posting or by registered post or by leaving it at the registered office of the company. \The Bombay High Court in Sadashie Shankar Dandige v. Gandhi Seva Samaj Ltd.,4 held that any provision in company's memorandum SL aticles regarding service of documents contrary to the provisions of Seeticn 51 (now Section 20 of the Companies Act, 2013) shall noi be enforceable by law. The Supreme Court. however, observed in Jute and Gunny Brothers Ltd. v. Union of India,> that service of documents in accordance with the provisions contained in Order 29, Rule 2 of the Code of Civil Procedure, 1908, shall be enforceable though it is not effected strictly in a aid Oran templated by Section 51 (now Section 20 of the Companies Act, 2013). The said Order 29, Rule 2 of the Code of Civil Procedure Provides that where the suit is {According to Section 20 (1) of the Companies Act, 2013, a document may be served on a company or an officer thereof by sending it to the company or the of the registered office of the company by registered post or by speed post or by courier nenice or by leaving it at its registered office or by means of each electronic or other Referring to service of documents on company under Section $1 (now Section 20 of the Companies Act, 2013) the High Court of Andie Pradesh held that oral Communication in this regard was not batted per se and the admissibility will depend upon the evidence adduced,? As regards service of documents on member by company, the Apex Court held that mere entry in Local Delivery Book of Company will not be a sufficient proof of personal 1. Section 123) Ce) 2. Section 12 (3) (d), ~}— Section 20 of the Companies Act, 2013, 4. AIK 1958 Bom, 247, 5. AIR 1961 SC 1214, 6. Section 20 Explanation 7. Narmada Enterprises State of Andhra Pradesh, 2005 Cri Ld 4492 (AP),MEMORANDUM OF ASSOCIA TION service of notice on member unless evidence is produced to show that the letter (notice) dresser. Thus in M18, Madhusudanan v. Kerala Kaumudi Pet, Lad." the very Book of the company containing acer did nt had reached the Supreme Court held that an entry in the Local Deli that letter regarding meeting was acknowledged to be received by BA. of 3 amount to personal service, how that the le reached the addressee. ‘Therefor sno evidence was produced to 5 as no service of notice there red, The Apex Court further clarified that as regards presumption as to not burden of proof i through postal service did not make it irrebuttable or conclusive and th placed on the person against whom the presumption operates for disproving | ft is only if such person is unable to discharge the burden, the Court vill act the presumed fact Therefore, the words “shall prestime" would mean an irrebuttable presumption which the Court must raise provided the basic facts ie., due posting of the document is proved: the onus being on the addressee to show that the docurnent referred to in the certificate of posting was not received by hi Change of Registered Office — A shift its registered office from one place to another within the same city, town or village. But in case a company proposes to change its registered office from one city to another within the same State, it can do so only after passing_a special resolution. A notice of any such change has also to be given to the Registrar within thirty days of the change.? Non-compliance of this provision shall render the company and its every officer who is responsible for this default liable to punishment with fine extending upto one thousand rupees for every day during which default continues but not ceeding one lakh rupees. A company can Where the company wants to shift its registered office fro-a one piace to another withiithe same State from the jurisdiction of one Registrar of Companies to the jurisdiction of another Registrar of Companies, confirmation by the Regional Director Shall be mandatory for such change.) For this purpose, the company shall make an application to the Regional Director in the prescribed form and the confirmation shall be communicated within four weeks from the date of receipt of the application. Gin case a company proposes to shift its registered office from one State to unother. it havto alter its memorandum of association subject to compliance of the provisions of Section 13 of the Companies Act, 2013 which require passing of a special resolution and approval of the Central Government, ‘The alteration relating to change of the place of its registered office from one State to arfother shall not take effect unless it is confirmed by the Central Government on petition. Before granting permission to change of registered office, the Central Government must be satishied =~ eee (a) that sufficient notice has been given to every holder of the debentures of the iy, and to every other person or class of persons whose interests will. in mment, be affected by such alteration: and compa the opinion of the Central Go creditor who, in the opinion of the Central alteration and who signifies his objection in the ‘Government, either his consent to the alteration tor claim has been discharged or has been (b) that, with respect’ to each Government is entitled to the manner directed by the Central has been obtained or his debt determined, or has been secured. ‘AIR 2003 SC 909. i 12 (6) of the Comp: jection 12 (8).18 COMPANY LAW ‘ crnnent shall also give a reasonable opportunity to every person aE ARES ieee eae prea hefore it and put-up his objections a TT rai ovement inny rake an order confirming the alteration os FICH CHIN A Reese a respect tothe confirmation of the alteration} a Re te interests of dissenting members, give such direction reat facilitating or carrying into effect any such make. such orders as it thinks fit for f alteration, The alteration shall be registered within three months from date of its confirmation by the Cental Government, On teceipt of the confirmation by the Centrat Government, I file with the Registrar a copy of the special resolution passed by the cambany along with a certified copy of the order of the Central Governmeng confirming the alteration together with a printed copy of the memorandum as altered and the Registrar Shall register the same and certify the registration under his hand within one month from the date of filing of such documents, (In Orient Paper Mills Ltd. v. State,! the company proposed to shi ift its registereg from the State of Orissa to West Bengal by a Special resolution and sent it lor Court's approval. The State of Orissa