COMPANY LAW

(PART-32)
(UNIT-III)
MEMORANDUM OF ASSOCIATION
(PART-3)

1. INTRODUCTION
Dear students, Welcome to the lecture series on company law. As you are
aware we are discussing the chapter Memorandum of Association, this
chapter partial to the unit Number III. In memorandum of association, we
have already discussed the clauses of the memorandum of associations. In
my previous lecture, I discussed the alteration in the memorandum of
association and we have discussed the alteration in the name clause,
which pertains to Section 21 to 23. We have already discussed the
alteration of registered office clause and regarding that Section 17, 18
and 146 we have touched upon.

2. ALTERATION OF OBJECTS CLAUSE

Today, we are going to discuss the alteration in the object clause. You
know it that the object clause is considered to be the very important
clause in the memorandum of association. When we discussed the
memorandum of association and particularly the clauses which we specify
that the object clause is considered to be the important clause, because
it mentioned regarding the activities the company will do in the near
future, and it also attracts the investors. The object clause is such an
important clause that it attracts the supplier also and supplier enter into
the contract with the company, investor invest the money in the company
after reading the object clause. So if the change in this clause is
considered to be a very difficult procedure. If we want to change the
object clause then the procedure that we have to follow is a very strict
procedure we have to follow.
 Today, we are going to discuss the change in the object clause. So I take
up the point Number III today and that is; alteration of the object clause
of the company this can be done by passing a special revolution and
confirmation of the Central Government for the same is not required.
What use to happen earlier was that after passing the special revolution
of the company, we use to seek the permission or the confirmation from
the Central Government? But now we have brought an amendment in the
company law and we have simplified that, passing a special revolution
can change object clause and the permission or the confirmation of the
Central Government is not required.

Now, however the special revolution authorizing the alteration of the

object clause should be for one of the purposes mentioned in the section
17(1) as stated below:

a. To carry on its business more economically or more efficiently.

b. To attempt its main purpose by new or improved means.
c. To enlarge or change the local area of its operation.
d. To carry on some business which under existing circumstances,
many conveniently or advantageously, be combined with the
business of the company.
e. To restrict or abandon any of the objects specified in the
memorandum.
f. To sell or dispose of the whole or any part of the undertaking of the
company.
g. To amalgamate with any other company or body of persons.

Now if you look at the list, which has been given to you or the
purposes, which have been mentioned, these purposes and the list is
almost similar to the purposes, which we have already discussed, when
we discuss the change in the registered office clause. But in a very brief,
I we will read out the list and will remind you that these particular point
we have already discussed when we discussed the change in the
registered office clause and the purposes are:
(a) To carry on business more economically and more efficiently;
(b) To attain its main purpose of the company by new or improved
means;
(c) To change and enlarge the local area of its operation;
(d) To carry on some business which under existing circumstances
may conveniently or advantageously be combined with the
existing business of the company;
(e) To restrict or abandon any of the objects specified in the
memorandum;
(f) To sell or dispose of the whole or any part of undertakings; or
(g) To amalgamate any other objects or body or persons.

These are the purposes for which the permission can be granted to the
company to alter the object clause. As I recently mentioned that these
are the purposes we have already discussed when we discussed the
change in the registered office clause but in very brief, I would like to
mention that some of the point by giving an example I will clarify
again. Like, a company wants to dispose off or to sell undertakings. It
means the company was earlier running the five undertakings, now
company want that one undertaking is not profitable for the company,
and then company can change the object clause, can alter the object
clause and can sell that undertaking. Company wants to enlarge the
area of operations. It means what? It means earlier company was doing
the business in India. Now company wants to go do the business
outside India also. Company wants to become the multinational
company or the company wants to spread its wings and do the business
in a global area, or the company wants now to become globally
recognized. Now then company can alter the memorandum of
association particularly the object clause and can do that. So these are
the points, I would like to remind you that we have discussed in the
registered office clause also.

But when we pass the revolution to change the object clause then the
copy of that letter, copy of the revolution we have to submit it to the
Registrar of the companies. Registrar of companies after receiving the
copy will register that particular alteration in his register; he will issue
a certificate relating to the alteration in the object clause. The
moment, the registrar registers it and issue a certificate of altered
memorandum of association then it will be treated that all the legal
formalities has been completed on the part of the registrar, and the
object clause will be treated as an altered from the day the registrar
enters it in its register. Now therefore I would like to mention to you
what is the effect of that? The certificate shall be the conclusive
evidence that all the requirement of this act with respect to the
alteration and confirmation their off has been complied with the word
conclusive evidence means all the legal formalities have been done
and nothings remains to be done now.

