ARTICLES OF ASSOCIATION

TABLE OF CONTENTS
1. Introduction 1.1 Introduction 1.4 Definition 1.5 Form, Content, Implication ... ... 2 ...3 .3-4 5-7 .2-4

2. Relationship between memorandum and articles of association 2.1 Flexibility 5 2.2 Subordinate .5 2.3 Contemporaneous Documents 5 2.4 Distinction ...7 2.5 Registration .7 3. Binding Force of Articles of Association 3.1 Introduction 3.2 Members as members 3.3 In Relation to Outsiders ... 3.4 Invalidity of the articles by reason of conflict 4. Construction and interpretation of the Articles 4.1 Introduction 4.2 Case Law 4.3 Terms in Articles by Implication 4.4 International Law ... 5. Alteration of articles of association 5.1 Introductin 5.2 Case Law.. 5.3 Restrictions 5.4 United Kingdom .. .. ... 13 13, 14 14, 15 .15

..8-9 .8 ..8 8 9 10-12

.. ..

..10 10 11 ..12 ..13-15

6. Doctrine of Constructive Notice and Indoor Management 6.1 Doctrine of Constructive Notice 6.2 Doctrine of Indoor Management 7. Conclusion 8. Bibliography

16-17 ..16 .17 18 .17

PROJECT SUBMISSION FOR COMPANY LAW

ARTICLES OF ASSOCIATION

I.INTRODUCTION
1.1 Introduction
The articles of association of a company, often simply referred to as the articles are the regulations governing the relationships between the shareholders and directors of the company, and are a requirement for the establishment of a company under the law of the United Kingdom and many other countries. Together with the memorandum of association, they form the constitution of a company. The equivalent in the United States is Articles of incorporation. Articles of association typically cover the issuing of shares (also called stock), the different voting and dividend rights attached to different classes of share, restrictions on the transfer of shares, the rules of board meetings and shareholder meetings, and other similar issues.

In English Law, the articles of association are also referred to as regulations and deal with regulations for the management of the affairs of the company. This is contained in S.6 of The English Companies Act, 1948.1

The project is divided into seven parts. After the introduction, the relationship between memorandum and articles of association has been looked at. The binding force of articles of association has been deal with next. The next chapter deals with the construction and interpretation of articles of association followed by alteration of the articles. Finally, the doctrines of constructive notice and indoor management have been dealt with. The last chapter is the conclusion with suggestions.

1.2 Definition
Basically, they are the bye-laws or rules and regulations that govern the management of its internal affairs and the conduct of its business.2 Articles means articles of association of a company as originally framed or as altered from time to time in pursuance of any previous companies laws or of the present Act.3 The articles establish a contract between the company and its members and between the members inter se. this contract governs the ordinary rights and obligations incidental to the membership of the

1 2

H.H,J. Tophan, Palmer s Company law , 17th ed. 1942, rep. 1943, p. 28. A.K. Majmudar and Dr. G.K. Kapoor, Company Law and Practice , 12th ed. 2007, p. 164. 3 S.2(2) of The Companies Act, 1956.

ARTICLES OF ASSOCIATION company.4 It is optional for a public company limited by shares to have its own articles of association. However, it is compulsory for an unlimited company or a company limited by guarantee or a private company limited by shares to have its own articles of association.5

1.3 Form, content and implication:

Contents of Article of Association and form are prescribed in sections 26, 27, 28 and 29 but it not mandatory for public companies limited by shares. But it is better to take care of peculiarities of the Article of Association and not take resort to Table A which is a general provision. Anything in the Article of Association overrides a conflicting provision in Table A and if it is on a different point, not inconsistent with the Article of Association then Table A will be considered as part of Article of Association (only those parts). Table A can be excluded by an explicit provision. Further Table A applies only to companies limited by shares alone.

