This article is written by Gautam Badlani. This article gives a comprehensive analysis of Section 13 of the Companies Act, 2013. It enlists the statutory requirements that a company has to fulfil while altering its name, registered office or objects. The article also highlights the shift in statutory norms relating to the alteration of the Memorandum of Association from the 1956 Act to the 2013 Act.

This article has been published by Shashwat Kaushik.

Introduction

The Memorandum of Association is a sacred document for a company that defines the scope of its operations and the relationship that it shares with the shareholders. The Memorandum is like the constitution of the company and if the company performs any activity that is contrary to its constitution, then such activity is deemed to be void in law.

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Memorandum of Association (MoA)

The Memorandum of Association (hereinafter MoA) lays down the basic features of a company. It states the name of the company, its registered office and its objectives. Section 2(56) of the Companies Act, 2013, states that Memorandum is 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”.

Name clause

The name clause contains the name of the company. Since a company is an artificial juristic person and has an identity distinct from that of its members, it must have a name by which it can enter into contracts and purchase property. The name of the company must not be similar to that of an existing company. Moreover, the company must not adopt a name whose use is prohibited by the law of the land. In the case of a public company, the name of the company ends with ‘Ltd.’ and if the company is a private company, then the name of the company ends with ‘Pvt. Ltd.’. 

Registered office clause

The company must specify the name of the state in which it is going to establish its registered office. If, after incorporation, the company decides to shift its registered office to any other state, then the company will have to alter its MoA through a special resolution. In the case of the transfer of a registered office, the company is also under an obligation to ensure that its creditors are not adversely affected by the transfer.

Object clause 

The objects clause embodies the purpose and objectives for which the company is formed. Under Indian law, the subscribers to the MoA, known as the promoters, have the absolute freedom to determine the objectives of the company. The 2013 Act stipulates no requirement for separately mentioning the main and ancillary objects. However, the promoters may nonetheless choose to specify the ancillary objects along with the main objects. 

The primary purpose of the object clause is to impose certain restrictions on the scope of the company’s activities. It defines the scope of a company’s operations, and thus, shareholders are able to make an informed choice while investing their funds. The objects clause informs the shareholders of the nature of activities in which the company might deploy its funds.

It is pertinent to note that Indian jurisprudence surrounding company law has been very much influenced by British law. As per the Companies Act, 2006 (applicable in the United Kingdom), a company is required to file the MoA and the registration application with the Registrar at the time of the company’s formation. However, the UK law does not make it mandatory to specify the objects of the company in the MoA. It does require the company to specify its name, registered office and the liability of its members. 

The MoA may also state any matter that is necessary to be undertaken by the company for the purpose of attaining its objectives. However, even if a company does not mention such matters in its MoA, these operations are usually permitted by way of reasonable construction. The courts of law allow a company to undertake all such actions that are necessary for the purpose of realising its objects.

Liability clause

This clause states the liability that would be borne by the members of the company. For instance, if the members are to bear limited liability, then the MoA must state that the members’ liability would be limited by shares. Similarly, if the liability is to be limited by guarantee, then the MoA must specify the assets that would be contributed by each member in the event of winding up.

Capital clause 

The capital clause specifies the nominal capital of the company. It states the paid-up share capital of the company and the number of shares into which the capital is divided. A public company may have equity share capital, preference share capital or both. 

A company cannot issue shares in excess of the number stated in the MoA. If the company wants to issue more shares, then it will have to amend its MoA in accordance with the provisions laid down in Section 61. Section 61 empowers the company to alter its share capital and even consolidate its shares by passing a resolution in the general meeting. However, any consolidation of shares that affects the voting rights of the existing shareholders will have to be approved by the National Company Law Tribunal. 

Earlier, it was mandatory for a private company to have a minimum paid-up share capital of Rs. 1,00,000. Similarly, the minimum mandatory paid-up share capital for a public company was Rs. 5,00,000. However, the requirement of a minimum paid-up capital was deleted by the 2015 Amendment. 

