AOA COMPANY LAW ESE

AOA

company's internal rule-book

MOA

  the charter defining the company's objects and powers.

Articles are subordinate to and must not conflict with

●       the Memorandum or the Act; anything in the Articles inconsistent with the MOA is void to that extent.

Entrenchment (S.5)

●       Articles may require a higher threshold (even unanimity) than a special resolution for altering specified provisions; must be made on incorporation or by amendment agreed by all members (private co.) or by special resolution (public co.), and notified to the ROC.

Contractual effect (S.10)

●       On registration, the MOA and AOA bind the company and its members as if each member had signed and covenanted to observe them.

Registration of AOA Creates three sets of relationships:

(i) member ↔ company, (ii) company ↔ member, (iii) member ↔ member (inter se, via the company).

limitation of contractual effect

●       Articles bind a person only in their capacity as a member — not in any outside capacity (solicitor, director, promoter) even if that person is named in the Articles and happens also to be a member.

●       Articles do not constitute a contract between the company and a third party/outsider, even one named in them.

Eley v Positive Government Security Life Assurance Co. Ltd.  (1876)

FACTS:  Eley drafted the company's Articles, which included a clause naming him as the company's permanent solicitor. He later became a shareholder. The company stopped employing him and appointed someone else.

ISSUE:  Can a person enforce an Article naming them to an outside role (solicitor), given they are also a member?

LAW:  The Articles constitute a contract between the company and its members only in their capacity as members — a stipulation about an outside role is res inter alios acta (a matter between others) as far as that role is concerned.

APPLICATION:  Eley sued to enforce his appointment as solicitor, not any right attaching to his membership.

CONCLUSION:  The claim failed — the Article could not be enforced by him in his capacity as solicitor

Alteration of Articles (S.14) is done by and is subject to

●       Alterable by special resolution, subject to: consistency with the Act and the MOA; cannot authorise anything illegal or ultra vires the MOA; cannot conflict with a court/Tribunal order; conversion of a public company into a private company requires Central Government approval; cannot deprive a member of an existing right without consent (subject to class-rights variation procedure) or be a fraud on the minority.

Doctrine of constructive notice

Because the AOA (and MOA) are public documents filed with the ROC, every outsider is deemed to have notice of their contents (constructive notice) — even without actually reading them.

Doctrine of indoor management

an outsider dealing with the company in good faith may assume that internal procedural requirements not appearing on the face of the public documents have been duly complied with.

Royal British Bank v Turquand  (1856)

FACTS:  The company's deed of settlement (its constitutional document) permitted directors to borrow if authorised by an ordinary resolution of shareholders. Directors borrowed and gave a bond to the bank, without such a resolution actually having been passed.

ISSUE:  Must an outsider verify that internal resolutions were in fact passed before relying on a document executed by the directors?

LAW:  A person dealing with the company in good faith is entitled to assume regularity of internal proceedings; they need not inquire into matters of internal management that the public documents do not themselves disclose.

APPLICATION:  The deed only required that a resolution exist — it did not require the resolution's content to be publicly filed, so the bank could assume one had been passed.

CONCLUSION:  The company was bound on the bond. Origin of the doctrine of indoor management.

Kotla Venkataswamy v Chinta Ramamurthy  AIR 1934

FACTS:  A company's mortgage bond was executed and signed only by the executive director and the secretary, although the Articles expressly required execution by the Managing Director, a Working Director, and the Secretary together.

ISSUE:  Can the outsider rely on indoor management to enforce a document that does not comply with an express, publicly-filed requirement of the Articles?

LAW:  Where the irregularity is one discoverable simply by inspecting the company's public documents (the Articles), the doctrine of indoor management does not protect the outsider — constructive notice of the Articles' contents prevails.

APPLICATION:  The Articles plainly required three named signatories; this was ascertainable on a straightforward inspection.

CONCLUSION:  The bond was invalid and unenforceable — a leading exception to Turquand's rule.

Other recognised exceptions to indoor management

●       Outsider had actual knowledge of the irregularity, or suspicious circumstances that should have prompted inquiry

●       Forgery — void, not merely voidable (no one, however innocent, can rely on a forged document)

●       The person dealing with the company was himself an insider (e.g. a director) who ought to have known of the irregularity

●       No genuine/apparent authority existed at all (transaction wholly outside the powers of the officer purporting to act)