LegalAspectsofBusiness

B.A(H)BUSINESSECONOMICSSemesterVI

UNITIII

COMPANIESACT2013

CHAPTER3:MEMORANDUMOF

ASSOCIATION

MemorandumofAssociation&ArticlesofAssociation:Whatarethese?

•  The memorandum and articles of association of a company are the mostimportant documents for the formation of a company and for its functioningthereafter.

•  Thememorandumofassociationcontainsthename,situationofregisteredoffice,objects,capitalandliabilityclauses.

•  Thearticlesareitsbye-lawsorrulesandregulationsthatgovernthemanagementandinternalaffairsandtheconductofitsbusiness.

•  BoththedocumentsarerequiredtoberegisteredwiththeRegistrarofCompaniesduringincorporation.

•  Before dealing with a company, it is advisable to read the memorandum andarticlesofthecompanytounderstandaspects,suchaspowersofBoard,scopeofcompany’sactivitiesetc.anditsrelationshipwiththeoutsideworld.

MEMORANDUMOFASSOCIATION•  Company’sprincipaldocument

•  NocompanycanberegisteredwithouthavingMOA

•  TheMemorandumofAssociationisadocumentwhichsetsouttheconstitutionofacompanyandisthereforethefoundationonwhichthestructureofthecompanyisbuilt.

•  Itdefinesthescopeofthecompany’sactivitiesanditsrelationswiththeoutsideworld.

MOA:CASELAW•  In the celebrated case of Ashbury RailwayCarriage & Iron Co. Ltd. v. Riche, (1875), LordCairnobserved:–  “Thememorandumofassociationofacompanyisitscharteranddefinesthelimitationsofthepowersofthecompany.......... itcontains in itboththatwhichisaffirmativeandthatwhichisnegative.”

•  It states affirmatively the ambit and extent of vitalityandpowerswhichbylawaregiventothecorporation,and it statesnegatively, if it isnecessary tostate, thatnothingshallbedonebeyondthatambit

FORMOFMEMORANDUMOFASSOCIATION

•  Section 4(6) of the Companies Act, 2013providesthatthememorandumofassociationshouldbeinanyoneoftheFormsspecifiedinTablesA,B,C,DorEofScheduleItotheAct,

– as may be applicable in relation to the type ofcompany proposed to be incorporated or in aFormasneartheretoasthecircumstancesadmit.

FORMOFMEMORANDUMOFASSOCIATION

•  TheForminTableAisapplicableinthecaseofcompanieslimitedbyshares;

•  The Form in Table B is applicable to companies limited byguaranteenothavingasharecapital;

•  The Form in Table C is applicable to the companies limited byguaranteehavingasharecapital;

•  The Form in Table D is applicable to unlimited companies nothavingasharecapital;

•  TheForminTableE isapplicabletounlimitedcompanieshavingasharecapital.

FORMOFMEMORANDUMOFASSOCIATION

•  A company shall adopt any of the modelForms of the memorandum of associationmentionedabove,asmaybeapplicabletoit.

CONTENTSOFMOA

•  As per Section 4(1), the memorandum of alimitedcompanymuststatethefollowing:

① NameClause② SituationClause③ ObjectsClause④ LiabilityClause⑤ CapitalClause⑥ SubscriptionorAssociationClause(ScheduleI)

CONTENTSOFMOA•  AsperSection4(1), thememorandumofa limitedcompanymust

statethefollowing:

①  thenameof the companywith “Limited” as its lastword in thecaseofapubliccompany;and“PrivateLimited”as its lastwordsinthecaseofaprivatecompany;(NameClause)

②  TheState inwhich the registeredofficeof thecompany is tobesituated;(SituationClause)

③  The objects for which the company is proposed to beincorporatedandanymatterconsiderednecessaryinfurtherancethereof;(objectsclause)

–  Provided that nothing in this clause shall apply to a companyregisteredundersection8;

CONTENTSOFMOA④  The liability of members of the company, whether limited or

unlimited,andalsostate,—(LiabilityClause)

–  In the case of a company limited by shares, that liability of itsmembersislimitedtotheamountunpaid,ifany,onthesharesheldbythem;and

–  In the case of a company limited by guarantee, the amount up towhicheachmemberundertakestocontribute—

•  Totheassetsofthecompanyintheeventofitsbeingwound-upwhileheisamemberor

•  withinoneyearafterheceasestobeamember,•  forpaymentofthedebtsandliabilitiesofthecompanyorofsuchdebtsand

liabilitiesasmayhavebeencontractedbeforeheceasestobeamember,asthecasemaybe;and

•  Tothecosts,chargesandexpensesofwinding-upand foradjustmentof therightsofthecontributoriesamongthemselves;

CONTENTSOFMOA⑤  inthecaseofacompanyhavingasharecapital,—(Capital

Clause)–  Theamountofsharecapitalwithwhichthecompanyistobe

registeredand–  the division thereof into shares of a fixed amount and the

numberofshareswhichthesubscriberstothememorandumagreetosubscribe

–  whichshallnotbelessthanonesharepersubscriber;and–  the number of shares each subscriber to the memorandum

intendstotake,indicatedoppositehisname;

⑥  In the case of aOne Person Company, the name of thepersonwho, in theeventof thedeathof thesubscriber,shallbecomethememberofthecompany.