Subscription clause 

The last clause of the MoA is the subscription clause, which is signed by the first shareholders of the company. The subscribers declare their intention of forming a company and agree to subscribe to a specific number of shares of the company. These subscribers are also called the promoters of the company. In the case of a private company, the MoA must be subscribed to by at least 2 persons, and in the case of a public company, the MoA must be subscribed to by at least 7 persons.

Alteration of Memorandum of Association (MoA) under Section 13 of Companies Act 2013

Section 13 deals with the process of altering a ‘memorandum’ of a company. Section 2(56) provides that a memorandum means the memorandum of association of a company. Section 2(3) of the Act defines the terms ‘alter’ or ‘alteration’ as the act of making any omission, substitution or addition. 

As per Section 13, a company needs to pass a special resolution in order to alter its memorandum of association. In the event of a change in the name of the company or a change in the registered office of the company, the approval of the Central Government would also be required. A company has to file the special resolution and the Central Government approval with the Registrar of Companies.

Till the 1980s, the MoA was considered an unalterable document, and thus the law imposed several restrictions on the alteration of the MoA. The company had to seek approval of external statutory bodies for the purpose of amending its MoA. The MoA defines the most important characteristics of the company, and thus, it is desirable that the clauses of the MoA not be frequently altered.

Even though the provisions relating to MoA alteration have been relaxed under the 2013 Companies Act, Section 13 lays down specific rules for the alteration of the MoA. The provisions of Section 13 apply to the alteration of the name clause, registered office clause, object clause and liability clause of the MoA. The capital clause can be amended by an ordinary resolution. 

Position under the Companies Act, 1956 

Section 17 of the Companies Act, 1956, deals with the alteration of the MoA. Section 17 provided a list of objectives for which a company could alter its registered office clause or its object clause. Under Section 17, a company could amend these two clauses to:

  • To carry on its business more efficiently and economically.
  • To expand the area of its local operations.
  • To attain its main purpose by new or improved means. 
  • To restrict or abandon any of the objects specified in the object clause.
  • To amalgamate with any other corporation or to sell off the whole or any part of the undertaking.

Till 2002, a company had to obtain the approval of the Company Law Board to alter its MoA. However, by the 2002 Amendment, Section 17 was amended to provide that the approval of the Central Government shall be taken for alerting the MoA. This provision was adopted by the Companies Act, 2013 as well.

Change in name of company 

Section 13(2) of the Companies Act, 2013 provides that the company can change its name only after complying with the provisions of Section 4 and after getting the approval of the Central Government in writing. However, if the change in name of the company merely involves the addition or deletion of the word ‘Private’ resulting from the conversion of a company from public to private or private to public, then the approval of the Central Government may not be taken. 

Section 4(2) provides that the name of a company shall not be identical with or too closely resemble the name of an existing company. Moreover, the name shall not be such that its use by the company would amount to an offence under the law in force in India. The name shall not be undesirable in the opinion of the Central Government.

Section 4(3) provides that no company shall adopt a name that indicates that the company has any connection with the Central Government or any of the state governments or local bodies.

The Registrar of Companies enters the new name of the company in the register of companies and issues a fresh certificate of incorporation reflecting the new name of the company.

SEBI (LODR) Regulations, 2015

The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) 2015 (LODR Requirements) prescribes certain additional regulations that need to be complied with by a company in order to alter its name. A company can alter its name only after a period of at least one year has elapsed since its last name change. Companies usually change their names to indicate a new business activity in which they are engaged. The LODR requirements states that a public company can alter its name-

  • Only if 50 percent of the revenue in the preceding year was generated by the new business activity, which is indicated by the proposed name, or
  • The investment made in the new activity is equivalent to at least fifty percent of the assets of the company. 

Effect of change in name clause 

It is pertinent to note that a change in the name of the company does not affect the rights or obligations of the company. All legal proceedings initiated against the company by its former name would continue against the company by its new name. Even after the change in name of the company, if any person initiates a suit against the company by its former name, it would be considered a curable defect and would not amount to the initiation of a suit against a non-existent person. However, a company cannot initiate a suit under its former name after adopting a new identity.