3. ALTERATION OF LIABILITY CLAUSE

After discussing the change in the object clause, now I am going to
discuss the alteration in the liability clause. When we discuss the
liability clause as a content in the memorandum of association then we
mentioned that in the liability clause, we have to mention the liability
of the members will be limited or the liability will be unlimited or if it
will be limited then it will be limited by share or it will be limited by
shares and guarantee both. That was the point related to the liability
clause as content in the memorandum of association. Now we are
going to change that content therefore the title of discussion is
ALTERATION IN THE LAIBILITY CLAUSE.

Now a question will CREEP in your mind, a question will arise in your
mind that can the liability of the members be changed. Now here the
change mean can we increase the liability of the members, therefore
the provision in the law is that we can increase the liability of the
members provided they have given their confront in writing. Now
suppose, the liability of director is to be increased then the liability of
the director will be increased for that we have to pass a resolution.
For a convenience I would like to mention that generally the company
cannot alter the liability clause of its memorandum so as to increase
the liability of its members, liability can be increased only if the
confront member agrees in writing. Therefore if the members are
agree that they are ready to take up the additional liability then the
liability clause can be changed to increase the liability of the member
but the liability of the directors can also be increased, we can alter
the liability clause related to directors but if we increase the liability
of the directors that particular provision will be applicable on the
directors who will be appointed after the passing the resolution that
the liability of the directors has been increased.

Therefore, the new directors who will become a director in the

company, on those directors this provision will be applicable in
liability if we increase of the existing directors then it will not be
applicable on the existing directors.

4. ALTERATION OF CAPITAL CLAUSE

After discussing the liability clause, I am going to discuss with you the
alteration in the capital clause. Alteration of capital clause can be
done, if it authorized by its article of association. Certain alteration in
the capital may be made by passing an ordinary resolution and certain
by a special resolution. Capital clause can also be altered, but to alter
the capital clause two types of the resolution has to be passed on
certain points we have to pass the ordinary resolution and related to
certain points we have to pass the special resolution. So, we have
discussed the alteration in the object clause, alteration in the liability
clause, and alteration in the capital clause. I would like to remind you
that the alteration in the subscription clause is not possible, it is not
allowed.

5. DOCTRINE OF ULTRA-VIRES
So after discussing the alteration in the different clause in the
memorandum of association, the last very important portion of this
chapter is related to doctrine of ultra-vires. Now I am going to discuss
the doctrine of ultra-vires. What is the meaning of doctrine of ultra-
vires? We will break up two words and will try to understand the
meaning of it. The term ultra means beyond and the term vires mean
powers. The term ultra-vires means doing an act beyond the powers.
Meaning thereby, the power, which are sanctioned to the directors to
do activities in the company or to exercise the power to run the
meetings or to run the organization, is, if they exceed it that is known
as ultra-vires.

An act of ultra vires can be discussed in three parts. No.1 is an act

which is ultra-vires the directors i.e., beyond the power of the
directors, is not all together void inoperative; it can be rectified by
the general body of the shareholders, if it is within the power of the
country. Now if we look into this point we will find the directors have
violated their powers, they have gone beyond their power to do an
activity but that particular power which have violated is within the
powers of the company but it is not in the power of the directors. In
this case the members in the organization can rectify that.

The second point related to ultra-vires is; An act ultra-vires the article
of association that is beyond the powers given by the article of
association is also not all together void and in operative. The company
can also rectify it by making necessary alteration in the article of
association by passing a special resolution. Earlier we discussed a
point related to the Directors, they have violated, they have gone
beyond the powers and this particular point is related with violation of
the article of association. The things which were not mentioned in the
article of association or the power or activity which we design in the
article of association, we have violated those, we have gone beyond
those in that case that can be rectified by passing a special resolution.

Now the third point is; an act ultra-vires the memorandum of

association, it is void and in operative, it cannot be rectified by the
whole body of share holder as a matter of fact an act ultra vires the
memorandum is in fact ultra-vires the company itself. Now there are
three types of ultra-vires, a real ultra-vires is considered when we
have done an activity or use the power which is beyond the
memorandum of association. This particular point mention that ultra-
vires will be considered as an ultra-vires when it has violated the
memorandum of association of the company in this case even the
whole body of the members present in the meeting cannot rectify and
this is considered to be a real ultra-vires of the company.