CONTENTSOFMOA

NAMECLAUSE•  A company being a legal entity must have a name of its

owntoestablishitsseparateidentity

•  Thenameof the company is a symbol of its independentcorporateexistence

•  The first clause in thememorandumof associationof thecompany states the name by which a company is to beknown

•  Thecompanymayadoptanysuitablenameprovideditisnotundesirable

NAMECLAUSE…..contd.•  According to section 4(2), the name stated in the memorandum shall

not:a)  be identical with or resemble too nearly to the name of an existing

companyregisteredunderthisActoranypreviouscompanylaw;orb)  besuchthatitsusebythecompany—

–  willconstituteanoffenceunderanylawforthetimebeinginforce;or–  isundesirableintheopinionoftheCentralGovernment.

•  Section4(3)providesthatwithoutprejudicetotheprovisionsofsection4(2),acompanyshallnotberegisteredwithanamewhichcontains—

–  anywordorexpressionwhichislikelytogivetheimpressionthatthecompanyisinanyway connectedwith, or having the patronage of, the Central Government, any StateGovernment, or any local authority, corporation or body constituted by the CentralGovernmentoranyStateGovernmentunderanylawforthetimebeinginforce;or

–  such word or expression, as may be prescribed, unless the previous approval of theCentralGovernmenthasbeenobtainedfortheuseofanysuchwordorexpression

NAMECLAUSE….contd.•  As per section 4(4) a person may make an application, in such

form(FormINC1)andmanner–  andaccompaniedbysuchfee,asmaybeprescribed,–  to the Registrar for the reservation of a name set out in the

applicationas—a.  thenameoftheproposedcompany;orb.  thenametowhichthecompanyproposestochangeitsname.

•  Section4(5)(i)laysdownthat–  uponreceiptofanapplicationundersub-section(4),–  the Registrar may, on the basis of information and documents

furnishedalongwiththeapplication,–  reserve the name for a period of 60 days from the date of the

application

NAMECLAUSE:WHATNAMESAREPROHIBITED?

•  Thenamestatedinthememorandumshallnotbesuchthatitsusebythecompany,intheopinionoftheCentralGovernment,isundesirable:

–  Anamewhichisidenticaltoortoonearlyresembles,thenamebywhichacompanyinexistencehasbeenpreviouslyregistered,willbedeemedtobeundesirable

•  TheRegistrarmustmakepreliminaryenquiriestoensure

–  thatthenameallowedbyhimisnotmisleadingor–  NotintendedtodeceivewithreferencetotheObjectsClauseofthememorandum

•  TheRegistrarisnot,however,requiredtocarryoutanyelaborateinvestigationatthetimeofregistrationofthecompany.

•  Unlessthepurposeofthecompanyappearstobeunlawfulex-facieoristransparentlyillegalorprohibitedbyanystatute,itcannotberegardedasanunlawfulassociation

•  Theobjectistopreventtheuseofanamelikelytomisleadthepublic.–  Forexample,acompanyisnotallowedtouseanamewhichisprohibitedundertheEmblemsand

Names(PreventionofImproperUse)Act,1950,or–  suggestiveofanyconnectionwithGovernmentorofStatepatronagewherethereisnone.

NAMECLAUSE:JUDICIALPRECDENT

•  Ewingv.ButtercupMargarineCo.Ltd.(1917)

•  The plaintiff, who carried on business underthe name of the Buttercup Dairy Co.,obtainedan injunction against thedefendant(ButtercupMargarineCo.Ltd.),– on the grounds that the public might think thatthe two businesses were connected, the word“Buttercup”beingafancyone.

CHANGE/RECTIFICATIONINNAME•  Section 16 provides that if by inadvertence or otherwise a name has been

registeredwhich is identical to or toonearly resembles thenameof an existingcompany whether registered under this Act or the previous company law, theCentralGovernmentmaydirectthecompanytochangeitsname.

•  Thecompanyshallchangeitsnamewithinaperiodof3monthsfromtheissueoftheabovedirectionafterpassinganordinaryresolutionforthepurpose.

INFRINGMENTOFTRADEMARK:•  This section also gives enhanced power to the Central Government to order

rectificationofnamewheresuchnameinitsopinionconstitutesaninfringementofaregisteredtrademark.

•  The proprietor of the registered trade mark may make an application to theCentralGovernmentforanorderforrectificationofnamebecauseitisidenticaltoortoonearlyresemblestheapplicant’sregisteredtrademarks

CHANGE/RECTIFICATIONINNAME…CONTD.

•  INFRINGMENTOFTRADEMARK:….CONTD.–  Such application must be made within three years from the date of

incorporationortheregistrationorchangeofnamewhetherunderthisActorpreviouscompanylaw.