Any provisions of Table A can be adopted by reference but the model articles in Tables C, D and E are merely models which cannot be adopted by reference and will not apply to fill lacunae in the registered articles. The contents of the memorandum and articles, as distinct from their arrangement, must correspond to the models in the regulations but their contents will be held to be valid even though they differ radically from those of the models.

Theoretically speaking, one rule is enshrined in one paragraph which bears a number. Articles are to be in a printed form and to be signed by the signatories of the Memorandum. An important implication of the Articles is that their provisions amount to a public notice to all those who deal with the company. The Act gives model forms of Articles of Association for each type of company. However, these are rarely adopted in practice.6 In India, the memorandum of association of an Indian company shall contain the following clauses: the name clause, the registered office clause, the object clause, the

4 5

Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Ltd: AIR 1971 SC 422. T.N. Pandey, R.K.Gupta, et al. (Rev.) J.M.J. Sethna s Indian Company Law, 11th ed. 2005, Vol 1, p. 644. 6 A. Ramaiya, Guide to The Companies Act , 11th ed. 1988, p.142.

ARTICLES OF ASSOCIATION liability clause, the capital clause and the association clause. The memorandum of association of a company varies in forms according to the kind of company.7

In the United Kingdom, model (and default) articles of association known as Table A have been published since 1865. The articles of association of most companies particularly small companies are Table A, or closely derived from it. However, a

company is free to incorporate under different articles of association, or to amend its articles of association at any time by a special resolution of its shareholders, provided that they meet the requirements and restrictions of the Companies Acts. Such requirements tend to be more onerous for public companies than for private ones8. The matters with which a company s articles usually deal are (a) the exclusion or partial exclusion of Table A; (b) the execution or adoption of a preliminary agreement if any; (c) the allotment of shares by the directors; (d) calls and forfeiture for non-payment of calls; (e) transfer and transmission of shares (f) increase of capital; (g) reduction of capital; (h) borrowing; (i)general meetings; (j) directors; (k) dividend and reserve fund; (l) accounts and audit; (m) notices; (n) special provisions for winding up9.

7 8

H.K.Saharay, Company Law , 4th ed. 1996, p.34. M. C Bhandari, R. D Makheeja, Guide to Memorandum of Articles and Incorporation of Companies , 4th ed. 2005, p.69. 9 H.H,J. Tophan, Palmer s Company law , 17th ed. 1942, rep. 1943, p. 38.

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II. RELATIONSHIP BETWEEN MEMORANDUM AND ARTICLES

2.1 Flexibility
The articles regulate the manner in which the company s affairs will be managed. The memorandum defines the company s objects and various powers it possesses; the articles determine how those objects shall be achieved and those powers exercised. But the Companies Act, 1956 does not require the articles to provide for certain specified matters in the same way as it requires the memorandum to do. Thus the articles of companies might vary substantially, and the utmost flexibility is allowed to persons who formed the company to organize its management as they wish.10

2.2 Subordinate
The articles are subordinate and controlled by the memorandum. Also, the articles are only internal regulations which the members can alter as long as they don t exceed the powers of the company as laid down by the memorandum.11 Also in cases of conflict, the memorandum prevails.12

2.3 Contemporaneous Documents

The memorandum and articles are basically contemporaneous documents and can be read together and any ambiguity or uncertainty in the one can be removed by referring to the other. In fact this has been done in various cases. In Re, South Durham Brewery Company13, the memorandum was silent as to whether the company s shares were to be all of one class or of different classes, it was held that a power a power given by the articles to issue shares of different classes resolved the uncertainty and enabled the company to do so. In Rainford v. James Keith and Blackman Company Ltd.14, where the memorandum of a training company empowered to do all things incidental to achieving the object, it was held that provision in the articles empowering the company
10

A.K. Majmudar and Dr. G.K. Kapoor, Company Law and Practice , 12th ed. 2007, p. 164-165 Ashbury v. Watson: [1885] 30 Ch .D 376 CA 12 A.K. Majmudar and Dr. G.K. Kapoor, Company Law and Practice , 12th ed. 2007, p. 164-165 13 [1885] 31 Ch. D 261 14 [1905] 2 Ch. 147
11

ARTICLES OF ASSOCIATION to lend money merely exemplifies the general words of the memorandum and the company was, therefore entitled to lend money to its employees.

