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Memorandum of Association and Ultra Vires clauses under Companies Act 2013

Introduction:

The above-mentioned topic which is discussed below has great importance for the individuals who are willing to form a company under the Companies Act, 2013. This article discusses the Memorandum of Association and Ultra Vires clauses under the Companies Act, 2013. Memorandum of Association means a legal document of the company which contains specific information about the working of the company and it also mentions the scope of activities of the company. It contains the rights and duties of the members and their relation with the company. Those who are willing to form a company is required to get a memorandum of association for their company because it contains all the necessary information and documents to provide legal identity to a company.

Section 2 (56) is defined as “memorandum‖ means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act;”

Features of Memorandum of Association as follows:

  1. This document can be inspected by any individual since it is a public document.
  2. Any action is taken or acts done beyond the Memorandum of Association, it ultra vires the act.
  3. It is an unalterable charter.
  4. A Memorandum of Association should be signed by at least 7 members in case of a public company and in case of a private company it should be signed by at least 2 members.
  5. A Memorandum of Association mentions the nature of business activities which will be conducted by the company.
  6. It is submitted to the registrar for registration to get the incorporation certificate.

Importance of a Memorandum of Association as follows:

  1. It is an important public document without which the company will not be registered.
  2. It works as the guide for all the members of the company because it contains the rights and duties and other necessary information of the members.
  3. People who invest in a company is protected by the Memorandum of Association because there is always a risk factor to invest money in a company.

Particulars of Memorandum of Association:

Section 4 of the Companies Act, 2013 mentions the necessary particulars or contents of Memorandum of Association as follows:

  1. Name clause – It says that the company must have a specific name and it should not be similar to other existing company. it should be acceptable by the government and private companies must end its name with private limited and so on.
  2. Office clause – It says that company should mention in the memorandum the state in which the office is registered, it should have a registered office and within thirty days the verification of the registered office must be completed. Registration is done to get the domicile of the company.
  3. Object clause – It contains the objects of the company and on the basis of which the company functions.
  4. It mentions other particulars such as liability clause, subscription clause and succession clause.

Alterations in Memorandum of Association:

Section 13 of the Companies Act, 2013 provides the alterations as follows:

“Alteration of memorandum.— (1)A company can alter its provisions mentioned in the memorandum through special resolution and by following the procedures mentioned in this act and save as provided in section 61.

(2) If the company wants to change the name of the company then it should follow the provisions of sub-section 2 and 3 of section 4 and it should be remembered that it will have no effect until this gets approval of Central Government in writing.

(3) When the company had changed its name under sub-section 2, it is the responsibility of the Registrar to enter the new name of the company in the register of the companies and then he should issue a fresh incorporation certificate to the company.

(4) If any company wants to alter the memorandum relating to the place of the registered office from one state to another then they should get approval from the Central government in writing an application.

(5) Now, the Central Government disposes of the application within 60 days under sub-section 4.

(6) As it is provided under section 64, a company for alteration of the memorandum should file a special resolution and approval of Central Government to the Registrar in case of change of name of the company.

There are some other sections which also speak about the alteration of memorandum. We have provided here, the important sections to make you understand about the memorandum.

These sections explain the alteration of Memorandum of Association process that is how a company can change its name and other information which need to be changed by the company. So, above given provisions provide different clauses to alter the Memorandum of Association.

The doctrine of Ultra Vires:

Each and every company has Memorandum of Association which contains the object clause. The members and directors are bound to follow the object clause and they cannot act beyond the object clause which is specified in the Memorandum of Association. If the company acts or works beyond the object clause then it is termed as Ultra Vires. The doctrine of Ultra Vires literally means that acts done beyond power. An Ultra Vires act is considered as void and it cannot be ratified by the directors also.

Need for Doctrine of Ultra Vires:

This doctrine was introduced to safeguard or protect the interest of the creditors and shareholders. The object clause which is the main content of the Memorandum of Association is the preamble of the company. It also tells or we can say helps the creditors to check that their money is invested in an inappropriate way and place. It helps the company to avoid the situation of insolvency. This doctrine is also needed to curb the unlimited powers of the directors of the company.

Exceptions to the Doctrine of Ultra Vires:

 The Doctrine of Ultra Vires has certain exceptions:

Such as –

  1.  “An act which is within the powers of the company but is beyond the authority of the directors specifically may be ratified by its shareholders in an appropriate format.”
  2. “An act which is within the powers of the company but is committed irregularly can be validated by the consent of its shareholders.” 
  3. “If the company through an ultra vires act, acquires any property in the form of investment, will continue to possess such right over that property.”
  4. “While applying the said doctrine, the consequences which are incidental to the concerned act will not be invalid unless the same is expressly prohibited by the Companies Act.”
  5. “There are some acts under the Company law, which are not explicitly mentioned in the memorandum of Association, but are impliedly within the power of the company and subsequently cannot be said to be ultra vires.”
  6. “An act of the company which is ultra vires of its Articles of Association can be validated by altering the Articles of Association.”