–  InsuchacasetheCentralGovernmentmaydirectthecompanytochangeitsnameandthecompanyshallchangeitsname,withinaperiodofsixmonthsfromtheissueofsuchdirection,afterpassinganordinaryresolutionforthepurpose

•  Whereacompanychangesitsnameorobtainsanewname,itshallwithinaperiodoffifteendaysfromthedateofsuchchange,–  givenoticeofthechangetotheRegistraralongwiththeorderoftheCentral

Government, who shall carry out necessary changes in the certificate ofincorporationandthememorandum.

CHANGE/RECTIFICATIONINNAME…CONTD.

•  Whereacompany isdirectedtochangethename,thecourtcannotdirectlytelltheRegistrartoeffectthechangeinthenameofthecompany.–  TheCourtcanonlydirectthecompanytodoso.

•  Thecompanycannot simply file theCourtorder regarding thechangebut itwillhavetofollowtheprescribedprocedure

•  Meresimilarityofnameisnotinitselfenoughtogivearighttoaninjunction.–  The law does not give a person a right to prevent the use of a name by

anotherperson.

•  In the case of companies, however, registrationwill be refused only if there islikelihoodofdeceptionorconfusion.

•  Apersoncannotbepermittedtonameacompanyevenafterhispersonalnameifthatnameresemblesthenameofanexistingcompany

CASELAW•  Atlas Cycles (Haryana) Ltd. v. Atlas Products Pvt. Ltd. •  Use of the brand name as corporate name was settled.

•  Both the plaintiff and the defendant companies belong to the same family.

•  The Appellant-plaintiff was the proprietor of the trade mark in the name “Atlas”.

•  The Respondent-defendant company containing the name “Atlas” in its corporate name started dealing in bicycles.

•  The plaintiff objected to the use of the name “Atlas” by the defendant company.

•  The Defendants were restrained from using the word ‘Atlas’ in their corporate/trade name in respect of bicycles and bicycle parts.

PUBLICATIONOFNAME•  Thenameofthecompanyandtheaddressofitsregisteredoffice

–  must be painted or displayed outside every office or place at which itsbusinessiscarriedon,

–  inaconspicuouspositionandinlegiblelettersinEnglish–  andinthelanguageingeneraluseinthatlocality.

•  Thenamemustalsobeengravedonthecompany’scommonseal.

•  Further,thenameofthecompanyandtheaddressoftheregisteredofficeand the Corporate Identity Number along with telephone number, faxnumber,ifany,e-mailandwebsiteaddresses,ifany–  mustbementionedinlegiblecharactersinallbusinessletters,–  in all its bill heads, letter papers and in all its notices and other official

publications,–  as well as in all negotiable instruments and other prescribed documents

(Section12).

PUBLICATIONOFNAME•  However,whereacompanyhaschangeditsnameornamesduring

thelasttwoyears,itshallpaintordisplayorprint,asthecasemaybe,alongwith its name, the former nameor names so changedduringthelasttwoyearsasrequiredabove.

•  Further in caseofOnePersonCompany, thewords ‘‘OnePersonCompany’’shallbementionedinbracketsbelowthenameofsuchcompany,whereveritsnameisprinted,affixedorengraved.

•  MinistryofCorporateAffairs(MCA)hasclarifiedthat–  displayofitsnameinEnglishinadditionto–  thedisplayinthelocallanguage–  willbeasufficientcompliancewiththerequirementsofthesection

II.REGISTEREDOFFICE/SITUATIONCLAUSE

•  The name of the State in which the registered office of thecompanyistobesituatedmustbegiveninthememorandum.–  But the exact address of the registered office is not required to be

statedtherein.

•  Within15daysofitsincorporation,andatalltimesthereafter,thecompany must have a registered office to which allcommunicationsandnoticesmaybesent.

•  ThecompanymustalsofurnishtotheRegistrar–  verificationofitsregisteredoffice–  withinaperiodofthirtydaysofitsincorporation insuchmanneras

maybeprescribed.

REGISTEREDOFFICE/SITUATIONCLAUSE

•  Section12(3)statesthateverycompanyshall—

a.  paintoraffixitsname,andtheaddressofitsregisteredoffice,andkeepthesamepaintedoraffixed,ontheoutsideofeveryofficeorplace inwhich itsbusiness iscarriedon, inaconspicuousposition, in legible letters,and if thecharactersemployedthereforearenotthoseofthelanguageorofoneofthelanguagesingeneraluseinthatlocality,alsointhecharactersofthatlanguageorofoneofthoselanguages;

b.  haveitsnameengravedinlegiblecharactersonitsseal;

c.  getitsname,addressofitsregisteredofficeandtheCorporateIdentityNumberalongwithtelephonenumber,faxnumber,ifany,e-mailandwebsiteaddresses,ifany,printedinallits business letters, billheads, letter papers and in all its notices and other officialpublications;and

d.  have its name printed on hundies, promissory notes, bills of exchange and such otherdocumentsasmaybeprescribed:

OBJECTSCLAUSE•  Thethirdcompulsoryclause inthememorandumsetsout

theobjectsforwhichthecompanyhasbeenformed.

