Introduction to Articles

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Introduction to Articles
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Introduction to Article Companies Act, 1956

• Section 26 of the 1956 Act dealt
  with Article prescribing regulations and made the
  article of association compulsory in cases
  of unlimited companies, companies limited by
  guarantee and a private company limited by
  shares. As regards public company limited by
  shares, there is no obligation to register
  articles of association. The Article of
  association prescribe the rules and regulations
  to be applied in the governance of the company.
  Section 27 of the 1956 Act covered regulations
  especially need to be included in the article of
  unlimited company of the Business Registration.
  Section 28 of the 1956 Act dealt with company
  limited by shares and provided that a company
  limited by shares may adopt all or any of the
  regulations contained in Table A in Schedule 1 to
  the 1956 Act.

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Business Registration
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• Section 29 of the 1956 Act dealt with article of
  association of any company, not being a
  company limited by shares and provided that the
  article shall be in such one of the forms in
  Tables C,D and E in Schedule 1 as may be
  applicable. The provision was added to section 29
  of the 1956 Act which is similar to the Companies
  (Amendment) Act, 1960. The provision further
  clarified that a company other than those in the
  applicable Tables in Schedule 1 as long as they
  were not inconsistent with the provisions
  contained in the Forms in any of the applicable
  Tables.

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Companies Act, 2013 Section 5

• Section 5 of the 2013 Act notified and has been
  in effect form 01-04-2014. Section 5 of the 2013
  Act is a combination of sections 26 to 29 of the
  1956 Act. MCA identifies section 30 of the 1956
  Act also as a corresponding provision however
  there is no specific provision in section 5 of
  the 2013 Act which corresponds to section 30 of
  the 1956 Act. Section 5 of the 2013 Act
  of Business Registration introduces in addition
  to the provisions in sections 26 to 29 of the
  1956 Act, certain new provisions relating
  to Article.

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Business Registration
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• Every company has to have article under the 2013
  Act. In the 1956 Act there was no obligation to
  register article in case of public companies.
• Companies have the choice to adopt with or
  without modifications the article in Table
  F,G,H,I, and J of Schedule 1 of the 2013 Act.
  However, the article shall also contain such
  matters as may be prescribed in the Rules.
  Freedom has been given to the companies to
  include such other matters in the article which,
  a company considers necessary for its management.
  Rule 11 of the companies (Incorporation) Rules,
  2014 also provides that the model articles as
  prescribed in Table F,G,H,I and J of the schedule
  1 may be adopted by a company as may be
  applicable to the case of the company
  registration either in totally or otherwise.
• Entrenchment provisions have been introduced in
  the 2013 Act in respect of the article of
  association, which implies that it may contain
  provisions for entrenchment to the effect that
  specified provisions of the Article can be
  altered only if conditions that are more
  restrictive than those applicable in case of
  special resolutions are met with.

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Entrenchment of the Articles

• This is an important provision. This provision is
  in line with Section 22 of English Act, 2006. In
  most of the joint venture companies, on the basis
  of joint venture agreements, provisions are made
  in the article for affirmative votes in Board and
  General Meetings, Compulsory presence for quorum
  purposes both in the Board and General meetings
  etc., These articles have been contended to the
  repugnant to the provisions of the Act in terms
  of section 9 of the 1956 Act (now section 6 of
  the 2013 Act). Unfortunately, the provision of
  retrenchment under section 5 of the 2013 Act
  relates only to alterations to the article notwith
  standing the fact that, judicial decisions
  support the view that provisions relating to
  affirmative vote and compulsory quorum are valid
  in law. Rule 10 of Companies (Incorporation)
  Rules, 2014contains provisions relating to notice
  to the Registrar where entrenchment provisions
  are included in the article.

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Article of Association Section 5(1) and (2) of
the Companies Act, 2013

• Sub-section (1) of section 5 of the 2013 provides
  that the article of a company shall include
  regulations for management of affairs of the
  company. The articles of a company are required
  to contain matters prescribed in Rule 11
  of Companies(Incorporation) Rules, 2014. The
  provision, however, clarifies that additional
  matters other than those prescribed in the rules,
  which are considered in necessary for management,
  may also be included in the article.

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Model Article Section 5(6) to (8) of the
Companies Act, 2013

• Section 5(6) of the 2013 Act provides that
  the article of the company shall be in forms
  contained in tables F,G,H,I and J in schedule 1
  to the 2013 Act as may be applicable to the
  company. Sub-section 7 of section 5 of the 2013
  Act however grants flexibility to the
  companies to adopt the any or all of the
  regulations set out in the model articles. It is
  prudent to adopt article given in Schedule 1 of
  the 2013 Act as it is, except where the Act,
  itself facilitates the companies to have their
  own article. Section 5(7) of the 2013 Act read
  with Rule 11 of the Companies (Incorporation)
  Rules, 2014 facilitates a company to adopt the
  articles in as given in the model article as
  applicable to the company either in full or in
  part. However, pursuant to section 5(8) of the
  2013 Act in the case of a company registered
  after the commencement of the 2013 Act, where the
  articles registered by the company to extend have
  not excluded or modified the regulations
  contained in the model article applicable to
  them, the regulations of the model article shall
  be the regulations of the company as if they were
  contained in the duly registered articles of the
  company.

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Provisions not applicable to companies

• Sub-section (9) of the 2013 Act excludes the
  operation of section 5 in respect of article
  registered under previous company law unless the
  articles are amended under the 2013 Act. The
  impact of section 5(9) of the 2013 Act, is that
  the companies are at liberty to restrain their
  existing article and it need not to be altered to
  fall in line with the new model article given
  under Schedule 1 to the 2013 Act. However the
  companies are at liberty to modify their articles
  in accordance with the 2013 Act to fall in line
  with the requirements of the 2013 Act.

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Relevant Rules issued under Companies Act, 2013

• The provisions related to section 5 of the 2013
  Act in terms of its implementation are carried in
  the Companies (Incorporation) Rules, 2014. Rules
  10 and 11 of Companies (Incorporation) Rules,
  2014 are reproduced below for reference
• Rule 10 Where the articles provides the
  provisions for entrenchment, the company shall
  provide notice to the Registrar of such
  provisions in Form No. INC.7, as the case may be,
  along with the fee as given in the Companies
  (Registration offices and fees) Rules, 2014 at
  the time of incorporation of the company or the
  time of business registration or in case of
  existing companies, the same shall be filed in
  Form No. MGT. 14 within one month from the date
  of entrenchment of the article, as the case may
  be, along with the fees as provided in the
  Companies(Registration offices and fees)Rules,
  2014 of the Business Registration.
• Rule 11 The model articles as prescribed in
  Table F,G,H,I, and J of Schedule 1 may be adopted
  by a company as may be applicable to the case of
  the company, either in totality or otherwise.