Key Takeaways
- As per the Companies Act, 2013, a company can alter its articles of association subject to provisions in the Memorandum of Association.
- Articles of association cannot operate retrospectively but from the date of amendment of articles.
- Articles of association cannot be altered without giving proper notice to the shareholders.
- Articles of association should not be ultra vires or against the Companies Act or any other Act in force.
Date Of Judgement:
26th July,1940
Bench:
Justice Gentle
Parties
Petitioner – Madhava Ramachandra Kamath
Respondent – Canara Banking Corporation
Subject
This case dealt with alteration of articles and when restrictions can be imposed on the company for alteration of articles. The Companies Act,2013 permits alteration of articles of the company subject to provisions in the Memorandum of Association. The company has to hold a general meeting and pass special resolution in order to alter the articles of the company.
Legal Provisions
- Section 6 of the Companies Act,2013 states that anything contained in the MOA and AOA which is beyond the powers provided by Companies Act,2013 is void. The Companies Act,2013 contains no provisions for expulsion of a member by the board of directors or the management and if the board of directors or the management expel a member, it shall be deemed ultra vires act.
- A company which intends to alter its Articles of Association must comply with the provisions of Section 14 and any other applicable acts and rules.
- It should be noted that alteration of articles must not be against the Companies Act or any other act, not ultra vires to the MOA ,not illegal or against public policy and should be bona fide.
Overview
- The petitioner had filed a complaint under Section 196A of Criminal Procedure Code seeking action against directors and ex-directors for conspiracy in filing the balance sheet of the company.
- After the complaint was filed by the petitioner, who was the shareholder of Canara Banking Corporation,he was expelled by the company by making alterations in the articles of the company. As per the altered articles, a company can sell the shares of the shareholder to any member, on expulsion.
- The company had cited Article 173 of Articles of Association that members taking recourse against the Corporation shall make the member liable for expulsion.
Issues
- Can the company expel a member or shareholder by making alterations in the article?
- Does the shareholder have any remedy against the company ?
Judgement Analysis
- The petitioner's suit for action against directors and ex directors was rejected by the District Magistrate as malice. The company, after the petitioner's suit, passed a resolution for his expulsion and transfer of his shares.
- The court remarked that transfer without a valid instrument of transfer is an ultra vires act. The court further stated that the altered articles are not binding on the petitioner, as at the time of expulsion, no such articles were included in the Articles of Association of the company. Articles of Association are a contract between the company and the shareholder and no such additional conditions can be added without the knowledge or consent of the other party.
- The counsel for the respondent contended that Section 38(1) of Companies Act is not applicable to petitioner as the name is struck off due to expulsion and is not omitted without sufficient cause from register of members. He further stated that the company had issued a cheque of rupees 70 as the value of share on transfer.
- The court rejected the contention of counsel for the respondent and cited that there is no legal or valid transfer between the petitioner and the company; the petitioner holds a valid share certificate and directed the company to include the name of petitioner in the register of members.
- The court directed the respondent to pay rupees 150 to the petitioner and include the name of the petitioner in the register of members.
Conclusion
Articles of Association are rules governing the company. It acts as a contract between members and company and also between the members inter se in relation to their rights as such members. Therefore, any alteration to the articles can be brought forth after passing special resolution and ensuring that they are in conformity with the Companies Act,2013.
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