What is Alteration of articles of association? Discuss the limits upon the powers of company to alter or add to the Articles of Association.

Or

How can Articles be altered ?

Ans.

ALTERATION OF ARTICLES OF ASSOCIATION

Articles are meant to govern the internal working of a company. As such a company has freedom to alter any of its Articles as and when it considers necessary. Section 14 of the Companies Act, 2013 says that a special resolution must be passed in a meeting of the shareholders and a copy of special resolution authorizing the alteration must, however, be filed with the Registrar within 30 days of passing the said resolution. And an altered Article shall also be filed with the Registrar within 3 months of giving the special resolution.

But this freedom of the company to alter its articles is, however, subject to certain limitations.

LIMITATIONS REGARDING ALTERATION OF ARTICLES

These are as under-

(1) The alteration must be consistent with the provisions of the Companies Act, 2013.

(2) The alteration should not exclude or limit the rights of its members.

(3) The alteration should not increase the liability of any member without written consent.

(4) The alteration must be consistent with the conditions contained in the memorandum.

(5) The Articles can’t be altered so as to give powers, which are not given by the Memorandum.

(6) The alteration must be consistent with the alteration ordered by the Company Law Board.

The Company Law Board has power to alter a company’s Memorandum or Articles in any way as it thinks fit. The company must follow the order of QLB.

Approval of the Central Government – In some cases, the alteration in articles shall be valid, if prior approval of the Central Government has been required.

(i) If a public company is converted into private company.

(ii) Regarding the appointment or re-appointment of Directors not liable to be retired by rotation.

(iii) Regarding the increase of remuneration to a director beyond the limit described.

The alteration must not deprive any person or his rights. Alteration should not destroy the rights possessed by any person by virtue of a contract.

The Alteration must not Constitute a Fraud on the Minority- The alteration must not hurt the interest of minority. The Court will certainly interfere if the majority pass a resolution sanctioning a sale of company’s property at under-value.

The Alteration must be Bonafide for the Benefit of the Company – The alteration shall be valid if it has been made for the benefit of the company.

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