opposed the change on several grounds including {he loss of revenue and employment opportunities to the State. Barman, J., declined fo approve the change on the ground that every State has got the right to protect its revenue. But in a subsequent case, the High Court of Calcutta refused to sustain the Contention, of the State that the shifting of the Company from the State of West Bengal 10 the State of Maharashtra would result into lose of revenue to the State and allowed the Renen for change of company's registered office. Me Justice Ray (later C.J. of the ‘Supreme Court) observed : “the question of loss of revenue to one State would have to be Considered in the total conspectus of rev of India and no parochial considerations turn the scale in regard to chi State to another within Indi decision was indorsed by a Division Bench of the Calcutta High Court in ributor of India Lid. v. Registrar of Companies and State of West the Company s ‘The above Rank Fil Disp Bengal? Yet in another case, namely, In Re Bharat Commerce & Industries Lid.3 a Banbany resolved and sought confirmation for removing its registered office from West Bengal to New Delhi on the ground that it has become impossible for the company to manage its es located in different places due to disturbances caused by a few Employees. The State Government did not Oppose the confirmation but it was opposed by the employees on the plea that the management had taken this Step to frustrate the qyicome of an industrial dispute, The Court ruled that the proposed change was mala Side. This decision was, however, overruled by the Division Bench,* as the Court did not like 10,89 into the bona fides of the member resolution for shifting their company's office from the State of West Bengal to Maharashtra, __ In Re Kalitara Wood Industries Ltd.,5 the Company Law Board did not approve the Policy of the State Financial Corporation and the State Industrial Development i 67 Orissa 233, 2. AIR 1969 Cal. 39, i (1973) 43 Comp, Cas. 162 Cat. 5; Orient Paper Mills Ltd. v State AUR 1967 Orissa 232 at p. 275 (DB), 5. (1989) 3 Comp, Ld 24,MEMORANDUM OF ABBOCTATIO“ Corporation 10 insist upon shifting of office by the company t¢ avail loan facilities In Stridewell P) Lid. ¥. Bhankerpur Simbhaoti Reverages (P) Ld.,! the Supreme Court held that expr the High Court” means the High Court h jurisdiction in relation to place at which registered office of company concerned 1s situate Accordingly. the appeal in this case against the order of the Company Law Board lay to the Madras High Court which had jurisdiction in relation to the place at which registered office of the company concemed is situate and not the Delhi High Court merely because the arder was made by the Company Law Board at Delhi ed perm The Company Law Board (now Company Law Tribunal) gra and pe company to shift its registered office from the host State whose action nst the interests of the company and take it {0 another State which was willing 10 were provide necessary facilities to the company.? jd that nn Re Upper Ganga Sugar & Industries Ltd.) the Company Law Board h all the manufacturing units of the Company are located in the State of Uttar zal, the Company can wh Pradesh and not even a single unit exists in the State of West Ben; be allowed to shift its registered office from West Bengal to the State of Uttar Pradesh provided a special Resolution has been passed by the Company for this purpose In Re Usha Beltron Ltd..4 the State of Bihar granted lease of land to the Company 10 establish its factory on the condition that Company shall not shift its registered office anywhere outside the State of Bihar. Despite this agreement, the Company applied for shifting its registered office to the State of West Bengal which was opposed by the Bihar State Government. The Company Law Bourd (now Tribunal) quashed the objection raised by the State Government and allowed the Company to shift its registered office from Bihar to the State of West Bengal and held that considerations like interest-free debt, exemption on sale tax, supply of electricity on concessional rates etc. could not adversely effect the legal right of a Company to shift its registered office from one State to another as these concessions had no direct nexus with the Company's right to shift its registered office when a special resolution has been passed for this purpose. Powers of the Central Government to grant permission for change in Registered Office by Companies [Section 12 (5)] (Third proviso to Section 12 of the Companies Act, 2013 mandates that no company shall change the place of its registered office from the jurisdiction of one Registrar to the jurisdiction of another Registrar within the same State unless such change is confirmed by the Regional Director on an application made in this behalf by the coriipaiiy in the prescribed form, * When an application for change of registered office of a Company is received by the Central Government, its first duty is to make sure that the Company has ed notice regarding proposed change of its registered office to all its debenture-holders and persons whose interest is likely to be affected by such change and the rights of those who raised objections to change have been properly safeguarded. The Company Law Board (now the Central Government, In Re Metal Box India Lid.) held that publication regarding proposed change of its registered office and inviting 1 AIR 1994 SC 158, 2 hu ke Paradise Enterprises Lid (1989) 3 Comp. Ls 248. (2000) 27 SCL. 369 (CLB). 58°Scr I 4 (2000) 27 SCL. 124 (CLB) : See also, fa Re Reckitt Benchister India Ltd (2004) 35 SCL 437 (CLB). 5. (2001) 105 Comp Cas 939 (CLB).COMPANY LAW and others in two prominent newspapers would be pany has complied with the provision relating to mm the debenture holders how that the Cony red by Section 12 (5) af the Act aL cent i the Special meeting ofthe Company h J paceed cpecial realation for change of registered office of the Company. it cannot he aa ee eect by shareholders who are against the change eres Central Government shall also ensure that the notice for change of registered sffice hae als been sent by the Company to the Registrar of Companies and Registrar's 5 sly considered at the time of passing of resolution for this objections to stich have been purpose. (©) OBJECTS CLAUSE * : The most important clause of the memorandum of association is the objects clause ocause iPS818 Out the purpose for which the company is formed and the kind of activities, or business it intends to carry on, Generally, Companies divide their objects clauses into three distinct parts, namely:— 1. Main objects.