Case Analysis:

“T. Gattaiah And 86 Ors. vs Commissioner Of Labour And Anr. on 2 March, 1981 Andhra High Court”

 “It is therefore, clear that a writ of mandamus would lie against the respondent-company to compel it to carry out directions of the Parliamentary enactment contained in Chapter V-B of the Industrial Disputes Act. But because mandamus is a public law remedy, its use is governed by considerations which are peculiar and appropriate for the exercise of such public law remedy. In this case there is no doubt that Chapter V-B of the Industrial Disputes Act imposes a public duty on the respondent-company not to retrench the petitioners except in accordance with the conditions laid down by the Parliament. Those limitations are conceived not merely in the interests of individual workman but in the general interest of industrial peace. In an unreported judgment in W.P. No. 3086 of 1978, this Court has held that Chapter V-B of the Industrial Disputes Act imposes public duties on the manufacturing concerns. Following that, I hold that the respondent-company is under a public duty to observe those conditions mentioned in Chapter V-B of the Industrial Disputes Act. If so, for the reasons which are mentioned above, I hold that a writ of mandamus should issue against the respondent-company not to retrench the petitioners except in accordance with conditions laid down by the Parliament. According to Parga Tools case, it is not the body that matters, but it is the nature of the duty that is important. A statutory duty cast on a private body so long it is public duty can be mandamussed, according to that decision. The body must be functionally assessed to find out whether it is performing public duty or not. For the purpose of this assessment, the question whether a body is private body or a public body is immaterial. As I held that the respondent company is under a public duty to observer the conditions mentioned in Chapter V-B of the Industrial Disputes Act, I hold that writ of mandamus is competent to issue to the respondent-company.”

In the above case, the petitioners filed a case against a company stating that they were laid-off and retrenched by the said company. So, they urge the court to issue a writ in the nature of mandamus or any other appropriate writ against the company since the above-mentioned charges are in violation of the statutory provisions. The court held that any company working beyond its power would be void and this court issued a writ of mandamus against the respondent company.

“Syed Moosa Quadri vs State Of Andhra Pradesh And Ors. on 13 March, 1979 Andhra High Court”

“It is well-known that ” the powers of a Corporation created by statute are limited and circumscribed by the statutes which regulate it, and extend no further than is expressly stated therein, or is necessarily and properly required for carrying into effect the purpose of its incorporation” (see Halsbury’s Law of England, Fourth Edition Para 1333 and also M. Pentaiah v. Veeramallappa ). The impugned action of the Hyderabad Municipal Corporation in entering into contract with the third respondent is clearly ultra vires of its powers and is therefore null and void. The Corporation had entered into such a contract which is so patently ultra vires of its authority because it acted to the dictates of G. O. Ms. No. 928 M. A. dated 13-11-1978, issued by the State Government directing the Hyderabad Municipal Corporation to consider and accept the tender of the third respondent. It was in those circumstances, that the Writ petitioner challenged the validity of the action of the Hyderabad Municipal Corporation. Our learned brother Gangadhara Rao, J., having held that the action of the Municipality is ultra vires of its powers, yet, dismissed the Writ Petition on the ground that it is not in public interest to issue a writ as that is likely to involve the Corporation in litigation. With greatest respect to Gangadhara Rao, J., I cannot agree with him. I utterly fail to see how refusal to enforce rule of law would promote public good. It could only promote cynicism towards law. If this Court does not interfere on behalf of the citizens to checkmate the illegal activities of the State, there is a grave danger of the people’s faith in the judicial process being eroded and finally imperiled.”

The above case says that the corporation should work within in limits which are mentioned in its object clause of the Memorandum of Association. The corporation here entered into a contract with a party but it ultra vires its powers clearly and it is null and void.The writ petitioner here charged the validity of the action of the authority mentioned above.

“Ashbury Railway Carriage and Iron Company Ltd v. Riche (1875)”

In the above case, it is said that the company entered into an agreement or contract with another party but later on this company breached the agreement or contract and the plaintiff filed a case against the company. One thing is noticed here that the members of the said company had ratified the clause of the contract before its non-performance. The court held that the company acted beyond its power and limit or it has acted beyond the object clause of the company. Hence, the contract made between them is void and also mentioned that it was ultra vires.

Conclusion:

There are many companies which have been established and many other companies are also coming up and the people who are willing to establish a company should get a Memorandum of Association to get registration of their company. Memorandum of Association is the main and basic document required to form a company because this document contains the name clause, object clause and other clauses which control, guides and protect the members, investors, shareholders and directors of the company. There are clauses of Ultra Vires which also safeguards the company in many ways and its importance is discussed above with case laws.

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