•  Under section 4(1)(c) of the Companies Act, 2013, allcompaniesmuststateintheirmemorandum–  the objects for which the company is proposed to beincorporatedand

–  anymatterconsiderednecessaryinfurtherancethereof.

•  Determinesthepurposeandthecapacityofthecompany.

•  Indicatesthepurposeforwhichthecompanyhasbeensetupanditsactualcapability,besidesitssphereofactivities.

OBJECTSCLAUSE…contd.•  Itstatesaffirmativelytheambitandextentofpowersofthecompanyand,

–  statednegatively,thatnothingshouldbedonebeyondthatambitand

–  that no attempt shall be made to use the company for any otherpurposethanthatwhichisspecified.

•  The purpose of the objects clause is to enable the persons dealingwiththecompanytoknowitspermittedrangeofactivities.

•  Theactsbeyondthisambitareultraviresandhencevoid.–  Eventheentirebodyofshareholderscannotratifysuchacts.

OBJECTSCLAUSE…CONTD.•  The subscribers to thememorandum of association enjoy almost

unrestrictedfreedomtochoosetheobjects.

•  The only restriction is that objects should not be illegal andagainsttheprovisionsoftheCompaniesAct,2013.

•  It is on the basis of the main objects clause that the concernedRegistrarofCompaniesenquiresas–  to the objects intended to be pursued by the company either

immediatelyor–  withinareasonabletimeafteritsincorporation.

•  The Registrar must satisfy himself by reference to certaindocuments,informationorexplanationsfurnishedbythecompany.

LIABILITYCLAUSE•  Section41(d)oftheCompaniesAct,statesthattheliabilityofmembersof

thecompany,whetherlimitedorunlimited,andalsostate,—

1.  Inthecaseofacompanylimitedbyshares,thatliabilityofitsmembersislimitedtotheamountunpaid,ifany,onthesharesheldbythem;and

2.  Inthecaseofacompanylimitedbyguarantee,theamountuptowhicheachmemberundertakestocontribute—

–  totheassetsofthecompanyintheeventofitsbeingwound-upwhileheisamemberorwithinoneyearafterheceasestobeamember,forpaymentofthe debts and liabilities of the company or of such debts and liabilities asmayhavebeen contractedbeforehe ceases tobe amember, as the casemaybe;and

–  tothecosts,chargesandexpensesofwinding-upandforadjustmentoftherightsofthecontributoriesamongthemselves;

CAPITALCLAUSE•  This is the fifth compulsory clause whichmust state the amount of the capital with which the

companyisregistered.

•  Theshares intowhichthecapital isdividedmustbeoffixedvalue,which iscommonlyknownasthenominalvalueoftheshare.

•  Thecapitalisvariouslydescribedas“nominal”,“authorised”or“registered”.

•  The amount of nominal capital is determined having regard to the present as well as futurerequirementsofthecompanywithreferencetoitsobjects.

•  The usual way to state the capital in the memorandum is: “The capital of the company is Rs.10,00,000dividedinto1,00,000equitysharesofRs.10each”.

•  This amount lays down the maximum limit beyond which the company cannot issue shareswithoutalteringthememorandumasprovidedbySection61oftheCompaniesAct,2013.

•  Iftherearebothequityandpreferenceshares,thenthedivisionofthecapitalistobeshownunderthesetwoheads

CAPITALCLAUSE…CONTD.•  A company is not authorised to issue capital beyond its authorised/nominal/

registeredcapital–  If it receives applications for shares beyond the shares covered by the

authorisedcapital,theamountreceivedonexcessnumberofsharesshouldbereturned.

•  Out of the issued capital, the total amount actually subscribed or agreed to besubscribed isknownassubscribedcapital,andthissubscribedcapitalagainmaybewhollypaidorpartlypaid, inwhich lattercasethebalancewouldbepayableonfuturecallswhenmade.

•  Theamountactuallypaidbytheshareholdersiscalledthepaid-upcapital.

•  AccordingtoSection60oftheAct,–  if the amount of the authorised capital (nominal capital), of the company is stated in any

notice,advertisement,officialpublication,businessletter,billheadorletterpaper,–  itshallalsocontainastatementinanequallyprominentpositionandinequallyconspicuous

termstheamountofcapitalwhichhasbeensubscribedandtheamountpaid-up.

ALTERATIONOFMEMORANDUM•  Section13(1)oftheCompaniesAct,2013providesthatacompany

may, by a special resolution and after complying with theprocedure specified in this section, alter the provisions of itsmemorandum

•  Thememorandumofassociationofa companymaybealtered inthefollowingrespects:a.  Bychangingitsname[Sections13(2)]b.  By altering it in regard to the State in which the registered

officeistobesituated[Section13(4)&(7)]c.  Byalteringitsobjects[Section13(1)&(9)d.  Byalteringitssharecapital(Section61)e.  Byreorganisingitssharecapital(Sections230to237)f.  Byreducingitscapital(Section66)

ALTERATIONOFMEMORANDUM•  Strict compliance of the prescribed procedure in relation to alteration of

memorandumisdemandedbylaw.–  Failure to comply with the express provisions made under the Act for the purpose of

alterationoftheprovisionsorconditionscontainedinthememorandumwillbedeemedasanullity.

