Articles of Association under Companies Law
🔹 What are Articles of Association (AoA)?
The Articles of Association (AoA) is a constitutional document of a company that defines the rules and regulations for the internal management and administration of the company.
It is subordinate to the Memorandum of Association (MoA) and governs how the company conducts its affairs, including:
Appointment and removal of directors
Meetings and voting rights
Dividend distribution
Share issuance and transfer procedures
Powers and duties of directors
Internal dispute resolution
🔹 Legal Framework
Governed by the Companies Act, 2013 (or Companies Act, 1956 for older companies).
As per Section 5 of the Companies Act, 2013, Articles of Association:
Contain rules for management.
May include provisions for entrenchment (more stringent requirements for amendment).
Section 10: The AoA binds the company and its members as if it were a contract.
🔹 Importance of Articles of Association
| Purpose | Description |
|---|---|
| Internal Governance | Regulates internal affairs and day-to-day operations. |
| Contractual Effect | Acts as a contract between the company and its members. |
| Authority of Directors | Defines scope and powers of directors and officers. |
| Legal Enforceability | Members can enforce provisions of AoA legally. |
| Supplement to Law | AoA provides details not covered in the Companies Act. |
🔹 Binding Nature of AoA
As per Section 10(1) of the Companies Act, 2013:
“The memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member.”
This means:
AoA creates a statutory contract between:
Company and its members
Members inter se (among themselves)
But not between the company and outsiders.
🔹 Key Case Laws on Articles of Association
✅ Hickman v. Kent or Romney Marsh Sheep-Breeders' Association (1915)
Principle: AoA is binding between the company and its members.
The court held that a member is bound to settle disputes with the company as per the arbitration clause in AoA.
✅ V.B. Rangaraj v. V.B. Gopalakrishnan (1992) SCC 160
Held: A private arrangement restricting transfer of shares between shareholders is not binding unless it is incorporated in the Articles of Association.
Reinforced that AoA must govern such restrictions for them to be enforceable.
✅ Re New British Iron Co., ex parte Beckwith (1898)
Held that the articles bind the company and members but not outsiders or third parties.
An outsider cannot enforce rights under AoA unless a separate contract exists.
✅ Brulotte v. Imperial Airways Ltd. (1937)
The court reiterated that only rights conferred by AoA on members qua members are enforceable.
🔹 Power to Alter Articles
As per Section 14 of the Companies Act, 2013, a company can alter its articles by passing a special resolution.
The alteration must:
Not contravene the Companies Act or Memorandum.
Be bona fide and for the benefit of the company.
✅ Allen v. Gold Reefs of West Africa Ltd. (1900)
Court held that alterations to AoA must be made bona fide for the benefit of the company as a whole.
🔹 Articles vs. Memorandum of Association
| Feature | Memorandum of Association (MoA) | Articles of Association (AoA) |
|---|---|---|
| Purpose | Defines external scope of company | Governs internal management |
| Alteration | More rigid (requires tribunal approval) | Easier (by special resolution) |
| Hierarchy | Superior to Articles | Subordinate to MoA |
| Legal Effect | Public document – binds outsiders too | Private contract – binds members only |
🔹 Conclusion
The Articles of Association are the internal rulebook of a company. They hold contractual force between the company and its members and ensure smooth, lawful governance of the company’s affairs.
Courts have consistently emphasized that:
AoA is not just a formality — it is a legal document with real consequences.
Companies and members must act within the bounds of AoA.
Any restriction on rights (like transfer of shares) must be clearly written into the AoA to be valid.
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