Section 17: Companies Act- Incorporating companies and compliances in India
Section 17 of the Companies Act, 2013 pertains to the provisions for altering the memorandum and articles of association of a company. It provides the procedure for making changes to the company's MOA and AOA and the requirements for approval of such changes.
The relevant case law related to Section 17 of the Companies Act, 2013 is:
Hindustan Lever Employees' Union v. Hindustan Lever Ltd. (1995): In this case, the Supreme Court held that any alteration made to the MOA or AOA must be bona fide and in the interest of the company. The alteration must not be made to deprive the minority shareholders of their legitimate rights.
The relevant rule related to Section 17 of the Companies Act, 2013 is:
Rule 7 of the Companies (Incorporation) Rules, 2014: This rule prescribes the procedure for altering the MOA and AOA of a company. It requires the company to convene a board meeting and a general meeting of the shareholders to pass a special resolution approving the proposed alteration.
Apart from the above-mentioned case law and rule, there are some other important aspects related to Section 17 of the Companies Act, 2013, which are as follows:
Types of Alterations: The MOA and AOA of a company can be altered for various reasons, such as changing the name of the company, altering the objects or capital clause, changing the registered office address, and so on.
Board Resolution: The proposed alteration to the MOA or AOA must first be approved by the board of directors of the company. The board must then call a general meeting of the shareholders to obtain their approval through a special resolution.
Special Resolution: A special resolution is required for any alteration to the MOA or AOA. The resolution must be passed by a three-fourths majority of the shareholders present and voting at the general meeting.
Filing of Forms: The company is required to file the necessary forms with the Registrar of Companies (RoC) within 30 days of passing the special resolution. The RoC will then issue a certificate of incorporation with the altered MOA and AOA.
Effect of Alteration: Once the alteration is made to the MOA or AOA and the certificate of incorporation is issued, the altered clauses become binding on the company and its shareholders.
Notice to Regulators: In case of alteration to certain clauses of MOA, the company is required to give notice to relevant regulators such as the Securities and Exchange Board of India (SEBI) or Reserve Bank of India (RBI).
Timeframe for Alteration: The alteration to the MOA or AOA must be made within a reasonable time frame from the date of passing the special resolution. The Act does not prescribe any specific time limit, but it is generally expected that the alteration is made within a reasonable period.
Approval from Creditors and Other Stakeholders: In certain cases, the alteration to the MOA or AOA may require the approval of creditors or other stakeholders. For example, any alteration to the capital clause of the MOA may require the approval of the creditors if the company has outstanding debts.
Alteration of Articles vs. Memorandum: The AOA can be altered more easily than the MOA, as it requires only a special resolution passed by the shareholders. On the other hand, any alteration to the MOA requires the approval of the shareholders as well as the central government.
Filing of Alteration with Registrar of Companies: After the special resolution is passed, the company must file the alteration with the Registrar of Companies (RoC) within 30 days of passing the resolution. The company is required to file the necessary forms with the RoC along with the altered MOA and AOA. The RoC will verify the documents and issue a certificate of incorporation with the altered MOA and AOA.
Effect of Alteration: Once the alteration is made to the MOA or AOA, the altered clauses become binding on the company and its shareholders. The company must comply with the new provisions and update its records accordingly.
Restrictions on Alteration: Section 17 of the Companies Act, 2013 also imposes certain restrictions on the alteration of MOA and AOA. For example, any alteration that goes against the provisions of the Act or any other law is not permitted. Similarly, any alteration that affects the rights of shareholders or creditors cannot be made without their consent.
Alteration for Shifting Registered Office: The Companies Act, 2013 also allows companies to alter their MOA for the purpose of shifting their registered office from one state to another. However, such alteration requires the approval of the National Company Law Tribunal (NCLT), and the company must follow the prescribed procedure under Section 13 and Section 14 of the Act.
Alteration for Change of Name: If a company wants to change its name, it must alter its MOA as per Section 13 of the Act. The company must pass a special resolution and obtain the necessary approvals from the RoC and other regulatory authorities.
Alteration for Change in Object Clause: Any alteration to the object clause of the MOA requires the approval of the shareholders through a special resolution. In addition, if the alteration affects the rights of creditors or debenture holders, their consent must be obtained before making such alteration.
Alteration for Increase in Authorized Capital: Any alteration to the capital clause of the MOA for the purpose of increasing the authorized capital requires the approval of the shareholders through a special resolution. In addition, the company must also comply with the provisions of the Companies (Share Capital and Debentures) Rules, 2014.
Alteration for Reduction in Share Capital: Section 66 of the Companies Act, 2013 provides for the reduction of share capital of a company. Any alteration to the capital clause of the MOA for the purpose of reducing the share capital requires the approval of the shareholders through a special resolution. In addition, the company must also comply with the provisions of the Companies (Share Capital and Debentures) Rules, 2014, and obtain the approval of the National Company Law Tribunal (NCLT).
Alteration for Conversion of a Public Company into a Private Company: Section 14 of the Companies Act, 2013 provides for the conversion of a public company into a private company. Any alteration to the MOA or AOA for the purpose of converting a public company into a private company requires the approval of the shareholders through a special resolution. In addition, the company must also comply with the provisions of the Companies (Incorporation) Rules, 2014, and obtain the approval of the RoC and other regulatory authorities.
Alteration for Insertion of New Articles: The AOA of a company may be altered by inserting new articles, as long as they are not inconsistent with the provisions of the Act. Any such alteration requires the approval of the shareholders through a special resolution. The new articles must be filed with the RoC, along with the altered AOA.
