Question

Q.2 "Power to alter articles is wide'. Do you agree with the
statement? Is alteration subject to any conditions? Substantiate
your answer with case laws.​

Answer 1

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Explanation:

Wide power to alter the articles without adequate safeguards is likely to harm the interests of certain sections of the society including the shareholders, third parties and the public in general. It is, thus, necessary to impose certain restriction on these powers.

Alteration Of Articles

Sec. 31 of the Companies Act, 1956, provides that a company may by passing a special resolution, alter regulations contained in its Articles any time subject to

a) the provisions of the Companies Act and

b) Conditions contained in the Memorandum of Association [Section 31(1)].

A copy of every special resolution altering the Articles shall be filed in Form no 23, with the Registrar within 30 days its passing and attached to every copy of the Articles issued thereafter. The fundamental right of a company to alter its articles is subject to the following limitations:

a) The alteration must not exceed the powers given by the Memorandum of Association of the company or conflict with the provisions thereof.

b) It must not be inconsistent with any provisions of Companies Act or any other statute.

c) It must not be illegal or against public policies

d) The alteration must be bona fide for the benefit of the company as a whole.

e) It should not be a fraud on minority, or inflict a hardship on minority without any corresponding benefits to the company as a whole.

f) The alternation must not be inconsistent with an order of the court. Any subsequent alteration thereof which of inconsistent with such an order can be made by the company only with the leave of the court.

g) The alteration cannot have retrospective effect. It can operate only from the date of amendment. [Pyarelal Sharma v. Managing Director, J & K Industries Ltd. [1989] 3 comp. L.J. (SL) 70].

h) If a public company is converted into a private company, then the approval of the Central Government is necessary. Printed copies of altered articles should be filed with the Registrar within one month of the date of Central Government’s approval. [Section 31 (2A)].

i) An alteration that has the effect of increasing the liability of a member to contribute to the company is not binding on a present member unless he has agreed thereto in writing.

j) A reserve liability once created cannot be undone but may be cancelled on a reduction of capital.

k) An assumption by the Board of Directors of a company of any power to expel a member by amending its Articles is illegal or void.

Answer 2

Yes, the power to alter articles is wide as per the rules of the Companies Act.

• Section 2(2) of Companies Act precisely defines Articles as the Articles of Association.
• Section 31 states that an enterprise may change its Articles by specific resolution, subject to the act's provisions and the restrictions set forth in memorandum.
• However, any necessary change to the chief articles that have the effect of shifting a public company into a private business would not take effect unless -

1. The Central Government unanimously approves it as per Provisions to Section 31 (1).
2. Section 31(2) states that any change to the Articles of Association is as legitimate as if it were initially included in the Articles.

• The act grants company members to change Articles. The change must be undertaken in good faith for the firm's advantage as a whole, rather than for shareholders profit.