—This sub-clause contains the main objects to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects. . Other objects.—This sub-clause must include other objects which are not \cluded in the main objects. 3. States to which objects extend.—The non-trading companies whose objects are not confined to one State have to state in-their object clause, the States to whose territories the objects extend. However, the Companies Act, 2013 has dispensed with such classification of objects. It only provides (i) objects for which the company is proposed to be incorporated, and (ii) any matter considered necessary in furtherance thereof. Purpose of Objects Clause The importance of objects clause lies in the fact that i the capacity of the company, besides its sphere of acti company serves fF determines the purpose and ies. The objects clause of a hree distinct purposes = ‘stly, it enables the subscribers to know the use to which their investment mon y is put and thus extends protection to shareholders, Seconully, it also extends certain degree of protection to creditors also inasmuch as the company cannot spend ils-capital on any activities which are not within tne purview of the objects clause, Thirdly, the objects clause also serves the public interest as the company cannot diversify its activities beyond those specified in the objects clause. Although express powers are necessary, a company may do anything which is ‘incidental to and consequential upon the powers specified in the objects clause and such acts shall not be ultra vires,? ‘Thus a trading company has an implied power to borrow money, draw and accept bills of exchange, ete, ' The subscribers to the memorandum enjoy almost unrestricted freedom to choose the objects. ‘The only restriction is that the objects should not be illegal, or against the provisions of the Comy nies Act. For example, no company can be incorporated with the 1 Wa Re Periect Refractories Lad, Cm) 125 C d : « ies Ltd, (2005) 125 Comp Cas 234 (CLB). 4 Attorney General v. GE. Ry, Co,, (1880) 5 AC 473, Universal Mutual Aid & Poor Houses Association v, ‘Thopa Naidu, AIR 1933 Meu. 16,MEMORANDUM OF ASSOCIATION m1 object of carrying on the business of gambling. Likewise, any clause in the memorandum STALE WE’ company Timid by Share, a power to purchase its own shares shall be inoperative since it is contrary {0 the provisions of the Companies Act.| Similarly. giving loan by a company tor purchase of its own share is also restricted under Section 67 of *he Companies Act, 2013 The Companies which are non-trading and their object is not limited to a particular State must specify in their memorandum to all the States in which they would be operating This is particularly necessary for mutual fund companies which must seek approval of SEBL? Doctrine of ultra vires —~ The doctrine of ultra vires implies that the company should confine its activities within its stated objects. Thus it is meant (o restrict the powers of the company to go “PEON HS Object clatise. An act which is ultra vires? is void and does not-bind the company. It therefore follows that neither the company nor the other contracting party can sue each other for ultra vires acts. An act otherwise ultra vires, cannot be made valid even if all the members of the company assent to it.(The doctrine of ultra vires is well illustrated by the House of Lords decision in Ashbury Railway Carriage & Iron Co. v. Riche?) —— ~ . The objects of the company in this case as defined in the memorandum stated that the company was established to sell, or lend on hire, railway carriages and wagons and all inds of railway plants etc. and to carry on business of mechanical engineers and general contractors. The company entered into a contract with Riche, a firm of railway contractors, to finance the construction of a railway line in Belgium. The company, however repudiated the contract on the ground that it was ultra vires the company. Consequently, Riche brought a suit for damages and breach of contract against the company. His contention was that the said contract was well within the term "general contractors” used in the memorandum and was, therefore, within the powers of the company. That apart, the said contract had been ratified by a majority of shareholders. The House of Lords, however, ruled that the contract was ultra vires and therefore, null and void. Lord Cairns, L.C. observed = he term general contractors must be taken to indicate the making generally of such contracts as are connected with the business of mechanical engineers. If the term "general contractors" is not so interpreted, it would authorise the making of contracts of any and every description. and would virtually point to the carrying out of business of any kind whatsoever, and would, therefore, be altogether unmeaning. Hence the contract was entirely beyond the objects in the memoranduitr of association. If so, it was thereby placed beyond the powers of the company to make the contract andi the company could not make it, much less could it be ratifies ~ ‘Though the Companies Act now requires that the companies should state incidental Iso in their memorandum, but if they are not so stated, they would be taken into 1. Section 67. Si 1 worth, (1889) AC 4009. 2. SEBI Circular No. 4/92 of September 4, 1992. 3. Ultra means beyond and vires means powers, 4. (1875) LR7 HL 653,Ee COMPANY LAW y, ‘Thus, a ry, could 2 4 busine: npany's activities OF d of £6 «deciding the ambit of the cor consideration while deciding | pany ries or b vitway company having, autlirity €0 Keep sted vessels for the purpo: sidle.! tae them for excursion trips ont sea whten they were idle. ar Mond & Co, Ltd.2 3 comp any manufacturing chemicals by a ors to distribute £ 1,00,000 to Universities and Scientific Institutions for the furtherance of scientific Fes arch and cducation. One elie members challenged this act of the company on the ground that i ultra vires. The Court held spa th dstribution of money for scientific research was conducive to the progress of the hemieal manufacturers and therefore incidental to the company’s main intra-vires and valid, In Evans v, Brunne resolution authorised its dite: Y) -the doctrine of ultra-vires was applied for the first time in India in Jahangir Modi v. Shamji Ladha, wherein the Bombay High Court held that purchase of a joint stock Company