Alteration for Removal of Articles: The AOA of a company may also be altered by removing existing articles. Any such alteration requires the approval of the shareholders through a special resolution. The removed articles must be filed with the RoC, along with the altered AOA.
Alteration for Amending Articles: The AOA of a company may also be altered by amending existing articles. Any such alteration requires the approval of the shareholders through a special resolution. The amended articles must be filed with the RoC, along with the altered AOA.
Alteration for Increasing Remuneration of Directors: Section 197 of the Companies Act, 2013 provides for the maximum limit of remuneration payable to directors of a company. Any alteration to the MOA or AOA for the purpose of increasing the remuneration of directors requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
Alteration for Appointment of Independent Directors: The Companies Act, 2013 mandates the appointment of independent directors in certain cases. Any alteration to the MOA or AOA for the purpose of appointing independent directors requires the approval of the shareholders through a special resolution.
Alteration for Appointment of Key Managerial Personnel: Section 203 of the Companies Act, 2013 provides for the appointment of key managerial personnel in certain cases. Any alteration to the MOA or AOA for the purpose of appointing key managerial personnel requires the approval of the shareholders through a special resolution.
Alteration for Change in Memorandum and Articles: Any alteration to both the MOA and AOA of a company requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Incorporation) Rules, 2014, and file the amended MOA and AOA with the RoC and other regulatory authorities.
Alteration for Alignment with Corporate Social Responsibility: The Companies Act, 2013 mandates certain companies to undertake corporate social responsibility (CSR) activities. Any alteration to the MOA or AOA for the purpose of aligning with the CSR provisions requires the approval of the shareholders through a special resolution.
Alteration for Appointment of Statutory Auditors: The Companies Act, 2013 mandates the appointment of statutory auditors by the company. Any alteration to the MOA or AOA for the purpose of appointment of statutory auditors requires the approval of the shareholders through a special resolution.
Alteration for Alignment with SEBI Regulations: The Securities and Exchange Board of India (SEBI) regulates the securities market in India. Any alteration to the MOA or AOA for the purpose of aligning with SEBI regulations requires the approval of the shareholders through a special resolution.
Alteration for Merger or Amalgamation: The Companies Act, 2013 provides for the merger or amalgamation of companies. Any alteration to the MOA or AOA for the purpose of merger or amalgamation requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, and obtain the approval of the NCLT.
Alteration for Demerger: The Companies Act, 2013 provides for the demerger of companies. Any alteration to the MOA or AOA for the purpose of demerger requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, and obtain the approval of the NCLT.
Alteration for Buy-Back of Shares: The Companies Act, 2013 provides for the buy-back of shares by a company. Any alteration to the MOA or AOA for the purpose of buy-back of shares requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Share Capital and Debentures) Rules, 2014, and obtain the approval of the NCLT.
Alteration for Change of Name: The Companies Act, 2013 allows companies to change their name for various reasons, such as rebranding, business strategy change, or to avoid confusion with another company. Any alteration to the MOA for the purpose of changing the name of a company requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Incorporation) Rules, 2014, and file the amended MOA and AOA with the RoC and other regulatory authorities.
Alteration for Conversion of Public Company into Private Company: The Companies Act, 2013 allows a public company to convert into a private company. Any alteration to the MOA or AOA for the purpose of such conversion requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Incorporation) Rules, 2014, and obtain the approval of the NCLT.
Alteration for Alteration of Share Capital: The Companies Act, 2013 provides for the alteration of share capital of a company. Any alteration to the MOA or AOA for the purpose of alteration of share capital requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Share Capital and Debentures) Rules, 2014.
Alteration for Transfer of Registered Office: The Companies Act, 2013 provides for the transfer of the registered office of a company from one state to another. Any alteration to the MOA for the purpose of such transfer requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Incorporation) Rules, 2014, and obtain the approval of the NCLT.
Alteration for Conversion of One Class of Shares into Another: The Companies Act, 2013 allows companies to convert one class of shares into another, such as converting preference shares into equity shares or vice versa. Any alteration to the MOA or AOA for the purpose of such conversion requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Share Capital and Debentures) Rules, 2014.
Alteration for Reducing Share Capital: The Companies Act, 2013 allows companies to reduce their share capital in certain circumstances, such as to repay capital to shareholders or to adjust the capital structure of the company. Any alteration to the MOA or AOA for the purpose of reducing share capital requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Share Capital and Debentures) Rules, 2014, and obtain the approval of the NCLT.
Alteration for Change in Objects Clause: The MOA of a company sets out the objects for which the company is incorporated. The Companies Act, 2013 allows companies to alter their objects clause for various reasons, such as to expand the business or to change the direction of the company. Any alteration to the MOA for the purpose of changing the objects clause requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Incorporation) Rules, 2014, and obtain the approval of the RoC.
Alteration for Increase in Authorised Share Capital: The Companies Act, 2013 allows companies to increase their authorised share capital to accommodate future capital needs. Any alteration to the MOA for the purpose of increasing the authorised share capital requires the approval of the shareholders through a special resolution. The company must also comply with the provisions of the Companies (Share Capital and Debentures) Rules, 2014.
In conclusion, Section 17 of the Companies Act, 2013 provides the framework for making lawful and bona fide alterations to the MOA and AOA of a company. Companies must comply with the provisions of this section and related rules, and obtain necessary approvals before making any alterations to the MOA or AOA. The case law and regulatory requirements ensure that such alterations are made in the interest of the company and its stakeholders.
By Siddharth Dalmia
The StartUp Sherpa
+91-9971799250
dalmiasiddharth1994@gmail.com