•  Furthersection13(6)providesthatacompanyshall,inrelationtoanyalterationofits memorandum, file with the Registrar the special resolution passed by thecompanyundersection13(1).

•  Section13(10)providesthatnoalterationmadeunderthissectionshallhaveanyeffect until it has been registered in accordancewith the provisions of the saidsection.

•  Further,anyalterationofthememorandum,inthecaseofacompanylimitedbyguaranteeandnothavingasharecapital,purportingtogiveanypersonarightto participate in the divisible profits of the company otherwise than as amember,shallbevoid.[Section13(11)]

I.ALTERATIONOFNAMECLAUSE•  Thenameof the company canbe alteredby a special resolution andwith the

approvaloftheCentralGovernmentinwriting.–  ApprovaloftheCentralGovernment isnotnecessary if thechangerelatestothe addition/

deletionoftheword‘Private’tothenameofthecompanyconsequenttotheconversionofaprivatecompanyintoapubliccompanyandviceversa.[Section13(1)&(2)]

•  When any change in the name of a company is made under section 13(2), theRegistrarshallenterthenewnameintheregisterofcompanies inplaceoftheoldnameandissueafreshcertificateofincorporationwiththenewname

–  andthechangeinthenameshallbecompleteandeffectiveonlyontheissueofsuchacertificate[Section13(3)].

•  Section16:Rectificationofthenameofthecompanyrequiredtobecarriedoutifacompany is registered through inadvertenceorotherwise,byanamewhich isidenticaltoortoonearlyresemblesthenameofacompanyalreadyinexistence.

–  The rectification of the namemust also be carried out if the Central Government sodirectsatanypointoftimeaftertheregistrationofthecompany.

–  The direction of the Central Government is required to be complied with by thecompanywithinaperiodof3monthsfromthedateofissuethereof.

ALTERATIONOFNAMECLAUSE•  Furtherwhereacompanychangesitsnameorobtainsanewnameunder

section16(1),–  itshallwithinaperiodoffifteendaysfromthedateofsuchchange,–  givenoticeofthechangetotheRegistraralongwiththeorderoftheCentral

Government,–  whoshallcarryoutnecessarychangesinthecertificateofincorporationand

thememorandum.

•  Any default in complying with the direction issued by the CentralGovernmentwouldrenderthecompanyliableforpunishment

–  with fine which may extend to one thousand rupees for every day duringwhichdefaultcontinuesand

•  its officers in default shall be liable for fine which shall not be less than fivethousandrupeesbutwhichmayextendtoonelakhrupees.

ALTERATIONOFNAMECLAUSE:Provisionsundercompaniesincorporationrules

Rule29ofCompanies(incorporation)Rules2014statesthat

1.   Thechangeofnameshallnotbeallowedtoacompanywhichhas

–  defaultedinfilingitsannualreturnsorfinancialstatementsoranydocumentdueforfilingwiththeRegistraror

–  which has defaulted in repayment of matured deposits ordebenturesorinterestondepositsordebentures.

2.  AnapplicationshallbefiledinFormNo.INC.24alongwiththefeeforchangeinthenameofthecompanyand

–  anewcertificateofincorporationinFormNo.INC.25shallbeissuedtothecompanyconsequentuponchangeofname.

EFFECTOFCHANGEINNAME•  Thechangeofnameshallnotaffectanyrightsorobligationsofthecompany,or

renderdefectiveanylegalproceedingsbyoragainstit,andanylegalproceedingswhichmighthavebeencontinuedorcommencedbyoragainstthecompanyinitsformernamemaybecontinuedbyoragainstthecompanyinitsnewname.

•  However, where a company changes its name and the new name has beenregisteredby theRegistrar, the commencingof legalproceedings in the formernameisnotvalid

•  Inspiteofachangeinname,theentityofthecompanycontinues.

•  Thecompanyisnotdissolvednordoesanynewcompanycomeintoexistence

•  If any legal proceeding is commenced, after change in the name, against thecompanyinitsoldname,thecompanyshouldbetreatedasifitisnotinexistence–  Itisnotanincurabledefectandtheplaintcanbeamendedtosubstitutethe

newname

II.ALTERATIONOFREGISTEREDOFFICECLAUSE

•  POSSIBLECASES:

–  Changewithinthelocallimitsofsametown

–  ChangefromonecitytoanotherwithinthesameState

–  ChangewithinthesameStatefromthejurisdictionofoneRegistrar of Companies to the jurisdiction of anotherRegistrarofCompanies