2.4 Distinction between memorandum and articles

While memorandum contains the fundamental conditions upon which the company must be incorporated, the articles provide the internal regulations of the company. While memorandum must be within the framework of the Companies Act, the articles are subsidiary to both the act and the memorandum. Finally, while acts done by a company beyond the scope of the memorandum are absolutely void, acts beyond the articles can be ratified by the shareholders provided the particular provisions are not beyond the memorandum.15

The distinction between the two was well brought out by Bowen, L.J. in Guiness v. Land Corporation of Ireland16 where he pointed out that the memorandum contains the fundamental conditions upon which alone the company is allowed to be incorporated. They are conditions introduced for the benefit of the creditors and the outside public, as well as share-holders. The articles are the internal regulations of the company .In any

case it seems to me, certain that for anything which the Act of Parliament says shall be in the memorandum, you must look to the memorandum alone.

2.5 Registration
Articles of association may be registered along with the memorandum of association in the case of (a) a public company limited by shares, (b) an unlimited company, (c) a company limited by guarantee, or (d) a private company limited by shares.17 As per English law, where articles have been registered, a copy of every special resolution for the time-being in force is annexed to or embodied in every copy of the articles of association that may be issued after passing of such resolution, and where no articles have been registered, a copy of any such special resolution is to be forwarded in print to any member requesting the same on payment of one shilling. There is a penalty for default.18
15 16

A.K. Majmudar and Dr. G.K. Kapoor, Company Law and Practice , 12th ed. 2007, p. 165. 22 Ch. D. 349, 381. 17 S.26 of The Companies Act, 1956. 18 H.H,J. Tophan, Palmer s Company law , 17th ed. 1942, rep. 1943, p.29.

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III. BINDING FORCE OF ARTICLES

3.1 Introduction
The articles constitute a social contract19 which is also a sophisticated way of saying that they constitute the constitution of an association. The articles create a contract binding each member of the company but the member is only bound qua member. The articles also create certain rights and obligations between the members and the company. Even between a member and a company, the articles of association constitute a contract only in respect and liabilities as a share holder but not in respect of rights and liabilities which he has in a capacity other than that of a member. The articles constitute a contract between individual members. Normally this would be enforceable through the company but it may be possible in certain circumstances to have direct redress.20

3.2 Members as members

The company is bound to its members in the same way members are bound to the company, and just as the liabilities imposed upon the member are limited to the liabilities incurred by him in this capacity, so are the rights which he has against the company limited to rights qua member. Consequently, a right purported to be conferred upon him by the Articles as a director or an outsider cannot normally be enforced by him by virtue of the articles.21

3.3 In relation to outsiders

The articles do not per se constitute an enforceable contract between a company and an outsider.22 This is no doubt due to privity of contract and lack of mutuality. Outsider means a person who is not a member or a member acting in a capacity other than that of a member. Even a director is normally treated as an outsider for this purpose. Any right claimed by an outsider must be conferred by a separate contract or relationship outside the articles.23

19 20

Dutton V. Goron, (1917) 23 CLR 362 at p.395. T.N. Pandey, R.K.Gupta, et al. (Rev.) J.M.J. Sethna s Indian Company Law, 11th ed. 2005, Vol 1, ps. 646-647. 21 Ibid. 22 Hickman v. Kent, (1915) 1 Ch 881. 23 Supra note 3.