by directors was ultra-vires the memorandum of the Company as the Company had not ‘authorised them to enter into such deals. {Me Supreme Court of India upheld the doctrine of ultra vires in its decision in ¢ Laksiananaswami Mudaliar v. Life Insurance Company.! In this case, the directors of the -ompany were authorised "to make payments towards the charitable or any benevolent object, or for any general public, or useful objects.’) In accordance with shareholder's resolution, the directors paid rupees two lakhs to a trust formed for the purpose of promoting technical and business knowledge. The company's business having been taken over by Life Insurance Corporation, it had no business left of its own to promote: Supreme Court, applying the doctrine of wlvra vires, in this case held that "the tors could nor spend Company's money on any charitable cr general object which they ifghtrehoose. "They could spend Tor promotion of only such charitable objects as would bevusefiil for the attainment of company's own objects | Mr. Justice Shah (afterwards st contiection between the gift and the company's ntciest™) im ct 3 payments to widows of ex-employces on the footing that such se peeais enesrage persons to enter the employment of the company,> were upheld as valid and intra vires, S In Parke v. Daily News Ltd.,6 a company disposed of its newspaper business and proposed with the sanction of a general mecting to distribute the purchase price among its excomplayess by way of compensation for the loss of their eranlaymtel and pension Fights. The proposals was held to be ultra vires as its purpose despite being ae to former employees was not to the benefit of the company’s remaining busin __ | It is well settled that a bank or for a purpose which is ultra vires 1 a.company takes an ultra vires loan lender of an lira vires contract shall money. Iis signi within fixed limit S. any other person lending money to a company he memorandum, cunnot recover.” But where and uses it t discharge ultra vires debts, then the @ Placed as the first creditor and can recover his icant to note that the doctrine of ultra vires While it handicaps the ambitic ; ule confines corporate action s Manager, it lays trap for the unwary 1. Porrest v, Manchester ete, Ri b tisyTehe iy. Co., (1861) 54 ER 803, (1867) 4 Bom HCR 185 ; (1867) 4 Bom NCR | Imag See,lso. Wamantal v. Sindhia Steam Navigation Cy tial a Son Amant igation Co., AIR 1944 Bom 131: [ron In Re W & M Roith Liu, (196° inne W ME (1967) 1 ALLER 427. National Provincial Bank. Introductions Lid., (1969) 1 AU ER 887.MEMORANDUM OF ASSOCIATION 113 ions by the doctrine, ways tended to evade the limi creditor.! The entrepreneurs have Thas Tor illustration, in Corman v. Brougham. the objects clause in the memorandum contained as many as thirty sub-clauses enabling the company to virtually do almost cvery conceivable business, The House of Lords ruled that this defeats the very purpose of the objects clause and therefore, the Courts should adopt the ‘main object rule” of construction while applying the wrra vires doctrine e, namely, far Re German Date Coffee Co* fause stated that it was formed for Similar question arose in a reference wherein the memorandum of a company in its objects ch Working a German patent which would be granted for manufacturing coffee frosn dates ¢ for obtaining other patents, for improvements and extension of the said invention and to acquire and purchase any other invention for similar purposes. ‘The intended German patent not having becn granted, the Company purchased a Swedish patent and established Working on it in Hamburg. ‘Two shareholders of the company filed petition for winding up of the company on the ground that the main object for which it was formed had become impossible and, therefore, the Court should order winding up of the company ‘Accepting the contention of the petitioners the Court ruled that since the company's real object to manufacture a substitute for coffee in Germany under a patent had become impossible it was just and equitable that the company should be wound up. In yet another case, namely, Bell Houses Ltd. v. City Wall Properties.* the evasion of ultra vires rule came to light in a different form. In this case a company's objects clause authorised it to carry on any other trade or business which in the opinion of the Bourd of Directors could be carried on advantageously in connection with general business of the company. The Court held the clause to be valid though in fact a clause of this Kind does not state any object at all.) Exceptions to the Doctrine of ultra vires x brief analysis of the doctrine of wlira vires with regard to its consequences would reveal that only those activities of the company shall be valid ie., intra vires, which are -— ential for the fulfilment of the objects stated in the main object clause of the memorandum ; (ii) incidental and consequential are reasonably within its permiss business ; and (iti) which the company is authorised to do by the Companies Act in course of its business. @ ble limits of All other activities of the company excepting the above, shall be ultra vires and therefore invalid. ‘There are, however, certain exceptions to this doctrine which are as follows :— —— 1_-An act which is intra vires the company but outside the authority of the directors , may be ratified by the shareholders in proper form.> 2, An act which is intra vires the company but done in an irregular manner, may be validated by the consent of the shareholders. The law, however, does not require that the ‘Quoted from Dr, Avtar Singh's Company Law, (10th Bd) p. 50. (1918) AC 514 ; Per Lord Parker & Lord Wrenbury, J) (1882) 2.ChD. 169, (1906) 2 WLR 1323, Rajendra Nath Dutta v, Shailendra Nath Mukerjee, (1982) 52 Comp. Parker & Cooper Lud. v. Reading, (1926) Ch 975. 293 « praerryee. COMPANY LAW 4 fall the shareholders should be obtained at the same place and in the same consent of all the shareholders meeting y property through an investment whieh is ultra 5 acquired ‘ ae ich a property shall still be secured, e of ultra vires, the effects which are incidental or less they are expressly prohibited by the 3. If the company | vires, the company’s Fight OV 4, While applying the doct tothe act shall not be invalid U consequential Companies Act ; sy mor expressly sated ae certain acts under the Company Law which though not expressly state eer ewithin the authority of the company and emed impliedly with in memorandum are deem y ity © : i ae hey are not deemed tltra vires. For example, business company can raise its capital by borrowing. 