Change in registered office 

Change from one state to another 

A company can shift its registered office from one state to another only after passing a special resolution to that effect and after obtaining the prior approval of the Central Government. Once a company files an application for a change of registered office with the Central Government, the Central Government shall dispose of the application within a period of 60 days. 

The Central Government, before granting its approval, would make sure that the company had the approval of its creditors and debenture holders for the change of registered office. A change in the registered office of the company does not merely affect the shareholders of the company; it also impacts the creditors and employees of the company. Thus, in many cases, resolutions permitting the transfer of registered offices are challenged by employees, creditors and minority shareholders. However, the courts are usually reluctant to interfere with the wisdom of the company reflected in the special resolution. 

Section 13(4) states that if the company is shifting its registered office from one state to another, then the approval of the Central Government will have to be filed with the Registrars of both states. The new certificate of incorporation will be issued by the Registrar of the state to which the office is being shifted.

Change within the same city or town

It is pertinent to note that the company can shift its registered office from one place to another within the local limits of the same town, city or village without passing a special resolution. In this case, the company will have to hold a Board meeting and pass a Board Resolution authorising the change in registered office. Thereafter, the company will have to file Form INC-22 with the Registrar. The company has to inform the Registrar of the new address within 15 days of the change in registered office. 

Change from one city to another within the same state 

If a company is shifting its registered office from one city to another in the same state, then it will have to pass a special resolution amending its MoA. However, the approval of the Central Government is not required in this case. 

However, Rule 28 of the Companies (Incorporation) Rules, 2014, states that if the transfer of registered office within the same state results in the transfer of the registered office from the jurisdiction of one Regional Director to the jurisdiction of another Regional Director, then the company will have to submit the following documents to the Regional Director-

  • Form INC-23,
  • Board Resolution authorising the change of registered office,
  • Special Resolution authorising the change of registered office,
  • A declaration that the company will not seek a change in the jurisdiction of the courts where prosecution cases against it are pending, and
  • A declaration by the Key Managerial Personnel or at least two Directors stating that the company has not defaulted in paying any dues to the workers and that it has obtained the consent of the creditors for the change of registered office.

It is pertinent to note that the MoA has to be altered only if the registered office is being shifted from one state to another. A change of registered office within the same state does not require an alteration of the MoA. This is because the MoA only contains the name of the state in which the registered office is located and not the name of the city or town. 

In Re: K.G. Khosla Compressors Ltd. v. Unknown (1997), the management of a company was taken over by a financial institution. The registered office of the company was located in Delhi, but due to the change in management, most of the directors resided in Maharashtra. The company sought to change its registered office on the grounds of management takeover and administrative convenience. The Court held that a change in management was a sufficient reason to permit the transfer of a registered office. 

In Re Satyashree Balaji Wires & Cables (P) (2005), the Board held that the decision to shift the registered office of a company from one state to another is a domestic affair of the company, and the shareholders are in the best position to determine whether such a change would be beneficial for the company or not. They are the best judge to determine whether the transfer of the registered office will enable the company to function more profitably, efficiently and economically. The state government cannot object to such a transfer merely because it results in a loss of revenue for the state. 

Re: Mackinnon Mackenzie & Co. Private v. Unknown (1966)

An interesting question came up before the Calcutta High Court in the case of In Re: Mackinnon Mackenzie & Co. Private v. Unknown (1966). In this case, a private company had its registered office in Calcutta. However, the Company passed a special resolution to shift its registered office to the state of Maharashtra. The Company stated that most of its business was carried out in Bombay and that it would be administratively more convenient if its registered office was situated in the same city. However, the application was contested by the State of West Bengal. 

The State pleaded that the transfer of the registered office from Calcutta to Bombay would lead to loss of revenue and employment opportunities for West Bengal. Moreover, the State contended that the company had failed to prove that the transfer of its registered office would lead to economic gain for the company.