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3.4 Invalidity of the articles by reason of conflict between the Act, Memorandum of association and other laws:
Any provision in a company s Articles will be ineffective if it is in conflict with the memorandum, the Companies Act or any other law for the time being in force. For example, in the case of Peveril Gold Mines, Re24 it was held that statutory rights of members under the Companies Act cannot be nullified through articles like right placing restrictions to present a petition for winding up. Where the memorandum defines the rights f the respective classes of shareholders such rights cannot be altered by the articles. However, where the class rights are set out in the memorandum and the memorandum and articles do not contain a variation of the rights clause, those rights can be varied if all the members of the company agree to the variation. The articles are void to the extent of inconsistency even if the provision in the memorandum with which it is inconsistent is not required by law to be there.25

24 25

(1808) 1 Ch 122 T.N. Pandey, R.K.Gupta, et al. (Rev.) J.M.J. Sethna s Indian Company Law, 11th ed. 2005, Vol 1, p. 649.

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IV. CONSTRUCTION AND INTERPRETATION OF ARTICLES

4.1 Introduction
Articles of association are commercial documents and must be liberally constructed. In interpreting them, the maxim, ut res magis valeat quam periat should be applied which basically means validate if possible26 . The general presumption is that the parties have expressed every material term which they intended to govern their agreement, whether oral or in writing. But it is well recognized that there may be cases where obviously some term must be implied if the intention of the parties is not to be defeated, some terms of which it can be predicated that it goes without saying , some term not expressed but necessary to give to the transaction such business efficacy as the parties may have intended.

4.2 Case Law

An article cannot be rectified by the courts as held in Scott V. Frank F. Scott (London) Ltd.27 The power to alter is purely statutory. Any alteration must be effected by special resolution of the company. If there is any inconsistency between different parts of the articles, the court will follow the ordinary canons of construction and look to the whole, seeking to achieve harmony between the different provisions and compliance with the law. It was held in the case of S.S.Rajkumar v. Perfect Castings Pvt. Ltd.28 that the articles of association of a company, being a business document must be interpreted strictly, unless there are compelling circumstances to import into it a meaning other than normal. Though the general presumption is that every material term in the articles regulating a company have bee expressed, yet in some cases, certain terms are necessarily implied in order to give effect to the intention of parties as held in Somesh Chandra Manilal Nanavati v. Jivan Lal C. Chenai.29 The articles are drawn up for the purpose of internal administration of the business and cannot supersede the objects set out in the memorandum of association. The courts
26 27

Vaisey J. in Rayfield V. Hands, (1960) Ch 1 at p.4. (1940) Ch 794: 56 TLR 924. 28 (1968) 38 Comp Cas 187. 29 (1956) 26 Comp Cas 148

ARTICLES OF ASSOCIATION should hesitate to place an interpretation on the articles which may have the effect of imposing restrictions on transferability which may be in restraint of trade and therefore, opposed to public policy.30

In construing the relevant articles of association, the court may, before accepting any specific construction, take into account all the relevant Articles together with the byelaws. If the words are ambiguous, attempt should be made to reconcile them and adopt such construction of the words as would avoid conflict between them. This was held in Shiv Omkumar Maheshwari V. Bhansidar Jagannath.31 It was also held in the same case that, where the articles of association of the Chamber of Commerce provided that all disputes arising out of or n the course of all dealings and transactions between its members shall be settled by arbitration, it was held that a dispute as to the existence of a transaction or dealing itself was not covered by the articles and there was no obligation upon any member to refer such dispute to arbitration. It was held in Sunil Dev V. Delhi and District Cricket Association32, where the conduct of the parties reveals that there has been some practice in vogue for several years which was accepted by everyone concerned without any challenge or question, then that practice in the course of long years in itself becomes an indication that the articles of association were understood in that sense. It was further held in G. Karunakaran V. State of Kerela33 that unless the exercise of pleasure by the Governor is shown to be mala fide or against the public interest, the court cannot interfere with the order nominating a person as director in the place of another.