–  ChangeofRegisteredofficefromoneStatetoanother

ALTERATIONINSITUATIONCLAUSE:PROVISIONS

•  Section 12(5) of the Act provides that except on the authority of a specialresolutionpassedbyacompany,theregisteredofficeofthecompanyshallnotbechanged,—

a.  Inthecaseofanexistingcompany,outsidethelocal limitsofanycity,townorvillagewheresuchofficeissituatedatthecommencementofthisActorwhereitmaybesituated laterbyvirtueofaspecial resolutionpassedby thecompany;and

b.  In thecaseofanyother company,outside the local limitsofanycity, townorvillagewhere such office is first situated orwhere itmay be situated later byvirtueofaspecialresolutionpassedbythecompany:

•  NocompanyshallchangetheplaceofitsregisteredofficefromthenjurisdictionofoneRegistrartothejurisdictionofanotherRegistrarwithinthesameStateunlesssuchchangeisconfirmedbytheRegionalDirectoronanapplicationmadeinthisbehalfbythecompanyintheprescribedmanner.

A.CHANGEWITHINTHELOCALLIMITSOFSAMETOWN

•  Thus according to Section12(5), a company canchange its registered office from one place toanotherwithinthelocallimitsofthecity,townorvillage,whereitissituated,–  bymerelypassingaBoardresolution.

•  AnoticeofthechangeisrequiredtobegiventotheRegistrarinFormnoINC22,– within15daysofsuchchange

•  Thisdoesnotinvolvealterationofmemorandum.

B.CHANGEFROMONECITYTOANOTHERWITHINTHESAMESTATE

•  If the registeredoffice is tobe shifted fromonecity, town or village to another city, town orvillagewithinthesameState,–  aspecial resolutionhas tobepassed in thegeneralmeetingofthecompany.

•  AnoticeofthechangeisrequiredtobegiventotheRegistrarinFormnoINC22,– within15daysofsuchchange–  along with Form no MGT 14, as required underSection117(1),towardsspecialresolutionpassed

C.CHANGEWITHINTHESAMESTATEFROMTHEJURISDICTIONOFONEREGISTRAROFCOMPANIESTOTHEJURISDICTIONOF

ANOTHERREGISTRAROFCOMPANIES•  ProvisotoSection12(5)providesthatconfirmationbytheRegionalDirectorwill

benecessary–  for changing registered office of a company from one place to another if the change of

registeredofficeisfromthejurisdictionofoneRegistrartothejurisdictionofanotherwithinthesameState.

•  Section12(6)statesthattheRegionalDirector,afterhearingthepartiesshallpassnecessaryorderswithinaperiodofthirtydaysfromthedateofthereceiptoftheapplication

•  Thereafter, the companyconcerned shall filea copyof the saidorderwith theRegistrarofCompanies(ROC)withinaperiodofsixtydaysfromthedateoftheconfirmationorderbyRegionalDirector.

•  ThesaidROCshallrecordtheorderedchangesinitsrecords.

•  TheROCofthestatewheretheregisteredofficeofthecompanywaspreviouslysituated,shalltransferallthedocumentsandpaperstothenewROC

D.CHANGEOFREGISTEREDOFFICEFROMONESTATETOANOTHER

•  The change of registered office from one State to another Stateinvolvesalterationofmemorandum,

–  and the change can be effected by a special resolution of thecompanywhichmustbeconfirmedbytheCentralGovernmentonanapplicationmadetoit[Section13(4)].

•  Further, the alteration of the provisions of the memorandumrelatingtothechangeoftheplaceofitsregisteredofficefromoneStatetoanothershallnottakeeffect–  unless it is confirmedby theCentralGovernmentonanapplicationmadetoitintheprescribedformandmanner[Section13(4)]

D.CHANGEOFREGISTEREDOFFICEFROMONESTATETOANOTHER…contd.

•  The Central Government shall dispose of the application under sub-section (4) within aperiodofsixtydaysandbeforepassingitsordermaysatisfyitselfthat

–  thealterationhastheconsentofthecreditors,debentureholdersandotherpersonsconcernedwiththecompanyor

–  thatasufficientprovisionhasbeenmadebythecompanyeitherfortheduedischargeofallitsdebtsandobligationsorthatadequatesecurityhasbeenprovidedforsuchdischarge.[Section13(5)].

•  A company shall, in relation to any alteration of its memorandum involving change ofregisteredoffice fromoneState toanother, filewith theRegistrar thespecial resolutionpassedbyitinMGT14[Section13(6)].

•  AcertifiedcopyoftheorderoftheCentralGovernmentapprovingthealterationshallbefiledbythecompanywiththeRegistrarofeachoftheStateswithinsuchtimeandinsuchmannerasmaybeprescribed,

–  who shall register the same, and the Registrar of the State where the registered office is beingshiftedto,shallissueafreshcertificateofincorporationindicatingthealteration.[Section13(7)].

ALTERATIONINOBJECTSCLAUSE•  Acompanycanchangeitsobjectsbypassingaspecialresolution.

•  FilewiththeRegistrarthespecialresolutionpassedbythecompanyundersection13(1).