6. If an act of the articles in order to validate that act. S company is ultra vires the articles of association, the company can alter Consequences of ultra vires Transactions The consequences which may follow as a result of ulgra vires transactions undertaken by the company are as under :-— 1. Injunction.—The members can get an injunction to restrain the company where ‘act has been or is about to be undertaken.! an ultra vire. 2. Directors may be held personally liable.—The funds of a company can only be utilised for carrying out its authorised objects. Emphasising this point, Lord Herschel in Trevor V. Whitworth,2 observed, "a company cannot employ its funds for the purposes of any transactions which do not come within the objects specified in the memorandum”. Accordingly, if a director of a company makes an ultra vires payment, he can be held personally liable and compelled to refund the money/Thus Jn Re Sharpe. the directors of a company paid ‘interest’ on shares out of capital which was an ultra vires act. The company was afterwards wound up. It was held that the liquidator.could compel the directors to repay the money to the company. A shareholder can maintain an action against the directors to compel them to restore to the company the funds of the company which they have used for transactions that they had no authority to enter into, without making company a party to the suit?) , Where the directors have intentionally misused the capital of the Company, they may be personally sued for fraud or deceit. 3. Breach of Warranty.—The directors being the agents of the company can do nothing which the Company itself cannot do under its memorandum of association, and, therefore, any contract which is ultra vires the company will be void and without any effect whatsoever. AS such, directors mustact within the limits of the company’s powers. If they do not, they would be held personally liable for breach of warranty SThe case of Weeks v. Propert, may be cited to illustrate the point further. ¢ In this case, a railway company floated debenture over and above its authorised borrowing power. The plaintiff offered a loan of £ 500 on the basis of the advertisement. fhe directors accepted it and issued to him a debenture of the company. ‘The loan being ultra vires was void. The plaintiff sued the directors. The Court held that directors by Atiorey General v, Great Eastern Ry. Co,, (1880) § AC 473. (1887) 12 AC 409 (415). (1892) 1. Ch 154, Jehangir R. Modi, Shamji Ladha, (1867) 4 Bi (1873) LR 8 CP 427, muratMEMORANDUM OF ASSOCIATION 15 that they had power to borrow which they in inserting the advertisement had warrante therefore, held personally liable for breach of fact did not possess. The directors were. waranty so be held criminally . the directors may In case of deliberate mistepresentation liable, namely, Aviling Barford Ltd. v. Perion Led. .! the Court held thorised objects shall be {An yet another case, that the directors who threw away the company's money on unauthori personally liable 10 make good the company's loss. Sale of company's property at half of its price to a shareholder was held to be wlira vires and beyond ratification, | lira vires dealings. —Where company’s money has order to acquire certain property. the company's n secured.” ) 4. Property acquired through been utilised in ultra vires dea right over such property shall re 5. Ultra vires contracts.—It has been stated earlier that wlira vires contracts are void ab initio and therefore cannot become valid by ratification or by estoppel. In such cases the question involved'is not as to the legality of the contract but that of the competency and power of the company to make it. As rightly observed by Gray, J.. "performance on either side cannot give an unlawful contract any validity nor can it be the foundation of any right of action upon it". He further held that in case of any ambiguity in the memorandum of a company, it should be interpreted against the company and in favour of public in general.> In view of the fact that contracts which are ultra vires the company are void ab initio, a doubt may be expressed that the companies may tend to enter into such contract to evade liability and reap undue benefit from the innocent parties. But it is to be noted Ahat the outsiders are expected to go through the contents of the memorandum and articles impany before dealing with it. If they do not, they doso-at their own risk because the contents of these documents are constructive notice to them. In case a person enters into'a contract with a company without going through its memorandum, and the contract turns out to be wltra vires, he cannot hold the company liable. This principle has been laid down In re Beauforte (London) Limited.4 In this case, the memorandum authorised the company to carry on business of costumiers, gown-makers and other allied activities of similar nature. The company undertook the business of making veneered panels which was undoubtedly ultra vires and opened a factory in Bristol for this purpose. Three firms which had supplied money and material to raise this factory sued the company for recovery of their money. Though none of these plaintiffs had knowledge that the veneered panel business was ultra vires the company, still they could not make the company liable and their petition was dismissed. It would be pertinent to refer to an earlier Ind Canning & Land Investment Co... in this context. in decision, namely, In Re Port In this case, the company operated a rice mill beyond its powers. The rice was consigned to certain persons who had paid the price. ‘The consignee had to sell the tice at a fairly low price because of its being inferior in quality. The company gave them drafts promising to pay for the loss. Subsequently the company went into liquidation. As to the 626 Ch, Ad Suit v. Bank of Mysore, (1930) $9 MLI 28, i 2. 3. Observations made by Gray, J. in Centeal Transportation Co, v, Pulln 4 5 Car Co., (1890) 139 US 24. (1953) 69 LOR 166. (1871) 7 Beng LR,16 COMPANY LAW enforceability of the drafis, the Court held that the consignces could not recover, the transaction arising out of trading in rice being ultra vires the company. 