4.3 Terms in Articles by implication

The articles of a company constitute a statutory contract with its own distinctive features. For example, the articles cannot be defeated on the grounds of misrepresentation, nor rectified on the grounds of mistake, whereas an ordinary contract is subject to these processes. It may be possible for the court to infer a term purely by way of constructional
30

Jarnail Singh Harjit Singh v. Bakshi singh Shan Singh, (1960) 30 Comp Cas 192 at p.199: AIR 1960 Punj 455. 31 (1957) 27 Comp Cas 255: AIR 1956 Bom 459. 32 (1994) 80 Comp cas 174 (Del) 33 (1987) 61 Comp cas 334 (Ker).

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ARTICLES OF ASSOCIATION implication, but it is not possible to go further and imply a term from extrinsic circumstances. It is not possible to imply a term that the shareholders of the company should be under an obligation to make an additional financial contribution. This also seems to the court to be going beyond the language of the articles.34

4.4 International Law

In the case of Powell Duffryn Plc v Petereit35 the main question before the Court of Justice was whether a jurisdiction clause contained in the articles of association of a company (a voluntary association under Dutch law which although not the same thing as a company is analogous to a company; therefore, the rule adopted in Peters was

extended to companies.) was an ""agreement" in terms of Article 17 of the Brussels Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters 1968 Art.17. In most Member States, the articles of association of a company are regarded as being contractual in nature, but in some they create obligations which are considered institutional, normative or sui generis. It was this difference in the conceptual nature of the relationship between a shareholder and the company which led to doubts regarding the effect of a jurisdiction clause contained in the articles of association. The court held that the concept of an ""agreement" in Article 17 must in all cases be interpreted on an autonomous basis.36

34 35

Bratton Seymour Service Co. Ltd v. Oxborough, (1992) BCLC 693 (CA). Times, April 15, 1992 (ECJ) 36 Trevor C. Hartley, Case Comment: Convention under Article 220, EEC , E.L. Rev. 1993, 18(3), 225228.

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V. ALTERATION OF ARTICLES OF ASSOCIATION

5.1 Introduction
A company can alter its internal regulations by a special resolution provided the alteration does not stand in direct or implied conflict with the memorandum or provisions of the statute. So subject to the provisions of the Act, and the Memorandum, a company may alter and add anything to its articles by special resolution. When alteration of the articles is made to give effect to the conversion of a public company into a private company, it shall require the approval of the central government37. On approval of such alteration by the Central government, a printed copy of the altered articles shall be filed with the Registrar of companies within one month of the date of receipt of the order of approval. If alteration of the articles is not inoperative or void by reason of inconsistency with the provisions of the Act or Memorandum, the alteration shall be deemed to be valid as is originally contained in the articles. In the garb of alteration of articles of association, a Company cannot provide for expulsion of a member by the management because it is opposed to the fundamental principles of company jurisprudence and is therefore ultra vires the company. It is not necessary to prove that all alterations in the memorandum or articles are to be effected in all copies of the memorandum and articles. If in any time a company issues any copy of the memorandum or articles without showing the alterations made therein, the company and every officer of the company is liable to punishment with a maximum fine of ten Rupees for every copy so issued38.

5.2 Case Law

In Scott V. Frank F. Scott (London) Ltd39 it was held that the court has no jurisdiction to rectify the mistakes in the articles of those do not accord with what is proved to have been the concurrent intention of the signatories at the time of signature. In the case of Grant V. U.K. switchback Rys. Co.,40 it was held that although a resolution giving the directors powers to do certain acts in future which they are not authorized by the articles to do would amount to alteration of the articles and would require a special resolution to be passed. But where the directors entered into a contract without authority
37 38

S.31(1) of The Companies Act, inserted in 1960. S.40 of The Companies Act, 1956. 39 (1940) 3 All ER 508 40 (1888) 40 Ch D 135

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ARTICLES OF ASSOCIATION of the adoption of the contract which was within the objects of the company by ordinary resolution would not amount to alteration of the articles.