6. EFFECTS OF ULTRA-VIRES ACTS

Now, I will discuss what are the effects of ultra-vires acts, we know it
that investors invest the money in the company by reading the
Memorandum of Association. If the company goes beyond the powers
which are sanctioned to it by its own memorandum of association then
the greatest sufferer will be the investor or the people those who have
invested the money or the people those who have got a stack in the
company. So we do not allow the company to go beyond the
memorandum of association. Because the basic purpose is to protect
the interest of the investors and the people who are dealing with the
company, but the company has done an act, which is ultra-vires, which
is beyond the power then what are the effects of that?

Now the first effect is that;

(a) Injunction against the company.

When we say in junction against the company, it means when a

company is doing an act and if it is against the memorandum of
association then anybody can go in the court of law, an can bring an
Injunction against a company. Bringing an Injunction against a
company means company can be restrained; company can be stopped
from doing the activity, which the company is doing. So Injunction
against the company means a relief to a person who goes in the court
of law and gets the relief from the court the company should be asked
not to do an act which was not mentioned in the memorandum of
association. Because court of law says that you have not mentioned in
the memorandum of association an act and you are doing it and
therefore you are stopped from doing an act.

The second point is;

 (b) Personal liability of the directors to the company.

If the directors violate the memorandum of association powers then

they are personally answerable to the company. Company can compel
the directors to compensate the company. For instance, if the
directors have given the loan to somebody which they were not
authorized to give or they have given a loan of an amount which they
were not authorized to give and they have used company’s money then
company can ask the directors to compensate the company.
Therefore, directors will be personally answerable to the company.

The third point is;

(c) Personal liabilities of the directors to the third party.

We know it that whenever the third party enters into the contract with
the memorandum of associations then they are supposed to read it
because they are the public document. Now even if the third party
enters into a contract with the company when I say company here it
means we all know company is run by the directors, so a third party
enters into the contract with the director and they have violated the
powers then third party can also compel the director to compensate it.

And the fourth point is;

(d) Ultra vires contracts are void.

They are not inforcible in the eyes of law. So these were the effects of
ultra-vires acts.

7. EXCEPTIONS TO THE DOCTRINE OF ULTRA-VIRES

We are going to discuss certain exceptions, which are given in the law.
Now I will discuss exception to the doctrine of ultra vires and they are;

(1) Ultra-vires expenditure-property will be protected.

 Meaning thereby, if the company has purchased the property by doing
an ultra-vires act property will be protected.
The next point is;
(2) The property can be recovered if it exist and traceable,
(3) ultra-vires loans if they have been given then money lender
gets the right of the creditor,

And the last point is;

(4) If the director of the company makes payment of certain

money which is ultra-vires the company he can be compelled
by the company to refund it).

So these are the exception of the doctrine of ultra-vires. Meaning

thereby if the company has done an act, which is ultra-vires though we
say it is altogether void, but still there is a protection to some people
under the law. Like company has violated the powers and purchase the
property from its own money, but now the property will be protected.
If anyone has given a loan to the company and the company by taking
that money has paid the loan of some creditors. Now the person who
has given the money to the company and company has utilized that
money to pay off a creditor then in this case the person who has given
the money to the company will be treated as a creditor now, though
the company has got the loan by ultra-vires powers or ultra-vires acts.

Similarly if the company has purchased the property as I have

discussed with you if traceable then a person who has given the
property to the company he can get back his property. so along with
the effects there are certain exception related to this particular point.

8. SUMMARY
Now I would like to summarize my lecture, today I started my
discussion on alteration in the object clause, we mentioned the
purposes under which the alteration in the object clause can be done,
and the purposes are similar to the purposes which we have discussed
in the registered office clause. Then we discussed alteration in the
liability clause then, we discussed the alteration in the capital clause.
After discussing the alteration in the clauses, we took up a new point
related to this topic and that was doctrine of ultra-vires. We explained
the meaning of ultra-vires that is beyond powers. We discussed the
importance of this and then we discussed the effects of doctrine of
ultra-vires. In the last, we discussed the exception which are
mentioned related to doctrine of ultra vires because we have given
protection to some people or to those people who are dealing with the
company in spite of company ultra-vires act, and now I end up my
lecture. I hope you must have enjoyed the lecture.

Thanking you!