Section 5: Companies Act- Incorporating companies and compliances in India
Updated: Feb 25
Section 5 of the Companies Act, 2013 defines "Articles" as the articles of association of a company, which outlines the regulations for the company's internal management, including the powers, rights, and duties of its directors and shareholders.
The articles of association must be drafted and filed with the Registrar of Companies (ROC) during the incorporation of the company. Any changes made to the articles after incorporation must be approved by the shareholders and filed with the ROC.
Here are some relevant case laws and rules related to Section 5:
Jagatjit Industries Ltd. v. Commissioner of Income Tax: In this case, the Supreme Court held that the articles of association are a contract between the company and its members, and are binding on both parties. The Court also held that the articles cannot be altered to defeat the rights of the minority shareholders.
Companies (Incorporation) Rules, 2014: Rule 13 of the Companies (Incorporation) Rules, 2014 prescribes the requirements for the articles of association of a company. The articles must be printed, divided into paragraphs, and signed by each subscriber to the memorandum of association.
Section 14 of the Companies Act, 2013: Section 14 of the Companies Act, 2013 outlines the procedure for altering the articles of association. Any alteration must be approved by a special resolution of the shareholders and filed with the ROC within 30 days of the resolution.
Table F of the Companies Act, 1956: Table F of the Companies Act, 1956 provided a set of model articles that companies could adopt in their entirety or with modifications. These model articles were widely used by companies before the enactment of the Companies Act, 2013, which no longer provides for model articles.
Companies (Share Capital and Debentures) Rules, 2014: Rule 9 of the Companies (Share Capital and Debentures) Rules, 2014 provides that the articles of association must specify the classes of shares that the company is authorized to issue, the voting rights attached to each class of shares, and the rights of shareholders to receive dividends or participate in the company's assets in the event of liquidation.
Tata Consultancy Services Limited v. Cyrus Investments Pvt. Ltd.: In this case, the Supreme Court held that the articles of association cannot be used to alter the fundamental characteristics of the company, such as its identity or business objectives. The Court also held that any alteration to the articles must not be oppressive or unfairly prejudicial to any shareholder.
Section 6 of the Companies Act, 2013: Section 6 of the Companies Act, 2013 provides that the articles of association of a company must be in accordance with the provisions of the Act, and any provision in the articles that is inconsistent with the Act will be void.
Section 27 of the Companies Act, 2013: Section 27 of the Companies Act, 2013 provides that a copy of the articles of association must be given to every member of the company upon their request, free of charge.
Furthermore, the articles of association must provide for the rights of shareholders, including the classes of shares, voting rights, and dividend entitlements. The Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014 provide detailed guidance on the content and alteration of the articles of association, and companies must ensure that they comply with these provisions.
It is also important to note that the articles of association must be made available to all members of the company upon request, free of charge. This ensures that shareholders are aware of their rights and obligations, and can hold the company accountable for its actions.
In summary, the articles of association play a crucial role in defining the governance structure of a company, and must be drafted with care and in compliance with the Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014. Companies must also ensure that their shareholders are aware of the contents of the articles of association, and have access to them upon request.
In conclusion, the articles of association are a critical component of a company's governance structure, and must be drafted with care to ensure that they are consistent with the provisions of the Companies Act, 2013. Any alteration to the articles must be made in accordance with the procedure prescribed by law, and must not be used to unfairly disadvantage any shareholder or alter the fundamental characteristics of the company.
By Siddharth Dalmia
The StartUp Sherpa
+91-9971799250
dalmiasiddharth1994@gmail.com