The High Court pointed out that the issue of loss of revenue was irrelevant as loss to one state would be a gain for another state, and thus the effect would be neutralised and there would be no loss for the Republic of India. The state can object to the shifting of a registered office only if the company has some outstanding dues to the state. The application of transfer of registered office cannot be rejected for promoting sectional interests and the interests of the Republic of India and shareholders have to be given primacy. ‘

In Re: Usha Beltron Ltd. v. Unknown (2000)

In this case, the Government of Bihar had granted certain land to the company on the understanding that it would maintain its registered office in Ranchi and would use the land only for such purposes as were specified in the lease. However, the company passed a resolution to shift its registered office from Ranchi to Calcutta. The State Government of Bihar objected to the transfer and stated that this would be a violation of the understanding reached at the time of granting the lease. Moreover, the State Government pleaded that the company had been provided interest free loans and relaxations in electricity and other bills. 

However, the Company Law Board allowed the company to transfer its registered office and stated that it is for the shareholders and not the state to decide whether the company can shift its registered office from one state to another or not. The lease deeds did not contain any restrictive clause, and thus, the company was not under any contractual obligation. 

Change in object clause

If a company needs to venture into new areas of business, then it will also have to amend the object clause of the Memorandum of Association. However, it is pertinent to note that if a public company has raised money through the issue of prospectus and has some unutilized funds, then, in order to amend the MoA, it will have to:

  • Publish the details of the special resolution in 2 newspapers (one English and one vernacular language) that are in circulation in the area in which the registered office of the company is located. Moreover, the details will also have to be published on the website of the company.
  • The shareholders who dissent from the special resolution shall be given an exit option.

Once the special resolution is filed with the Registrar, the Registrar has to certify the alteration of the MoA within a period of 30 days. 

A company cannot adopt too broad object clauses. It has to specify the fields in which it undertakes to carry on business. In Re Bhutoria Brothers (1957), the Court held that a company cannot incorporate a single provision in its object clause stating – ‘The Company will carry on all kinds of business’. Such a provision would imply that the company could pursue any business conceivable under the sun. However, the Court also pointed out that a certain degree of flexibility can be allowed while drafting the object clause, and the company may provide that it would pursue any other business that may conveniently and advantageously  combine with its existing businesses.

It is pertinent to note that one of the significant changes brought about by the 2013 Companies Act was that it simplified the process for the alteration of objects. The 2013 Act does not stipulate any requirement for sending information to individual creditors, bankers or other lenders. A mere publication of the proposed alteration in national newspapers would suffice. 

Under Section 17 of the Companies Act, 1956 (corresponding provision to Section 13 of the 2013 Act), a company had to obtain the approval of the Company Law Board in order to amend its objectives. However, with the 1996 Amendment, this requirement was removed. The alteration of objects has not become a completely internal matter of the company. No approval from any outside agency is required. To some extent, this change has been inspired by British law, which has gone a step ahead and omitted the requirement of stating objects in MoA altogether.

Conclusion

The MoA is a very important document for the company and an important source of information for bankers, creditors, financial institutions, lenders and other creditors. Thus, a company should not be allowed to make alterations to its MoA as a routine practice. The rules laid down in Section ensure that a company is not able to alter its MoA with the intention of defrauding its creditors and shareholders. 

Frequently Asked Questions (FAQs) 

What is the doctrine of ultra vires?

A company has to confine its operations to the objects specified in the MoA. If the company engages in any act that is beyond the scope of the MoA, then the courts can declare such an act to be ultra vires. Once an act is declared ultra vires, it will be deemed to be null and void and will have no effect. 

What is the difference between the Memorandum of Association (MoA) and the Articles of Association (AoA)?

The Memorandum of Association defines the relation between the company and its shareholders, whereas, the Articles of Association contain the rules and regulations that govern the functioning of the company. Moreover, the MoA of a company is publicly available as it contains information that is relevant for potential investors and lenders. On the other hand, the Articles of Association (AoA) are a private document as they merely stipulate how the administration of the company is to be carried out. In case of any inconsistency between the MoA and the Articles of Association, the MoA is given primacy and prevails over the AoA.

References

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