•  As per section 13(9), the Registrar shall register any alteration of thememorandumwithrespecttotheobjectsofthecompanyand–  certifytheregistrationwithinaperiodofthirtydaysfromthedateoffilingof

thespecialresolutioninaccordancewithsection13(6)(a).

•  Furtherincaseofalistedcompany,thespecialresolutionforalterationin the objects clause of theMemorandum of Association needs to bepassedthroughPostalBallotintermsofsection110

III.ALTERATIONINOBJECTSCLAUSE…CONTD.

•  Further,section13(8)laysdownthatacompany,whichhasraisedmoneyfrom public through prospectus and has any unutilised amount out ofthemoneyso raised, shallnotchange itsobjects forwhich it raised themoney through prospectus unless a special resolution is passed by thecompanyand—

i.   thedetails,asmaybeprescribed,inrespectofsuchresolutionshallbepublishedinthenewspapers(oneinEnglishandoneinvernacularlanguage) which is in circulation at the place where the registeredofficeofthecompanyissituatedand–  shall also be placed on the website of the company, if any, indicating

thereinthejustificationforsuchchange;

ii.   thedissentingshareholdersshallbegivenanopportunitytoexitbythepromotersandshareholdershavingcontrol inaccordancewithregulationstobespecifiedbytheSecuritiesandExchangeBoard.

III.ALTERATIONINOBJECTSCLAUSE…CONTD.

•  Alsofordeletinganyportionoftheobjectsclause,theprocedurelaiddowninthissectionhastobefollowed.

•  A companymaywish to alter its objects stated in itsmemorandumduetovariousreasons

–  e.g. if a companywishes to cut-back i.e.where it feels ithasdiversifiedinvariousdirectionsandthatmanagementof the company has becomedifficult or uneconomical, itmayalteritsobjectstosellordisposeofwholeorpartofitsundertaking(s).

IV.ALTERATIONOFLIABILITYCLAUSE

•  A company can change the liability clause ofits memorandum of association by passing aspecialresolution.

•  Further section 13(6)(a) provides that acompanyshall,inrelationtoanyalterationofits memorandum, file with the Registrar thespecial resolution passed by the companyundersection13(1)

ALTERATIONINCAPITALCLAUSE•  A limited company having a share capital may make the following types of

alterations in its memorandum by an ordinary resolution, if so authorized by itsarticles,atitsgeneralmeetingto(Section61)—

i.  Increaseitsauthorizedsharecapitalbysuchamountasitthinksexpedient;ii.  Consolidateanddividealloranyof its sharecapital into sharesofa largeramount than its

existingshares:

iii.  Convertalloranyofitsfullypaid-upsharesintostock,andreconvertthatstockintofullypaid-upsharesofanydenomination;

iv.  Sub-divide its shares, or any of them, into shares of smaller amount than is fixed by thememorandum,so,however, that theproportionbetweentheamountpaidandunpaidshallremainthesame.

v.  Cancelshareswhich,atthedateofthepassingoftheresolutioninthatbehalf,havenotbeentakenoragreedtobetakenbyanyperson,anddiminishtheamountofitssharecapitalbytheamountofthesharessocancelled.

ALTERATIONINCAPITALCLAUSE•  Alltheabovealterationsdonotrequiretheconfirmationbythe

Tribunal–  exceptthatalterationrelatingtoconsolidationanddivisionwhich

resultsinchangesinthevotingpercentageofshareholdersshallnottakeeffectunlessitisapprovedbytheTribunalonanapplicationmadeintheprescribedmanner.

•  Thesealterationsare,however,requiredtobenotifiedandacopyoftheresolutionshouldbefiledwiththe–  Registrarwithin30daysofthepassingoftheresolutionalongwithanaltered

memorandum.[Section64(1)]

•  TheRegistrarshallrecordthenoticeandmakeanyalterationwhichmaybenecessaryinthecompany’smemorandumorarticlesorboth.–  Itmust be noted that cancellation of shares in pursuance of section 61(1)

doesnotamounttoreductionofsharecapital.

DOCTRINEOFULTRAVIRES•  Theword‘ultra’meansbeyondandtheword‘vires’means

powers.

•  Ultraviresmeansanactor transactionofa company,which though itmaynotbeillegal,isbeyondthecompany’spowers–  byreasonofnotbeingwithintheobjectsofthememorandumofassociation.

•  It is ultra vires for a company to act beyond the limits of its

memorandum.

•  Anyattempteddeparturewillbe invalidandcannotbevalidatedeven ifassentedtobyalltheshareholdersofthecompany.

•  Thememorandumisthelimitbeyondwhichacompanycannottravel.

DOCTRINEOFULTRAVIRES•  Whatever is not stated in the memorandum as the objects or powers is

prohibitedbythedoctrineofultravires

•  EFFECTOFULTRA-VIRES:–  Anactwhichisultraviresisvoid,anddoesnotbindthecompany.–  Neitherthecompanynorthecontractingpartycansueonit.–  Also, as stated earlier, the company cannot make it valid, even if every member

assentstoit.–  Anactwhichisultraviresthecompanyisincapableofratification.