6. Liability for ultra vites acts under Tort law,—There is no certainty as to the exteni to which 2 company may be held liable for damages resulting out from its ultra vives acts, But the law as it stands today makes a company liable in torts if it is shown that : (i) the activity in course of which the alleged tort has been committed falls Within the ambit of memorandum of the company ; and (ii) the tort was committed by the servant within the scope of his employment Alteration of Objects Clause. ~~ n India, Section 12 of the Companies Act, 1882 permitted companies to alter their A memorandum only for two purposes, namely, (1) to raise its capital, and (2) to change its : name. Therefore, a company could not alter its objects clause under the Act. This created : practical problems for a company to expand its business operations and carry on its commercial activities more economically and efficiently. In order to remove these difficulties the Companies (Memorandum of Association) Act, 1895 was passed in India | enabling the companies to alter their objects clause to a certain extent.! Similar provision j was'contained in Section 17 of the Companies Act, 1956? (now Section 13 of the 2013 ii Act) which allowed alteration of objects within certain defined limits. These limits are of two kinds (1) Substantive and (2) Procedural. ——n | Substantive Limits —~ ‘A company may alter its objects for any of the following purposes :— __-@ To carry on its business more economically and efficiently. But it cannot make substantive alterations in its original activities. For example, In Re Scientific Poultry Breeders Association Ltd.? it was stated in the objects clause of the memorandum that the company shall not pay remuneration or profits to its managers. The company’s area of ! operation expanded so much that it became necessary for the company to pay remuneration to its manager so that they would devote more time for the managerial work. The company, therefore, altered its objects clause allowing remuncration to its managers. A petition was filed against this alteration. The Court justified the alteration on the ground that it was necessary for the efficient operation of the company's business and the change did not affect the main object substantively. milarly, alteration of objects was allowed to a company to make contributions to political parties as this could enable them to have a better rapport with the Goverament which would eventually be beneficial to its busine _-(ii) In order to enable the company to carry on its main purpose with new and improved means. Thus a company may avail of the advantage of new scientific discoveries or improved techniques to step up its business, its main object substantially remaining the same. (iii) The company may alter its object clause to enlarge the local area of its operation, I, Section 8 of the Companies (Memorandum of Association) Act, 1895. 2, Section 13 of the Companies Act, 2013 (Alteration of Memorandum). 3. (1933) Ch 227, ache ees 4 Straw Produts Ll: Regsrar of Compas, (1970) Comp. L193; yan Tata ron & Steel — |MEMORANDUM OF ASSOCIATION 17 (iv) The company may carry on some business which under the existing circumstances may be conveniently or advantageously be combined wath the existing business of the company. ‘The new business should not be detrimental to, oF inconsistent with the existing business, Thus dr Re Cyclists Touring Club! a club incorporated to protect eyelists on public roads was not allowed to undertake protection oF motorists also, because cyclists had to be protected against motorists themselves. acillary or sir It is not necessary that the proposed new business must be the eaisting business of the company. ‘The use of the term "some business" in 13(1) of the Companies Act, implies some new business not already provided for in the objects clause. The proposed new business may be entirely new and may even amount 1 a departure from th: old business, Thus a company initially formed for eaerying on the business of jute was allowed to include ‘business of rubber’ by alte ing its objects clause? Similarly, a Spinning and Weaving Company was allowed 10 manufacture “industrial and power alcohol} Again, the insurance business of a company having been taken over by the Central Government, the company was allowed to alter its objects to switch over to business of engineering works and import and export In Re Rajendra Industries (P) Ltd..5 the High Court of Madras ruled that where the company’s financial position is sound and the alteration is not opposed by its shareholders or creditors, an alteration in the objects clause for expansion of business activities shoutd normally be allowed Tt would be seen that in most of these cases alteration was opposed by the Registrar of Companies to prevent diversification of objects but the Courts have generally taken a Tiberal view and avoided interfering with the unanimous decisions of the shareholders: subject to the restrictions contained in Section 13 of the Companies Act, 2013. on of objects may also be allowed to restrict or abandon any of the m. (v) Altera objects Specified in the memorand (vi) To sell or dispose of the whole, or any part of the under company. (vii) An alteration in the objects clause is permissible, for the purpose of amalgamation of a company with other company or body corporate.° aking of the Procedure for Alteration (An alteration in the objects clause of a company shall not have any effect until a special resolution has been passed by the shareholders of the company, for this purpose and is confirmed by the Central Government. The Central Government is, however, free to confirm the alteration wholly or in part, and it can even refuse to confirm {ton reasonable grounds) However, before confirming the alteration, the Central Government must be satisfied tha :— (1) sufficient notice has been given to every debenture-holder (i.e. creditor) of the company and to person e interests are likely to be affected by the alteration ; and (2) the objections to the proposed alteration of objects, if any, have been properly sed of to the satisfaction of the Central Government. whos Ch 269. (1907 Sugeilal Kanlapat Jute Mills ¥, Registrar of Companies, (1967) 37 Camp, Cas. 20 f 2 3. In Re Modi Spi & Weaving Mills Co, Lid., (1963) 33 Comp. Cas. 33, 4 Ss. in Re Asiatic Insurance Co. Ltd., (1965) 2 Comp. LJ 24 Puny, (1957) 2. Comp. LJ 144 Mad. & Nogaisuree Teu Co. ¥. Ram Chand Kanani, (1966) 2 Comp. LI 208,COMPANY LAW Govemment must also senda notice of alteration to the Rogistur of Ne bim to ap ANETTA The Bound and file objections, any, in rexpoet ay_ehoose to impose reasonable conditions while joranduny of