5.3 Restrictions
Alteration of the articles is made subject to few restrictions. Firstly, the articles must not exceed the powers given by the memorandum or be in conflict any provisions of the memorandum. In such a case, the memorandum will prevail. Second, the alteration must not be inconsistent with any provisions of the Companies Act or any other statute. In Madhava Ramachandra Kamath v. Canara Banking Corporation41, where a resolution was passed expelling a member and authorizing him the director to register the transfer of his shares without an instrument of transfer, the resolution was held to be invalid as being against the provisions of the act. However, the Articles may impose on the company conditions stricter than those provided under the law but must not dilute the conditions of the memorandum and of The Act. Nether can the alteration be inconsistent with an order of The Company Law Board, now Tribunal.42Third, the altered articles must not include anything which is illegal or opposed to public policy or unlawful.

Fourth, the alteration must be bona fide for the benefit of the company as a whole. In Allen V. Gold Reefs of West Africa Ltd43. a company had a lien on all shares not fully paid-up for calls due to the company. There was only one shareholder A who owned fully paid up shares. He also held partly paid up shares in the company. A died. The company altered its articles by striking the words fully paid up and thus giving itself a lien on all shares whether fully paid up or not. The legal representative of A

challenged the alteration on the ground that the alteration had retrospective effect. It was held that the alteration was good as it was done bona fide for the benefit of the company as a whole, even though the alteration had a retrospective effect.

Fifth, the alteration must not constitute a fraud on the minority by the majority. In Brown v. British Abrasive Wheel Co.44 the majority which held 98% of the shares passed a special resolution that upon the request of the holders of 9/10th of the issues shares, a

41 42

[1941] 11 Comp Cas 78 (Mad) S. 397 or 398 of The Companies Act, 1956. 43 [1900] 1 Ch. 656. 44 [1919] 1 Ch 290

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ARTICLES OF ASSOCIATION shareholder shall be bound to sell and transfer his share to the nominee of such holder at a fair value. The alteration was held to be invalid since it amounted to oppression of minority.

Sixth, there cannot be alteration of articles so as to compel an existing member to take or subscribe for more shares or in any way increase his liability to contribute to share capital, unless he gives his consent in writing.45 Seventh, an alteration of articles to effect a conversion of a public company into a private company cannot be made without the approval of the Central government.46 Eighth, a company cannot justify breach of contract with third parties or avoid a contractual liability by altering articles.

Ninth, the amended regulations in the articles of association cannot operate retrospectively but only from the date of amendment.47 Also provisions by way of contractual obligation in articles of association of a company cannot limit statutory power of a company to alter its articles. Finally, amendment of articles to empower Board of Directors to expel a member is opposed to the fundamental principles of company jurisprudence and is ultra vires the company.48

5.4 United Kingdom:

In UK, shareholders may vote at the general meeting to alter the articles of association, which requires a three-quarters super-majority. The board of a typical public company in the U.K. is comprised of both non-executive directors and executive directors. The board, as a whole, does not typically manage the day-to-day operations of the company; rather, the board delegates these duties to the chief executive (also called the "managing director") and other executive directors.49

45 46

S.38 of The Companies Act, 1958. S.31 of The Companies Act, 1958. 48 Pyare Lal Sharma V. Managing director J&K Industries Ltd.: [1989] 3 Comp. L.J. (SL) 70 49 A.K. Majmudar and Dr. G.K. Kapoor, Company Law and Practice , 12th ed. 2007, ps. 169 - 172. 50 Jaclyn Braunstein, Pound foolish: Challenging executive compensation in the U.S. and the U.K. , 29 Brook. J. Int'l L. 747.

