The present article provides the basic understanding of the term ‘articles’ as per the provisions of the Companies Act, 2013; importance of Articles of Association and also covers various critical cases with regard to the Articles of Association.
Articles of Association–
Provisions of section 2(5) of the Companies Act, 2013 covers the definition of the term ‘articles’. The definition of ‘articles’ simply states that articles means the Articles of Association of a company, as originally framed or as altered/ amended from time to time or applied in pursuance of any previous company law/ of the Companies Act.
Further as per provisions of section 5, the Articles of Association of the company shall contain the regulations for the management of the company.
Importance of the Articles of Association–
The importance of Articles of Association is highlighted hereunder-
- The Memorandum of Association summarizes the objective of the company, whereas, the Articles of Association summarizes the manner in which the defined objective of the company is to be achieved.
- The Articles of Association comprises the rules and regulations/ by-laws for governing the internal affairs/ conduct of the company.
- The provisions of the Articles of Association are binding on the company as well as the members.
- The Articles of Association binds the company and the members and vice versa. However, both of them (i.e., company and members) are not bound to an outsider.
- In case there is any ambiguity/ uncertainty regarding details in the Memorandum of Association. Then, Memorandum should be read along with the Articles of Association.
Critical cases on Articles of Association–
Naresh Chandra Sanyal Vs. Calcutta Stock Exchange Association Ltd. [AIR 1971 SC 422]-
The Supreme Court observed that-
- Subject to provisions of the Companies Act, the company, as well as the members, are bound by the provisions of the Articles of Association of the company.
- Articles of Association of the company establishes a contract between the company and its members and also between the members inter se. Such a contract governs the ordinary rights and obligations incidental to the membership in the company.
Shyam Chand Vs. Calcutta Stock Exchange Association Ltd. [AIR 1949 Cal 337]-
The Court has held as under-
- Articles of Association plays a part subsidiary to the Memorandum of Association.
- Any provisions in the Articles of Association that goes beyond the Memorandum of Association will be deemed to be ultra vires.
V.B. Rangaraj Vs. V.B. Gopalakrishnan [AIR 1992 SC 453]-
With reference to the Articles of Association, the Court held that-
- Articles of Association are the regulations of the company. It is binding on the company and its shareholders.
- The shareholders cannot enter into an agreement amongst themselves which is contrary to/ inconsistence with the Articles of Association of the company.