a company, The change in the objects the company's name so us to indicnte consequential chan; nt» character of business of the company.! apacity of a creditor in ment may object to a change in the © revenue dite to it from the company. corin Electric Supply Ltd..? the Company Law Board (now he Central Government) confirmed the alteration of obj use of the company and been equity shareholders desire that the company should continue to function by incorporating other useful objects in the objects- clause of the memorandum of the company, legally under Section 17 the Companies Act, 1956 (now Section 13 of the Companies Act, 2013) we do not find any reason to deny the same. “As the company’s electricity undertaking has nationalised by the Tamil Nadu Government, thi Again. where the transfer of registered office of a company from one State to another was once refused, it is no bar to ordering the change subsequently if the Circumstances have so altered as to make the transfer of registered office necessary in the interest of the company.3 ‘kny alteration in the object clause of the memorandum of a company limited by guarantee and not having share capital, purporting to give any person a right to participate in the divisible profits of the company otherwise than as a member, shall be void.4 \ Registration of Alteration [Section 13 (9)] (After the confirmation of alteration of objects by the Central Government, a centified copy of the order of the Central Government together with the printed copy of the morandum must be filed by the company with the Registrar of Companies, months of the date of order. The Registrar shall register the alteration and issue within one month certificateywhich shall be conclusive evidence that all formalities ‘eqarding the alteration have beef properly complied with, Every copy of memorandum shall thereafter contain amended objects clause as confirmed by the Central Government. altered m within thre Effect of non-registration of alteration tion in the objects shall be effective until it is registered with the Registrar ies.* In case the company fails to file the documents within three months of the date of confirmation order of the Central Government, or within the extended time allowed by it, such alteration and all the proceedings connected therewith, shall become voi und inoperative, The Central Government may, however, revive the order on application made by the company within a further period of one month, H Govcral Assunace CO. Ltd, AIR 1965 Cal. 16, 22417) CLI (197) Steels Ltd, (1980) 80 Comp, Cas. $95 (Cal) anes Act, 2013, panics Avt, 2018 1d Ke Stan Company Posi \ 1 ’MEMORANDUM OF ASSOCIATION no (D) LIMITED LIABILITY CLAUSE a (In case of a company whose liability of members is limited by shares or guarantee, the neniorandum must contain a clause stating that ‘the liability of the members is limited’. Even a company whieh is exempted from using the word ‘Limited’ as a part of inane under Section 8 of the Companies Act, 2013 is also required to state, in its memorandum that Uie liability of members is limited. The effect of this clause is that, in a company liniited by shares, no member can be called upon to pay more than the unpaid value of the shares b-ld by him, In case his shares are fully paid, he shall not be required to pay aly more even if the company owes huge debts to its creditors.?») + ‘A member of » “ompany limited by guarantee, not having share capital cannot be called upon to contribute an amount more than his guarantee in the event of liquidation of the company )Likewise, in case of a company limited by guarantee but having share capital, the ‘members cannot be called upon to contribute more than the amount guaranteed by them and the amount unpaid on their share, if any. A company cannot alter its liability clause so as to enhance the liability of its menibers or compelling them to take further shares. Such an_alteration.would.be void in law. There are, however certain exceptions to this rule where adi ity may be attrributed to members by altering its liability clause. (E) CAPITAL CLAUSE ~ The capital clause in the memorandum states the amount of the nominal or authorised capital with which the company proposes to be registered, and the value of the shares into which it is divided. There is no limit to the amount of capital which the company may have, or to the fixed value of each individual share. ‘The cpaital of the company may be divided into two different categories namely, (a) equity share capital, which may be (i) with voting rights : or (ii) with differential rights a8 (0 dividend, voting or otherwise in accordance with such rules as may be prescribed, and (b) preference share capital.> Provided that nothing contained in the Companies Act, 2013, shall affect the rights of the preference share holders who are entitled to participate in the proceeds of winding up before the commencement of this Act. Alteration of Share Capital (Section 61) —~ (a) Alteration of capital clause — ion 61 of the Companies Act, 2013 provides that a Lin 2 types of alterations by an ordinary resolution, i ited Company can authorised by its Sect ke the follow § 10 do $0 + _O-incfease its share capital by an issue of new shares* : (ii) consolidate existing shares into shares of larger denomination’ ; of smaller amount than is (iii) sub-divide its shares or any of them into shar fixed by memorandum [Section 61 (1) (d)] + (iv) convert fully-paid shares into stock or vice versa [Section 61 (1) (J jon 61 (1) (a). Section 61 (1) (b).10 COMPANY LAW (v) cancel unissued shares and to that extent diminish the amount of its shares, capital, Such cancellation shall not, however, be deemed as reduction of share capital [Section OF (CE) To cancellation of shares under sub-section 61 (1) shall not be deemed 10 be reduction of share eapital.! AIL such alterations do not require the confirmation by the Company Law Board These alterations are, however, required o be notified giving details of the shares consolidated, divided, converted, sub-divided, redeemed or cancelled oF the stock reediverted, as the ease may be, and a copy of the resolution should be filed with the Registrar within 30 days of the resolution. The Registrar sha id the ne in the company's memorandum oF art shares does not aniount fo reduetion of share c fion 62] yy alteration which may be necessary cancellation of nil make Jes or both, It must be noted tha pital. \ (b) Increase in share capital [§ A limited company having a share