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VI. DOCTRINE OF CONSTRUCTIVE NOTICE AND INDOOR MANAGEMENT

6.1 Doctrine of Constructive Notice
Section 610 provides that the memorandum and articles when registered with Registrar of Companies become public documents and then they can be inspected by anyone on payment of a nominal fee. Therefore any person who wants to enter into a contract with the company has the means of ascertaining and is thus presumed to know the powers of the company and the extant to which they have been delegated to the directors. This is known as doctrine of constructive notice .50

However, this is more or less an unreal doctrine as people know a company through its directors and not its documents. S.9 of The European Communities Act, 1972 has abrogated this doctrine and this change is now incorporated in S.35 of The English Companies Act, 1985. In TCB Ltd. V. Grey51 where a debenture issued by a company was signed by a solicitor as attorney of director of a company but not the director personally. The articles of the company provided that every instrument to which the seal shall be affixed shall be signed by a director . Even so the company was held liable. Stating the effect of the new provision, the court said that before this enactment came into force a person dealing with the company was required to look at the memorandum and articles to satisfy that the transaction was within the corporate capacity. However S.9 (1) of The English Companies Act, 1985 says that good faith is to be presumed and the person dealing with the company is not bound to enquire.52

The courts in India also do not seem to have taken the doctrine of constructive notice seriously. In the case of Dehra Dun Mussoorie electric tramway Company V. Jagmandardas53 the articles of a company expressly provided that the directors could deligate all their powers except their power to borrow. Even so, an overdraft taken by the

51 52

A.K. Majmudar and Dr. G.K. Kapoor, Company Law and Practice , 12th ed. 2007, p. 178. 1986 JBL 10 53 Avtar Singh, Company Law , 15th ed. 2007, ps. 95-96. (Eastern Book Company, Delhi) 54 AIR 1932 All 141

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ARTICLES OF ASSOCIATION managing agents without approval of the board was held to be binding, the court saying that such temporary loans must be kept outside the purview of the relevant provision.54

6.2 Doctrine of Indoor Management

This rule, as against the previous rule, tries to protect outsiders from the company. The rule is based on obvious reasons of convenience in business relations. The memorandum and articles of association are public documents, open to public inspection. But the details of internal procedure are not thus open to public inspection. Hence an outsider is presumed to know the constitution of the company but not what may or may not have taken place within the doors that are closed to him
55

. The rule is of great practical utility

and has been used in cases involving rights and liabilities. Thus where the directors of a company, having the power to allot shares only with the consent of the general meeting, allotted them without any such consent, where the managing director of a company granted a lease of the company s properties, something which he could do only with the approval of the board, where the managing agents having the power to borrow with the approval of directors borrowed without any such approval, the company will be held bound.56

The doctrine of indoor management cannot be resorted to in the following cases. Firstly, the rule does not protect any person who had actual or even an implied notice of the lack of authority of the person acting on behalf of the company. Also, the rule cannot be invoked in favor of a person who did not consult the memorandum and articles and thus did not rely on them. Neither does it extend to transactions involving forgery nor those that are otherwise void ab initio. The doctrine also does not reward those who behave negligently. Nor does is apply in cases where the question is with regard to the very existence of an agency. It is also not applied where a pre-condition is required to be fulfilled before the company itself can exercise particular power. Finally, the doctrine can be invoke only with reference to acts which relate to provisions of memorandum and articles, and not in a case where oppression is alleged.57

55 56

Supra note 3. Pacific Coast Coal Mines Ltd. V. Arbuthnot, 1917 AC 607. 57 Avtar Singh, Company Law , 15th ed. 2007, p. 98. 58 Ibid at p. 182.

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VII. CONCLUSION
Thus articles of association are an essential part of incorporation of a company. Articles of association deals with the matter of internal regulation. It is optional in the case of public companies limited by shares but is obligatory in all other cases. For all these cases except public companies limited by shares, there is a necessity under section 3(1)(iii) to file Article of Association and for guarantee company and unlimited company, the number of members must be stated in the Articles pursuant to section 27(1) and 27(2). Hence it is only non-obligatory for public companies limited by shares and Table A can be adopted. When a company has a share capital, then one share must be held at least for membership.