•  Anactwhichisintraviresthecompanybutoutsidetheauthorityofthedirectors

mayberatifiedbythecompanyinproperform

•  Theruleismeanttoprotectshareholdersandthecreditorsofthecompany.–  Iftheactisultravires(beyondthepowersof)thedirectorsonly,theshareholderscanratifyit.–  Ifitisultraviresthearticlesofassociation,thecompanycanalteritsarticlesintheproperway.

DOCTRINEOFULTRAVIRES:CASELAW

•  AshburyRailwayCarriageand IronCo. Ltd.v.Riche,(1878)

HISTORYOFDOCTRINEOFULTRAVIRES•  ThedoctrineofultravireswasfirstenunciatedbytheHouseofLordsinaclassiccase,AshburyRailwayCarriage

andIronCo.Ltd.v.Riche,(1878)

•  Thememorandumofthecompanyinthesaidcasedefineditsobjectsas:“Theobjectsforwhichthecompanyisestablishedare tomakeandsell,or lendorhire, railwayplants............ tocarryon thebusinessofmechanicalengineersandgeneralcontractors...........”.

•  ThecompanyenteredintoacontractwithM/s.Riche,afirmofrailwaycontractorstofinancetheconstructionofarailwaylineinBelgium.

•  Onsubsequentrepudiationofthiscontractbythecompanyonthegroundofitsbeingultravires,Richebroughtacasefordamagesonthegroundofbreachofcontract,asaccordingtohimthewords“generalcontractors”intheobjectsclausegavepowertothecompanytoenterintosuchacontractand,therefore,itwaswithinthepowersofthecompany.

•  Moresobecausethecontractwasratifiedbyamajorityofshareholders.

•  TheHouseofLordsheldthatthecontractwasultraviresthecompanyand,therefore,nullandvoid.Theterm“generalcontractor”wasinterpretedtoindicateasthemakinggenerallyofsuchcontractsasareconnectedwiththebusinessofmechanicalengineers.

•  TheCourtheldthatifeveryshareholderofthecompanyhadbeenintheroomandhadsaid,“Thatisacontractwhich we desire to make, which we authorise the directors to make”, still it would be ultra vires. Theshareholders cannot ratify such a contract, as the contractwasultra vires theobjects clause,whichbyAct ofParliament,theywereprohibitedfromdoing.

DOCTRINEOFULTRAVIRES:CHANGESININTERPRETATIONOVERTIME

•  However, later on, the House of Lords held in other cases that the

doctrine of ultra vires should be applied reasonably and unless it isexpresslyprohibited,–  acompanymaydoanactwhichisnecessaryfororincidentaltothe

attainmentofitsobjects.

•  Section13(1)(d)oftheCompaniesAct,1956[Correspondstosection4(1)(c)oftheCompanies Act, 2013] provides that the objects for which the company isproposedtobeincorporatedandanymatterconsiderednecessaryinfurtherancethereofbestatedinthememorandum.

•  However, even when the matters considered necessary in furtherance of theobjects are not stated, they would be allowed by the principle of reasonableconstructionofthememorandum.

EFFECTOFULTRAVIRESTRANSACTIONS

①  Void-ab-initio

②  Injunction

③  PersonalliabilityofDirectors

④  Ultraviresacquiredproperty

⑤  Ultraviresborrowing

⑥  Ultravireslending

⑦  Ultravirestorts

EFFECTOFULTRAVIRESTRANSACTIONS①   Voidabinitio

–  Thecompanyisnotboundbytheseacts.–  Even the company cannot sue or be sued upon [Ashbury Railway Carriage and Iron

Companyv.Riche].–  Cannotbecomeintraviresbyreasonofestoppelorratification.

②   Injunction:–  Themembers canget an injunction to restraina companywhereinultra vires acthas

beenorisabouttobeundertaken

③   PersonalliabilityofDirectors:–  Directors to ensure that the corporate capital is used only for the legitimate

businessofthecompanyandhenceifsuchcapitalisdivertedtopurposesalientothecompany’smemorandum,thedirectorswillbepersonallyliabletoreplaceit.

–  Incaseofdeliberatemisapplication,criminalactioncanalsobetakenforfraud.–  Distinctionmustbedrawnbetweentransactionswhichareultraviresthecompany

andthetransactionswhichareultraviresthedirectors.•  Wherethedirectorsexceedtheirauthoritythesamemayberatifiedbythegeneralbody

oftheshareholders.–  Provided the company has the capacity to do that transaction as per its

memorandumofassociation.

EFFECTOFULTRAVIRESTRANSACTIONS

④  Whereacompany’smoneyhasbeenusedultravirestoacquiresomeproperty,thecompany’srightoversuchproperty isheldsecureand thecompanywillbetherightpartytoprotecttheproperty.

–  This isbecause,thoughthepropertyhasbeenacquiredforsome ultra vires object, it represents the money of thecompany.

⑤  Ultra vires borrowing does not create therelationshipofcreditoranddebtor