capital can inerease its share capital by such amount as it thinks expedient subject (o the fulfilment of the following conditions :— sof the company should contain powers authorising the company crease its capital (i)_A resolution must be passed by the company in a general meeting. (iii) A notice of increase in eapital is required to be filed by the company which the Registrar within 30 days after the passing of the resolution and the ar shall thereupon record'the increase and also make any alterations ch may be necessary in the company's articles or memorandum or both. (iv) The notice to be given to the Registrar should include particulars of the class _-~ of shares affected and the conditions, if any, subject to Which the new shares ha¥e been or are to be issued, ‘The share capital of a company shall stand increased automatically without the procedure mentioned above being followed in the following circumstances : (Where the Central Government has, by an order made under sub-section (4) of ~Section 62 of the Companies Act, 2013 directed that any debenture or loan or any part thereof shall be converted into share of the company and such an order has the effect of increasing the authorised capital of the company. (ii) Where any public financial institution, in pursuance of option attached to debentures issued or loans raised by the company, proposes to convert such debentures or loans or part thereof into shares in the company, and such conversion results in the authorised share capital in the company, and the Central Government issues a direction in this behalf, Unlimited Company to provide for reserve share-capital on conversion into a limited company (Section 65) Section 65 of the Companies Act, 2013, provides that an unlimited company having a share capital may, by a resolution for registration as a limited company under this Act, do either or both of the following things, namely :-— (a) inerease the nominal amount of share capital by increasing the nominal value of ch of its shares subject to the condition that no part of the increased capital shall be pable of being called up except in the event of company being wound up : 1. Section 61 (3) of Companies ActMEMORANDUM OF ASSOCIATION 121 (b) provides that a specified portion of its uncalled share capital shall not be capable arbeing called up except in the event and for the purposes of winding up of the company. ‘The company is required to file with the Registrar within 30 days from the date of receipt of the order a retum in the prescribed form with regard to the increase of share pital The Registrar will, on receipt of such order and the return, carry out the necessary “terations in the memorandum of the company. (c) Reduction of capital (Section 66) Subject to confirmation by the Tribunal, a company limited by shares or limited by tee having a share capital may by a special resolution, reduce its share capital : (@ by extinguishing or reducing the liability on share capital not paid-up: (b) by refunding surplus of the paid-up capital; (0) by writing off the lost capital; (@ by any other method approved by the Court. [A company can reduce its share capital by any of the above mentioned methods only when the following conditions are fulfilled = (i) The Articles of the company permit such a reduction. (ii) ‘The company passes a special resolution for reducing share capital. (iii) The company also obtains confirmation of the resolution by the Tribunal. Provided that no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, ether before or after the commencement of the Companies Act, 2013, or the interest payable thereon. Nothing contained in Section 66 permitting deduetion in share capital shall apply to buy-back of its own securities by a company under Section 68 of the Act. Being a domestic affair, the Companies Act, 2013 permits the companies to decide the extent, mode etc, of reduction of its share capital. With a view, however, to safeguarding the interests ofthe creditors and the minority shareholders as also (0 ensure Feeetareckeme of reduction is fair and reasonable, it is provided that the scheme of ttction of the company shall be subject to the approval of the Court. Before putting its weet ronfirmation on the scheme, itis the duty of the Court to see that the procedure adopted is formally correct, the creditors are not prejudiced and the scheme is fair and equitable between the different classes of sharcholders. However, the above mentioned procedure is not called for : (a) Where redeemable preference shares are redeemed in accordance with the provisions of Section 55 of Companies Act, 2013. (6) Where any shares are forfeited for non-payment of calls. (®) ASSOCIATION CLAUSE ~~ This clause is also known as ‘subscription association clause must state that the"persons who are subscribing their signatures (0 the memorandum and are desirous of forming themselves into an ‘association in pursuance of the memorandum. Each subscriber must sign the memorandum inthe presence of-atleast one witness who shall attest the signature. Each one of them agrees to take the number of shares stated against their respective names. The memorandum has to be subscribed by atleast seven persons in case of a public company and two in the case of a private company.) - clause’ of the memorandum. TheCOMPANY LAW A subscriber to memorandum cannot withdraw his name on the ground that he was induced to become subscriber by the misrepresentation by an agent of the company. He may, however, withdraw before the memorandum is actually registered by the Registrar of Companies, the reason being that there is no contract until then, Binding Effect of Memorandum on Members (Section 10) Section 10 of the Companies Act, 2013 provides that the Memorandum (ancl stered bind the company and its members to the same extent as if they Sigiied by, the company and by each member to abide by all the provision, ined therein. This is applicable to every member irrespective of the fact whether he became a member through allotment, transfer oF transmission of shares, The binding nature of a duly registered memorandum (and articles) affects the members only in the capacity of members of the company and not in any other capacity, Sub-section (2) of Section 10 of the Companies Act, 2013 makes it clear that all pmounts Payable by any member to the company under the memorandum or articles shall be a debt due from him to the company. ) articles yo ‘Wn Ke Metal Constituents Lud, (1902) Ch107 per Burkley, J