The applicability of Table A is automatic only in case of companies limited by shares only when they are not in consistent with the Articles itself; though it can be expressly overridden. This automatic application is only for companies limited by shares registered under Companies Act, 1956.

Ultimately, constitutional documents should be crystal clear and no scope should be left for its ambiguity. Tables given in the First Schedule should be their role model. Memorandum of Association should contain the fundamental document of the company and should be unalterable in the interest of the shareholders, public and especially the creditors of the company while the Articles of Association should be freely alterable by the shareholders in the general meeting.

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BIBLIOGRAPHY
CASES REFFERED

1. Allen V. Gold Reefs of West Africa Ltd [1900] 1 Ch. 656. 2. Bratton Seymour Service Co. Ltd v. Oxborough, (1992) BCLC 693 (CA). 3. Brown v. British Abrasive Wheel Co. [1919] 1 Ch 290 4. Dutton V. Goron, (1917) 23 CLR 362 5. G. Karunakaran V. State of Kerela (1987) 61 Comp cas 334 (Ker). 6. Grant V. U.K. switchback Rys. Co (1888) 40 Ch D 135 7. Guiness v. Land Corporation of Ireland 22 Ch. D. 349, 381. 8. Hickman v. Kent, (1915) 1 Ch 881. 9. In Re, South Durham Brewery Company [1885] 31 Ch. D 261 10. Madhava Ramachandra Kamath v. Canara Banking Corporation [1941] 11 Comp Cas 78 (Mad) 11. Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Ltd: AIR 1971 SC 422. 12. Peveril Gold Mines, Re (1808) 1 Ch 122 13. Pyare Lal Sharma V. Managing director J&K Industries Ltd.: [1989] 3 Comp. L.J. (SL) 70 14. Rainford v. James Keith and Blackman Company Ltd [1905] 2 Ch. 147 15. Rayfield V. Hands, (1960) Ch 1 16. S.S.Rajkumar v. Perfect Castings Pvt. Ltd (1968) 38 Comp Cas 187. 17. Scott V. Frank F. Scott (London) Ltd. (1940) Ch 794: 56 TLR 924.

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ARTICLES OF ASSOCIATION 18. Shiv Omkumar Maheshwari V. Bhansidar Jagannath AIR 1956 Bom 459. 19. Somesh Chandra Manilal Nanavati v. Jivan Lal C. Chenai. (1956) 26 Comp Cas 148 20. Sunil Dev V. Delhi and District Cricket Association (1994) 80 Comp cas 174 (Del)

BOOKS REFFERED
1. A.K. Majmudar and Dr. G.K. Kapoor, Company Law and Practice , 12th ed. 2007, Taxman Publications, New Delhi. 2. Avtar Singh, Company Law , 15th ed. 2007, p. 98, Wadhwa Publishers, Nagpur. 3. H.H,J. Tophan, Palmer s Company law , 17th ed. 1942, rep. 1943, stevens and Sons, London. 4. H.K.Saharay, Company Law , 5th ed. 2007, p.69. 5. M. C Bhandari, R. D Makheeja, Guide to Memorandum of Articles and Incorporation of Companies , 4th ed. 2005, p.69, Wadhwa Publishers, Nagpur. 6. Ramaiya, Guide to The Companies Act , 11th ed. 1988,Wadhwa and Company, Nagpur. 7. T.N. Pandey, R.K.Gupta, et al. (Rev.) J.M.J. Sethna s Indian Company Law, 11th ed. 2005, Vol 1, Modern Law Publications, New Delhi.

ARTICLES
1. Jaclyn Braunstein, Pound foolish: Challenging executive compensation in the U.S. and the U.K. , 29 Brook. J. Int'l L. 747.
2.

Trevor C. Hartley, Case Comment: Convention under Article 220, EEC , E.L. Rev. 1993, 18(3), 225-228.

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